Minnesota State Road Taxes in 2030: Will revenues keep pace with inflation?

Abstract

The future adequacy of Minnesota road funding is evaluated in a 27-year forecast of current law road taxes (motor vehicle registration tax, motor vehicle sales tax, and motor fuels excise tax). Revenue projections are compared with inflation-adjusted base costs in three economic growth scenarios (Trend, Optimistic, and Pessimistic), using two price deflators (core-CPI and state/local government costs). The Trend scenario predicts road tax revenues will lose purchasing power to inflation by 2020, but over the forecast period cumulative revenues and costs nearly balance out. According to this scenario, current tax policy can support 2003 service levels into the future, but not fund system improvements. The Optimistic scenario forecasts a surplus in purchasing power in all 27 years, providing the opportunity for significant new spending without changing current law. Under the Pessimistic scenario, tax revenues fall short of inflationary costs by 2012, with the annual loss in purchasing power reaching $1 billion by 2030. In this scenario, road tax policy changes are needed to avert significant declines in road service.