Tuesday, July 16, 2013

The Transportation Fund deficit- worse than you know

A place that isn't brought up when discussing Wisconsin's budget situation is the Transportation Fund, which is separate from the state's General Fund (which is where talk of "surplus" and "deficit" often come from). And if you look at the future numbers and trends in both Wisconsin and nationwide, you can see where a funding crisis for the Transportation Fund is on its way, and while the Walker Administration tried to kick the can down the road in this latest budget, they may not get their wish, as a deficit could well appear before the 2014 elections.

This budget's Transportation Fund started with a $63.5 million deficit that had to be repaired, in no small part because the Walker Administration estimated gas tax receipts much higher than reality indicated. So how was this deficit closed without raising the state's gas tax our adding a lot of new fees for drivers and vehicle owners? By doing the same kind of accounting tricks and one-time fixes that Scott Walker promised voters in 2010 that he wouldn't do.

The Wisconsin Budget Project discusses how Republicans large amounts of general tax money and other non-transportation fees, and moved those funds into the Transportation Fund. This includes more than $71 million in General Fund taxes (put in place starting in 2011), another one-time shift of $133 million from the General Fund, and $44 million from the Petroleum Inspection Fund. So that's $248 million thrown into the Transportation Fund, and it doesn't count another $200 million of General Fund borrowing that's also going to pay for Transportation Fund projects over these next 2 years.

And as Matt Pommer wrote this week, even with all of these fund shifts, the state's Transportation Fund is looking at serious financial difficulties for the near future, especially if the state wants to finish all the projects it plans on.
State officials opted to borrow in order to maintain and increase the level of highway spending. Highway-linked debt service reached $306.9 million in 2012, the Wisconsin Taxpayers Alliance noted in a recent report.

"Rising debt-service costs mean fewer dollars available for highway construction and repair or for other transportation needs," the Alliance report noted.

It's going to get worse.

The gubernatorial transportation finance commission has warned that debt service could claim nearly 25 percent of transportation revenues in a decade. The gap will continue to grow.

"Existing transportation taxes and fees are expected to generate $25 billion over the next 10 years," the Alliance said. To maintain current levels of service the state would need $30.8 billion in the next decade. In January the Transportation [Finance and Policy] Commission suggested spending $31.8 billion in the next 10 years.
So where do we stand for the next 2 years and beyond? The LFB says that gas consumption in Wisconsin is projected to grow a tiny 0.2% in this fiscal year, and 1% for 2014-2015. But that would seem to fly in the face of the most recent projections of the Energy Information Administration, which have slight drops in U.S. gasoline consumption for 2013 and 2014. If that's true, then the Transportation Fund is already looking at an $8 million deficit. Now $8 million is a small amount that can be easily be fixed, but the reduced consumption also comes with the EIA projection saying gas prices should stay level over the next two years. Let's say we get some kind of gas spike or even a steady rise of 10-20 cents a year for these next two years. Well, we got a bigger deficit that has to be filled.

And then that doesn't go into the problems that loom for 2013-2015. There's a projected increase in projects in order to keep up with the state's delayed infrastructure needs(remember, some of these projects were put off to balance this budget). In addition, there are $175 million in one-time General Fund and Petroleum Fund transfers that are unlikely to continue, since the General Fund already has a $500 million+ deficit staring at it for the next budget (due to the Koo-Koo Tax cuts and related mismanagement). Lastly, there has been a huge increase in borrowing for projects in this budget, which in itself will raise debt service costs for future budgets. But those assumptions were done at a time when the 10-year Treasury Note was at 1.6%, not the 2.6% that it's at now. It's still pretty low and worth borrowing for, but it'll certainly raise those costs in the current and future budget.

So you tell me how the next governor (or God Forbid, Scott Walker) is going to be able to fill in all of these needs without raising gas taxes or fees on driver's licenses? They can't, unless they massively cut back on local road or transit aids or needed highway projects- both of which are already well behind the maintenance levels they were at 5 years ago.

Keep your eye on this, especially if we have a slow tourist season this Summer, which is a huge source of the state's gas tax revenues. We certainly will have a Transportation Fund deficit, the only question is if it blows up before the 2014 elections, or right after it.

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