Urbana to consider fuel tax increase

Sep. 23—URBANA — Motorists stopping for gas in Urbana could end up paying an additional $30 per year — or more — as the city eyes a potential increase to its local motor fuel tax in order to fix dilapidated roads.

The Urbana City Council will discuss options for increasing the tax at its 7 p.m. committee-of-the-whole meeting today. No action will be taken during the session.

Human resources and finance director Elizabeth Hannan wrote in a report to the council that revenue from the increase would help address "declining road conditions in Urbana."

"The City's local motor fuel tax has not increased since 2015, when it was increased from four to five cents per gallon," she said. "Over the same period, the National Highway Construction Cost Index (NHCCI) has nearly doubled, significantly reducing the City's buying power."

The report details several options for increasing the tax, with some splitting the increase over two or three steps and then having the tax increase based on the consumer price index thereafter. A mock-up document revising the city's code suggests that increases could be phased in on the first day of January in 2025, 2026 and 2027.

Hannan noted that the benefit of a phased approach is that if a tax increase causes consumers to go outside of the city to buy fuel, the city would be able to "reassess and recommend changes before additional increases would take effect."

A list of options ranges from raising the tax to 10 cents per gallon in one step to raising it to 13.4 cents over three steps of 2.8 cents each, followed by increases based on inflation.

It's estimated that the average annual revenue for the current tax, over a 10-year period, would be $640,000. Based on the level of increase, this could be bumped up to $1.28 million per year on the low end to $1.73 million on the high end.

However, Hannan said that even with this additional funding, city staff expect the condition of Urbana's roads to continue to decline.

"The proposed increases would not address the entire gap, but would diminish the level of decline," she said. "A much larger amount (estimated at $5.5 million annually) would be required to halt the decline."

City staff also calculated the estimated monthly and annual impact on a consumer who purchases 589 gallons of fuel.

On the low end of the spectrum, the monthly increase would be $2.45 and the annual increase would be $29.45 if the tax was raised to 10 cents.

On the other hand, if the tax were increased to 13.4 cents in three steps of 2.8 cents each, the impact would be as follows:

* Step 1: Monthly impact of $1.37, annual impact of $16.49.

* Step 2: Monthly impact of $2.75, annual impact of $32.98.

* Step 3: Monthly impact of $4.12, annual impact of $49.48.

"Taxes based on consumption tend to have greater impact on lower income individuals and families," Hannan acknowledged.