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Taking the Field: Keeping together the federal, state, municipal partnership on roads 

by League Executive Director Paul Meyer

Late last year, Congress passed and President Obama signed a $305 billion federal highway bill, marking the first time since 2009 that a multi-year highway bill had been passed. Since the 2009 bill was passed, Congress had basically been kicking the can down the road just a bit, with short-term fixes that created a lot of uncertainty for state and local governments when it came to road funding.

That Congress could not come up with a deal earlier was largely due to a lack of consensus about what to do about a federal gas tax set at a fixed per-gallon rate in 1993. No one wanted to touch that tax even though inflation and more fuel-efficient cars meant revenue was not keeping pace with needs. Congress avoided the touchy issue in the latest bill, coming up with some other mechanisms to put together long-term funding.

In some respects, the debate on the federal level mirrored the debate that took place in North Carolina early last year where the League took a lead role in supporting legislative efforts to address a looming shortfall in state transportation dollars created by declining fuel prices and a state gas tax tied to those prices.

What happens at the federal and state level regarding transportation dollars is significant for cities and towns in North Carolina because of their road responsibilities. Municipalities in the Tar Heel state are responsible for 22,500 miles of roads. That is more than all of the road miles – regardless of who maintains them – in three states: Delaware, Rhode Island and Hawaii.

As League Director of Research and Policy Analysis Chris Nida explains in this edition of Southern City (Paving the Way for Powell Bill Changes), that legislators in 1951 decided to return a portion of the state gas tax to municipalities to help with the maintenance of city streets made perfect sense then and makes perfect sense now. Municipalities have no dedicated taxing authority for transportation as the state does. And so, the Powell Bill was born and has continued to be an important source of local road maintenance dollars ever since.

In the current fiscal year, Powell Bill dollars returned to cities and towns total $147.8 million. Besides that money, generated mostly from fuel taxes, municipalities spend plenty of revenue generated from local property taxes on roads and transportation. During the 2013-14 fiscal year, cities and towns reported spending $433 million in non-Powell Bill dollars on streets and highways. So, Powell Bill makes up just 25 percent of city spending on roads and transportation.

Those dollars are not always spent on roads designated as city-maintained. With thousands of miles of state highways running through municipal corporate limits, sometimes municipal dollars go for what I call transfer-by-neglect roads. When a resident calls his or her city or town about a pothole or other maintenance issue, they typically don’t care about official designations of government responsibility. They just want it fixed. Often, cities will come to the rescue even when the problems arise on state roads.

As Chris’ article relates, there have been changes of late to the Powell Bill, and legislators are scrutinizing how cities and towns are spending these dollars. What the numbers and the history shows is that, by and large, they are doing what they have done for decades: using a small sliver of dedicated state gas tax revenue plus local tax revenue to help maintain a huge network of federal, state and city roads that are critical to getting people to work, goods to market and everyone connected to each other and their daily needs.

Meanwhile, in most cities and towns, growth in the property tax base does not and cannot keep pace with the increasing demands for and rising costs of roads. To keep pace, cities require either continued support from the dedicate fuels tax or their own independent taxing sources separate from the property tax.