Chair John Kostnick opened the Minnesota House Transportation Work Group on Jan. 15, 2025, saying the panel expects to pass a transportation bill this year and will prioritize efficient use of transportation revenues and safety across roads and transit systems.

The meeting featured presentations from nonpartisan House fiscal and research staff on highway and transit finance and a policy overview from the Minnesota Chamber of Commerce.

Nonpartisan overview: highways and major revenue streams

Matt Burrows, principal analyst with House Research, and Andrew Lee of House Fiscal Staff outlined the state's highway finance framework and major revenue sources. Burrows said constitutional provisions underlie much of highway funding and that the Highway User Tax Distribution Fund (HUTD) and three constitutionally established accounts'the Trunk Highway Fund, County State Aid Highway (CSAH) Fund and Municipal State Aid Street (MSAS) Fund'are central to how state highway dollars flow.

"There are three main sources of traditional highway-related revenue," Burrows said, summarizing his slides. He listed:

- The motor fuels tax (gas tax), currently $0.318 per gallon, applied to gasoline, diesel and adjusted for other fuels;
- The motor vehicle registration tax, whose calculation declines as vehicles age and shifts to a flat minimum for vehicles 11 years and older; and
- The motor vehicle sales tax (MVST), which is constitutionally dedicated to transportation with statutorily determined allocations.

Burrows noted other state revenue directed to transportation, including portions of the general sales tax tied to auto parts and vehicle rentals; the motor vehicle lease sales tax; and a retail delivery fee enacted in 2023: a 50-cent charge on deliveries that began July 1, 2024, and therefore did not appear in fiscal 2024 charts.

He explained that money collected in the HUTD flows out by constitutional and statutory formulas. One structural feature he summarized: a 95%/5% split of certain HUTD receipts, with 95% allocated among state, county and municipal highway accounts and 5% used for town roads/bridges and a flexible highway account that has been used for turnbacks and jurisdictional changes.

Burrows and Lee also discussed bonding. Trunk highway bonds and general obligation (G.O.) bonds are different debt instruments used for transportation capital; repayment sources and authorization timing vary year-to-year.

Transit finance: revenue mix and the Metro picture

Matt Burrows and Andrew Lee shifted to transit, emphasizing that transit finance is more varied and less constrained by constitutional restrictions than highway finance, though MVST supplies a dedicated share to transit. Burrows noted that 40% of MVST is directed to transit; within that share he said 34.3 percentage points go to Twin Cities metro transit and 5.7 percentage points to Greater Minnesota transit under the post-2023 allocation.

Lee explained how transit funding mixes federal grants, state direct appropriations and statutory allocations, regional and local taxes and farebox and other system revenue. He described the newly enacted 0.75% metropolitan-area state sales tax (seven-county Twin Cities region) and its split: roughly 83% to the Metropolitan Council (largely for transit operations, maintenance and capital) and about 17% to metro counties for active transportation, roadway repair and other purposes. Burrows cited an approximate fiscal 2024 revenue figure of $264 million generated for the Metropolitan Council from that tax.

Lee and Burrows also reviewed other metro revenue mechanisms: the Metropolitan Council's remaining property tax levy dedicated largely to debt service for bus replacements, county-level options to levy up to 0.5% local option sales tax and $20 vehicle excise tax, and County Regional Rail Authority levies used historically for transitway operating costs in Hennepin and Ramsey counties.

Federal aid and allocation patterns

In response to member questions, Lee and Burrows described federal funds as a mix of formula (allocation) and discretionary grants. The Metropolitan Council and local operators apply for federal grants such as bus replacement programs and the New Starts/Small Starts capital grant programs. Burrows said MnDOT generally receives the majority of federal highway dollars and retains discretion in allocating federal funds across trunk highway projects and, in some cases, to assist local systems.

Minnesota Chamber priorities and policy asks

Bentley Graves, director at the Minnesota Chamber of Commerce, told the committee the Chamber represents about 6,000 employers statewide and urged lawmakers to diversify transportation funding sources. Graves praised the 2023 decision to dedicate auto-parts sales-tax revenue to transportation and called for policymakers to address how electric vehicles will contribute to future revenue. He noted Minnesota currently imposes a $75 registration fee on electric vehicles (in place since 2017) but said that likely "falls well short" of the average annual gas-tax contributions of a typical driver.

Graves also highlighted MnDOT's efficiency work, saying the department has documented roughly $800 million in efficiency savings over the last decade. He encouraged clearer reporting on how those savings are reinvested and described a freight network optimization tool funded in 2021 (about $1 million from the general fund) that the department aims to complete by June; Graves said the tool could help prioritize freight investments and attract private and federal matching dollars.

He asked the Legislature to maintain a measured approach to fuel-policy changes such as a Low Carbon Fuel Standard, citing modeling from other states that could raise retail fuel prices; he asked policymakers to weigh cost impacts on businesses and consumers.

Questions and follow-up

Members asked staff for detailed numbers on how revenue to the Metropolitan Council changed after the 2023 reforms; Andrew Lee said staff would provide tables with the pre- and post-2023 splits and other details offline. Staff also confirmed that federal transit and highway grant applications are typically made by the Metropolitan Council and local operators, while MnDOT manages most federal highway receipts and policies for allocating formula and discretionary federal aid.

No formal motions, votes or directives were recorded in the meeting minutes. Staff and the Chamber representatives offered to follow up with more detailed tables and analyses for committee members.

Why this matters

Minnesota lawmakers preparing a transportation finance bill will use the constitutional formulas and statutory allocations described by nonpartisan staff, while policymakers and stakeholders debate how to diversify revenue, how to account for electric vehicles, and how efficiency savings and new tools should be applied. Committee members asked for specific spreadsheets and pre/post-2023 allocation numbers, which staff said they would supply.

The committee adjourned with a reminder that the next meeting is scheduled for Jan. 22, 2025, at 1 p.m. in the same room.