WATERLOO -- Waterloo needs to fill some potholes in the fund used to fix streets, plow snow and power street lights.

And Mayor Tim Hurley is asking property taxpayers to help offset stagnant state road funding that has failed to keep pace with the rising cost of fuel, wages, health insurance and supplies in the street and traffic operations departments.

"This hit us right smack in the head during our worst winter ? in memory," Hurley said. "But even if this was an ordinary winter we'd be needing help in the road use tax fund."

The city is getting just under $5.8 million in road use tax revenue from state this year to pay for a variety of road maintenance: street repairs, snow plowing, traffic lights and signs, street lights, road striping, roadside mowing, engineering costs, forestry services along street rights-of-way and similar services.

But that revenue stream, which is generated by fuel taxes, vehicle registration fees and the 5 percent sales tax on motor vehicles, has been growing at just 1 percent annually since 2001. Meanwhile city employees have been getting 3 percent wage increases, health insurance is on the rise and the price of a gallon of gas has jumped from $1.20 to more than $3.

It all added up to trouble when Hurley sat down with road use fund departments to prepare next year's budget.

"The gap was $468,000 from what they said they needed and what we had available," Hurley said.

While some costs were trimmed, the proposed fiscal year 2008-09 budget calls for some $342,000 in property taxes to be shifted over to cover road use tax fund expenses.

Chief Financial Officer Michelle Weidner said that transfer will include about $250,000 in employee benefits, while just under $100,000 in forestry operations currently funded with road use tax will be returned to the property tax supported general fund budget.

That is a major change in public policy from the past decade.

During the late 1990s city policy makers cut the street department work force from 55 to 35 employees. The savings helped reduce property taxes by shifting more roadside mowing, engineering, worker health insurance expenses out of the general fund and into the road use budget.

Meanwhile, statewide road use tax collection, which grew an average of 4.5 percent per year from 1990 to 2000, hit a wall. According to a 2006 Iowa Department of Transportation report to the Iowa Legislature, average annual growth in the road use tax fund had fallen to 1.5 percent from 2001 through 2006.

"As with federal funding, state funding has seen very little growth recently and its buying power has diminished dramatically due to construction cost increases," the DOT report stated. "Based on forecasts of future travel, vehicle purchases and other factors that affect the (road use tax fund) revenue, the level of (that) revenue will continue to annually increase slightly, but also continue to lose significant ground in buying power."

State legislators are currently considering a bill to boost vehicle registration fees, which would pump more money into the road use tax fund. But such efforts could be difficult in an election year.

That leaves local governments, which receive road use tax on a per capita basis, to scrape by.

Hurley said Waterloo tapped its road use tax fund reserves to cover the cost overruns associated with persistent snow and ice control efforts this winter -- perceived shortfalls in those areas were due to difficult weather factors, not a lack of funding. But it can't dig into those reserves year after year.

Cedar Falls is facing the same issues.

"We are having problems, too, because the revenue is just maintaining or increasing slightly," said Cedar Falls Finance Director Jennifer Rodenbeck.

"We always kind of hope that revenue will keep up with operating expenses and when there were unexpected expenses like we've seen this winter, that is what reserves are for," she said. "But now we are not seeing revenues keep up with those operating expenses."

Cedar Falls also is having to shift some road use tax expenses into the property tax portion of the budget in the next fiscal year.

"Fiscal year '09 will be the first year we are not paying for debt service out of the road use tax," said Rodenbeck, referring to payments on some general obligation bonds used to finance road projects.

Both Waterloo and Cedar Falls receive revenue from a 1 percent local option sales tax which voters have earmarked for street reconstruction and resurfacing. That money is not commingled with road use tax revenue and cannot be used for operating expenses.

Contact Tim Jamison at (319) 291-1577 or tim.jamison@wcfcourier.com.