DOTD s Response to House Resolution 178 (2016)

Transcription

1 DOTD s Response to House Resolution 178 (2016) Part II: Feasibility of Implementing Local Option Motor Fuel Taxes 2016 HDR, Inc., all rights reserved.

2 National Context Current Events Federal motor fuel tax revenues continue to steadily decline due to: o Inflation o Increased fuel efficiency Federal funding uncertainty Infrastructure initiative (pending) Increased emphasis on private sector participation and private financing Increased emphasis on projects that leverage significant non-federal funds Renewed discussion of devolution

3 State Context General Issues and Trends Aging infrastructure O&M cost growth outpacing revenue growth State motor fuel tax revenues are also declining Increased pressure to improve transportation and limited appetite for significant tax increases Interest in providing locals with the ability to increase their own taxes

4 Local Context General Issues and Trends Declining federal and state motor fuel tax revenues Existing local revenues (e.g., sales tax, property tax) are committed Pressure to do more with less; need to select and prioritize projects Increase in local funding initiatives Increase in use of value capture and private funds

5 Local Funding Toolbox Sales taxes Property taxes Income and payroll taxes Fuel taxes Vehicle taxes and fees Rental car fees Parking fees Impact fees Meal taxes Hotel occupancy taxes Real estate transfer taxes Tolls Other local taxes Value capture mechanisms

6 Task 3: Feasibility Of Local Option Motor Fuel Taxes How are they being applied across the United States? How many states have existing authorization? How should we set up the mechanism? What has worked and what hasn t? Why has it been so successful in certain states, but not in others? How do we estimate fuel tax revenues on the local level?

7 Research Design Task 3.1 Literature Review Task 3.2 Agency Interviews Task 3.3 Fuel Tax Revenue Forecasting

8 Research Design Task 3.1 Task 3.2 Task 3.3 Literature Review Agency Interviews Fuel Tax Revenue Forecasting General Literature Review Primarily focused on state motor fuel or a variety of local option taxes Limited research focusing solely on local option motor fuel taxes Included state-by-state reviews conducted by Wachs in 2001/2003, but no recent comprehensive reviews State-by-State Literature Review Captured current state-of-thepractice for local option motor fuel taxes in US Summarized existing state taxes, recent legislative proposals, authorized local taxes, and adoption rates for 17 states Completed February 2017

9 Research Design Task 3.1 Task 3.2 Task 3.3 Literature Review Agency Interviews Fuel Tax Revenue Forecasting Agency Interviews Selected Alabama, Florida, Georgia, Nevada, and Virginia for interviews Included a variety of applications, approval processes, administrative models, and allowable uses Conducted interviews in-person or by phone with agency staff members or local municipalities Used standard list of questions as a guide during interviews

10 Research Design Task 3.1 Task 3.2 Literature Review Agency Interviews Fuel Tax Revenue Forecasting Developed econometric equations to estimate fuel consumption Generated fuel tax revenue projections within a risk analysis framework Task 3.3 Fuel Tax Revenue Forecasting

11 LEGEND Authorized and Adopted Authorized; No Adoption To-Date Local option motor fuel taxes are currently authorized in 17 states Only 11 states (65%) have adopted fuel taxes on the local level Remaining six states with existing authorization have never adopted local fuel taxes

12 Findings Application Approval Process Allowable Uses Other Barriers and Lessons Learned Alternative Funding Options

13 Findings Application Approval Process $0.069 per gallon floor on state sales tax on gasoline Allowable Uses Other Barriers and Lessons Learned Alternative Funding Options LEGEND Gallonage-Based Percent-Based Annual revenues from 3.5% state motor fuel sales tax cannot be lower than February 2013 avg. wholesale price per gallon of gasoline Key Best Practices: Follow the same administrative model as the state motor fuel tax Set a floor on price of fuel used to compute sales tax

14 Findings Local indexing approved in Washoe and Clark counties Application Approval Process Allowable Uses LEGEND Authorized Indexing Other Barriers and Lessons Learned Alternative Funding Options State motor fuel taxes are indexed Note: States without local motor fuel tax authorization that have implemented indexing on the state level include Maryland, New Hampshire, Rhode Island, and Utah. Key Best Practice: Provide an indexing mechanism to maintain purchasing power

15 Findings Application Approval Process Allowable Uses Other Barriers and Lessons Learned $100 annual registration fee for electric vehicles $100 zeroemission vehicle road improvement fee (indexed) $64 annual registration fee for electric vehicles $ noncommercial, $ commercial annual license fees on alternative vehicles (indexed) LEGEND Authorized Alternative Vehicle Fees Note: States without local motor fuel tax authorization that have implemented alternative vehicle fees include North Carolina, Michigan, Missouri, Colorado, Nebraska, Idaho, and Wyoming. Alternative Funding Options Key Best Practice: Apply an additional registration fee for alternative vehicles

16 Findings $ per gallon $0.07 per gallon $0.08 per gallon Application $0.10 per gallon $0.09 per gallon Approval Process Allowable Uses $0.18 per gallon LEGEND Authorized Higher Rates Other Barriers and Lessons Learned $0.12 per gallon Alternative Funding Options $0.05 per gallon Key Best Practice: Authorize higher rates that allow for larger revenue potential

17 Findings Application Approval Process Allowable Uses LEGEND Agency Interview Revenue Sharing Other Barriers and Lessons Learned Alternative Funding Options Key Best Practice: Establish a distribution formula or preferably encourage revenue sharing between counties and municipalities

18 Findings Application Approval Process Allowable Uses LEGEND Agency Interview Longer Sunsets Other Barriers and Lessons Learned Alternative Funding Options Key Best Practice: Authorize longer sunsets (>10 years) for greater revenue potential, bond issuances, and long-range planning

19 Findings Application Approval Process Allowable Uses Other Barriers and Lessons Learned Alternative Funding Options Other Findings Aggregation primarily county use with additional authorization for home-rule, incorporated, or independent cities or towns Fuel type primarily applied on gasoline and/or diesel, but some locals tax other fuel types (biodiesel, jet, and aviation fuel) Adoption Widely adopted in six states (FL, NV, GA, HI, IL, NY) and heavily adopted in specific localities (AL, VA, MS, WA, OR) Virginia and Mississippi restrict local fuel taxes to specific locations within the state for specific purposes Sales taxes are often preferred over fuel taxes No states have authorized local option motor fuel taxes since the 1990s

20 Findings Application Approval Process Allowable Uses Other Findings Legislative Approvals viewed as a major impediment to implementation, especially with political opinion of increasing federal and state fuel taxes and issues surrounding indexing and fuel-efficiency Local Government Approvals all states require additional approval by county or city legislative body (board, commission, or city council) Other Barriers and Lessons Learned Alternative Funding Options

21 Findings Application Approval Process Allowable Uses LEGEND Authorized Referendum Required Other Barriers and Lessons Learned Alternative Funding Options Key Best Practice: Require approval by public voter referendum to receive voter buy in

22 Findings Application Approval Process Allowable Uses LEGEND Authorized Roadway and Transit Use Other Barriers and Lessons Learned Alternative Funding Options Key Best Practice: Allow for flexibility on application of revenues for both roadways and transit

23 Findings Application Approval Process Allowable Uses Other Barriers and Lessons Learned Other Findings Initially dedicated exclusively for highway purposes, but have since been increasingly applied to other purposes (transit, bicycle, and pedestrian infrastructure) Most require use for transportation purposes (roadway and/or transit) A few states (AL, GA, NY, and NM) authorize local fuel taxes for other local needs, such as education Alternative Funding Options

24 Findings Application Approval Process Allowable Uses Other Barriers and Lessons Learned Alternative Funding Options Example: Clark County, NV In November 2016, county voters approved (56.3%) indexing of the existing $0.10 per gallon tax Sunset of 10 years Will yield an estimated $2 to $3B Will fund half of the county s 364 currently unfunded roadway projects Example: Osceola County, FL In 2015, the Board of County Commissioners approved (4-1 vote) increase from $0.07 per gallon to the maximum of $0.12 per gallon Will generate $6 million per year (2016$) Will be used to support the county s Road Paving and Resurfacing Program

25 Findings Application Approval Process Allowable Uses Other Barriers and Lessons Learned Alternative Funding Options Other Findings Negative impact on local businesses; potential oppositions from fuel retailers, hotels, casinos, and developers Trucking industry in particular may be opposed to local diesel taxes Fuel taxes have low administrative and collection costs Most are administered by the state, which will deduct 1 or 2% of collections to cover state administrative costs Taxpayers (distributors, suppliers, wholesalers, and/or importers), which vary by state, will collect and remit state and local revenues to the state on a monthly basis State then distributes local revenues to counties on a monthly basis according to taxpayer records of where the fuel was distributed

26 Findings Application Approval Process Allowable Uses Other Barriers and Lessons Learned Alternative Funding Options Alternative Funding Options Many states with enabling legislation have instead implemented sales tax mechanisms to address local funding needs Note that mileage-based user fees will be long-term preferred option In addition, the following alternative mechanisms were considered: Increasing and indexing state motor fuel taxes Tolling Vehicle registration fees Alternative vehicle fees Property taxes Heavy vehicle impact fees Hotel/motel taxes Congestion pricing

27 Pros Direct nexus with transportation Can serve as proxy user fee for highway and roadway projects Aligns roughly with use of highways and roadways Predictable on a gallonage basis Incentivizes lower VMT and emissions Slows impact of decreasing federal and state motor fuel tax revenues Transfers responsibility to locals Provides an additional local funding tool beyond traditional property and sales tax Low cost and easy to collect Cons Limited revenue potential unless rate per gallon is high (i.e., >$0.05 per gallon) Requires indexing long-term, which is difficult to implement Does not account for potential revenue loss from fuel efficiency and electric/hybrid vehicles Significant approval process compared to existing local taxes Regressive May negatively impact local businesses May incentivize leakage to other parishes or nearby states with lower fuel tax rates

28 Summary of Findings from Task 3.1 and 3.2 Local option motor fuel taxes could serve as a viable local transportation funding tool States may consider using the proposed forecasting framework to estimate revenue potential and determine appropriate tax rate Mitigate some key issues encountered by other states: Authorize higher rates that generate local revenue compared to sales taxes Provide new and retroactive indexing provisions on any state and local motor fuel tax to account for inflation Set a floor on percentage-based motor fuel taxes to account for volatility Potentially levy alternative vehicle fees to account for increased fuel efficiency With these key issues addressed, a local option motor fuel tax may be a viable option to add to the local funding toolbox

29 Task 3.3: Overview of Fuel Tax Revenue Forecasting

30 Key Factors Affecting Motor Fuel Consumption Factors Internal Factors Fuel tax rate External Factors Population Tourism Economic conditions Fuel price Fuel economy Seasonality Expected Impacts Negative Positive Positive Positive or negative, depending on variable Negative Negative Positive or negative

31 Estimation Of Local Option Fuel Tax Revenue In Louisiana Estimation of gasoline and special fuel consumption at the state level with quarterly data Gasoline price elasticity: 0.07 Motor fuel consumption is projected to grow, on average, by 0.9 percent annually through FY 2044 Revenues from a hypothetical $0.01 per gallon local option motor fuel tax implemented in all parishes were projected at the state level and distributed across parishes o Applied a method similar to that used to apportion the Parish Road Program funds (based on population and roadway mileage at the parish level) o Would yield an estimated $32.5 million statewide in FY 2018

32 Key Considerations for Implementation in Louisiana Application Approval Process Allowable Uses Other Considerations

33 Key Considerations for Implementation in Louisiana Application Gallonage-Based TRADITIONAL OR Percentage-Based ALTERNATIVE #1 Approval Process Authorize per gallon local option motor fuel taxes Remove motor fuels exemption on local option sales taxes Allowable Uses Other Considerations Could be applied on municipality, parish, and/or DOTD district levels Authorize higher rates for higher revenue generation Authorize longer sunsets for greater revenue potential Include indexing mechanism on state/local level Likely requires collection and administration by Louisiana DOR Include price floor, used for computation of the sales tax, to account for market uncertainty Include indexing mechanism on price floor Likely administered by political subdivisions through existing program

34 Key Considerations for Implementation in Louisiana Application Approval Process Allowable Uses Other Considerations PRIMARY BARRIER = Constitutional Amendment and Statewide Vote ALTERNATIVE #2 Increase state motor fuel tax and distribute portion of proceeds to parishes and municipalities through existing Parish Road Program Include an indexing mechanism on the state motor fuel tax to maintain purchasing power of the tax over time Remove $38.5 million annual cap on revenues, and allow annual growth of local distributions based on changes in population, fuel efficiency, and gallonage

35 Key Considerations for Implementation in Louisiana Application Approval Process Allowable Uses Other Considerations Authorization: Existing state authorization for local option sales taxes could be used as a basis for developing similar authorization for local option motor fuel taxes Local government approval process Public referendum Sunset provision Revenue sharing agreements Other administrative requirements

36 Key Considerations for Implementation in Louisiana Application Approval Process Flexibility: Consider allowing flexibility to locals to apply revenues to roadways and transit expenditures Allowable Uses Other Considerations

37 Key Considerations for Implementation in Louisiana Application Approval Process Allowable Uses Other Considerations Local Return: Consider requiring that all revenues raised in a parish be spent in the parish, distributed through revenue sharing agreements with municipalities using a state-mandated default formula or preferably an agreed upon interlocal agreement Administration: Consider administration and collection of taxes by the Louisiana DOR at the same time and level as the state fuel tax (i.e., at the rack). The DOR would then make monthly distribution payments to parishes based on local rates and reported gallonage distributions Incentives: Consider providing incentives to locals that choose to pass local option fuel taxes or general increases in local transportation funding. Consider assigning higher funding priority to projects that have a higher percentage of local matching funds

38 Summary of Findings Literature on local option mechanisms confirms a growing trend of locals navigating away from user fees such as motor fuel taxes toward general taxes to address transportation needs Many states with enabling legislation for local option motor fuel taxes prefer sales taxes o Sales taxes are currently a major local funding source in Louisiana, but combined state and local sales tax rates are among the highest in the nation, making any addition increases politically difficult Peers noted that VMT fees will likely be their preferred method for addressing transportation funding needs given the direct user fee nexus to transportation o Technology, privacy concerns, implementation, and administration issues have impeded efforts to-date o As these concerns are addressed, this mechanism may be worthwhile to reconsider in Louisiana

39 Summary of Findings In the near-term, a potential local option motor fuel tax in Louisiana could serve as a viable tool for addressing Louisiana s local transportation funding needs, but it is important to mitigate key issues encountered by peers: Authorize higher rates that generate local revenue compared to sales taxes Provide new and retroactive indexing provisions on any state and local motor fuel tax to account for inflation Set a floor on percentage-based motor fuel taxes to account for volatility Potentially levy alternative vehicle fees to account for increased fuel efficiency In addition to this traditional application, two alternatives could also be considered that provide easier legal and political paths to implementation and comparable revenue yields and local benefits

40 TRADITIONAL Allow parishes to impose their own local option fuel taxes and require revenue sharing Requires change in state constitution and statewide vote Likely requires collection and administration by Louisiana DOR Existing authorization to distribute state fuel revenues through Parish Road Program (Alt #1) ALTERNATIVE #1 Raise state fuel tax and distribute proceeds to parishes and municipalities via formula Existing state authorization; does not require change in state constitution and statewide vote No significant impact on administrative and collection costs ALTERNATIVE #2 Allow parishes and municipalities to impose local option sales taxes on motor fuels Requires change in state constitution and statewide vote Widespread adoption of existing local option sales tax program No state collection and administration; political subdivisions will continue to administer program Requires floor to account for motor fuel price uncertainty and indexing for inflation

41 Thank You! Amanda Wall Vandegrift Project Financial Consultant Financial Consulting Practice HDR Engineering, Inc D M Amanda.Vandegrift@hdrinc.com

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43 States Application Approval Process Allowable Uses Status Adoption Alabama* Counties: Local legislation Roads, Education, Authorized 27 of 67 counties $0.01 to $0.05 per gallon Incorporated Municipalities: $0.005 to approved by State City/ town Board Other and adopted 322 of 460 incorporated municipalities $0.06 per gallon approval California Up to $0.02 per gallon Public referendum Roads Authorized None (2/3rds) supermajority) Florida* Up to $0.12 per gallon Board approval Roads, Transit Authorized and adopted All 67 counties Georgia* Hawaii Illinois 1% local option sales tax, including motor fuel sales (gasoline/diesel/aviation) $0.088 to $0.18 per gallon (gasoline/diesel) $0.01 to $0.07 per gallon (gasoline/diesel) Public referendum Board approval Roads, Transit, Other Transit and public operations Authorized and adopted Authorized and adopted Board approval Roads, Transit Authorized and adopted Mississippi $0.03 per gallon Board approval Seawalls and other related infrastructure Authorized and adopted 157 of 159 counties and the City of Atlanta 4 of 5 counties 4 of 102 counties 60 of the NE Illinois region s 138 home-rule communities 3 of 82 counties along Gulf Coast Note: Summarizes local option gasoline taxes unless otherwise noted. Some states may also apply local taxes on other fuel types. *State identified for interviews.

44 States Application Approval Process Allowable Uses Status Adoption Montana Up to $0.02 per gallon Public referendum Roads Authorized None Nevada* $0.04 or $0.09 per gallon (gasoline/gasohol/special fuels) Board approval Roads Authorized and adopted New Mexico Up to $0.02 per gallon Public referendum Roads, Transit, Other New York $0.08 per gallon or 3 to 4.75% motor fuel sales tax (gasoline/diesel) Board approval Roads, Transit, General Fund Authorized Authorized and adopted All 16 counties and 1 independent city None All 62 counties, with only one county using the gallonage method North Dakota $0.01 per gallon (gasoline/special) - Roads Authorized None Oregon $0.01 to $0.10 cents per gallon (gasoline/diesel) Public referendum Roads, Transit Authorized and adopted 2 of 36 counties 23 of 241 cities South Dakota $0.01 per gallon (gasoline/diesel) - Municipal streets Authorized None Tennessee $0.01 per gallon Public referendum Public transit and street projects Authorized None Virginia* 2.1% regional motor fuel sales tax (gasoline/diesel) Board approval Roads, Transit Authorized and adopted Washington $ per gallon Public referendum Roads, Transit Authorized and adopted 3 transit districts, including 10 of 95 counties and 16 of 39 independent cities 3 cities 1 transit district Note: Summarizes local option gasoline taxes unless otherwise noted. Some states may also apply local taxes on other fuel types. *State identified for interviews.