Funding Our Local Streets: A Review of Municipal Road Aid (MRA)

Kentucky cities are paramount for the Commonwealth’s economic growth. Each of the state’s 408 cities has a pivotal role in ensuring the economic engine of local municipalities creates prosperity for Kentucky’s current and future generations. To continue to drive Kentucky’s economy forward, local municipalities need adequate funding to provide their communities with safe and serviceable streets and roads.   

Currently, the primary funding source for city roads is both inequitable and inadequate based on the usage and demand of our city streets. This week’s article will highlight the primary resource for funding municipal streets and roads, the Municipal Road Aid (MRA), and provide an overview of how costs are outpacing these funds. 

Kentucky’s State Motor Fuels Tax: A Wholesale Approach 

Kentucky, like all states and the federal government, levies a tax on the consumption of gasoline. Kentucky’s current state gas tax is a 9% fixed rate on the per-gallon average wholesale price of motor fuel received within the state.1 Because the state's tax on motor fuels is based upon the average wholesale price of gasoline, the state's tax per gallon falls if the wholesale price declines. 

Kentucky’s motor fuels tax declined 1.4% in 2024 to 26.4 cents per gallon from 27.8 cents per gallon. This decline has been consistent over the past two years, with a prior 12% decline following its high of 30.1 cents in 2024. While this decline is celebrated by Kentucky motorists, it also means less local road dollars and a greater strain on local municipal budgets, many of which are already struggling to maintain city streets. The Kentucky Office of the State Budget Director (KY OSBD) highlighted a 7.7% drop in the state’s motor fuels tax collected in FY 2025. The decline will impact city MRA dollars due to the decline of $12.8 million less to being shared with local governments.  

The MRA Program: How Cities Get State Road Dollars 

Kentucky provides state support for city streets and roads through allocations from the state’s gas tax revenue. Under the current revenue sharing formula of the gas tax, 22.2% is allocated to the Rural Secondary (RS) program, 18.3% is allocated to County Rural Aid (CRA) program, and 7.7% is allocated to the MRA program.2 The remainder is allocated to the state. The MRA allotments to cities are based on population as determined by the most recent decennial census. For example, Lexington (population of 322,570) would receive a greater share than Bardstown (population of 13,567).  

Cities have the option to participate in the MRA Cooperative, which would withhold 3% of their MRA payments and place them in an emergency fund. As a result, funding for participating co-op cities differs from non-participants. Participating co-op cities would receive their funds proportionally three times a year - 60% on the first disbursement, 30-35% second, and the remaining funds third - rather than a monthly check. Currently, approximately 40% of cities participate in this program. 

Since FY 2018, MRA payments to cities have totaled approximately $56.1 million and have only increased annually by an average of 1.7%.  

A Call for Greater Equity in City Road Funding 

Data shows that cities serve as the economic backbone of Kentucky’s economy, yet the roads and streets that lead to these jobs are crumbling. Currently, about 75% of the state’s economic activity and 80% of employment opportunities occur in one of Kentucky’s local municipalities.  

Kentucky cities maintain approximately 13% of Kentucky’s 80,000 miles of roads. However, based upon FY 2024 data, MRA payments from the state’s motor fuels tax funded only 12.2% of city streets and road expenses.  

KLC supports a review of Kentucky’s road funding allocation to ensure an equitable share of the local portion of the state’s gas tax, as well as fees generated from electric vehicles, are proportionately shared with municipal governments. A more equitable approach toward the local gas tax allocation would ensure that Kentucky cities have the resources required to maintain our cities’ streets and roads.