To Bond or Not to Bond: States Contemplate Whether to Borrow or Seek New Revenues for Transportation

Massachusetts, Texas and Wisconsin are among a list of states this year looking at how borrowing and tax increases fit into their futures as they try to meet transportation needs. I also have updates this week on transportation revenue measures under consideration in Arkansas, Maryland, Minnesota, Missouri, New Hampshire, Ohio, Vermont and Virginia, plus a roundup of recent news and resources from the world of transportation public-private partnerships.

  • Massachusetts: Gov. Deval Patrick this week submitted a $19 billion transportation bond bill to authorize and fund road, bridge and rail projects over the next decade, The (Springfield) Republican newspaper reported. The governor said the bond bill would be financed with existing revenues and with revenues from the one percent income tax increase he has proposed (from 5.25 percent to 6.25 percent). Patrick also wants to lower the sales tax from 6.25 percent to 4.5 percent. If the measure is approved by the House and Senate, Patrick would be able to choose which projects to approve for funding within an annual borrowing limit.
  • Texas: A number of grassroots groups in the Lone Star State are calling for an end to the state’s transportation debt, KLTV reported. The groups, which include Texans Uniting for Reform and Freedom (TURF) and Grassroots America – We the People, were in Austin this week calling on legislators to pass reforms that would return the state transportation agency, TxDOT, to a pay-as-you-go model, end public-private partnerships that give private corporations control of toll roads, and end the diversion of funds from road user fees (i.e. gas taxes) to non-road use. State Sen. Kevin Eltife, a Republican, has proposed a constitutional amendment that would put TxDOT on the pay-as-you-go path. The measure would raise the state sales tax by half a percent to help the transportation agency retire its bond debt 14 years early, saving $6 billion. If approved by two-thirds of the House and two-thirds of the Senate, Eltife’s constitutional amendment would go before voters in November. The Texas Tribune had more about Eltife’s proposal recently. Another measure, sponsored by Sen. Robert Nichols, would dedicate the motor vehicle sales tax to roadway construction, raising $3 billion over 10 years.
  • Wisconsin: Gov. Scott Walker wants to borrow $994 million to shore up the state’s transportation fund, which faces declining revenues, The Milwaukee Journal Sentinel reported this week. Walker’s proposed budget plan would issue bonds to help fund transportation, including $404 million for major highways, $302 million for the Zoo Interchange on Milwaukee’s west side, $200 million for the Hoan Bridge (which connects Interstate 794 in downtown Milwaukee) and $60 million for rail. But a number of Republican state legislators have objected to the level of borrowing in the budget. Wisconsin Transportation Secretary Mark Gottlieb said recently that legislators will have two other options if they want less borrowing—finding new revenue or cutting the state’s highway program.

Other State Updates

  • Arkansas: Rep. Jonathan Barnett, who chairs the House Public Transportation Committee (and who attended the 2012 CSG Transportation Policy Academy), has introduced House Bill 1418, which would divert sales tax revenue generated by the sale of new and used cars, auto parts and services to the state Highway and Transportation Department. Revenues would be shifted incrementally over a period of 10 years and eventually amount to about $450 million annually, Barnett said, according to the Arkansas News Bureau. But advocates for family and children’s services and state colleges and universities rallied against the bill this week, saying it would divert about $2.3 billion in state general revenue away from critical education and health services. Barnett said an amendment to his bill stipulates that public schools and higher education would not see any reductions in funding. Barnett’s proposal was one of the recommendations made by the Arkansas Blue Ribbon Committee on Highway Finance in 2010.  In November, Arkansas voters approved a half-cent sales tax that was another of the committee’s recommendations. Gov. Mike Beebe is said to oppose any plan to divert general revenue to transportation.  
  • Maryland: Trucking interests don’t like the transportation funding plan introduced by Gov. Martin O’Malley, Senate President Thomas V. Mike Miller and House Speaker Michael E. Busch last week, the Baltimore Business Journal reported. Under the plan, the gasoline excise tax would be reduced from 23.5 cents per gallon to 18.5 cents per gallon. A 2 percent sales tax on a gallon of gas would go into effect this year, increasing to 4 percent in 2014. Maryland Motor Truck Association President Louis Campion told the publication that the sales tax increase and the lack of an excise tax reduction would increase fuel costs for truckers by about $3,000 annually. BuzzFeed had a piece this week on how O’Malley’s push to raise taxes might impact his chances if he makes a presidential run in 2016 (see also Virginia, below).
  • Minnesota: Democratic lawmakers are proposing a series of revenue measures to help raise $3.8 billion for road, bridge and transit projects in the state. They include a five-cent gas tax increase, a $10 or more license tab fee increase, a 4.5 cent increase in the fuel surcharge and the application of the sales tax to some auto parts, the Associated Press reported recently. While it looks like a gas tax increase is off the table this year as far as Gov. Mark Dayton is concerned, the man he recently appointed to head the Minnesota Department of Transportation has begun the task of trying to make the case for increased infrastructure investment, The Brainerd Dispatch reported. “We are grossly underfunded,” MnDOT Commissioner Charlie Zelle told the newspaper recently. “There’s no magic silver cloud that’s going to rain money.” But Zelle and Dayton can draw upon the recommendations of the Transportation Finance Advisory Committee, which issued a menu of funding options in its final report issued last year.
  • Missouri: The state Senate gave initial approval this week to a proposed penny sales tax increase that’s expected to raise nearly $8 billion for transportation projects over the next 10 years, the Associated Press reported. If approved by the legislature, Missouri voters would decide the ultimate fate of the tax increase. It would be resubmitted to the ballot after 10 years for the voters to decide whether to continue it. Ten percent of revenues from the tax would go to cities and counties under the Senate plan. While the sales tax is in effect, voter approval would be required to change the gasoline tax rate or place tolls on existing roads and bridges. A House committee has passed a similar measure.
  • New Hampshire: The Democratic-led House recently gave its initial approval to a bill sponsored by Rep. David Campbell that would increase the state’s gas tax by 15 cents over the next four years to raise $1 billion over 10 years, The Concord Monitor reported. But Sen. Chuck Morse, the chair of the Finance Committee in the Republican-led Senate said the bill would be “dead on arrival” if it made it to his chamber. Now a smaller, 7-cent increase over two years that would raise $516 million over the next decade is being proposed by Republican Rep. John Cebrowski, the Associated Press reported this week. The House Ways and Means Committee is also considering a 12-cent increase that would raise $817 million over 10 years, which could become the compromise position.
  • Ohio: The state Senate this week approved a two-year, $7.6 billion transportation budget bill that includes provisions to allow Gov. John Kasich to move ahead with plans to issue up to $1.5 billion in bonds through the Ohio Turnpike in order to fund other projects in northern Ohio, The (Cleveland) Plain Dealer reported. A House-Senate conference committee will now work out differences between the Senate version of the legislation and one previously passed by the House.
  • Vermont: The House Transportation Committee voted this week to recommend modifications to state gas taxes, the Burlington Free Press reported. The $32 million revenue package approved by the panel would help pay for $633 million in transportation projects. Under the plan, a 2 percent tax on the price of gas would go into effect on June 1 with an additional 2 percent set to kick in next July. In the first year, the tax is expected to add 6.7 cents to the price at the pump and raise $21.8 million. But once the second 2 percent increase kicks in, the per gallon gas tax would actually be decreased by 5.9 cents. The net effect would be a roughly 10 cent per gallon tax increase. Beginning in July of 2015, the price of gasoline would be subject to automatic tax rate adjustments to reflect inflation. The transportation package also includes bonding to raise an additional $10.3 million.
  • Virginia: Politico reported this week that the state’s attorney general (and Republican gubernatorial hopeful) Ken Cucinnelli could issue another legal opinion on the $800 million transportation package approved by the legislature. Gov. Bob McDonnell has yet to sign the legislation and can veto parts of or make amendments to the package up until March 23rd. The package has come under criticism from conservatives like Cucinelli for including tax hikes. The Washington Post editorial board Tuesday called on McDonnell to “stick to his guns and leave the bill substantially intact” because a major rewrite could shatter the bipartisan coalition that backed it in the legislature and because “the money is desperately needed.” By the way, the Des Moines Register had a piece this week on whether McDonnell’s support for the package could hurt his chances in the 2016 Iowa presidential caucuses, should the governor decide to run.
  • And, in case you missed it, Eric Jaffe at The Atlantic Cities blog had a piece recently called “The End of Federal Transportation Funding as We Know It.” Jaffe points out that “Many new state and local funding measures have involved sales tax increases, but research has found that approach can be regressive, disproportionately harming low-income residents compared to wealthier parts of the population. Virginia’s new funding system has drawn some of this criticism: by scrapping the user-paid gas tax for a series of other taxes, the plan addresses the budget shortage but threatens transportation equity, especially if most of the money goes toward building roads.”

Additional Reading – The Public-Private Partnerships Edition

  • I have an article in this month’s Capitol Ideas magazine looking at the legacy of the 2006 lease of the Indiana Toll Road.
  • Ohio Gov. John Kasich’s proposal to leverage the value of the Ohio Turnpike to finance other transportation projects is the impetus for a new brief from the infrastructure firm HNTB. It traces the history of toll asset monetization in its various forms and examines the questions states and public agencies should consider in choosing a monetization option.
  • CSG will once again serve as a supporting organization for the InfraAmericas U.S. P3 Infrastructure Forum this summer in New York City. It’s an annual event that brings together state and federal government transportation interests, developers, contractors, fund managers, investors, financiers and advisors to discuss the latest developments in the world of public-private partnerships. You can register your interest in the forum on the InfraAmericas website here. And look for more from me about the conference in the weeks ahead. You can also read my coverage of last year’s event here.
  • AASHTO’s Transportation TV has a two-minute interview this week with Virginia Transportation Secretary Sean Connaughton (a past speaker at the InfraAmericas Conference and at CSG Transportation Policy Academies). He talks about how the state is moving forward with various transportation P3s.
  • The Florida Department of Transportation this week issued a Request for Qualifications (RFQ) from prospective private firms for development and implementation of a P3 for a $2 billion project in the Orlando area. The “I-4 Ultimate Project” as it’s called will include the reconstruction of 21 miles of the interstate in Orange and Seminole counties and will add four tolled Express Lanes while maintaining the existing free general use lanes. The P3 will be structured as an availability payment transaction. Firms have until March 29th to submit their statements of qualifications. Florida is putting up about half of the cost of the project and courting the private sector to pitch in the rest. The private sector would maintain and operate the toll lanes for a fixed time period. Florida Transportation Secretary Ananth Prasad told journalists this week that the P3 agreement will allow the state to take advantage of low interest rates and construction costs, deliver the project 20 years sooner than they would otherwise be able to, and alleviate some of the congestion around the area’s mega-theme parks sooner. You can read more about the project here and here.