What's involved with Prop 1?

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Issues to consider when voting on Prop 1
By Terri Hall
October 12, 2014

Many Texans are struggling to decide whether or not to support the upcoming constitutional amendment  known as Proposition 1 on the ballot November 4. Prop 1 would take half of the oil and gas severance tax currently collected on oil and gas production (that goes to capitalize the state’s Rainy Day Fund), and allocate those funds to the state highway fund for the next 10 years.

There are many issues to consider when deciding how to vote. Many Texans wonder why there needs to be an amendment to the constitution to address highway funding. They think the federal and state taxes, or user fees, we pay on every gallon of gasoline pay for highways. Few Texans are aware of the structural road funding shortfall facing Texas and the nation.

Texans pay 20 cents per gallon for state gasoline tax and everyone pays 18.4 cents per gallon in federal gasoline tax. Neither tax has been raised in more than 20 years. It's not indexed for inflation, nor do either adjust when the price of gas goes up or down. So we’re trying to build today’s roads with a twenty-year-old revenue stream. The Texas Department of Transportation (TxDOT) is $4-5 billion a year behind in its ability to properly build and maintain the state highway system.

Lawmakers on both the state and federal level have exacerbated the problem by habitually raiding highway funds for non-road purposes. On the federal level, the diversions are primarily spent on transit programs, with a huge emphasis on hike and bike trails and commuter rail under the Obama administration. On the state level, twenty-five percent of the gas tax goes to fund public education, which voters approved decades ago through yet another constitutional amendment. State lawmakers have also raided gas tax for non-road purposes beyond those allowed in the Texas Constitution. According to the Texas Public Policy Foundation, forty-seven percent of the state gasoline tax is diverted to non-road uses. Whether it’s used to plug the holes in public pension funds or to buy school buses, the abuses have been persistent.

Despite promises to end state gas tax diversions session after session, lawmakers barely made a dent last session. Due to this lack of fiscal discipline, lawmakers have turned to toll roads and massive borrowing using debt financing to kick the can down the road. Few legislators want to raise the gasoline tax and prefer to outsource the tax hike to unelected toll authorities or private toll corporations rather than face the wrath of voters by directly voting to raise taxes. But now taxpayers have figured out tolls are taxes and the most expensive way to fund roads and an anti-toll revolt is spreading like wildfire.

So what can be done to start fixing the road funding shortfall?

Upside to Prop 1
Prop 1 is projected to send $1.7 billion a year in funds to highways without raising taxes. So passage of Prop 1 helps solve about twenty-five percent of the funding gap. Because of the aforementioned toll revolt, lawmakers made sure the Prop 1 funds cannot be used for toll roads. Some also see a natural tie-in to oil and gas severance tax and roads. Indeed one of the arguments for levying a severance tax in the first place was to help the state keep up with road maintenance and repair caused by natural resource extraction. Texas is blessed with a shale oil boom that’s been swelling the state’s Rainy Day Fund. Once the fund reaches a certain level, the excess spills over into the General Fund, which is primarily spent on education and public health which are unrelated to roads.

The legislation also requires a minimum balance to be maintained in the Rainy Day Fund before any funds can be transferred to the highway fund. Hence, emergency funds cannot be drained dry from passage of Prop 1. It can also help retire Texas' out of control road debt - now the largest in the country at $31 billion in principle and interest.

Downside to Prop 1
However, many fiscal hawks feel the legislature should be funding roads out of existing funds, not with revenues that normally fund the state’s emergency fund, particularly since lawmakers just placed an amendment to raid the Rainy Day Fund for water infrastructure just last year. Conservatives were angered when budget writers failed to fund both roads and water in the regular budget last session, forcing lawmakers to dip into the Rainy Day Fund in order to cover the basics. Infrastructure is one of the core functions of government and legislators should be prioritizing the taxes we pay to get the job done.

Prop 1 is their get out of jail free card absolving them from making tough decisions on the budget. Prop 1 could also free-up other money to continue borrowing and tolling elsewhere. Since it won’t fix all the problem, TxDOT can spread the new funds around so that no single project is fully funded, and therefore still needs toll elements on it. Others reject Prop 1 based on the notion that it moves away from a user fee model (like the gasoline tax) to one borne by oil and gas producers. They argue those who use Texas roads from out of state would not be paying for their road use as they do under the gasoline tax system.

However, this legislation isn’t repealing the gas tax. The state will still capture that usage. Prop 1 is in addition to the current gas tax. The gas tax will still capture road use from all who drive Texas highways. Former State Rep. Tryon Lewis wants to see the gas tax increased to fix the shortfall, however, to get $4-5 billion more per year from a gas tax hike would require nearly tripling the 20 cent per gallon state gasoline tax. Not one sitting legislator would vote for such a hike, nor do voters want such a dramatic tax hike.

Other solutions
Both gubernatorial candidates, Greg Abbott and Wendy Davis, are fleeing from toll roads, but Abbott has laid out a comprehensive transportation plan that will end gas tax diversions, dedicate vehicle sales taxes to roads, and fix the highway funding shortfall without new tolls, taxes, or fees. That requires finding $4-5 billion in cuts from the current budget in order to re-direct those dollars to highways. Both candidates also support passage of Prop 1 as part of the mix of necessary solutions to address road funding shortfalls. So it appears help is on the way with or without the passage of Prop 1, but Prop 1 certainly makes bridging the gap a lot easier for those tasked with fixing it. Taxpayers need to be involved in the process every step of the way to ensure our highway system gets properly funded and the new hidden toll tax onslaught gets nixed, or the punitively expensive double taxation will continue in earnest.