Tuesday, May 26, 2015

How can we fix roads and not borrow money?

Continuing with my previous topic on lower state aids to local communities leading to more local taxes in Wisconsin, I wanted to talk about the revenue picture in Wisconsin's Transportation Fund, and what it means for the state budget. This will be one of the huge topics that will be decided as part of the wrap-up of budget deliberations in the Joint Finance Committee this week, and I wanted to bring up where the Transportation Fund stands, and what could be done to make it more sustainable for the future.

First of all, let's review where the Transportation Fund stands for this budget. As the Legislative Fiscal Bureau told us last month, the Transportation Fund is in better shape than it appeared to be when the budget was released a few months back, in contrast to the struggles that are plaguing the General Fund.
The revenue estimates upon which the Governor's transportation budget was based were generally conducted in the fall of 2014, at the time of the Department of Transportation's biennial budget request submittal. Since that time, actual collections through the first several months of 2014-15 have improved base year projected revenues. Along with a sustained outlook for collections for fund revenues, primarily from the motor fuel tax, this results in higher estimated total revenues to the fund in the 2015-17 biennium. Revised debt service estimates lead to lower net appropriations than originally estimated. When combined with a larger estimated opening balance, the revised revenue and spending estimates for the 2015-17 biennium, under the provisions of AB 21/SB 21, produce an estimated closing balance of $84.7 million.
So there's a bit to play with if need be, but the problem is that the $84.7 million would only make a tiny dent in the amount of borrowing that's part of Gov Walker's budget, as the LFB describes in another paper.
3. The Governor's 2015-17 budget recommendations would authorize $1.3 billion in transportation-related bonds ($1,343.2 million in transportation fund-supported bonds less $43.0 million in rescinded GPR-supported bonds for passenger rail). Table 2 lists the biennial transportation fund-supported bond authorizations, by program, over the past six biennia, and the proposed level of bonding under AB21/SB21. [Since the focus of this section is on transportation fund debt service, GPR-supported bonds issued during these biennia are excluded from this table.] Except for $5.9 million annually spent on DOT administrative facility construction projects, transportation revenue bonds have historically been exclusively issued for the major highway development program. However, under the Governor's recommendations, transportation revenue bonds, for the first time, would be authorized for the southeast Wisconsin freeway megaprojects program ($392.l million).
That $1.3 billion is by far the most that has been borrowed in the state Transportation Fund over the last 12 years, and combined with previous borrowing over the last several years, it means that more and more dollars in the Transportation Fund are going to have to be used to pay off debt in the future.

Debt service costs, Wis Transportation Fund
2013-14 $294.2 million (actual)
2014-15 $331.6 million
2015-16 $363.6 million
2016-17 $408.3 million
2017-18 $443.1 million
2018-19 $442.4 million

And that's assuming no new money that'll be borrowed past the $1.3 billion in this budget, a highly unlikely scenario given that the Zoo reconstruction and the I-94 and I-90 expansion projects will probably go on past 2017. So it seems that continual borrowing is something that needs to at least curbed, and the best way to do so while still getting the roads fixed is to add revenues.

Which leads to this paper from the LFB that talks about the various options that can generate those extra revenues. The first involves following through on the DOT's original budget request, and raising the gas tax by a nickel a gallon.
9. This option (Alternative 1) would, effective August 1, 2015, increase the current 30.9 cents per gallon motor vehicle fuel tax rate by five cents per gallon to 35.9 cents per gallon. Estimated revenues to the transportation fund would increase by $151,400,000 in 2015-16 and $167,200,000 in 2016-17. In addition, transfers to the conservation fund associated with the increase in the motor vehicle fuel tax rate would increase in 2016-17 as follows: (a) $2,142,400 under the motorboat formula; (b) $852,800 under the snowmobile formula; (c) $337,400 under the all-terrain vehicle formula; and (d) $37,500 under the utility terrain vehicle formula.
While the LFB notes that raising the gas tax by a nickel would put Wisconsin a few cents above our Midwestern neighbors by a few cents, we also don't collect any sales tax from gasoline, and don't have any toll roads that help to pay for the roads.

The flip side of the higher gas tax is that Wisconsin generally has a relatively low $75 annual fee for vehicle registration. This is below Illinois' flat fee of $101, and well below the fee for newly-registered cars in Iowa and Minnesota, who base their registration fee on both the age and value of the vehicle. In Iowa, a new $40,000 car will cost you $414 a year to register, and in Minnesota, it's $521!

Interestingly, one of the options in the DOT's budget request involved having a similar "new car fee" that was paid when a person purchased a new vehicle, and the LFB talks about how this would work were the JFC to resurrect that idea.
This option (Alternative 2) would create a registration fee, effective October 1, 2015, for the initial, private registration of new, light passenger vehicles (including automobiles, vans, sport utility vehicles, and light trucks with a gross vehicle weight of 8,000 pounds or less, and motorcycles) equal to 2.5% of the manufacturer's suggested base retail price (MSRP), which would be defined to exclude destination charges. Municipal-plated and farm-use-plated vehicles, as well as commercial vehicles with a gross vehicle weight in excess of 8,000 pounds, would be exempt from the fee. As an example, the purchaser of a vehicle with a base MSRP of $32,000 would be required to pay a fee of $800.
This would only be a one-time fee, and wouldn't have to be paid in future years, but it would give a nice bump to the Transportation Fund, to the tune of $379 million over the 2 years of the state budget.

If the "new car fee" seems a bit much, another option is to raise the yearly registration rate for all cars and light trucks, which wouldn't raise as much money as the "new car fee", but everyone would pay it uniformly, and it would shore things up a bit more.
Revenues to the transportation fund would increase by an estimated $34.7 million in 2015-16 and $46.7 million in 2016-17 under a $10 increase, by $69.3 million in 2015-16 and $93.4 million in 2016-17 under a $20 increase, and by $104.0 million in 2016-17 and $140.1 million in 2017-18 under a $30 increase.
And perhaps the most controversial idea that's been thrown on the table for raising revenues in the Transportation Fund comes from a potential "bike tax". This is in response to Governor Walker's plans to get rid of a requirement for bicycling and pedestrian pathways to be included with new road projects. It currently applies to all Wisconsin DOT projects that aren't freeways or massively rural, and the LFB says backers of the legislation indicate that such a "bike tax" would allow for bike/ped provisions to stay as part of these road projects.
11. Following the Department's briefing of the Committee, DOT was asked a follow-up question regarding the use of bicycle registration fees in other states. In response, the Department cited proposals in Washington and Oregon to impose excise taxes on bicycle sales of $5 to $20 and $25, respectively. Further, in the past year, this office has also received frequent inquiries about the potential revenue from a bicycle registration fee. The reasoning behind such inquiries is often based on the argument that the transportation fund is a "user-based system," whereby users of the state's transportation infrastructure pay into the fund and these revenues are expended to support that same transportation infrastructure. Bicyclists and pedestrians benefit from the use of the state and local highway systems, but, relative to those activities, do not pay directly into the state's transportation fund for this use. As an argument for repealing this law, some have contended that activities and programs that are not directly supported by transportation fund user fees should not receive state transportation fund revenues.

12. As a means of addressing these concerns, the Committee could choose to retain the current law and create a statewide bicycle registration fee of $25, which would be paid by consumers at the time of initial purchase, for bicycles with wheels of 20 inches in diameter or more. [Alternative #B2]. Revenue from this fee would be collected from bicycle vendors by the Department of Revenue and deposited into the transportation fund. There would likely be a lag before any revenue would be collected, as a collection mechanism would need to be established. In addition, it could be expected that there would be some level of fee evasion (such as Wisconsin residents purchasing a bicycle in another state to avoid this fee). Absent other factors that could affect revenue collections and assuming a 10% evasion rate in 2015-17 and a 50% reduction in collections during 2015-16 due to this lag factor, it is estimated that potential revenue would be equal to $2.4 million in 2015-16 and $4.8 million in 2016-17.
Of course, there's no guarantee that the money would be used all for bike/ped improvements (unless it's written into the budget along with the bike tax), so maybe it's just a way to get extra money into the Transportation Fund without Scott Walker have to tell Grover Norquist and the fossil fuel industrialists that he raised gas taxes. Or it's a way for petty Republicans to try to get even with Mary Burke and her family for being the owners of Trek Bicycle. Either seems like a plausible explanation with this crew.

Anyway, there have been rumblings that both GOPs and Dems on Joint Finance aren't keen on the $1.3 billion in borrowing that Scotty threw into the budget to avoid having to raise any revenues, so we'll see if they choose any or all of these options, and if they adjust the spending side once there's more money in there. You can bet this will the subject of yet another last-minute multi-part omnibus, so it's important to know the options that are out there before the JFC GOPs dump their package on Friday night.

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