Shortfall in gas taxes means new ways needed to fund street projects

As gas prices rise and people buy less of it, local governments are finding the gas taxes collected aren’t keeping up with the rising cost of building and maintaining their roadways.

For each gallon of gas bought in McHenry County, 41.4 cents is paid in motor-fuel taxes, with 18.4 cents going to the federal government, 19 cents to the state and 4 cents to the county.

After the state takes its cut, it distributes the remainder to local governments including counties, townships and municipalities, so they can maintain their roads.

But that pool of money is shrinking: Miles driven by motorists in the United States is down about 2.35 percent since 2005, according Federal Highway Administration data. More than 106 billion miles were driven in Illinois in 2012, down from a high of 108.6 billion miles in 2005.

At the same time, gas prices remain high. On Wednesday, the national average price of gas was $3.627, according to AAA. A year ago, it was $3.500. In Illinois, Wednesday’s average price was $3.835, compared to $3.718 a year ago.

And since the state formula used to distribute the gas tax funds to municipalities is tied to population, it’s resulted in some communities seeing increases in the amount they receive while others have seen drops.

The city of Woodstock, for example, saw the amount of motor-fuel tax dollars received stay about level, increasing by about $10,000 from 2008 to 2012. The city of McHenry, on the other hand, saw a slight decline.

The motor-fuel tax collected by McHenry County – the 4 cents for each gallon – dropped 10.2 percent from $4.7 million in 2007 to $4.2 million in 2012, according to the McHenry County Division of Transportation.

When the rate of inflation is factored in, the drop is even more significant at 18.9 percent, according to county documents.

At the same time, overall construction costs have risen more than 40 percent over the past decade, according to the Illinois Department of Transportation. The main driver in the increasing costs of projects is asphalt, which jumped 11.2 percent from 2011 to 2012.

With the same amount of dollars coming in, but costs continuing to rise, the city repaves fewer blocks, Woodstock City Engineer Al Wilson said.

To make up the shortfall, the county and municipalities are finding other revenue streams to supplement their projects.

The city of Woodstock uses money from its capital improvement fund, which gets its revenue from the city’s telecommunications tax, City Manager Roscoe Stelford said.

The fund is earmarked for purchases of at least $10,000, big-ticket items such as police cars, dump trucks, park facilities and stormwater improvements, he said.

“It’s sustainable, but it does limit the other types of infrastructure improvements the city can do,” Stelford said. “If you spend money on [roadways], you can’t spend it on something else.”

The big street improvement projects being done in the city of McHenry are being funded in large part through state and federal grants, Finance Director Carolyn Lynch said. Those grants are limited, though, and require the project to involve state or federal roads.

“It’s great; it’s just finding it,” Lynch said. “The federal government, for a couple of years, was putting money into the economy, but I don’t know if that’s going to continue. They’re also for state routes. You’re not going to get that kind of funding for neighborhood roads. Those are going to be our responsibility.”

The year before, the city decided to take out a loan so it could resurface a large number of city roads at once, which means that while the city has to pay financing on the project, it got a better price on the project itself, she said.

Woodstock decided to go with smaller projects, doing a few miles of roadway each year, Wilson said.

This year, the city is resurfacing 2.95 miles of roadway. Last year, it got to 4.4 miles, Wilson said. At this rate, the city can’t get to each of the 125 miles of roadway in the city every eight to 10 years as the Public Works Department would prefer.

“I think we have to find other sources of funding,” Wilson said. “There’s only so many [motor-fuel tax] dollars, and as more roads get built and the roads get older, the costs of maintaining them continually go up.”

The state transportation department offered 12 ideas to buttress transportation funding in a 2012 report, including raising the motor-fuel tax, charging drivers based off miles traveled rather than gasoline consumed, creating special pay-to-use lanes and changing the way tolls are charged, perhaps charging more during peak hours.

Some have advocated overhauling the way transportation projects are funded.

A coalition of business and labor groups called the Transportation for Illinois Coalition has offered a proposal that would raise an additional $800 million annually. Bills including the ideas have been filed in the Illinois House and Senate. 

The plan calls for doing away with the state motor-fuel tax and replacing it with a 9.5 percent tax on the wholesale price of fuel, increasing vehicle registration and title fees and eliminating the ethanol tax credit.

Pointing to the fact that the state gas tax hasn’t been raised since 1991, the proposed changes would include tying revenue streams to inflation.

“The proposal consciously recognizes that local roads deserve a dedicated revenue stream from the state to be used for the ongoing maintenance of the existing system,” said Doug Whitley, president and CEO of Illinois Chamber of Commerce.

The added revenue would still only be a “drop in the bucket,” he said, referencing a coalition report that puts the price tag on all the needed projects in the state at $75 billion.

Gas price breakdown

For each gallon of gasoline sold, 18.4 cents goes to the federal government, 19 cents to the state and 4 cents to McHenry County.

Where governments are turning

Local governments are using public-private partnerships, alternate revenue bonds, special assessment districts, tax increment finance districts and property taxes funneled into the general fund to make up the shortfall, according to the McHenry County Division of Transportation.

Funding for highways alone would need to increase about 50 percent to make up the difference, according to the Illinois Association of County Engineers.

Where state motor fuel tax dollars go

The 19 cents collected on each gallon of gasoline goes through a three-step formula process.

1. Each month, set amounts are transferred to different state funds, including $420,000 to the State Boating Act Fund, $3.5 million to improve railway and highway crossing safety and administer the state’s railroad safety program, and enough to cover other expenses of managing the fund.

2. The remainder is then split between the state and local governments, 45.6 percent to 54.4 percent.

3. Of the portion that goes to local governments, 49.1 percent goes to municipalities based on their population, 16.74 percent goes to Cook County, 18.27 percent is split among the counties based on the license fees collected, and 15.89 percent to township road districts based on the total miles of roads in the district.

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