Innovation News Briefs, Vol. 26, No. 3
C. Kenneth Orski, Editor
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, or even beyond—-now appears as a virtual certainty 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 subsidies.
The Obama Administration’s preferred approach to funding this shortfall is a mandatory 14% tax on accumulated overseas earnings of U.S. companies. The funding proposal is part of the Administration’s $478 billion multi-year surface transportation bill, officially rolled out on March 30. The tax proposal was earlier declared as a “nonstarter” by the Republican leadership in Congress, and the overall bill has met a similar skeptical reception.
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. The Administration is opposed because a gas tax increase would fall most heavily on those who can least afford it. 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. 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—seven 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 place their transportation programs on a more stable and predictable footing, less dependent on the vagaries of the federal budget. Using local funds also enables states to avoid cumbersome federal requirements that add to project costs and delay their implementation. In short, states have a genuine incentive to embrace a more proactive role in funding transportation.
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, reported 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 at http://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. States have added 350 miles of new toll roads since 2011 according to The International Bridge Tunnel and Turnpike Associations (IBTTA).
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 eliminating 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 and issues that are clearly of federal concern or are nationally relevant—-such as maintaining and upgrading the Interstate Highway network. modernizing critical transit infrastructure and supporting highway safety and R&D programs.
As advocates of increased state involvement like to point out, this is not “devolution” — a process that has come to be looked upon with disfavor 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 and taking account of congressional budget policies.
Investing within the constraints of Trust Fund revenue
Those policies are undergoing changes. Both the House and the Senate budget plans, released in late March, call for gradually constraining spending on transportation over the next ten years and bringing it into line with dedicated revenues from motor fuel taxes. The House budget plan calls for cutting transportation funding by 28 percent. The Senate budget plan cuts funding less steeply, from $54 billion to $42 billion/year or by 22 percent. (As of press time, the two versions must still be reconciled and the final budget resolution approved by the House and the Senate.) Of course, the congressional budget resolution is not legally binding, but it does serve as a blueprint for the appropriation process.
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, according to budget analysts, 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-aid transportation budget, 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.
In sum, concentrating Highway Trust Fund revenue on programs of clear national interest and relevance, coupled with a higher level of state funding for local transportation, could lead to a long lasting solution to the transportation funding crisis. It also would put to rest the misleading notion of the Trust Fund “going broke,” becoming “insolvent” or “running out of cash.”
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The “Can-Do” States
As of press time, the following states have taken steps to raise transportation revenue this year:
Maine: Gov. Paul LePage announced 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 improvements. 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. 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. Montana: a bipartisan group of state senators introduced a bill that calls for spending $50 million in cash and $50 million 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. Nebraska: The Senate approved a 6-cent/gallon gas tax increase over the next four years, eventually expected to generate $76 million annually Georgia: the Georgia General Assembly approved a transportation bill that will raise $900 million through increases in fuel taxes and vehicle fees . The measure also allows local governments to increase transportation-related taxes. Atlanta voters approved a $188 million transportation infrastructure bond. Idaho: Idaho Senate passed a phased-in 10-cent increase in the gas tax that is expected to generate $127 million over the next four years.The measure must be reconciled with a House bill passed earlier, that provides for a 7-cent gas tax increase. Raising more revenue is necessary because federal funding is unpredictable, said DOT Director Brian Ness.
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.