Item 6: Public Hearing - Tax on Vehicle Fuel Dealers

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On January 22, 2007, the City Council directed the formation of a Council Subcommittee on Transportation Funding, comprised of four councilors, to study transportation funding options and to bring back within three months a recommendation for a solution meeting certain specific criteria to adequately fund the transportation system. At that same meeting, the council directed the City Manager to proceed with a public hearing on proposed amendments to City Code which would increase the Business License Tax on Motor Vehicle Fuel Dealers by three cents per gallon to the eight-cent level and repeal the sunset provision on the two-cent fuel tax rate increase enacted in 2005. Those code amendments were approved by the council on May 29, 2007, and subsequently submitted to but not approved by the voters in November 2007. The proposal to continue the local motor vehicle fuel tax at the five-cent per gallon level is an integral component in a package strategy recommended by the council subcommittee to adequately and equitably fund Eugene’s transportation system for a variety of users. The package of proposed solutions also includes a bond levy for capital street repairs, a street user fee based on parking spaces, and a street and bike/pedestrian path lighting fee. To ensure continuation of a reliable fuel tax revenue stream to support ongoing street operations, maintenance, and preservation while the implementation efforts continue on the other elements of the funding package, the City Manager recommends that the council repeal the sunset provision enacted in 2005, which would otherwise cause the tax rate to revert to the three-cent level as of February 29, 2008. The proposed revisions to the Eugene Code to enact repeal of the sunset provision are set out in Attachment A, the proposed ordinance. Funding Needs, Legal Analyses and Implementation Issues Repealing the sunset provision would effectively continue collection of the local motor vehicle fuel tax (“gas tax”) at the five-cent per gallon level, thereby preserving nearly $1.4 million in current revenue collections to be used for the operations, maintenance and preservation of the existing street system. Capital Pavement Preservation Needs - The current 5-cent gas tax has allowed the city to complete nearly $16.5 million in street preservation project work since 2003, with additional contracts in progress. This past year, more than 17.4 lane miles of slurry seal projects and 20.5 lane miles of rehabilitation projects were completed, including the overlay of portions of 18th Avenue, Chambers Street and Bailey Hill Road. th Projects planned for 2008 include portions of East 13 Avenue, Barger Drive, Chambers Street and Roosevelt Boulevard. In spite of these accomplishments, the backlog of needed repair work continues to grow in the face of rapidly rising construction costs and insufficient revenues. In late 2001, the City was facing an estimated $67 million backlog in pavement preservation work. By spring of 2007, the estimated cost of that backlog had grown to nearly $170 million and, with no new funding, was projected to grow to $282 million within the next 10 years. With the impending loss of 40% of the current fuel tax proceeds, the growth in the backlog of street repairs would accelerate even more rapidly. Legal Uses of Revenue - The restrictions on the use of local fuel tax revenues for street system operations, maintenance and preservation is provided in Eugene City Code 3.489 (2): “The net revenue shall be used only for the reconstruction, repair, maintenance, operation and preservation of City-owned roads and streets within the city, roads and streets for which the City is contractually or legally obligated to operate and maintain, or roads and streets for which the City has accepted responsibility under intergovernmental agreement. No revenue shall be used for capacity-enhancing street improvements.” Use of local motor vehicle fuel taxes is also limited by the Oregon Constitution (Article IX, Section 3a), which states that F:\CMO\2008 Council Agendas\M080114\S0801146.doc