South Carolina’s Roads Problem Isn’t about Revenue
IT’S ABOUT STRUCTURE, NOT MONEY – ACCOUNTABILITY, NOT TAXES
Every South Carolinian who drives a car knows our state’s roads need work. Many have also heard about the Department of Transportation’s (DOT) alleged funding shortfall between now and 2040. What you may not know, however, is that both these problems can be traced to the same source – and it has nothing to do with a lack of funds.
The state transportation system’s structure of governance encourages wasteful road expansions over needed maintenance, and funnels a disproportionately large share of money to politically important counties. The problem, in short, is government structure – and as long as that structure goes unaddressed, no increase in funding will come close to remedying the state’s disintegrating infrastructure.
How perverse is our transportation system’s structure? Read on.
The Department of Transportation
The DOT is the chief agency tasked with building and maintaining South Carolina’s state road system. Like other important transportation authorities in South Carolina, the agency’s leadership is ultimately accountable to only a handful of lawmakers. While the DOT has a secretary appointed by the governor, the policy of the department is set by the eight-member DOT Commission. That commission has one member appointed by the governor; the seven remaining members are elected by the state legislative delegations of each of South Carolina’s seven federal Congressional districts.
This by itself is a gross imbalance of power – nearly all the important decisions are made by legislative appointees and, in effect, legislators – but it’s only the beginning. Prior to any candidate being elected by their respective legislative delegation, he or she must first be screened and approved by another legislative body known as the Joint Transportation Review Committee (JTRC). The JTRC is a ten-member board composed entirely of legislators and legislative appointees, including: the chairman of the Senate Finance Committee, the chairman of the Senate Judiciary Committee, the chairman of the Senate Transportation Committee, two members appointed by the Senate President Pro Tempore, the chairman of the House Ways and Means Committee, the chairman of the House Education and Public Works Committee, and three members appointed by the Speaker of the House.
The House Speaker and Senate President Pro Tem, then, directly control half the appointments to the board that has the final say on whether any individual is even eligible to serve on the DOT Commission. And because the current Senate President Pro Tempore (Hugh Leatherman) is also the Senate Finance chairman, he actually controls three members of the JTRC (including himself). This same senator who controls roughly a third of the JTRC is the former president and current stockholder in Florence Concrete – a company that has received tens of millions of state dollars through the Department of Transportation. The House Speaker, on top of his direct appointments, also indirectly controls two more appointments (the Education and Public Works and Ways and Means Chairman) by virtue of his power to appoint committee chairmanships.
Finally, in addition to nominating all DOT Commission candidates who are to be legislatively elected, the JTRC must approve the governor’s sole appointment to the DOT Commission before he or she can be confirmed in his or her position. In short: The Department of Transportation – the agency chiefly in charge of deciding which roads and bridges get repaired and when – is dominated by politicians who aren’t elected by the whole state, whose names aren’t familiar to the vast majority of South Carolinians, and who therefore can’t be held accountable by anyone. It’s easy to see how a system like this can promote favoritism and obscure clear lines of accountability for DOT decisions. It has also contributed (along with federal funding formulas) to a DOT budget which year after year prioritizes construction over maintenance.
The Infrastructure Bank
The State Transportation Infrastructure Bank (STIB) contributes to financing eligible transportation projects (road, bridges, transit projects) chosen by the agency’s board. The STIB funds projects in a variety of ways, including loans and especially bonds. Just as with the DOT, the STIB is ultimately controlled by a few powerful legislative leaders. Membership on the STIB board (which bonds out and loans millions of dollars each year) is determined by the usual suspects.
The STIB board is comprised of seven directors: two members appointed by the governor, the chairman of the DOT Commission, two members appointed by the Senate President Pro Tem, and two members appointed by the House Speaker. Once again, the Speaker and Senate President Pro Tem wield the majority of the power, with direct control over four of the appointments, and a likely say in a fifth member, the DOT Commission chairman, who will usually be a legislative appointee.
And just as with the JTRC, Senate President Pro Tem Hugh Leatherman’s power over the STIB board is further enlarged by the fact that he appoints himself to the board. The governance structure of the STIB, like that of the DOT, encourages expansion over maintenance and a funneling of dollars to politically favored counties. Indeed, these effects are even starker with the STIB than they are with the DOT. The STIB only finances road expansions and never maintenance. It has moreover historically provided financing to only a few of the state’s 46 counties: as of January 2013, 35 counties had received no funding from the STIB since its creation. The STIB actually deprives the state of potential funds for maintenance of existing roads in three ways.
- First, all of the money the STIB leverages through bonding in order to finance road expansions could be used for maintenance. Even before bonding, this would create hundreds of millions of new dollars for maintenance every year.
- Second, once an expansionary project financed by the STIB is completed, the limited state dollars that are currently dedicated to maintenance must be stretched further in order to pay for maintenance of these new roads.
- Third, STIB bonding creates billions of dollars of new debt that must be paid off with future tax dollars. STIB bonds are the largest category of South Carolina’s bond debt with total liabilities at over $2 billion dollars in Fiscal Year 2014 (see page 230 of the PDF). By contrast, South Carolina faced only a $1.3 billion liability for all outstanding general obligations bonds the same year. Absent STIB bonding, a good portion of funds the state spends on debt service payments, and/or additional monies that must be appropriated to the STIB to allow it to make payments on its debt obligations, could be used for needed maintenance of the state’s existing roads.
How do we usually pay for roads?
There are three primary sources of funding for roads in South Carolina. The first and smallest source of funds is state gas tax revenues. The large majority of state funding for the DOT comes from this source. In 2014-15, state gas tax revenues are estimated to have made up roughly $459 millionof the state DOT’s $1.5 billion total budget. Gas tax revenues are the only one of the three primary sources that are free to be devoted to routine maintenance.
The second source of funds is federal funds. The federal DOT provides funds to state transportation departments on a matching basis. State DOTs must begin construction projects (typically expansionary projects) before they are eligible to receive any matching federal funds. Many South Carolina roads are not eligible to receive federal funds, and federal funds cannot be used for routine road maintenance. In addition to these limitations, projects that receive federal funding must abide by federal laws governing project oversight and prevailing wage rates. Former head of the Federal Highway Administration Robert Farris suggests that these kinds of federal regulations increase project costs by 30 percent.
The third source of funds is STIB debt financing. These funds are used only for expansionary projects and have historically been expended in only a handful of counties. It’s clear, then, where a major part of the problem with South Carolina roads lies. South Carolina relies on a relatively small pool of funding from one dedicated revenue source to finance the majority of its road maintenance. And to make matters worse a portion of the one small pool of funding that is free to be devoted to maintenance – gas tax revenue – is instead spent on expansionary projects in order to receive a federal funding match.
It should be pointed out, too, that while the above are the three primary sources of road funding in South Carolina, they are not the only state dollars going towards infrastructure. The governor in her latest budget has proposed appropriating $27 million to the Rural Infrastructure Authority (RIA), a $2.2 million increase over last year’s appropriation. The RIA helps rural infrastructure projects, which can include projects that “aid the development of trade, commerce, industry, agriculture, aquaculture, and employment opportunities.” The next time public officials bemoan a lack of funding for rural roads, it’s worth keeping in mind that some of the funds the state has supposedly set aside for needed infrastructure in rural areas are being spent mostly on “economic development” and not roads. So: What can be done in the immediate future to address this convoluted mess of a structure?
1) Make the DOT fully accountable to the governor
The current DOT power structure – dominated by the legislatively controlled commission – is an effective impediment to any form of accountability. If a citizen wants to express a concern about a lack of maintenance work, or an unnecessary road expansion it’s not clear to whom they should speak.
Each DOT commissioner owes his position to a small number of legislators and is therefore unlikely to respond to the concerns of any one citizen. If a citizen takes his concerns to a legislator, that legislator can plausibly claim he doesn’t have the power to make any changes since he’s only one of a number of legislators charged with electing one DOT commissioner. Unless the citizen’s legislator is the Speaker or Senate President Pro Tem, he’s out of luck.
The state should abandon its current convoluted DOT power structure in favor of the federal model. In that model, policy is set by a secretary appointed by the chief executive. If the DOT was solely accountable to the governor, every citizen would know who to take concerns to – and who to blame when those concerns are ignored. This simple reform would go a long way towards ensuring that maintenance work receives its proper attention, and that each county receives its appropriate share of DOT resources.
2) Abolish the STIB
The second reform is even simpler than the first. The STIB should be abolished, its entire budget devoted to road maintenance and repair. This simple reform would free up hundreds of millions for maintenance work (last year’s budget appropriated $150 million to the STIB, and the governor’s executive budget proposes appropriating over $250 million to the STIB in the upcoming fiscal year). This reform would also free up more funds for maintenance in the long term by removing a steady source of public debt. Finally, abolishing the STIB would allow the funds that are devoted to maintenance and repair to have more of an impact since they would cease to be stretched further to cover the costs of maintaining all the STIB financed road expansions.
3) Transparency in all DOT spending and contracts
Citizens have a right to know how their tax dollars are being spent, and who is receiving them. The closest thing South Carolina has to spending transparency now is reports from the comptroller general’s office; these reports cover only broad categories of spending and the names of firms contracting with DOT. South Carolinians have a right to an open contracting process and a right to know on what specific project every dollar of DOT money is being spent.
If this information was easily accessible, the DOT would face a far higher level of scrutiny than it does today. Subjecting the agency to the oversight of all South Carolinians would discourage the awarding of contracts based on favoritism – or on anything other than cost effectiveness and a company’s history. In a similar vein, full spending transparency would encourage the DOT to provide each county its appropriate share of transportation resources and to prioritize needed maintenance over unneeded expansions.
A quick survey of our state’s road authorities is sufficient to show that some, like the STIB, favor expansions over maintenance and neglect some counties in favor of others. Other agencies like the DOT are more wary about revealing just how they spend their money, but it’s easy to see how their unaccountable leadership structure encourages waste and favoritism. In short, nothing about South Carolina’s transportation and infrastructure system would lead an objective observer to conclude that its problem is purely revenue-related. It’s not a fiscal problem – it’s a structural problem.