Item 4: Ordinance on Tax on Motor Fuel

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funding strategy for transportation system needs. Those solutions have not yet come to fruition, leading the council to reconsider the option to let the additional two-cent tax expire. On January 22, 2007, the City Council agreed to the formation of a council subcommittee, comprised of four councilors, to study transportation funding options and to bring back within three months a recommendation for a solution or solutions meeting certain specific criteria to adequately fund the transportation system. On May 29, 2007, the council approved code amendments which would have increased the Business License Tax on Motor Vehicle Fuel Dealers by three cents per gallon to the eight-cent level and repealed the sunset provision on the two-cent fuel tax rate increase enacted in 2005. Subsequently, the council repealed that ordinance and submitted the three cent per gallon increase to the voters in November 2007, where the measure failed at the ballot. On January 14, 2007, the Council held a public hearing for the purpose of gathering community input on the proposed ordinance to repeal the sunset provision on the two-cent per gallon fuel tax rate increase. At that hearing, nine people testified, several of them urging the council to let the two-cent tax increase expire because of the negative impact on the sales volumes for local fuel dealers. Draft minutes from that meeting are included as Attachment C. Eugene has experienced just under an 8% drop in sales volume since implementation of the City gas tax in 2003, as reported by the Oregon Department of Transportation Fuels Tax Group. According to ODOT’s final report on Oregon’s Road User Fee Pilot Program, concluded in March 2007, “Gas tax-generated revenue is eroding primarily from increases in fuel efficiency, resulting in more roadway usage per vehicle mile traveled.…” In the ODOT June ’07 forecast, their chief economist identifies gas price and economic activity as the two critical drivers for sales of gasoline, although “…the far most dominant factor in gas consumption statewide is the pace of overall economic activity.” Representatives of the fuel dealers and the business community also stated at that public hearing their commitment to working towards a more sustainable road-funding solution for cities and counties in the form of a legislated state-wide gas tax increase. In a parallel effort, Eugene is also working together with a coalition of cities for a higher level of support from the State Highway Trust Fund. According to ODOT, however, the reality we face is that the State of Oregon has been unable to garner support for raising the state gas tax since 1991. Furthermore, voters rejected the legislature’s last attempt to raise the gas tax in 1999. Eugene simply cannot continue to passively wait for long-expected relief from either the state or the county while the cost to address the city’s backlog of needed street repairs grows larger every year. The City Manager-recommended revisions to the Eugene Code with regard to the motor vehicle fuel tax are set out in Attachment A. In that proposed ordinance, the sunset date on the two-cent tax increase would be extended by three years. This would allow time for Eugene to work together with a coalition of cities, counties and business partners to achieve legislative funding relief through a state gas tax increase which, were it to replace the revenue generation from Eugene’s local gas tax, might warrant the council repealing the local gas tax altogether. It would also allow Eugene, along with other Lane County cities who are struggling under the same burden of street funding needs, to reinitiate conversations with Lane County about a potential county-wide motor vehicle registration fee. In the meantime, the additional two-cent local gas tax will generate nearly $4 million over that three-year period to ensure continuation of a reliable revenue stream to support ongoing street operations, maintenance, and preservation while efforts continue at the county and state levels to enact new road maintenance revenue mechanisms. For these reasons, the City Manager recommends that the council extend by three additional years the ordinance provision which would otherwise forfeit two cents of the five-cent city gas tax after February 29, 2008. F:\CMO\2008 Council Agendas\M080128\S0801284.doc