Alabama bills intended to protect local fuel tax revenue

March 29, 2021

Keith Goble


Multiple efforts at the Alabama statehouse are intended to make sure fuel tax revenue collected by local governments is used to benefit roads and bridges.

Alabama statute limits state fuel tax revenues to be used solely for infrastructure and similar uses. The rule does not apply to local governments collecting their own fuel taxes.

Bills introduced in the House and Senate would revise the rule for local governments.

2019 state fuel tax increase

A 2019 law raised the state’s 18-cent-per-gallon fuel rates by 10 cents for gas and 11 cents for diesel. The rate increases are being phased in over multiple years.

The state now collects 26 cents per gallon on gas and 27 cents on diesel. An additional 2-cent increase will be applied to both fuels this October.

The additional tax collection is estimated to raise $323 million annually when fully implemented.

Two-thirds of the revenue from the state excise tax stays with the state. Counties collect 25% of additional funds, and cities receive 8%. The money is used to fund infrastructure improvement, preservation and maintenance projects.

Local fuel tax revenue protection

There are hundreds of localities around the state that collect their own fuel taxes.

A Senate bill would require any fuel tax, license tax, or other related taxes collected by a county or municipality to be used solely for road and bridge construction and maintenance.

Sponsored by Sen Shay Shelnutt, R-Trussville, SB281 would require counties and municipalities now using affected revenues for purposes other than road and bridge work to instead use “alternative sources” of funding.

A five-year exception would be applied for local governments using revenues for bond or debt obligations.

Advocates say the change is needed to make sure the revenue from the 2019 law is not being applied for purposes other than roads and bridges. They add it is the intent of the legislation to take steps to protect new revenue and avoid any additional fuel tax rate increases to compensate for redirected funds at the local level.

Critics say that local governments have a better understanding of how local revenues need to be applied for projects. They say a one-size-fits-all approach dictated by the state is unnecessary.

Additionally, municipalities would be required to get voter approval to use tax revenues for purposes other than roads and bridges. Counties already are required to get voter approval to do the same.

The Senate Government Affairs Committee voted 8-3 to advance the bill to the full Senate.

The House version, HB556, is in the House County and Municipal Government Committee. LL

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