Monday, December 1, 2014

Lower gas prices, road-building binge not likely to help state, DOT budget

This one may have slipped by you over the Holiday weekend, but now that the November election is over, we’re seeing the devil in the re-elected Wisconsin GOP agenda (funny how this wasn’t reported on ahead of time). Patrick Marley of the Milwaukee Journal-Sentinel gave this thorough update of the state’s Transportation budget, which includes an interesting new set-aside fund for area codes 262 and 414.
In one change [DOT Sectratary Mark] Gottlieb is seeking, the state would create a pool of new money for future megaprojects in southeastern Wisconsin — such as expanding the east-west portion of I-94, reconstructing I-894 and rebuilding I-43 from Silver Spring Drive to Highway 60.

Such work in the past has been funded on a project-by-project basis. By establishing ongoing funding for the largest southeastern Wisconsin projects, money would be readily available for reconstructing 125 miles of roads through 2032.

The new money for large projects in southeastern Wisconsin would amount to a 53% increase compared with the past two years, boosting it from $517 million to $791.7 million. That includes $21.3 million that would be used over two years to study I-894 and the east-west leg of I-94.
And you can add a whole lot more to the DOT's wish list of projects, as Governor Scott Walker and others on the state's Transportation Projects Commission agreed today to include projects in the upcoming state budget that have a combined price tag of more than $660 million.
· I-43 in Milwaukee and Ozaukee counties. Constructed in the mid-1950’s and 60’s, this 14-mile segment of I-43 between Silver Spring Drive and WIS 60 is part of a state and federally-designated long truck route and serves as an economic gateway to Green Bay, Milwaukee and beyond. Along with pavements that have exceeded their life expectancy, numerous bridges, curves and ramps no longer meet design standards, and cannot accommodate current and projected traffic volumes. Current traffic volume reaches up to 84,000 vehicles daily, and is expected to increase to up to 101,000 vehicles in 20 years. About 40 percent of the corridor has crash rates exceeding the statewide average for similar roadways. Proposed improvements include reconstructing the corridor with three travel lanes in each direction, replacing the partial interchange at County Line Road with a full-access interchange, and constructing a new interchange at Highland Road. The remaining interchanges and most of the bridges within the corridor would be rebuilt. The estimated cost is $448 million.

· I-94 in St. Croix County. Constructed in the late 1950’s, this 7.5-mile segment of I-94 between US 12 and WIS 65 is a federally-designated truck route that serves as a major commuter and commerce link between the Twin Cities and St. Croix County. Pavement and bridge deficiencies along the segment require full redesign and reconstruction. Current traffic along the corridor reaches up to 46,400 vehicles daily, and is expected to increase to up to 69,100 vehicles in 20 years. About 50 percent of the corridor has crash rates exceeding the statewide average for similar roadways. Proposed improvements include reconstruction of the existing freeway and addition of a third lane in each direction to create a six-lane divided highway between US 12 and WIS 65. The estimated cost is $129 million.

· WIS 50 in Kenosha County. This 4.4-mile segment of WIS 50 between I-94 and 43rd Avenue in Kenosha is an oversized, overweight truck route that also serves a variety of local and regional commuters. Bridges that carry WIS 50 traffic over two railways and 77th Avenue are narrow, have undergone numerous repairs and require replacement. Current traffic along the corridor reaches up to 36,700 vehicles daily, and is expected to increase to up to 46,800 vehicles in 20 years. About 70 percent of the corridor has crash rates exceeding the statewide average for similar roadways. Proposed improvements include reconstruction of the existing four-lane highway and addition of a third lane in each direction to create a six-lane facility between the Interstate and 57th Avenue. The estimated cost is $93 million.
In order to help to pay for these and other projects, the DOT budget request asks for a new tax on purchases of new cars, higher registration fees for owners of hybrids, electric vehicles and related fuel-efficiency cars, and more than $548 million of General Fund money to be transferred over. It also includes a proposal that would raise gas prices by at least 5 cents for gasoline and 10 cents for diesel, but also has language that seems to indicate a minimum price for gasoline in the state. The following quote is on Page 58 of the PDF (page 49 on the page numbers).
Under this proposal the existing state excise tax for gasoline and diesel fuel consumed for highway use is set at $0.135 for all grades of gasoline and $0.163 for diesel fuel intended for highway use. For purposes of calculating a new 8 percent variable tax component of the excise tax, a permanent minimum wholesale price of $3.081 per gallon for diesel fuel and $2.800 per gallon for all grades of gasoline would be established beginning September 1, 2015….

With the tax mechanism in place as outlined above the sum of the fixed rate tax and the 8 percent tax applied to a wholesale minimum price of motor vehicle fuel can never be lower than $0.359 for gasoline and $0.409 for diesel fuel.
Now, maybe the DOT is only referring to how they would base the lowest amount of gas tax to be collected on each gallon, but when I’m driving into work today and see $2.63 at the pump, seeing wording that discusses a permanent minimum wholesale price of gas at $2.80 before taxes and $3.16 after taxes makes me want to get that language cleared up. It would be quite the giveaway to gas station operators to put in a price floor that would allow them to sell gas at a price 50 cents above market value.

Also worth noting on that gas tax proposal is that the excise tax would not be like the state’s regular sales tax, which would have put the funding into the General Fund, but instead is an excise tax that is designated entirely for the Transportation Fund. And with the passage of the constitutional amendment banning transfers out of the Transportation Fund, this means that if gas prices were to go back up and raise the tax higher than the minimum, the Transportation Fund would be the only entity that would benefit from that increase- the extra money couldn’t be used elsewhere to fill budget holes. Not a bad deal if you’re a road builder getting an even higher share of guaranteed funds, but a terrible deal if you are a provider of other state services and are struggling to pay your bills. In fact, if the Walker Administration wanted to have more budget flexibility, the funding would work the other way- a "sales tax" on gas that at least starts in the General Fund, and then some or all of it can be transferred to the Transportation Fund if they so wish. (Then again, handcuffing the General Fund might be the intelligence of that amendment's design for WisGOP).

But at least the lower prices on gasoline will lead to lower utility bills for the average Wisconsinite for the next year, because gasoline is a major input into energy, right? Oh wait, that won’t happen at all.
In a mid-November vote, the [Wisconsin Public Service C]ommission split 2–1 in approving We Energies proposed rate changes. The plan will be finalized in December and take effect in January.

The commission approved a 75-percent increase in the monthly fixed charges that residential customers see on their bills in southeastern Wisconsin and the Fox Valley area. Monthly fixed fees will go from $9.13 to $16. We Energies said it needs to increase the charge so all customers — large users and small users — share in maintaining the company’s infrastructure.

“What we’re proposing is fair rates for all our customers who use the grid,” said We Energies spokeswoman Jessica Williamson, according to the AP.

As the fixed fee goes up, hourly usage rates would drop by less than a cent per kilowatt-hour.

The two commissioners who backed the increase, Phil Montgomery and Ellen Nowak, were appointed by Republican Gov. Scott Walker. The commissioner who voted no, Eric Callisto, was appointed by Democrat Jim Doyle.
The same pattern has repeated for customers of Wisconsin Public Service in northern Wisconsin, and for Madison Gas and Electric customers in the Madison area- the Walker appointees favoring the higher fixed fee, while the Doyle-appointed Callisto did not approve of either increase.

What follows may end up as a “worst of all worlds” scenario in early 2015, where the average Wisconsinite’s costs for electric services and related bills go up, but overall inflation, cost-of-living adjustments, and the related ability to demand higher wages goes down. It also means that tax revenues are likely to be muted for the 2015 state Fiscal Year and with lower inflation, and future revenues won’t grow as much due to the lower base, but added costs and shared aids that are part of the 2014-15 budget for both the Transportation Fund and the General Fund have already been baked into the cake, and much of these payments will have been distributed by December 31. In fact, many state agencies will have paid ¾ of their fiscal year payments to local agencies by the end of this month, making it much harder for the deficit-ridden state to solve its fiscal issues by reducing these payments in Fiscal Year 2015 (this is the result of an accounting trick that dates back several years which delays the first payment until the new fiscal year begins on July 1).

So while this drop in gas prices might be thought of as a welcome Holiday Bonus for some people, the cold November and recent actions from Scott Walker’s appointees on the Public Service Commission mean that the benefits aren’t going to be as great as the pump price relief would indicate, and it won’t be able to control costs in the state budget either. In fact, the lower revenues for Fiscal Year 2015 that could result from the lower prices could drive the state’s budget deficit even higher, especially when combined with the increasing amount of money being asked for in order to build more expressways and bigger highways in Wisconsin.

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