Transportation Funding: The Current Options

 WHAT’S THE PROBLEM: PRIORITIES OR FUNDING?

This week, the Senate Finance Special Subcommittee on Transportation Funding kicked off a series of meetings to discuss several bills that could make big changes to the state’s transportation system. At the April 23 meeting, the Subcommittee Chair said they plan to have these bills reported on by May 7th.

We’ve previously discussed how to fund road maintenance . . . and how not to. To summarize: The problem plaguing South Carolina’s transportation system is one of priorities, not funding. Some of the bills acknowledge this reality; most do not.

County Sales Tax Hikes, Registration Fee Increases, and Toll Roads

S.616 would, among many things, allow and impose several tax hikes. If enacted, counties could impose an additional one percent sales tax increase, which would be matched by the state in many instances, to fund county road and bridge projects. Vehicle registration fees would be increased across the board by an average of $12 for each type of registration, which would be a 50 percent increase for owners under the age of 65 for private passenger vehicles, in order to increase revenue to the State Highway Fund. Furthermore, the Department of Transportation would be required to perform regular comprehensive congestion analyses on each interstate highway and is given the authority to administer highway tolls to finance projects to increase capacity on these highways.

Shifting Revenue Sources to the Highway Fund

H.3412 would require that funds collected from sales, use, and excise taxes required from the sale or titling of a vehicle would go into the State Non-Federal Aid Highway Fund (SNFAHF). In the fiscal years 2013-2014 and 2014-2015, 50 percent of all revenues collected from these taxes would go into the SNFAHF, and following these years 100 percent of the revenues would go to the Fund. Previously, these funds were divided between the General Fund, and the Education Improvement Act Fund (EIF). An amendment further requires that the EIF must be kept whole and not deprived of revenue by this bill. Preliminary financial analysis indicates that in fiscal years 2013-2014 and 2014-2015 this bill will cost the General Fund $41.4 million in revenue and the EIF $10.35 million in revenue each year. For years thereafter it will cost the General Fund $82.8 million annually and the EIF $20.7 million annually.

Since the state spends, or anyhow keeps, every dollar of revenue it brings in each year, and any reduction in state spending is highly unlikely politically, the state will soon be forced to make up over $100 million in revenue annually. In the event of this bill’s passage, taxpayers can expect either tax increases or an increased level of state borrowing and debt taken on to finance the transfer of this revenue.

Perpetuating Irresponsible Highway Funding

S.14 would create a new funding mechanism, the Palmetto Highway Improvement Fund, for the Department of Transportation (DOT) and the State Transportation Infrastructure Bank (STIB) independent of the funds these agencies already receive from the state budget. This new fund would start as 1 percent of all General Fund revenues and would have the potential to grow up to 5 percent of all General Fund revenues.

The STIB is a largely unaccountable agency that has a history of serving only a few counties. Rather than expanding its funding, the agency’s responsibilities should be given to the DOT where the decisions made can be held more accountable. This is not to say the DOT should be receiving these new funds either, however. The DOT, like every other agency, should receive its funds openly in the budget process. (For a more detailed analysis on this bill, click here.)

Borrowing Money for Core Services

S.411 would authorize the issuance of $500 million in general obligation bonds to finance county transportation infrastructure. So instead of shifting revenue or adding new taxes, we’d be borrowing money to address the state’s transportation problems.

Restructuring and an Element of Fiscal Restraint

S.209 and H.3476 eliminate the board of directors of the STIB and place its administration under the Commission of the Department of Transportation. The bills also contain a clause stating an infrastructure project could not become eligible for STIB funding unless the agency, at the time of adopting the project, had enough funds to complete it. And H.3476 contains a notable provision requiring qualified projects, in order to be eligible for STIB funding, to be ranked according to SC code 57-1-370(8), a subsection of the Statewide Transportation Plan.

A Mixed Bag of Transportation Reforms

S.600 would seek to enact a number of transportation reforms of differing merit. The bill would place the administration of the STIB under the Department of Transportation Commission, ensure that infrastructure projects are not eligible to be STIB projects unless funding for the project is available at the time of the project’s adoption, impose a gas tax on fuel-grade ethanol, require individuals bringing gasoline into the state to apply for licensure as importers, shift the revenue from all motor vehicle sales tax to the State Highway Fund and STIB, substitute a road user fee (to be calculated by the ratio of miles driven in South Carolina) for commercial motor vehicles (tractor trailer trucks) in place of property tax for these vehicles, dedicate revenues greater than $17 million from trailer and semi-trailer fees to the State Highway Fund, annually dedicate 20 percent of projected growth in General Fund revenue to bridge maintenance, and increase the governor’s appointments to the Department of Transportation Commission from one to two.

Those who take our view – that the state’s transportation problem ought to be about priorities rather than additional funding – could support the first two and the last of these provisions, but not the others. It makes more sense to introduce them separately than in one “all of the above” bill.

Allowing Counties to Impose a Tax

S.149 would allow counties to impose an ordinance implementing a two cent gasoline tax lasting up to five years, subject to popular approval by a referendum. The proceeds of the two cent tax would go towards road improvement projects specified in the ordinance. If voters reject the tax in the referendum, the county may call for another referendum but may only do so once per 24 month period.

Dedicating Motor Vehicle Sales Tax Revenue to the Highway Fund

S.210 would dedicate all funds received from the sales tax of motor vehicles to the State Highway Fund to be used for road maintenance. As we have mentioned in analysis of H.3412, revenues from sales tax applied to motor vehicles is currently dedicated to the General Fund and the Education Improvement Act Fund. What this transfer of funds means is a likely increase in taxes or future debt: the General Assembly has historically shown a reluctance to lower spending and will no doubt be reluctant to cut an education program.

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