Good & Bad Ideas on Roads
WHAT YOUR POLICYMAKERS ARE HEARING & SAYING
Two recent meetings – the House Ad Hoc Transportation Review Committee, and a York Town Hall addressed by Rep. Gary Simrill (R-York) – have given us a glimpse of what lawmakers are planning for 2015 on the subject of road construction and maintenance. At both of these meetings, Rep. Simrill (chairman of the Ad Hoc Transportation Committee) put forth a possible plan to repair South Carolina’s crumbling road system.
A number of people responded to the plan and offered ideas of their own. Below is an explanation of Rep. Simrill’s proposal, together with some responses.
Devolution of Roads
The first and most discussed element of Rep. Simrill’s proposals was an idea previously suggested by SCPC, namely devolving secondary roads to county control along with a share of fuel tax revenues. This is a sensible proposition in a state with the fourth largest state-controlled road system in the country, especially considering that out of the 41,414 miles controlled by the state, 18,884 of them are secondary roads without any major state purpose.
Predictably, some of the speakers at Tuesday’s meeting – particularly those representing local governments –were less than enthused about the idea of devolution. Catherine O’Neal from Spartanburg and the South Carolina Association of Counties and Robert Croom from the Association of Counties both adamantly opposed any devolution of state roads to county control. Paul Sommerville of Beaufort seemed somewhat more willing to entertain the idea, but emphasized a number of difficulties he thought would result from the transfer.
All of these stressed the difficulty of increasing local revenues in order to pay for more road maintenance. The ideas floated so far suggest that localities would get a share of the fuel tax revenues along with devolved roads, but these representatives seemed skeptical that revenue transfer would actually happen, and if it did they believed it would be an inadequate amount. Some pointed out that the state has been failing its current fiscal obligations to localities for years by underfunding the local government fund, and that this trend has made local officials understandably skeptical about funding promises.
It’s true the state hasn’t always met is funding obligations to localities in the past. If a devolution plan is implemented it should be accompanied by a transfer of an appropriate share of fuel tax revenues, and fully funding the local government fund, as suggested by Rep. Simrill. The local government fund is statutorily required to be funded at a rate of 4.5 percent of the preceding year’s total General Fund revenues. Lawmakers have been skirting this requirement by passing budget provisos allowing lower levels of funding – a practice of doubtful legality. This is not, however, a compelling reason to keep together a bloated state road system. There is no reason the state should be responsible for roads like the one described by Rep. Weston Newton’s (R-Bluffton): “a dead end road that serves 50 people.”
When members of the committee pressed for an alternative solution to the state’s road problems, the local government representatives had little to offer. They could only say that no additional burden should be placed on the counties.
Rep. Simrill responded to some of these objections in his York town hall meeting on Thursday. Like Rep. Newton, Simrill used a local cul-de-sac as an example, citing a dead road controlled by the state that was roughly half a mile long and had 23 houses on it. He claimed that the road was set to next receive Department of Transportation (DOT) maintenance in the year 2107. The message was clear: counties and localities are free to resist taking control of roads they should properly oversee, but leaving these roads with the state is no guarantee they’ll receive the work they need.
C-Funds and County Transportation Commissions
Although not among the ideas initially suggested by Rep. Simrill, speakers representing counties and municipalities at both events mentioned a sensible reform that could be critical to making devolution work. They suggested counties and municipalities should have greater legal latitude to determine how they spend so-called C-funds. They added many counties and municipalities need stronger control of their County Transportation Commissions (CTC), which determine how non-restricted C-funds are spent. C-funds come from 2.66 cents of the fuel tax and are currently sent (using a formula) to all 46 counties to be spent in the way the CTC’s (who are appointed by county legislative delegations) deem fit, provided that 25 percent of their C-fund spending goes to state roads.
If the state is going to ask local governments to take on greater responsibility for roads, it’s only right that the localities have the authority and flexibility they need to handle this new responsibility. Although not formally suggested at either meeting, it would make sense to alter the law to remove any stipulation that C funds be spent on state roads, and to make clear that the membership of CTCs is the sole prerogative of county and municipal officials – not distant state-level lawmakers.
Making DOT a Cabinet Agency
Another policy change suggested by Rep. Simrill – also previously proposed by SCPC – is turning the DOT into a true cabinet agency by allowing the governor to appoint all of its leadership. Currently the DOT secretary is appointed by the governor, but the DOT commission, which wields the majority of the decision-making power in the agency, is appointed by a combination of the legislatively controlled Joint Transportation Review Committee and legislative delegations. Rep. Simrill briefly discussed this proposal at both meetings. It met with little resistance.
Prioritizing Infrastructure Bank Projects
In addition to addressing DOT leadership, Rep. Simrill wants to bring reform to South Carolina’s other large transportation funding entity, the State Transportation Infrastructure Bank (STIB). The committee chairman proposes to achieve this reform by imposing Act 114’s priorities ranking system to determine which projects it will fund. Currently, projects to be funded by the STIB are left to the sole discretion of the STIB Board.
This proposal may be a slight improvement in how the STIB currently operates, but it doesn’t go far enough. The STIB’s entire purpose is to fund expansionary road projects (not maintenance) by issuing bonds – new government debt – and it has a history of favoring only a handful of counties with its largesse. The STIB should be eliminated, not reformed.
At Thursday’s meeting Rep. Simrill attempted to spin the STIB as an important “economic development” tool. He cited a hypothetical scenario in which the construction of new roads to a proposed facility was a critical component of securing corporate investment in South Carolina by an entity such as Michelin or Boeing. Evidently, it’s critical that the state cater to companies such as Michelin that threaten to move jobs elsewhere if their desired policies aren’t enacted, but the basic service needs of citizens can wait. South Carolina hasn’t had a particularly encouraging history when it comes to corporate welfare, and we can’t see why the state should be invoking debt to fund corporate handouts when the money used to finance that debt is needed to provide a core service like road maintenance.
The revenue-focused proposals put forth by Rep. Simrill include putting a 1 percent statewide sales tax increase for roads on the 2016 ballot, swapping the fuel tax for a sales tax on gasoline, or imposing an inverted gas tax (a tax that would rise when gas prices fall and decrease when they rise).
During Tuesday’s meeting Frank Rainwater, Executive Director of the Revenue and Fiscal Affairs Office, made no policy recommendations, but briefly discussed some of these proposals as well as other possible tax and fee changes and how they would affect revenues over the next 25 years.
He cautioned that both the fuel tax and sales tax from car sales will lose some of their effectiveness in the long run as vehicles become more fuel efficient and car sales decrease from what is perceived to be a peak time in the present. Mr. Rainwater even showed a forecast predicting that at current tax rates fuel tax revenues would fall from $553 million in fiscal year 2016 to $496 million in fiscal year 2040. It should be noted, however, that this prediction assumes federal Corporate Average Fuel Efficiency Standards (CAFE) that require the average vehicle get 50 miles per gallon by 2023 will be met. In reality these standards are often met using a variety of formulas and experiments in idealized conditions that don’t translate to the average vehicle getting the high MPG set by federal regulations.
On the idea of switching from the fuel tax to a gasoline sales tax, Mr. Rainwater cautioned that such a switch would make budgeting difficult because revenues would fluctuate much more than under the existing tax structure. During his comments on Thursday’s meeting, Rep. Simrill appeared to have taken this concern seriously, but he still mentioned the inverted gas tax as a possible reform (although it, too, would generate plenty of fluxuation) and stated that the Board of Economic Advisors (BEA) is currently looking into the ramifications of the policy. He also mentioned that a 1 percent sales tax increase would bring in around $634 million annually.
DOT Funding Needs
The final presenter at Tuesday’s meeting was Mark Lester from DOT. Lester provided a breakdown of the department’s estimated fiscal needs over the next 29 years. Roughly 62 percent of the need, he said, is in the area of preserving and maintaining the current system. The reminder of the needs were divided between mass transit and highway expansion. His presentation also showed the annual funding gaps broken down by category of spending. While every category had an annual shortfall in funding based on DOT’s own projected needs, the gaps for preservation as well as modernization and routine maintenance were larger than the gap for highway expansion. A little over half of DOT’s projected annual highway expansion funding needs are projected to be met, while only roughly a third of modernization and maintenance, and a fourth of projected preservation needs are foretasted to be funded annually.
The questions from lawmakers following Lester’s presentation were largely requests for more specific numbers and technical figures, but Rep. Simrill opened up more about DOT’s stated needs in Thursday’s town hall. Simrill told listeners on Thursday that out of the roughly $40 billion funding shortfall between now and 2040 claimed by DOT, $8 billion is for unplanned roads (i.e. roads that haven’t even been thought up yet). Another $5.2 billion of the shortfall is projected to be used for mass transit. Considering these and other points, it’s not unreasonable to think citizens are being presented a more dire funding situation than actually exists. Simrill likened the process to taking a car to mechanic: the mechanic may give the customer the full restoration price, but the customer will likely be more interested in the price needed to make the vehicle work. When it comes to state roads, citizens have been presented with the full restoration number.
Overall, this week’s meetings were encouraging, if for no other reason than that structural reforms are being discussed. Yet it’s clear that a tax hike isn’t off the table. On Tuesday, speakers from localities complained about a lack of revenues; they were in turn asked by representatives what additional flexibility they may need to more easily impose additional taxes and fees on the local level. And on Thursday Rep. Simrill continued to present an increase to the sales tax as a serious option.
The bottom line is this. If budget writers want to improve the state’s decrepit roads, they can use the transportation funds the state currently appropriates more efficiently and make sensible budget cuts where needed. Or they can make no reforms and simply extract more money from taxpayers.