Upgrading America’s Infrastructure: Fiscal Compromise?
Upgrading America’s Infrastructure: Fiscal Compromise?
by: Valerie Martinelli, MPA
There has been much discussion lately on increasing the gas taxes as well as the potential political and voter support. The federal gas tax has not been increased in over 20 years and most state infrastructure is suffering nationwide as a result of increasing construction costs. The Highway Trust Fund is nearing insolvency and is need of its own permanent solution. Some states have grown tired of waiting for a solution at the federal level and are now seeking options at the local level. For example, New Jersey, Utah, South Carolina, and South Dakota are all considering raising their gas taxes in order to fund infrastructure repairs. Connecticut is considering tolls with a lockbox. What is a good idea? Bad idea? Most importantly, what’s the most functional option?
Increasing Gas Taxes
Increasing gas taxes could obviously be difficult to sell to voters whom have just begun to pay the lowest gas prices in years and may be unwilling to pay more so quickly. Gas taxes have long been unable to support infrastructure repairs. This is mostly because the funds have been utilized to pay for other requirements. Texas spends 25% of its fuel tax revenue on educational programs. Kansas has spent some of its gas tax revenue on schools and Medicaid. Making interest payments on debts utilized to fund infrastructure projects is one of the largest state expenditures nationwide. These debt payments oftentimes force states to seek federal assistance, which is also shrinking. There are some states that stipulate how much revenue can go towards construction. Ohio, Minnesota, and Missouri all stipulate that no more than 20% of road and bridge revenue can be utilized towards debt service. This ensures that the majority of fuel taxes go towards construction. Federal legislation that allows for temporary fixes are not nearly as effective as long term solutions. States are taking matters into their own hands because infrastructure repairs cannot be put off for much longer.
In 2014 the White House issued a report intended to drum up support for increased transportation spending. My home state of Connecticut was rated with the roughest roads in the nation and its bridges were ranked the third worst in the nation. According to the report, 41% of the roads were in poor condition and the bridges were deficient or obsolete. For many years our gas taxes have not paid for road repairs and our transportation network has long been reliant on many funding sources. Our current leadership is seeking the reinstatement of tolls with the application of a lockbox in order to fund repairs and an improved, upgraded transportation network. That may sound all well and good but unfortunately, there are a few issues with this idea. Without the diversion of other resources, it will leave the state solely reliant on the unpredictable funds of tolls. It can be argued that a lockbox is simply political cover for increasing taxes and/ or fees without taxpayers’ knowledge. Lockboxes have long been picked by many states. If that was the case, it would leave no funding for transportation projects and repairs. In some states, lockboxes are defined in a constitutional amendment, transportation bond provision, or statute. An option to consider is a type of regulation that is managed by some states. This regulation is the requirement of a declaration of a fiscal emergency and the state legislature’s mandatory approval prior to utilizing those funds for other purposes. In Connecticut’s case, all of the other sources of transportation revenue would require similar “lockbox” type protections in order to ensure that they continue to fund new projects, road, and bridge repairs. The largest issue of employing tolls is consumer driven. Consumers are sensitive to those prices. Considering that the idea of increasing gas taxes is also possible in a few states, this could compound any consumer driven sensitivities as well. A study conducted by Parsons Brinckerhoff concluded that drivers will drive 15 to 20 minutes out of their way to avoid paying a toll.
Public-Private Partnerships: Strategy and Investments
P3s may be an excellent solution to infrastructure issues nationwide. However, it also is dependent on individual states and their project requirements. If a new bridge or new rail system is necessary, a P3 may be an excellent option because it would allow for private sector funding rather than solely the cash strapped public sector. There have been many successful P3 infrastructure projects nationwide. The decision is a strategic one that will allow for private sector investments, project assistance, and expertise. However, the public policy environment must be prepared for one. For example in Connecticut’s case, the Department of Transportation analyses from last fall detailed that engineering and inspection work completed by private contractors drove up the costs. The report specified that the work completed by private contractors cost 36% to 52% more than that completed by state employees. Privatization is a concept that oftentimes within a P3, has already left negative feelings in this state. These negative feelings will play a role in the public policy environment with legislators, labor unions, public sector employees, and voters, all important stakeholders within a P3. Without their support, a P3 would not be successful. A huge part of a P3 is the political risks, which is evident in this case.