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A Fresh Approach to Funding Infrastructure Is Gaining Momentum

Posted by Ken Orski on Monday, March 30th, 2015

Innovation Newsbriefs
Vol. 26, No. 3

As the deadline for reauthorizing the federal surface transportation program draws closer, Congress is still struggling to come up with ways to fund a long term surface transportation bill—a challenge that appears as distant and elusive as ever. Another short term patch— through the end of the fiscal or calendar year—-now appears as a distinct possibility according to congressional sources.

The money needed to keep the federal transportation program funded at the going rate is  substantial. The Congressional Budget Office estimates that it would require an extra 13 billion in general fund revenue each future year just to maintain the program at the current FY 2014 spending level of $53 billion/year  (the federal gas tax and interest generate an annual revenue stream of  $40 billion/year, leaving an annual funding gap of $13 billion.)  To fund a six-year program Congress would thus need to come up with nearly $80 billion in general fund subsidies. 

The Obama Administration’s preferred approach to funding this shortfall is a mandatory 14% tax on accumulated overseas earnings of U.S. companies. But the White House proposal was declared emphatically a “nonstarter” by the Republican leadership in Congress, including Sen. Orrin Hatch and Rep. Paul Ryan, respectively chairmen of the Senate and House tax-writing committees.

The approach favored by many in the transportation industry—an increase in the federal gas tax—has been ruled out both by the  Republican House leadership and the White House. Speaker John Boehner thinks there just aren’t enough votes in the House to pass it.”There will be no gas tax increase in this Congress. Period,” a spokesman for Speaker Boehner told reporters. The Administration is opposed to a gas tax increase because it would fall most heavily on those who can least afford it. Both parties cite opinion surveys that have consistently shown low levels of public support for a hike in the federal gas tax.   

While some observers believe there is still a possibility of eventual progress on a comprehensive tax reform that would help pay for the shortfall in the Highway Trust Fund, the expiration of the current transportation bill at the end of May—9 weeks hence—requires Congress to find a more immediate way of funding the surface transportation program. 

Shifting a larger share of funding to the states

With no other revenue sources in sight, attention has focused on shifting a larger share of funding responsibility to the state and local level. It’s an approach that has been gaining traction not just among fiscal conservatives and congressional Republicans but also with the transportation advocacy group, Transportation for America (T4America) and the influential industry lobby, the American Road and Transportation Builders Association (ARTBA) and its Transportation Investment Advocates Council.

“Prospects of returning to robust national investment are uncertain at best. States that want to continue investing will have to explore new ways to raise funding for transportation on their own,” said T4America’s  Director, James Corless in announcing the launch of an initiative to support efforts to raise transportation funding through state legislation. 

The desire for more fiscal autonomy resonates in state capitals. Governors and state legislatures of both parties deem the prospect for future federal funding highly uncertain and seek to placetheir transportation programs on a more stable and predictable footing, less dependent on the vagaries of the federal budget. In short, states are willing to take a more active role in transportation funding.  

Twenty-three states have taken steps to raise transportation revenue this year (see below). A total of 110 transportation funding bills are awaiting action in 26 state legislatures, reports ARTBA’s Transportation Investment Advocacy Center which tracks transportation funding initiatives at the state level. (ARTBA’s State Transportation Funding Initiatives Report can be found athttp://www.transportationinvestment.org See also, T4America’s survey, “State Legislation to Raise Transportation Revenue,  http://t4america.org/maps-tools/state-transportation-funding/.)

State revenue-raising measures are generating billions of additional dollars 

States are using a variety of methods to raise transportation revenue. In addition to increasing gas taxes they are passing bond referenda, enacting dedicated sales taxes for transportation, increasing reliance on highway tolls and financing large-scale construction projects with long term credit. Thirteen states are currently considering legislation to increase their gas tax or sales tax on gasoline and eight states have transportation bonding initiatives under consideration, reports the Transportation Investment Advocacy Center in its latest (March) report.

Also gaining acceptance among state officials are public-private partnerships (P3) utilizing private equity capital, “availability payments,” and highway tolling concessions. Nine P3 procurements have closed since 2013 and more are expected in the days ahead.

While these measures promise to generate billions of additional dollars for state and local transportation programs, state officials are voicing opposition to the elimination of federal assistance. “I am not here to endorse devolution of the federal surface transportation program,”  said North Carolina’s Governor Patrick McCrory at a March 17  hearing.of the House Transportation and Infrastructure Committee. His fellow witness,  Wyoming’s  DOT Secretary John Cox, pointed out that while dozens of states have adopted legislation to increase transportation revenue, “they do so expecting to supplement the Federal program—not as a substitute for the Federal program.”   

This is not about devolution”

Still…with state transportation revenue markedly on the rise, many Republicans contend that states are in a position to assume more funding responsibility for local infrastructure. This, in turn, allows the Trust Fund revenue  to be refocused on programs that are clearly of federal concern, such as  maintaining and upgrading the Interstate Highway network and improving other critical highway and transit infrastructure.    

As advocates of increased state involvement like to point out, this is not  “devolution” — a process that has come to be viewed with skepticism because it calls for the abolition or a drastic reduction in the federal gas tax (as embodied in Sen. Mike Lee’s Transportation Empowerment Act.).

 “I call this a judicious rebalancing of federal-state funding responsibilities,” a senior Republican lawmaker told reporters. “No one is calling for the abolition of the federal gas tax.” 

Moreover, such a rebalancing does not necessarily dispense with the need for additional revenue. But the question of federal program subsidies, many conservatives contend, should be treated as a separate matter and the rationale for the subsidies and their size reexamined in light of the states’ increased ability to fund local transportation. 

As Gov. McCrory testified, the urgent priority is to provide states with funding certainty and  continuity to pursue large, capital-intensive  infrastructure projects that require funding over multiple years. And this can be effectively accomplished with a multi-year core program funded with the annual Highway Trust Fund revenue.   

The Congressional Budget Office projects a stable and predictable stream of  fuel tax revenue of $40 billion per year well into the future. An annual $40 billion federal construction program extending over a period of six to ten years would go a long way toward restoring and improving  the nation’s core transportation infrastructure, claim independent analysts. It would also put an end to the misleading talk of the Trust Fund “going broke,”  becoming “insolvent” or “running out of cash.”  

In sum, a more focused use of Highway Trust Fund revenue on programs of federal interest, coupled with a higher level of state funding for local transportation, could lead to a long lasting solution to the transportation funding crisis.   

The “Can-Do” States  

As of press time, the following states have taken steps to raise transportation revenue this year:

Michigan: the legislature, with strong support from Gov. Rick Snyder, voted to sharply increase gas taxes over the next four years to raise more than $1 billion annually through a ballot initiative in the spring;  Maine:  Gov. Paul LePage unveiled a $2 billion three-year plan to rehabilitate state transportation infrastructure;  South Carolina:  Gov.Nikki Haley unveiled a road funding plan that includes a 10-cent-per-gallon tax increase that is expected to generate $3 billion over the next ten years (the gas tax hike is tied to an income tax cut). New York:  Gov. Andrew Cuomo proposed $4.2 billion for transportation investments as he began his second term;  Minnesota: Gov. Mark Dayton proposed a $11 billion transportation program, (with $6 billion for highways and $3 billion for transit) over the next decade to be funded with a 6.5 percent gross receipts tax on gasoline at the wholesale level; a bipartisan group of state senators (the “Purple Caucus)”) said they support raising new dedicated revenue for transportation. In the meantime, A $7 billion proposal that would be funded without raising the gas tax was unveiled by Republican legislators.  Florida:  Gov. Rick Scott proposed $9.9 billion for transportation (over $4 billion for roads and bridges) in his 2015 budget request to the state legislature; North Carolina:  Gov.Pat McCrory proposed a $1.2 billion bond issue to as part of a 25-year  transportation vision plan to improve intra-state connectivity and reduce congestion. California: Assembly Speaker Toni Atkins announced legislation to raise an additional $2 billion a year for transportation through an annual $52 vehicle registration fee. Connecticut: State legislators unveiled a 30-year $37.4 billion transportation plan to be financed through bonds. The plan is is intended to support Gov. Dannel Malloy’s long-term transportation proposal.  North Dakota: Gov. Jack Dalrymple signed into law a bill that will provide $450 million for state highway impovments. Another bill, known as the Surge Funding Bill will dedicate $1.1 billion from the state’s Strategic Investment and Improvement Fund for critical infrastructure  projects;  Washington: The state Senate passed a $15 billion transportation revenue measure that includes an incremental gas tax increase of $11.7 cents over three years. “The current plan is the most positive movement that we’ve seen on transportation in this state for many, many years,” said Sen. Joe Fain, Vice chairman of the Senate Transportation Committee. Georgia: the state House Transportation Committee approved a bill that would replace the state’s existing sales tax on motor fuel with a 21.7 cent-per-gallon state gas tax increase and index it to CPI. The legislative package also includes recapitalizing the state Transportation Infrastructure Bank and a large bond package for bridges and transit.Local governments would be permitted to use local option sales tax for local transportation projects. The House bill will need to be reconciled with the Senate version which differs somewhat from the House bill. Atlanta voters approved a $188 million transportation infrastructure bond. Louisiana: a legislative transportation funding task force recommended a series of revenue raisers including letting local governments impose their own gas taxes, entering into public-private partnerships and replacing 16 cents of the state’s gasoline tax with an 8 percent sales tax on all fuels. Iowa:  Iowa legislature approved a 10-cent per gallon gas tax increase. The increase is estimated to generate $204 million for transportation in the next fiscal year. Gov. Terry Branstad suggested allowing local governments to add their own gas tax to fund local transportation projects. Georgia:  the Georgia House of Representatives approved a bill that would  replace the state existing sales tax on gasoline with a 21.7 cents-per-gallon state gas tax increase and index it to the CPI. The bill would also provide a large bond package for transportation. Utah: The state legislature passed a bill that will increase the gas tax by 5 cents-per-gallon, add a 12 percent tax on the wholesale price of gasoline and permit counties to seek voter approval for a local sales tax for local transportation projects. South Dakota: The state legislature approved a fuel tax increase of 6 cents per gallon; the bill also raises vehicle license fees and gives local governments authority to levy their own road improvement fees. The measure is expected to generate over $80 million/year for state and local programs. Idaho: House Majority Chair John Vander Woude introduced a measure that would raise an additional $84 million/year for transportation through a 5 cent hike in the state gas tax. Raising more revenue is necessary because federal funding is unpredictable, said DOT Director Brian Ness. Montana: a bipartisan group of state senators has introduced a bill that calls for spending $50 million in cash and $50 millioin in bond proceeds over two years on infrastructure. If state revenue receipts exceeded a certain trigger, the authorized amounts could rise as high as $100 million in cash and $100 million in bond proceeds.Ohio: The House-Senate conference committee approved a $7 billion transportation budget for the next two years and sent the bill to the Governor. Missouri: State legislators are currently working on a bill that would raise the gas tax by 6 cents over the next three years according to press reports. Texas: The House Appropriation Committee approved a $209.8 billion two-year budget proposal for transportation. The proposal would spend $7.7 billion more than the current two-year budget  

Sources: ARTBA’s State Transportation Funding Initiatives Report; T4America’s survey, “State Legislation to Raise Transportation Revenue; NCSL State Bill Database; CSG Knowledge Center, State Data; AASHTO Daily Transportation Update.  

C. Kenneth Orski is a public policy consultant and former principal of the Urban Mobility Corporation. He has worked professionally in the field of transportation for over 30 years, in both the public and private sector. He is editor and publisher of Innovation Newsbriefs, now in its 26th year of publication.

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One Response to “A Fresh Approach to Funding Infrastructure Is Gaining Momentum”

  1. Adam Tauno Williams says:

    “Michigan: the legislature, with strong support from Gov. Rick Snyder, voted to sharply increase gas taxes over the next four years to raise more than $1 billion annually through a ballot initiative in the spring;”

    No, this is incorrect; the opposite is true. The ballot proposal in Michigan, not passed by the legislature, and with barely any support from the legislature, will raise the SALES TAX by 1%. The use tax on gasoline and diesel fuel is eliminated by the proposal.

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