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Lawmakers taking Texas off fiscal cliff with road debt
By Terri Hall
January 10, 2013
Thirty-one billion and counting. That’s how much road debt Texas Governor Rick Perry and Texas lawmakers have racked-up since they abandoned pay-as-you-go and started down the road of borrow and spend road policy. In fact, federal data shows Texas has the highest road debt of any state in America. Texas officials have been building roads with credit cards, and they're maxed out. Local debt incurred by toll authorities, cities and counties is equally out of control with just the North Texas Tollway Authority at $9 billion and climbing.
Indeed, the transportation picture looks bleak. If lawmakers fail to get the Texas Department of Transportation (TxDOT) adequate traditional funding this session, Texans will be faced with more of the same failed policies -- unsustainable debt, failing toll roads subsidized with tax dollars, and public private partnerships that sell-off our public infrastructure to private corporations that charge oppressively high tolls with impunity for generations.
Texas, we can do better.
In each inaugural speech, all three state leaders, Governor Perry, Lt. Governor David Dewhurst, and Speaker Joe Straus, said transportation and infrastructure will be a state priority this session. It's incumbent upon Texans to ensure such promises aren’t just lip service. We need bold leadership to secure a pro-taxpayer, pro-freedom transportation policy, and not the debt - toll road - P3 Perry model that got us into this mess.
Outflanked by inflation
The primary method of funding roads up until 2003 was motor fuel tax and associated vehicle registration fees. In 2003, the legislature under the governor’s leadership made a conscious decision to shift away from an affordable gas tax funded freeway system to a network of ghastly expensive toll roads.
Perry’s Transportation Commission passed a Minute Order later that year mandating that it study ALL new capacity for tolling. If they could get away with tolling even a portion of a highway (even if it wasn’t going to be self-sustaining and needed public subsidies), it was gonna be tolled, whether Texans wanted it or not.
Many Texans aren’t aware that the gas tax is a fixed amount - 20 cents per gallon - and does not adjust for inflation or with the price of gas. It’s been 20 cents a gallon unchanged since 1991. Ditto for the federal gas tax. It, too, is a fixed amount - 18.4 cents a gallon - unchanged since 1993. Also, twenty-five percent of the gas tax is constitutionally dedicated to public schools in Texas.
Naturally, inflation has eaten into the buying power of gas taxes, so it’s become a declining source of revenue. This coupled with the increased fuel efficiency of today’s vehicles and cars that use alternative fuels, the gas tax has fallen short of meeting the need. Lawmakers have been dipping into general revenues on both the federal and state level to fill the gap, but that’s not a wise, nor sustainable approach, especially when all vehicle-related and road taxes collected are not going to fund roads.
Lawmakers have a long practice of raiding gas taxes for non-transportation uses, making the hole that much bigger. Billions bigger. It’s also the primary reason Texans refuse to consider any tax hikes for roads. They expect and deserve to have the taxes collected for a specific purpose go to funding that purpose. The governor finally awakened to this principle of truth in taxation, and made it part of his budget compact for the session.
Kicking the can, because they can
But that’s not enough, not nearly enough to fix the problem. There is a fundamental structural shortfall in road funding. That’s what lawmakers need to address. They could end all gas tax diversions tomorrow and it still wouldn’t come close to funding the need and end the reliance on tolling.
Vehicle sales tax, a $3 billion/yr pot of money, is being dumped into general revenue instead of funding roads. Yet lawmakers gripe that if they gave that money to roads, it would leave a gaping hole in the budget. They simply don’t want to deal with that, and they’d rather look at raising taxes or continuing to rely on punitively more expensive toll roads than face the debt bomb they’ve created.
Every year, a greater portion of TxDOT's budget is eaten-up with retiring debt, not fixing today's needs. State spending has exceeded population growth and inflation by nearly 300 percent since 1990, double since Perry took office. No more kicking the can down the road another two-year budget cycle. Road planning can’t operate that way.
Road planning can take years, even decades, and most big projects in metropolitan areas have hundreds of millions, if not billion-dollar pricetags. Absent a reliable funding source and the allocation of funds needed to get projects started, road planning comes to a standstill, and our highway department isn’t prepared when new funds become available. We saw this when TxDOT announced it identified $2 billion in un-obligated funds through cost-savings and re-structuring its debt in 2012. But few metro areas had any projects ‘shovel-ready’ to utilize the funds in the time-frame TxDOT leadership imposed.
For instance in Austin, they literally had no projects ready other than toll projects. Most officials will tell you that tolling is a placeholder until they get the money to do it non-toll -- they say that to pacify taxpayers freaked out about all the toll projects on the books. But that’s not the case in Austin. Their local Metropolitan Planning Organization gave the toll authority the $230 million allocation for the Austin region, which was all TAXPAYER money, to add toll lanes on MoPac. No, your eyes didn’t just go fuzzy. You read that right. They have the money to add new lanes to MoPac toll-free, but they still chose to force taxpayers to pay tolls for those new lanes anyway by turning that allocation into a ‘loan’ to repaid with tolls. Taxpayers shouldn’t be a bank for toll authorities.
A similar situation occurred when the $3 billion in Prop 12 bonds ended up squeaking into the final budget in 2011. Some areas of the state were flat-footed and had no projects ready to use that money. In San Antonio, they had NO shovel ready projects. They had to invent a project that was not even in the local or state plans in order to use its allocation by the deadline.
TxDOT Districts have been so starved of resources and forced to outsource virtually all of its design under these ‘innovative financing’ techniques encouraged by Perry, they literally have nothing ready to go. So, much of the funding went to low-priority projects, not the big ones on the priority list - the 100 Most Congested Roads List. TxDOT planning is in total chaos, largely due to the structural shortfall in funding. Should they be ready for projects when they get new funding? Absolutely, but when it’s inconsistent and not a stable, reliable long-term source they can count on for planning out into future, it makes proper planning much more difficult.
The Greer Model
Under former Transportation Commissioner and State Highway Engineer of TxDOT Dewitt Greer, that never happened. He always had projects ready to go and in the pipeline in preparation for any new funding. He also strongly believed in economy and eliminating waste. He was known as a tightwad and never tolerated even the appearance of a conflict of interest. He once dismissed a close friend for violating that policy.
Particularly after World War II, Dewitt and his engineers burned the midnight oil to prepare detailed maps, plans, and designs for what was to be the greatest expansion of the highway system man has ever seen before or since, particularly the farm-to-market system which shifted Texas demographics permanently. Greer could build a lane-mile of highway for 40% less than the national average. His saying was - “If you let the outgo exceed the income -- out you go.” It’s high time we implement his wisdom once more. Back to pay-as-you-go, or out you go!
We don’t have that level of efficiency at TxDOT today. We have a dismantling of the efficient, cost-effective Greer model and a deliberate shift by the governor and lawmakers to an inefficient, higher-cost ‘innovative finance’ experiment that benefits big banks and private toll operators who finance the debt, and that punishes taxpayers by forcing them to pay far more to get congestion-relief than under an affordable, gas tax funded system. In many cases, the taxpayers are subsidizing toll roads they can’t afford to travel.
What are other states doing?
Oregon is eying a road use tax on hybrid and electric vehicles that can avoid the gas pump where most road taxes are collected. Republican Governor Bob McDonnell of Virginia, a P3 haven, just announced his transportation plan that gets away from reliance on tolling and controversial P3 privately--operated toll projects, and moves to repeal the gas tax and replace it with a small hike in sales tax. His plan also includes a vehicle registration fee hike and other taxes to fund transit and rail.
But in Texas, we have better options before us. We don’t have to raise taxes to get the revenue we need to fix the funding gap for roads. Just dedicate the taxes we already pay to roads (ending gas tax diversions and getting vehicle sales tax over to roads), and you hit the number - $4 billion year. But it’s got to be quicker than we’re seeing in current proposals (which take a decade). Otherwise, more tolling and debt will ensue.
Hybrid and electric vehicles already pay vehicles sales tax and registration fees, and the price of a car goes up with inflation automatically with the free market. So vehicle sales tax cries out as the solution.
Since the governor recognizes that government spending needs to be restrained to population growth and inflation, adjusting the gas tax for inflation (but not beyond) should at least be considered as part of a comprehensive overhaul of how we fund roads in Texas. When Texas Comptroller Susan Combs just announced that revenues are $9 billion more than anticipated, there's certainly room to get the needed money to the state highway fund.
So policy makers need to be held accountable if they fail to address one of the core functions of government -- building and maintaining a freely accessible public road system. The financial dire straits of our highway department necessitates a transportation-intensive session and the leadership necessary to get the job done. Just do it.