Item 7: Ordinance Concerning Business License Tax on Motor Vehicle Fuel Dealers

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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. At that same meeting, the council directed the City Manager to conduct 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, with the intention that the proceeds from the additional three cents be dedicated to Road Fund operations and maintenance activities. The proposed revisions to the Eugene Code concerning motor vehicle fuel tax are outlined in Attachment A. Financial and Legal Analyses and Implementation Issues Increasing the local motor vehicle fuel tax rate by three cents to the eight-cent level would provide an additional $2 million annually to address the projected ongoing operating deficits in the Road Fund operations and maintenance activities. While the annual operating deficit is projected at $1.6 million for FY08, that annual deficit is projected to exceed $2 million per year by FY10. The authority to use fuel tax revenues for transportation system operations and maintenance is provided at EC 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 further limited by the Oregon Constitution (Article IX, Section 3a), which states that “revenue from taxes on motor vehicle use and fuel … shall be used exclusively for the construction, reconstruction, improvement, repair, maintenance, operation and use of public highways, roads, streets and roadside rest areas in this state.” To ensure continuation of a reliable tax revenue stream at an adequate level to support ongoing street operations and maintenance, staff 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. Staff discussions with the City’s tax administrator, the ODOT Fuels Tax Group in Salem, suggest that a minimum of 30 to 60 days from the date of adoption would be required for implementation of the increased fuel tax in order to give adequate notice to the dealers and to make appropriate modifications to the reporting forms and instructions. RELATED CITY POLICIES The council’s Vision and Goals Statement with respect to Fair, Stable and Adequate Financial Resources reaffirms commitment to “a local government whose ongoing financial resources are based on a fair and equitable system of taxation and other revenue sources and are adequate to maintain and deliver municipal services.” In January 2007, the council identified a new goal to “Develop mechanisms to adequately fund our transportation system for cars, trucks, bikes, and pedestrians including maintenance and preservation and capital reconstruction.” Additionally, the City’s Financial Management Goals and Policy, A.4, states that the City’s municipal service priority Level 2 (second only to the preservation of the public safety system) is to “maintain and replace the City’s fixed assets, which includes… infrastructure…so as to optimize their life.” L:\CMO\2007 Council Agendas\M070220\S0702207.doc