Focus on New Laws: Transportation Advancement Account

The newly created account will provide ongoing road funding for the Small Cities Assistance Program and the Larger Cities Assistance Account, but due to a phase-in of the revenues, the allocations will not be meaningful until fiscal year (FY) 2026.

A new account called the Transportation Advancement Account (TAA) established by the omnibus transportation bill, Chapter 68, will provide ongoing funding for the Small Cities Assistance Program and the Larger Cities Assistance Account.

The Small Cities Assistance Program provides formula-based funding for roads in cities with populations below 5,000. The Larger Cities Assistance Account is a new program that will provide formula-based funding for cities with populations above 5,000. The funds provided by the TAA can be spent on any roads under the authority of the entity that receives the funds.

Funding distribution

The TAA will be funded with revenues collected from a retail delivery fee of $.50 on taxable orders over $100 and a phase-in of the dedication of sales taxes collected on motor vehicle parts. The funds must be distributed as follows:

• 36% to metropolitan counties.
• 27% to the Small Cities Assistance Program.
• 15% to the Larger Cities Assistance Account.
• 11% to the town road account.
• 10% to the County State-Aid Highway System.
• 1% to the food delivery support account.

Delay in TAA funding expected

Although the TAA was officially established July 1, 2023, the account will not be funded until the revenues are collected. The retail delivery fee will not be imposed until July 1, 2024, and the dedication of the sales tax on auto parts will be phased in over a 10-year period as follows:

• 5% in FY 2024.
• 3% in FY 2025.
• 5% in FY 2026.
• 5% in FY 2027.
• 5% in FY 2028.
• 5% in FY 2029.
• 5% in FY 2030.
• 5% in FY 2031.
• 5% in FY 2032.
• 5% in FY 2033 and thereafter.

The delayed effective date of the retail delivery fee combined with the relatively slow phase-in of the dedication of the auto parts sales tax means there will not be meaningful TAA funds available until FY 2026 (beginning July 1, 2025).

Cities advised to hold off on TAA budget planning

The Minnesota Department of Transportation (MnDOT) has not released city-by-city estimates for TAA funds. On Oct. 6, the agency provided the League with a document with projected TAA revenue estimates.

View the TAA projected revenue estimates (pdf).

In the current fiscal year, the TAA account will receive just $11 million for distribution in FY 2025. The amount jumps to a more meaningful amount of approximately $74 million in FY 2025, and this amount will be distributed in FY 2026 (beginning July 1, 2025). The funds in the TAA are expected to continue growing well into the future.

The League has been advised there will not be city-by-city revenue estimates available until after the TAA begins to collect revenues for distribution. This will not likely happen until several months into calendar year 2024. In the meantime, cities of all sizes are advised to hold off on budgeting for TAA revenues. The League will publish city-by-city estimates as soon as they become available.

Read more news articles.