Road Funding in South Dakota

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Among the funding formulas in state law, one of the more complex is the way we fund roads and bridges in South Dakota.  Road funding is constitutionally protected in Article 11, Section 8.  This section states that taxes, fees, and other charges with respect to the operation of any motor vehicle upon public highways “shall be used exclusively for the maintenance, construction and supervision of highways and bridges of this state.”

The main source of funding for the state highway system is the motor fuel tax and motor vehicle excise tax.   The state tax is 28 cents per gallon for gas and diesel.  Our state tax rate is slightly less than the national average.  Motor vehicle excise tax is 4%.

The federal tax is 18.4 cents/gallon for gas and 24.4 cents/gallon for diesel.  South Dakota is a “donee” state in terms of the federal gas tax, in that we receive more back in federal highway dollars than we send to the Federal Highway Fund.

The vast majority of fuel taxes go into the State Highway Fund and are used to take care of the state highway system.  Some of this money is also used to take care of bridges or culverts with an opening of 16 square feet or more, whether they are on a state, county, or township road. The state highway fund, through the state Transportation Commission, also provides approximately $62 million per year in funding assistance for local government roads and bridges.

Local roads are financed primarily through vehicle license and registration fees, wheel taxes, and local property taxes.  Several formulas are written into state law to direct how these funds are allocated among counties, cities, and townships.  For example, when vehicle owners pay the annual license fee at the county courthouse, 46% is held at the county level and used for roads and bridges in the county.  A small portion is used for administrative purposes; the remaining amount – 54% of the total – is remitted to the secretary of revenue and then re-allocated back to counties and municipalities based on statute adopted more than 30 years ago.

Beyond these basic building blocks, roads and bridges also receive funding from lottery ticket revenue, the petroleum release compensation and tank inspection fee, and mobile home license fees.   This year, South Dakota also received nearly $30 million in emergency road funding – $19 million for state roads and about $9 million for county roads.  This is in addition to the millions in FEMA funding which has been received in South Dakota.

It seems that we see proposals nearly every year to change one or more of the funding formulas for roads and bridges.  As we look to allocate limited dollars, it’s important that we don’t cause a problem for one area of our infrastructure needs by trying to solve a problem in another area.