Urbana council OKs phased fuel-tax increase

URBANA — The city is moving forward with a fuel tax increase that local officials say will generate an additional $982,000 in revenue per year over the next decade and help fund roadwork.

The Urbana City Council voted unanimously this week to approve an increase to the local motor fuel tax. The tax, currently set at 5 cents per gallon, will be increased in three steps of 2.5 cents each, as follows:

• 7.5 cents per gallon on Jan. 1, 2025
• 10 cents per gallon on Jan. 1, 2026
• 12.5 cents per gallon on Jan. 1, 2027

After that, the rate will increase annually based on the Consumer Price Index and will not be raised more than 5 percent per year.

“This increase is expected to generate an additional $982,000 annually, on average, over the next ten years,” Human Resources and Finance Director Elizabeth Hannan wrote in a report to council.

She said that the additional revenue will help address “declining road conditions in Urbana.”

According to city staff, the estimated monthly and annual impact on a consumer who purchases 589 gallons of fuel is as follows:

• Step 1: Monthly impact of $1.23, annual impact of $14.73.
• Step 2: Monthly impact of $2.45, annual impact of $29.45.
• Step 3: Monthly impact of $3.68, annual impact of $44.18.

According to city code, Champaign’s local motor fuel tax has been 4 cents per gallon since May 2012.

Hannan said that Urbana’s last increase to the fuel tax was in 2015, with the rate moving from 4 cents to 5 cents, and since then, the National Highway Construction Cost Index has almost doubled.

“Nobody wants to hear about new taxes at this point in time,” Alderman James Quisenberry said. “Costs are high in a lot of ways. We did wait for 10 years before addressing this. Of course, costs are also going up for repairing the roads.”

When asked if the fuel tax increase will help make up for the state’s decision to repeal the grocery tax in 2026 — a decision that is estimated to cost Urbana $1 million in revenue per year — Mayor Diane Marlin said the revenues from the grocery tax go into the city’s general fund.

“The motor fuel tax is earmarked for road improvements, which we desperately need,” she said.

Hannan wrote that even with the additional revenue, local road conditions are expected to keep declining.

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

Quisenberry said he expects the CPI-based increases to be “modest” and unlikely to reach the 5 percent cap.

“We’re going to get to another 10 years down the road, and we’re going to see that that has lost ground too, against the rate of the cost of repairing the roads going up,” he said. “So I think we’ve put in an effective check on that, but in the long run, I think we’re going to have to revisit that and look at how we invest in infrastructure and how we pay for that.”

The subject of electric vehicles briefly arose during Monday’s council meeting, as a member of the public wrote in a concerned email that such vehicles would not be impacted by the tax despite also contributing to wear-and-tear on local roads.

“I believe that solution lies at the state level,” Hannan said. “So a tax like a wheel tax, which is very cumbersome for local governments to collect, could capture that.”