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Minnesota senators propose increasing allocations to Highway User Tax Distribution Fund

(The Center Square) – Three Republican senators announced two similar proposals Tuesday to shift all auto parts sales taxes from the general fund to the Highway User Tax Distribution Fund (HUTDF).

The tax would apply to all auto parts, including tires, rims, fluid, and windshield wiper blades.

Transportation Finance Committee Chairman Sen. Scott Newman, R-Hutchinson, said in a news conference the funding would be used for roads and bridges and other highway infrastructure.

Currently, nearly all transportation infrastructure is paid for by user fees, such as license plate fees, gas taxes and sales tax on automobiles, and almost none comes from the general fund, Newman said.

Nearly one-third of the transportation funding comes from the gas tax, which was characterized by Newman as “a dying star,” due to increases in use of electric vehicles and fuel efficiency of vehicles in general.

“In the not-too-distant future, we are going to lose an awful lot of the money that is scheduled to go into HUTDF that we need for our transportation infrastructure,” he said.

About a half of a percent of Minnesota’s general fund budget is currently spent on transportation, and a portion of that is spent on roads and bridges, despite the reliance residents, including non-drivers, have on transportation to access to goods and services.

Currently, Minnesota law stipulates a set amount of money should be spent on the highway user fund. The percentage the funding comprises of the tax revenue, however, is decreasing. Right now, it’s about 48%. It will decrease to about 43% by 2025, he said. If all auto parts sales tax revenue is dedicated to the fund, the fund would receive about $303.5 million this year, instead of about $145 million, he said.

His bill, SF 3081, is slightly different from a bill that Sen. Jeff Howe, R-Rockville, proposed at the conference.

Under SF 3086, 15% of taxes related to automotive repairs and replacement parts would be dedicated to providing small cities and townships a steady stream of money to properly maintain their roads, Howe said. Unlikely big cities, the small cities and townships presently rely on property taxes alone, he said.

Associated General Contractors of Minnesota CEO Tim Worke said long-term investments allow contractors to plan ahead for their work and the future market.

Sen. Gary Dahms, R-Redwood Falls, said gas taxes don’t keep pace with rising infrastructure maintenance costs but as inflation increases, sales tax revenue from auto parts and accessories will increase. Rural Minnesota’s agricultural, food manufacturing and other economies depend on safe, stable roads and bridges to transport commodities, he said.

Newman said the bill is unrelated to his upcoming retirement, which he announced Monday.

“It is simply the right thing to do for the people of this state because a vibrant, good transportation system in the state of Minnesota is good for the people, it’s good for our economy, it’s good for public safety. There are all manner of good things, not the least of which are our businesses and our trades folks. Think of all of the jobs that this funding will provide for those in the construction industries, and that all spins off into our economy,” he said. “It’s all about Minnesota. It’s not about me.”

Minnesota ranked 18th in the nation for its highways’ overall cost-effectiveness and condition, according to a report the Reason Foundation released in November 2021. It ranks 27th in total spending per mile on its highways and 23rd in capital and bridge costs per mile.

The state reported in January that the Highway Users Fund collected $2.6 billion. Sources included fuel tax revenue ($916.5 million), motor vehicle tax ($881.5 million) and motor vehicle sales tax 60% ($610.5 million). Expenditures included $27.1 million on collection costs and refunds to other departments, $1.52 million for County State Aid Highway Fund distributions, $220 million for Municipal State Aid Street Fund distributions, and $1.5 billion on the Trunk Highway Fund.

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