How to Fund Road Maintenance

 

 . . . AND HOW NOT TO FUND IT

State lawmakers have introduced a new plan to increase funding for the Department of Transportation (DOT) without raising revenues or fees. The plan sounds good. But the problem is that it commits funds to certain ends without accounting for what those funds currently pay for – rather like a homeowner who decides to pay for upgrades without realizing he’ll have to divert money from his mortgage payment.

H.3412 – passed by the House last month – dedicates 50 percent of sales, use, and casual excise taxes collected from the sale of a motor vehicle in South Carolina in FY 2013-14 and FY 2014-15, and 100 percent thereafter, to the State Non-Federal Aid Highway Fund. These revenues would have to be used exclusively for highway, road, and bridge maintenance, construction, and repair. Currently, revenue from the 5 percent sales tax on motor vehicle sales (capped at $300 for each vehicle) is divided between the General Fund – which receives 4 percent – and the Education Improvement Act Fund (EIA) – which receives 1 percent.

In short: a classic instance of “robbing Peter to pay Paul.”

There need not be any fear for the EIA funds, however; as the bill also contains a provision guaranteeing that the EIA will continue to receive the same level of funding, with the funds lost from the sales taxes being made up from the General Fund. The fiscal impact statement for the bill found that in FY 2013-14 and 2014-15 revenue in the General Fund would be reduced by $41.4 million, and the EIA fund would be reduced by $10.35 million each year. For all years afterward the General Fund would lose $82.8 million and the EIA fund would lose $20.7 million annually. Since the bill requires that the effect on the EIA fund be revenue neutral, it could more accurately be said that the General Fund will lose $51.75 million in FY 2013-14 and FY 2014-15 and $103.5 million annually in years after.

Here the problem becomes clear: Each year, the General Assembly spends virtually every dollar of General Fund revenue, and it is extremely difficult to imagine lawmakers finding $51 million in cuts to that portion of the budget. This leaves two options: (a) tax or fee raises or (b) borrowing – which is simply a delayed tax. If this bill passes, absent politically unlikely General Fund cuts, lawmakers have effectively backed themselves into a tax increase.

This conundrum raises the question: Why does the state need so many revenue sources for dedicated funding? The simple answer is that dedicated funding both protects politically favored programs and can help to hide an increase in the tax burden. If lawmakers wish to increase funding for a favored program with dedicated funding they can raise the special tax or fee rate that supplies the dedicated funds for the program without increasing the more visible state income tax the provides a much larger share of General Fund revenues.

The Department of Transportation’s first priority should be maintaining the state’s current infrastructure. If the agency feels the funds it has for are insufficient for that purpose, the first course of action should be to evaluate how it’s using the funding it has – including a cost/benefit analysis of current and future projects – rather than simply dedicating a new funding source.

In any case, there is already an infrastructure agency in South Carolina that’s using its funds for unnecessary and controversial projects rather than roadway maintenance. The State Transportation Infrastructure Bank (STIB) is set to receive $50.4 million in Other Funds in the House Ways and Means budget this year. This agency exists primarily to fund new expansionary construction projects rather than provide maintenance of the state’s existing roads. There is simply no reason why taxpayers should pay for an entirely different agency just for new and expansionary projects – that’s why we have a Department of Transportation.

And here’s the good news: The new funds the STIB is budgeted for this year would cover the $50.3 million that H.3412 carves out of the General Fund. There is therefore no need to loot the General Fund with yet another dedicated funding source to pay for increased road maintenance. The DOT can receive the maintenance funding it needs by better prioritizing its own spending, eliminating a duplicative agency, and sending all money earmarked for infrastructure to the DOT where it belongs.

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