States to Watch in 2014: Transportation Funding

It has been a busy year for states considering transportation revenue options. Maryland, Massachusetts, Pennsylvania, Vermont, Virginia and Wyoming all approved significant transportation investment packages this year. Several more set in motion plans that could come to fruition next year. But a variety of factors could mean we’ll see even more activity on the transportation revenue front in state capitals in 2014. There are states with unfinished business from 2013, states with recommended actions on the table that could ripen into legislation, states where diverse coalitions are pushing investment and even states that have had recent transportation funding success but that are still seeking more sustainable solutions for the future. Success for those states in 2014 is far from assured, especially given the number of governors and legislators up for re-election. But factors like continuing uncertainty at the federal level, infrastructure needs coming into sharp focus and the realization that fixing the infrastructure in the near term will be far less expensive than putting it off for another day could mean another busy year for state transportation funding efforts. Here’s my annual rundown of states to keep an eye on next year.  

  • California: A former director of Caltrans (the state department of transportation) and a current member of the California Transportation Commission are the forces behind a proposed November 2014 ballot measure that would generate an estimated $3 billion a year for road improvements by more than doubling vehicle license fees, The Sacramento Bee reported. Once the measure is cleared for signature gathering, supporters have up to 150 days to collect 807,615 valid voter signatures to qualify for the November ballot. A decision is expected in January. Car dealers and others have traditionally opposed past proposals to raise the fees. In a piece last month, SacBee columnist Dan Walters argued against the measure for other reasons: “It falls short of what’s needed and may not be the best way to raise highway money. Yet just raising the gas tax would largely exempt owners of hybrid and electric vehicles, whose numbers are increasing. Ideally, we would devise a new levy that’s tied more closely to real-world highway use, not only by cars but heavy trucks as well, and that charges motorists more for driving during peak travel hours, since morning and afternoon commutes put the greatest strain on roadway capacity. And, ideally, (Gov. Jerry) Brown and the Legislature would address this vital issue themselves, rather than shuffle it to the initiative process.” Supporters of the proposed ballot measure see it as just a first step and part of a more comprehensive infrastructure strategy they are proposing. The strategy also recommends granting local governments more authority and providing new tools to drive private investment.
  • Colorado: The Denver Post reported in September that a coalition comprised of the Metro Mayors Caucus and other groups was seeking support for a statewide sales tax that would raise $600 million a year for road repair and construction and transit projects around the state. Under the proposal, a 0.7 percent sales tax would be collected for a 10-year period with two thirds of the proceeds going to the state’s Highway Users Tax Fund and a third going to transit projects. The Colorado Department of Transportation would net about $243 million a year under the plan. But state transportation officials say they are short about $800 million to address such needs as maintenance, rural road safety and congestion relief.
  • Idaho: A new coalition that includes farmers and chambers of commerce is working to seek support for finding a way to raise $262 million in new revenue to cover the unmet annual maintenance needs that were identified in 2010 by a task force appointed by Gov. Butch Otter, The Idaho Statesman reported in October. But Otter, who led the charge on a failed 2009 effort to raise $174 million annually for roads and bridges, may not support the effort this time out. He’s seeking a third term in 2014 and faces a challenge from the right. Asking legislators to vote for any kind of a tax increase during an election year may also be a tall order. But leaders of the coalition have reportedly received a positive reception by emphasizing stewardship and the urgency of addressing the need now because it’s cheaper today than it will be down the road. They note that two of the last three gas tax increases in the state came in election years: 1988 and 1996. Among the proposed revenue generators under discussion: extending the 6 percent sales tax to fuel, which could be marketed as not a tax increase but the removal of an exemption. That would raise $175 million a year. A 50 percent increase in the state’s registration fees could bring in another $50 million, the coalition leaders say. Another proposal put forward late in the 2013 legislative session by Senate Transportation Committee Chairman Bert Brackett would have raised $237 million annually through a combination of fuel tax increases, higher registration fees, fuel transfer and overweight and oversized load fees, a new charge on electric and hybrid vehicles, the direction of sales taxes from tires and other vehicle equipment to roads and a new sales tax on short-term vehicle rentals. Brackett and another lawmaker, Rep. Clark Kauffman, have been discussing their transportation proposals with farm groups and others since April, The Capital Press reported.
  • Illinois: A 2013 report by the Transportation for Illinois Coalition said that over the next five years the state faces a shortfall of between $26.8 billion and $37.5 billion to fund highway and bridge maintenance, congestion, highway expansion, interstate modernization and safety. The coalition supported unsuccessful legislation introduced in May that could resurface in 2014. It would eliminate the flat rate per gallon tax on gasoline and replace it with a 9.5 percent tax on the wholesale price of fuel, much as Pennsylvania and Virginia did this year. In an October op-ed, Doug Whitley and Ben Brockschmidt of the Illinois Chamber of Commerce wrote that: “while this approach is more volatile and harder to predict receipts, the wholesale approach is expected to guarantee an increase in tax revenue, while reflecting market pricing that has consistently grown over the years.”
  • Indiana: House Roads and Transportation Committee Chairman Ed Soliday announced in October he will sponsor legislation in January that would exempt volunteer motorists from the 18 cents per gallon state gas tax and require them to pay a fee for every mile they drive, The Northwest Indiana Times reported. Oregon enacted a similar program earlier this year that is expected to get underway in 2015. Soliday’s bill would require the Indiana Department of Transportation to test different technologies and methods for assessing a per-mile charge and report back to the General Assembly in two years. “We need to keep moving forward on how we fund our roads,” Soliday said in October. “I’m not leaning in any direction, but to ignore what’s going on in the rest of the country would be foolish.” State lawmakers have had difficulty coming up with funding sources for transportation as Indiana’s 10-year Major Moves initiative winds down.
  • Iowa: Iowa faces a $215 million annual shortfall for critical road repairs, state DOT officials say. “We want to have a transportation funding conversation that begins by gaining an understanding that transportation matters,” IDOT Director Paul Trombino told AASHTO’s Transportation TV in November. “This is a conversation about meeting the needs of our customers—Iowa residents, farmers and businesses—and not necessarily a conversation about the gas tax.” Trombino and Gov. Terry Branstad in October circulated a two-page memo to lawmakers and lobbyists that included a series of nine potential transportation funding concepts for possible consideration during the 2014 legislative session, The Sioux City Journal reported. The concepts included increased fees (new registrations would increase from 5 percent to 6 percent to bring in $60 million; oversize/overweight vehicle permit fees would increase to bring in $10 million a year), tax swaps (the state per gallon fuel tax would be eliminated and replaced with a 6 percent state excise sales tax on fuel applied at the wholesale level, which could produce an estimated $467 million over 10 years) and the elimination of a tax exemption for farmers on the fuel they use to run their equipment. Under the latter proposal, that fuel would be taxed at the current excise tax rate of 5 percent but the money would go into a new Modern Agriculture Infrastructure Fund to fix rural roads and bridges. The Iowa Farm Bureau has said they couldn’t support such a move. They and others supported a failed three-year, 10-cent gas tax increase during the last legislative session. Branstad and Trombino have declined to endorse any specific proposals and reportedly want to see stakeholders lead the way in generating support for an eventual legislative package. If a course of action emerges, Branstad could include a recommendation in his Condition of the State address January 14. In recent weeks, Branstad has said he’d be open to using sales tax revenues to pay for road repairs. Until it was changed in 1975, 10 percent of the first 2 cents from the state’s 6-cent sales tax went to roads. A recent Des Moines Register editorial argued against that option because a sales tax is not a user fee in the way that the gas tax is: “It makes no sense to use sales tax revenue for roads because sales taxes are paid by people whether they drive a little, a lot or not at all.” Branstad has also declined to issue a veto threat if the legislature were to pass a gas tax increase. The state’s gas tax hasn’t been raised since 1989. State Sen. Jack Hatch, a Democratic candidate for governor, recently proposed a phased-in, 10-cent increase. He also wants to use one-fifth of the state’s current and future surplus funds for infrastructure spending. In a recent op-ed for the (Mason City) Globe Gazette, House Transportation Committee Chair Josh Byrnes, a Republican, said he was pleased to see Hatch’s proposal but questioned where the Senator has been for the last 10 years. “I am a fiscally conservative legislator and the fuel tax would appear to be the most conservative approach to funding our infrastructure,” Byrnes wrote. “In fact 10-20 percent of the fuel tax is paid by out-of-state travelers. It is a true user fee. … There is a lot of rhetoric from Iowa legislators claiming that raising the fuel tax will be an issue used against them politically. … I would ask my colleagues of both parties to push aside the fear of being re-elected and replace that fear with the leadership of doing what’s right for Iowa’s infrastructure.”
  • Massachusetts: The Bay State may have been one of the states to successfully approve transportation funding legislation in 2013 but that doesn’t mean lawmakers are done looking at how it might be funded in the future. House Democrats Carl Sciortino and Tricia Farley-Bouvier have introduced H 3142, a measure that would direct the state DOT to launch a pilot program with at least 1,000 volunteers that would test a mileage-based user fee system. Senate Transportation Committee Chairman Thomas McGee told the State House News Service it’s an important step to get the conversation started. “We take an opportunity to look at a whole broad range of things that I think you need to build support so that people feel comfortable with,” he said following a recent hearing on the bill. “I don’t have really a position right now on what we’re going to do on the committee on the bill, but I think it was really a healthy discussion today.” As the News Service article alludes to, McGee was one of the attendees at our CSG Transportation Policy Academy this summer in Portland, Oregon which included an extensive briefing on Oregon’s experimentation with mileage-based fees. McGee is also a member of the CSG Transportation Public Policy Committee, which at our most recent meeting in Kansas City approved a policy resolution calling for the creation of a federal program to provide seed money for states to explore alternative transportation funding options such as mileage-based fees.
  • Michigan: While Michigan was in the transportation funding conversation in 2013, little was accomplished to address the state’s revenue problems and the Michigan Department of Transportation finds itself facing reductions in the number of state highway projects. Michigan’s transportation revenues peaked in 2004 at just over $2 billion and was a little more than $1.8 billion last year, The (Lenawee County) Daily Telegram reported recently. Michigan’s gas tax stands at 18.7 cents per gallon and has not been increased since 1997. The pending insolvency of the federal Highway Trust Fund in 2015 is also of concern to state transportation officials. Michigan receives $1 billion annually from the federal government for transportation. Michigan DOT Director Kirk Steudle (who appeared earlier this year on a CSG webinar) said recently at a House committee hearing that the state legislature can’t wait much longer to boost road funding because the roads continue to crumble. “They’re going to continue to get worse every year,” he told reporters after the hearing. “So the worst part is, the longer we wait, the more it’s going to cost us to go forward.” Gov. Rick Snyder offered a number of proposals earlier this year aimed at finding a sustainable road funding source but they all met with strong opposition from lawmakers, who have shown no appetite for raising the gas tax, car registration fee or sales tax thus far. Snyder has said he wants lawmakers to come up with an additional $1.2 billion annually. But 2014 legislative elections could make the quest for those revenues even more challenging next year.
  • Minnesota: Minnesota DOT Transportation Commissioner Charlie Zelle has been on the road a lot this year in his state, having been charged by Gov. Mark Dayton with making the case for more transportation funding following a 2013 legislative session that saw lawmakers consider transportation tax hikes and then back off. The Star Tribune reported this month that lawmakers in 2014 could consider raising the gas tax for the first time since 2008 to fund road repairs and a half-cent sales tax in the Twin Cities metro area to fund transit. The Minnesota Transportation Alliance, a statewide advocacy organization made up of local government officials and business and labor groups, has issued a proposal that includes the option for either a new 5 percent tax on gross fuel receipts or a 7.5 to 10-cent-per-gallon fuel tax increase plus an increase in license tab fees. While action on the transportation funding front could face significant challenges in what is an election year both for some lawmakers and Dayton, there is precedent for such action, the St. Cloud Times noted last month. The last major gas tax increase in 2008 came during an election year when lawmakers overrode the veto of then-Gov. Tim Pawlenty. Dayton’s Transportation Finance Advisory Committee, which issued its findings last year (as detailed in my July Capitol Research brief) said the state faces a $50 billion funding gap during the next 20 years between available funding and what is needed to grow, improve and maintain the transportation infrastructure. For roads and bridges alone, the gap would be about $12 billion (or $5 billion just to maintain and repair existing facilities). At a recent forum Zelle said there could be alternatives to raising the gas tax, The Marshall Independent reported. He said he’s been researching a menu of potential options ranging from sales taxes to registration fees, tolls and mileage-based user fees. Dayton declined to support a gas tax increase in 2013 saying while such a move could buy the state a few more years, it’s not a comprehensive solution that will help close that 20-year gap and help the state make a long-term strategic investment in transportation.
  • Mississippi: Senate Transportation Committee Chairman Willie Simmons and other members of a Senate study panel have been at work this year on a plan they hope to pitch to the public and to lawmakers when they return in January. A preliminary report in August proposed as much as $700 million in new taxes, which would be the largest state tax increase in more than 20 years. Simmons said the proposal was just a starting point for discussion and has been inviting alternate proposals. The initial plan called for $358 million a year in higher gasoline taxes, more than $160 million in higher diesel taxes and the reduction of sales tax exemptions on agriculture and manufacturing by $76 million. The tax on gas would go up by 8 percent and be indexed to inflation. The diesel tax would increase by 9 percent. But many civic and business leaders in the state are fighting the plan, contending the state DOT is inefficient. Still, some Mississippi transportation leaders say the state faces a choice between more gas taxes or a construction standstill. Supporters of efforts to spend more on Mississippi roads have formed a group called the T1 Coalition and enlisted former lawmaker Charlie Williams of the Butler Snow law firm to coordinate the push for more funding in 2014.
  • Missouri: Earlier this year, the state legislature considered a widely supported proposal to ask voters to approve a one-cent general sales tax to fund transportation projects. Changes made to the proposal in the House ultimately derailed the effort. But the idea is back in the form of a citizen-led initiative petition to get the question on the November ballot. One of the folks behind the push is Bill McKenna, a former state senator and state highway commission chairman who also co-chaired the Blue Ribbon Citizens Committee on Missouri’s Transportation Needs (as detailed in my Capitol Research brief this year on Transportation Funding Commissions). The initiative petition would keep the state’s gas tax unchanged (it’s been 17 cents-a-gallon since 1996) and prohibit toll roads for the next decade. Petitioners have until May to gather more than 157,000 signatures to get the one-cent sales tax on the statewide ballot. The Missouri Department of Transportation would assemble a list of road, bridge and transit projects for the public to review before the vote. If approved by voters, the tax would be effective January 1, 2015 and sunset after 10 years. But the Kansas City Star recently editorialized against using the sales tax to fund transportation, saying the plan has several flaws, including: “It is a big leap away from the ‘user pays’ world in which motorists help finance road repair and construction through a gasoline tax. While raising about $800 million annually, it would bump up the costs of everyday necessities such as food. It largely would fall on Missourians; many drivers from outside the state who use the state’s roads would pay little if anything in sales taxes to maintain them. It would continue the race to jack up regressive sales tax rates.” The newspaper argues instead for a gas tax increase and the attachment of an indexing mechanism to help keep pace with inflation. “That’s an excellent concept—used by a total of 16 states—and one that Missouri ought to consider,” the editorial writers argue.
  • New Hampshire: Senate Transportation Committee Chairman Jim Rausch, a Republican, said recently he will lead the effort for an increase in the state’s gas tax in 2014, which would be the first since 1991. Legislation to implement a phased-in, 12-cent increase passed the Democratic-controlled House earlier this year before being rejected by the Republican-controlled Senate. Rausch’s new proposal would start with a roughly 4-cent hike in 2014 and link future gas tax increases to the rate of inflation starting in 2018. According to the National Conference of State Legislatures, three states (Florida, Massachusetts and Maryland) now have laws that link their gas tax rates to inflation. Twelve more states have variable-rate taxes based on other measures such as the price of fuel itself. Rausch plans to introduce his measure in January when lawmakers convene for their 2014 session. But Senate President Chuck Morse, also a Republican, has said he won’t support a gas tax increase arguing “it hurts the people who can least afford it,” The Union Leader reported. State DOT officials say a $20 million annual deficit in the state highway fund will mean hundreds of potential layoffs in FY 2016 for the agency. Morse said the agency needs to live within its means and that the state will have to look at reducing spending rather than increasing taxes or tolls.
  • Texas: Voters will have the chance in November to consider a ballot measure to cut in half the 75 percent of the gas severance tax on natural gas production. Those revenues currently go into the state’s Economic Stabilization Fund, also known as the Rainy Day Fund. If the measure is approved, 37.5 percent of the tax would go to fund roads. Supporters say that could generate about $1 billion annually. But that’s just one-fourth of the amount the Texas Department of Transportation has said is needed to maintain existing roadways and current congestion levels. TxDOT says even more would be needed to alleviate congestion in rapidly growing communities like Austin. During the 2013 legislative session, lawmakers appropriated $225 million for state roads in south and west Texas impacted by energy sector development. That too was just a fraction of what TxDOT officials say is actually needed. The agency began moving forward with a plan to convert some badly damaged paved roads to gravel. But lawmakers balked at the plan and the conversions were put on hold. Some argue it’s long past time for the state to get out of the cycle of inadequate solutions it has been in for some time. Paul Burka writes in the November issue of Texas Monthly: “So should we just take more money from the bulging Rainy Day Fund? It’s tempting, but relying on our oil and gas bounty to partially fund overdue investments in infrastructure is no way to run one of the world’s largest economies. The point is that roads aren’t free. They cost money—big money. … If the public wants to be able to drive around the state on safe, uncongested roads, it should pay for the privilege.”
  • Utah: The state’s long-range transportation plan has identified $54 billion in needed maintenance and road and transit projects and an $11 billion shortfall to meet those needs. Among the revenue generating options reportedly under consideration: allowing counties to impose their own gas taxes (something the business community opposes), a statewide increase in taxes on all fuels including compressed natural gas, a standard sales tax on gasoline, increased fares for public transportation and applying an indexing mechanism to the state’s fuel tax. But some think it will be difficult to pass any kind of tax increase during an election year, especially if it doesn’t have the support of Gov. Gary Herbert.
  • Washington: A transportation funding plan couldn’t quite make it across the finish line in 2013 but state legislators (including CSG Transportation Public Policy Committee Chair Judy Clibborn) maintain hope for passage of a bill during a possible special session in the first full week of January. Clibborn said there likely needs to be a deal in place prior to January 13th, when the 2014 legislative session begins, because the various components of the legislation would have to start over moving through the committee process. A recent Yakima Herald-Republic editorial outlined how close the Democrat-controlled House and the Republican-controlled Senate may be to a deal: “Both sides agree on a phased-in gas tax increase, curiously higher in the Republican proposal: 11.5 cents per gallon in the (Senate) Majority Coalition plan, 10.5 cents from the Democrats. The Senate’s plan would cost about $12 billion over 12 years, the House’s $10 billion.” Also at issue for the 2014 session is a sales tax the state imposes on transportation projects, which currently goes into the general fund. Some Republicans want that money to now go to the motor vehicle account. But Democrats say that will take away funding for education and other programs.
  • West Virginia: The Blue Ribbon Commission on Highways formed by Gov. Earl Ray Tomblin issued its recommendations earlier this year to fund road construction. The suggestions are expected to form the basis for legislation during the 2014 session. The panel reportedly considered increased tolls on the West Virginia Turnpike, increased vehicle registration, title and driver’s license fees, redirected sales tax revenues, and new alternative fuel vehicle annual registration fees. All of that combined could generate just over $100 million a year, which is much less than the $1.3 billion a recent engineering study said is needed to maintain current roads and expand the state’s infrastructure. To make up the remaining $1 billion, the state could borrow money through road bonds and pay back the debt over time with Turnpike toll revenues, much as Ohio did with a recent $1.5 billion bond issue.
  • Wisconsin: Gov. Scott Walker said recently he wants a sustainable transportation funding alternative to the gas tax to factor into the next state budget, the Milwaukee Journal Sentinel reported. Walker has tasked Transportation Secretary Mark Gottlieb (whom I interviewed for my July Capitol Research brief on Transportation Funding Commissions) with trying to find a breakthrough solution that could make a national splash. In recent years, Walker and lawmakers have used borrowing, existing income and sales tax revenues and project delays to cover budget gaps. They chose to mostly ignore the recommendations of the Governor’s Transportation Finance and Policy Commission chaired by Gottlieb, which included a 5 cents-a-gallon gas tax increase, increased registration and driver’s license fees, the creation of a new mileage-based fee and the elimination of the sales tax exemption for trading in cars.
  • Wyoming: I know what you’re saying: Wasn’t Wyoming, which raised its gas tax by 10 cents in 2013, one of the year’s transportation funding success stories? Well it turns out it may not be enough. The Wyoming Tribune Eagle reported last month that Gov. Matt Mead may ask for more for roads in the 2015-16 state budget. While the gas tax increase is expected to generate $72.4 million a year, only about $47 million of that is slotted to go to state highways. Much of the rest is sent to localities. State transportation officials meanwhile say they still need $64 million more a year just to maintain state highways in their current condition. But an increase in road funding will likely have to come out of the state’s general fund rather than another gas tax increase so quickly on the heels of the last one. In 2011, lawmakers rejected Mead’s plan to divert some of the state’s mineral tax revenues to highways. Republican Sen. Michael Von Flatern, who co-chairs the legislature’s Joint Transportation Interim Committee, has said he would support additional funding for highway maintenance since the repairs would cost more in the future.

Is Your State Missing?

Is your state not on the list? Are there significant transportation revenue discussions on the horizon in 2014 where you are? Let me know about it so I can feature your state in a future blog post. There also will be plenty of opportunities for additional kinds of follow-ups and addenda next year, including our annual webinar on the states to watch (details coming soon). Drop me a line at sslone@csg.org.