States siphon gas taxes for other uses

Link to article here.

As much as conservatives like Mike Lee and others argue in favor of scrapping the federal highway program and handing the task off to states, this is why we can’t rely on states to do a better job than the feds - they’re broken, too. We need to fix what’s wrong at every level of government when it comes to highways. They need to top pilfering our road taxes for non-road purposes, especially transit and rail boondoggles and these hike & bike trails that canabalize parking in downtown areas and take away scarce road dollars needed to ease congestion.

States Siphon Gas Tax for Other Uses
Makes Them More Reliant on Federal Assistance for New Infrastructure
By Damian Paletta
Wall Street Journal
July 16, 2014 8:53 p.m. ET

States are allotting a growing share of the funds they raise from gas taxes to debt service and spending unrelated to roads and bridges, making them more reliant on federal assistance to pay for new infrastructure.

The shrinking pot of state cash is one reason why governors increasingly are in a panic over a congressional impasse about replenishing the federal Highway Trust Fund. The federal fund, too, is running out of money and will cut disbursements to states in August if Congress doesn't intervene.

Texas spends 25% of its fuel-tax revenue on education programs. Kansas has allocated some of its gas-tax revenue to pay for Medicaid and schools. Nationwide, making interest payments on debt used to fund existing infrastructure projects is one of the biggest state expenditures.

Allen Biehler, who ran Pennsylvania's transportation department for eight years before joining Carnegie Mellon University in 2011, said many states pursued bond financing to accelerate projects only to get caught short when the payments came due.

Debt payments "produce a real albatross around the neck of the states," forcing many to seek federal assistance, he said.

New Jersey is projected to collect $541 million in state gas-tax revenue this year, of which $516 million has been set aside to pay for about $1 billion in debt interest. New York last year collected about $2 billion in fuel, auto-rental and related taxes and fees.

Those dollars went into a fund that paid $1.4 billion on debt interest payments, up from $870 million in 2008.

Washington state estimates it will spend 70% of the fuel-tax revenue it brings in during the next decade on paying off debt for past projects.

Compounding the problem, gas-tax revenue has come in below targets in many states, in part because of a rising use of fuel-efficient cars and weaker-than-expected economic growth. Nationwide, states collect more than $40 billion a year in gas-tax revenue.

Republican and Democratic governors recently have been prodding Congress to resolve the issue to ensure that federal highway funding, which is financed in large part by the federal gasoline tax, isn't halted.

The House this week passed legislation to allow the trust fund to continue making payments through May. The Senate will take up the House's $10.8 billion measure, with a vote possibly next week, said a Senate Democratic aide.

Some Senate lawmakers, however, have objected to the short-term fix. Several House conservatives have proposed cutting the federal gas tax and giving states more flexibility to spend money raised through their own taxes.

Consumers pay state and federal taxes on gas, with the federal government expected to collect more than $30 billion in fuel taxes this year. But the federal government is set to spend more than $40 billion through the Highway Trust Fund in 2014, allocating the money through formulas that depend on where the revenue was collected.

State gas taxes range from 71.3 cents a gallon in California to 12.4 cents a gallon in Alaska.

Some states, such as Ohio, Minnesota, and Missouri, stipulate that no more than 20% of road and bridge revenue can be used for debt service to ensure that the majority of fuel taxes go toward construction.

"Bonding has been a sound way for [the Minnesota transportation department] to fund projects that might otherwise have to wait," Tracy Hatch, the Minnesota agency's deputy commissioner, said in an email. "In recent years we have leveraged low interest rates which have allowed us to stretch our transportation funding further."

Other states took another route.

In 2001, Oregon began issuing debt to pay for highway projects and "front loaded" the borrowing to hasten the work.

Construction spending jumped from $350 million a year in 2002 to nearly $700 million in 2009. The money was used to repair hundreds of bridges, repave roads, widen lanes, and redesign highway interchanges, among other things.

Most of the projects have been completed, but paying off the debt likely will take decades. The state pays about $210 million a year in interest on the bonds—about 35% of state highway spending.

Travis Brouwer, the Oregon transportation department's assistant director, said the approach was "reasonable and prudent," but added that it would take the state three decades to repay the debt.

He said all agency funds, including gas taxes, are being directed toward bond payments, basic road servicing and administrative costs, with nothing left for new projects.

"We will not have any additional money from the state side, so we will have to rely on federal funding going forward," he said.

—Siobhan Hughes contributed to this article.