A second deficit to close in Wisconsin - the DOT Fund

I imagine quite a few of you are driving less over the last 2 ½ months, whether it’s because you’re working at home, not working at all, or not going out as much. This likely means you are spending much less in gas as a result, which might be nice for you in these awful economic times.

But it also means our state’s Department of Transportation is going to have less money going in, which means we have another area of budget difficulties. Remember that the state’s Transportation Fund (which is funded by sources such as taxes on gasoline and vehicle registrations) is separate from the General Fund (which is largely funded by taxes on incomes and sales of products), so the reductions in driving and gas usage will have a notable impact on how much the DOT has available.

With that in mind, longtime Wisconsin Capitol reporter Steven Walters talked to the DOT Secretary to find out where things stand on the Transportation Fund.

State Transportation Secretary Craig Thompson said his agency saved about $100 million in the budget year ending June 30 — enough to offset a $30-million drop in gas tax revenues and a $50-million drop in vehicle title and registration fees this year.

All 371 highway projects scheduled for this year will get done, despite the mid-March Safer at Home order that caused non-commercial highway traffic statewide to drop by as much as 48 percent, Thompson said in a WisconsinEye interview.

But, Thompson added, if the Covid-19 pandemic forces a major decline in gas taxes and registration fees through the budget year beginning July 1, the Transportation Fund shortfall could be “hundreds of millions of dollars.”…

“If we witnessed the reduction for an entire year of traffic, it could be $400 million to $600 million. But we really don’t anticipate that. I’m hesitant to throw out too many specific numbers, because we really don’t know.”

That’s not a small amount of money – Walters notes that it would be between 20% and 30% of all money going into the Transportation Fund for Fiscal Year 2021. Which means there would have to be significant changes put in place.

Asked what choices Evers and legislators would face to make up any shortfall in highway funds, Thompson named three: delay projects scheduled to be bid in spring 2021, raise taxes or fees, or bond — borrow more money to keep 2021 projects on schedule.

Thompson named one 2021 major project he said would not be delayed: Widening and rebuilding I-39 between Madison and the Illinois border. “That’s too far along,” he explained.

Here's rthe full interview that Walters did with Secretary Thompson.


So what would be the scale of cuts to fill a $500 million, 1-year deficit? Let’s look at the Legislative Fiscal Bureau’s summary of DOT spending in the current budget for perspective.

Highway Rehabilitation
To start, there is scheduled to be a $175 million increase in state funding for regular highway rehabilitation in 2020-21 compared to the base that Evers inherited when he took office. This is your typical "road fix" that goes from freeway patching all the way down to money for 2-lane state highways that connect small towns, and the extra funding for this was a central theme of Evers' 2018 campaign.

Highway Improvements
Those rehab expenses were what Evers chose to concentrate on over new highway projects outside of SE Wisconsin, which only are budgeted to use $25 million of state funds and had a small increase of less than $2 million for FY 2021. As for the "Southeast Megaprojects", the Zoo Interchange is scheduled to be done after next year and most of that money is already allocated.

But new work on expanding I-94 between the Zoo and Miller Park and I-43 north of Milwaukee is supposed to have its first expenses. Might that be a source of more delays? It wouldn't make a lot of people in that area happy, and there isn't much of a source of state savings out there for not doing Megaprojects, as there is only $26 million in state money allocated to them for the next Fiscal Year.

Another possibility of "savings" would be in an area I wouldn't recommend, but may be on the table - aids to local governments. This was significantly raised in Evers' budget, and is intended to take stress off of the property tax and prevent further local wheel taxes for road repair.

Annual increases in local aids, starting in 2020
County Aids +$10.1 million
Municipal Aids +$34.9 million
Mass Transit Aids +$2.8 million
Total increase +$47.8 million

But even if you get rid of all of those state aid increases and bring totals back to the Walker era (don't bet on that), it's only around $250 million. So that means more Walker-like borrowing (something Evers said he didn't want to do, and reduced in this budget), or some kind of revenue increase.

To come up with $250 million in revenue, the LFB estimated the state could do the following, with the obvious caveat that travel resumes to projected levels in 2021 (big assumption, to be sure).

Ways to raise near $250 million in DOT revenue
7 cent increase in gas tax($242 million)
Increase state registration fee to $150 ($240.5 million)

The other methods are relatively small, but you could slide the scales down for these changes and then make heavy trucks (for example) pay a higher fee, which seems fair given the extra damage heavy trucks put onto the roads. Evers tried to do this in the last budget, but Schneider National the GOP rejected that idea.

Of course, there is one other way this funding gap could be solved. Help from the Feds. Trump has promised "infrastructure projects" for 3 1/2 years, and it sure seems like hundreds of billions of dollars to get a lot of unemployed people to work would be a wise political move. But of course, you'd have to get that funding past Moscow Mitch, who has no problem in bailing out debt-ridden corporations, but isn't so keen on using money for things that everyday people can use.

That wild card of additional Federal funding for roads is why I wouldn't count on any moves by the Evers Administration on Transportation funding for the next couple of months. But as soon as we know what that amount is, and we know just how far in the hole we are in the General Fund, I'd recommend that Tony call a special session of the Legislature to get these changes put in place by the Fall of 2021.

A special session would do two things:

1. It allows any cuts/replacement in state funding for FY 2021 to be less severe, as it can be spread out 9 months in September 2020 vs 6 months in December (for example).

2. It forces WisGOPs to actually have to do something about this deficit before the November elections. Evers isn't on the ballot in 5 months, but a whole lot of WisGOP legislators are. And you'd think those guys wouldn't want the image of 'do-nothing Republicans" cemented in the minds of voters right before they go to the polls or vote early at home. At the very least, it makes Evers put the WisGOPs up against the wall, because you know legislative WisGOPs are going to want to do the same after the election if they are allowed to stay in power.