Robbing Peter to Pay Paul? Some States Ponder Using Transportation Funds to Solve Other Budget Problems

Despite the potential for fiscal as well as perception problems down the road, a number of states continue to look to transportation revenues for their potential to fill budget holes elsewhere. Other states are taking the opposite path, trying to ensure that revenues intended for transportation are not siphoned away for other purposes. I also have updates on some states that continue to move forward with transportation revenue packages in legislative sessions around the country this year.

The Bank is Open/The Bank is Closed

The Associated Press reported Sunday that Kansas Gov. Sam Brownback wants to divert $510 million in highway funds over the next two years to stabilize the budget and make possible an eventual phase out of personal income taxes in the state. Members of the state House of Representatives proposed diverting $382 million more but have since backed off after the plan was heavily criticized. Kansas has had three multi-billion dollar transportation programs in recent years that have produced lots of funds for road and bridge maintenance projects but also a tempting source of rainy day funds for tough budget times that some legislators have nicknamed “the Bank of KDOT,” the AP reported.

Elsewhere, the AP also reported this week that Kentucky lawmakers reportedly considered diverting revenue from the state road fund to shore up the financially troubled pension system for government retirees. They ultimately went a different direction.

And some in Louisiana are expressing concern about the continuing diversion of funds from that state’s road program to pay debt on a more than 20-year-old bond issue, The (Baton Rouge) Advocate reported recently. A diversion of $28 million is planned for this year and a total of $183 million has been transferred since 2008. Another planned transfer would move $74 million from the road fund to the state Department of Public Safety’s State Police Traffic Enforcement Program. Meanwhile the state faces a $12.1 billion backlog of road and bridge projects.

But some lawmakers in Connecticut are trying to prevent such diversions from happening there in the future, according to The Connecticut Post. The House Transportation Committee voted this month to put a lockbox on the state’s Special Transportation Fund and advanced a joint resolution calling for a constitutional amendment to further block using the funds to cover general government expenses.

State Rep. Gail Lavielle pointed to an erosion of public trust in government’s pledges to repair infrastructure as one reason for supporting the measure.

“Taking money that is supposed to be used for transportation and using it to balance the budget isn’t right,” she said. “The Special Transportation Fund has always been considered a sort of spare tire, or a reservoir that is bottomless but it’s not. We need to pay for transportation.”

State Rep. David Scribner, who also supports the lockbox concept, believes transfers from the transportation fund to general government have taken their toll.

“If we were prohibited from using the state transportation fund for other purposes we wouldn’t be in nearly as precarious a position to pay for our bridge repairs and rails,” he said.

Wisconsin lawmakers this year already approved sending a proposed constitutional amendment to voters this November that would prevent future raids on that state’s transportation fund, The Badger Herald reported last month.

“People want to know whether we are really serious about ending the practice of taking money from transportation and putting it into the general fund,” said state Sen. Dale Schultz. “The issue is: are we going to fix yesterday’s problem and make sure it doesn’t reoccur? And that’s the reason we should vote for [separating these funding sources].”

Approval came following a debate over just how separate transportation and general funds should be and whether funds should be allowed to flow in the opposite direction, as has occurred several times at the federal level over the last few years.

Some senators said moving money from the state’s general fund to transportation would take money away from other programs such as health care, education and corrections that don’t have the dedicated funding sources that transportation does (gas taxes, registration fees). Wisconsin Gov. Scott Walker had previously proposed transferring $129 million from the general budget to the transportation fund. Angie Schmitt over at DC Streetsblog wrote last week about states transferring general fund dollars to pay for highway expansions, often at the expense of other government programs. I blogged recently about a proposal in Arkansas where that has become an issue of controversy. In addition to Wisconsin, Texas is another state cited in Schmitt’s piece (more on Texas below).

The lockbox idea has also been part of the discussions surrounding a transportation bill in Maryland, The Washington Post reported (see more on Maryland below). A Blue Ribbon Commission in 2011 recommended that the state move to protect the Transportation Trust Fund, which has been subject to large transfers over the years, many of which have never been repaid.

“We have to put the ‘trust’ back in the Transportation Trust Fund,” the chair of the commission, attorney Gus Bauman, told me last year. “In my opinion, there is no way you can get the public to agree to higher fees and taxes on transportation-related activities such as pumping gasoline without a guarantee that the money will then be used for transportation purposes by the state.”

State Transportation Funding Measure Updates

  • Maine: Gov. Paul LePage last week proposed borrowing as much as $100 million to fund a range of targeted transportation projects across various modes, The Bangor Daily News reported. Under the plan, $46 million would go to construct or rehab high-priority state highways, $5 million for secondary road improvements, $30 million to replace and rehab bridges, and $19 million for ports, harbors, marine transportation, aviation, freight and passenger railroads and transit. LePage has said he won’t approve the sale of the bonds until the state pays back $186 million owed to hospitals in the state for back Medicaid payments. The governor is already holding back on issuing $105 million in bonds approved by voters in 2010 and 2012, including $51.5 million for transportation.
  • Maryland: The House of Delegates last week voted to increase state gas taxes to help replenish the Transportation Trust Fund. According to The Washington Post, legislative analysts said motorists could expect to pay roughly 13 to 20 cents per gallon more by mid-2016 if the increase is enacted. The increases would be phased in, starting with a four-cent-a-gallon increase this July. The legislation that includes the gas tax along with borrowing is expected to yield $4.4 billion for roads and mass transit projects over the next six years. But some Republican members of the Senate Budget and Taxation Committee said this week that expensive transit projects in the state will drain most of the money leaving little to tackle road projects in their largely rural districts, The Washington Examiner and The Washington Post both reported.
  • Massachusetts: The Boston Globe had a piece last week on how Massachusetts Transportation Secretary Richard Davey has been campaigning around the commonwealth for Gov. Deval Patrick’s plan to inject $13 billion in new tax revenue into roads, bridges and public transit systems. “Davey must boil down an elaborate, 63-page report into simple selling points, tailor-made for each community he visits,” The Globe’s Martine Powers reports. “In Northampton: Want better regional bus service? Tell your representative you want tax increases. In Stockbridge: Want a train running from the Berkshires to New York City? Ask your legislators for tax increases.” But Stephanie Pollack, associate director at Northeastern University’s Dukakis Center for Urban and Regional Policy (and a guest on our CSG webinar last month on the “States to Watch in 2013.”), tells Powers that Davey’s campaign efforts could be faulted for focusing too much on big, new projects rather than the roughly 80 percent of the plan that will go toward bridge and road repair, paying off debts, and transit maintenance.
  • Michigan: The House Appropriations Transportation Subcommittee last week passed a $3.5 billion transportation budget that is $1.2 billion less than the one proposed by Gov. Rick Snyder, reported Chad Livengood of The Detroit News. The legislature has so far been unable to agree on which taxes should be raised to produce the $1.2 billion in new transportation revenues Snyder is seeking.
  • Texas: The San Antonio Express News reported last week state Senate leaders believe the Lone Star State faces a fiscal cliff with regards to its highway funding. While the state funds about $4 billion in projects annually, it should be funding $6 billion to $8 billion to keep congestion from getting worse. Gov. Rick Perry and others have advocated taking money from the state’s rainy day fund to create a revolving loan fund for transportation and water infrastructure. Increasing the gas tax and the motor vehicle registration fee are also under consideration to help bring in more transportation revenues.
  • Vermont: The House of Representatives last week approved a 7 cent-per-gallon gas tax increase, WCAX reported. Both the state Senate and Gov. Peter Shumlin are said to support the measure, the Associated Press reported. The increase was approved despite Republican objections and anti-tax petitions submitted to lawmakers. The Vermont Digger had more on the House debate over the measure. Some lawmakers are also still interested in an increase in auto registration fees on vehicles that use little or no gasoline (and that pay little or no gas taxes), the newspaper’s political columnist Jon Margolis also reported recently
  • Virginia: Gov. Bob McDonnell has issued his recommended changes to the transportation package passed by the legislature. His proposed amendments include: reducing the proposed vehicle titling tax increase from 4.3 percent to 4.15 percent, reducing the Alternative Fuel Vehicles annual fee from $100 to $64, correcting and reducing the rate of taxation for the regional congestion relief fee, reducing the Transient Occupancy Tax in Northern Virginia, addressing potential legal questions regarding regional taxation authority for Northern Virginia and Hampton Roads, and ensuring transportation funds generated by the legislation are only used for transportation. According to the governor’s press release, “the bill reflects the principles of the governor’s introduced bill, which, as amended, reduces the gas tax by 35 percent and replaces it with a sales tax that grows with the economy, uses $200 million in current general funds, uses another $200 million in future general funds from the federal Marketplace Fairness Act, and ensures that alternative fuel vehicles pay a share of the maintenance of the roads.” Virginia Attorney General Ken Cuccinelli issued a ruling last week on the regional taxation authority portion of the bill, finding that under Virginia’s constitution, the General Assembly can’t impose different taxes in different localities of the state. Meanwhile, environmental groups are still unhappy with the transportation package’s tax on hybrid vehicles, despite McDonnell’s proposed amendment to cut it by $36, The Hill newspaper reported. “People who are doing their part to reduce oil consumption reward all of us with cleaner air and less climate pollution—but now Virginia will turn around and punish hybrid car owners,” argued Chesapeake Climate Action Network Virginia State Director Beth Kemler.
  • Washington: The Associated Press reported last week that Gov. Jay Inslee is now calling passage of a transportation funding package this year a priority just as momentum in the legislature appears to have stalled and as House Transportation Committee Chair Judy Clibborn is reportedly offering a scaled back version of the $10 billion funding bill she introduced earlier this year. With just more than a month to go in the legislative session, Clibborn is proposing a package that relies on gas tax and weight fees but that would jettison some other more controversial revenue mechanisms from her original plan including a car registration fee tied to the value of the vehicle, a hazardous substance tax and a $25 bike fee. Some Republicans in the state House of Representatives say they want to see government reforms before they’ll support a transportation funding package, The (Clark County, WA) Columbian reported recently. The group is supporting a package of six House bills it calls a “fix it before you fund it” plan. Included is a measure that would require the state department of transportation to provide justification if it makes transportation engineering mistakes that cost taxpayers more than $500,000.  The (Tacoma) News Tribune interviewed the state’s new Secretary of Transportation Lynn Peterson, an engineer by training who previously advised Oregon Gov. John Kitzhaber on transportation policy. In the interview, Peterson promised “to work on building trust with the citizens of Washington.” She’s begun a review of the state DOT’s decision making with regards to several mega-projects in the region.