How to Fund Road Maintenance



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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3 Comments on “How to Fund Road Maintenance”

  1. eliminating a duplicative agency— I’m all for it which one or what dept if DOT gets +$ where did they spend the $$ they have been getting?

  2. The idea that this would lead to an unavoidable tax increase isn’t a stretch, it’s just not true given the facts.
    I talked with my House representative, who is a conservative member of the Ways and Means committee and someone I’ve known a long time and trust, about this after reading it.   He told me that even though this bill hasn’t passed into law yet, it is already accounted for in this year’s budget because the bill passed the House before the budget did.  That means your assertion that “it is extremely difficult to imagine lawmakers finding $51 million in cuts to that portion of the budget” just isn’t the case…in fact, it has already happened!  AND, this money was taken out of the general fund and devoted to road improvements without any of “your” precious services being cut. 
    Our state’s roads are horrible.  And, along w/ police, fire and freedom, ROADS ARE A CORE FUNCTION OF GOVERNMENT.  Your issues with this plan are all wrong and don’t even align with what you claim to represent.  If anything, you should take issue that this is just a bandaid fix to our real infrastructure needs. 
    And for a Libertarian group, your philosophical views are all over the map.  You often decry government spending as too high (a very valid and true point) but in the same breath, as you did here, you scream that any cut to the general fund would be a harmful cut to essential government services. 
    Pick one or the other, you can’t have it both ways…that is, unless you’re just a group shilling a set agenda and not a conservative/libertarian philosophy rooted in our basic freedoms as Americans.  Tread lightly, We the People are NOT fooled by sellout-tyrants in sheep’s clothing!

    • Ed: With all due respect to you and your unnamed lawmaker, we’re not following your argument. The point we’re making is quite simple: If the General Fund is $51 million less this year as a result of this bill, that’s $51 million less in the General Fund than last year. The money has to come from somewhere, and it makes absolutely no difference whether the bill passes before or after the House passes its version of the state budget. Furthermore, the General Fund will lose $103 million every year going forward starting in FY 2016. If this money is already “accounted for,” that can only mean that, rather than making judicious cuts, lawmakers are spending more money and hoping revenue increases in tandem.

      We agree that road maintenance should be a higher government priority than most of the other programs/items the government spends money on. This bill provides no indication, however, of what other lower priority programs will be cut to cover this shift in revenues. That means higher overall government spending. If the bill had specified in its text programs that would be cut from the General Fund that covered this shift in revenues, we would have far less of an objection to it..

      We’re skeptical of the idea of multiple dedicated funding sources, but we would support the general idea of cutting funding to lower priority programs to increase the funds available for infrastructure. But only after an analysis ensures DOT is using its existing funding efficiently.