Update on the Gas Tax Revenue and the STIB

Last June, SCPC revealed in an analysis that revenue from the proposed gas tax hike (now law) was written with the intent to divert the new revenue from the fund dedicated to road repairs to the SC State Infrastructure Bank (STIB). In that report, we explained that the bill included a provision that would allow revenue funneled to the newly created Infrastructure Maintenance Trust Fund (IMTF) to be transferred to the debt service fund – in turn allowing the STIB to issue more bonds to finance new highway projects.

During a Department of Transportation (DOT) Commission meeting on April 19, 2018, DOT Secretary Christy Hall confirmed the DOT’s intent to divert new tax revenue to leverage millions in additional STIB bonds. See chart below:

The above chart, captured from the DOT Commission meeting on April 19, illustrates funds from the IMTF being transferred to the STIB.

 

Last year’s gas tax hike was designed to fund STIB debt

Last year’s gas tax bill was designed to allow gas tax revenue to be diverted to service STIB bonds. Through a series of complicated maneuvers, all the new revenue collected by the gas tax hike and accompanying fee increases can be diverted to either leverage new STIB bonds, or to pay down existing bond debt:

From SCPC’s May, 2017 article Gas Tax Bill a Windfall for Infrastructure Bank:

Proponents claim the 72 percent [gas] tax hike will be used to repair damaged roads and bridges, but the bills passed by both House and Senate don’t guarantee that. In fact, the legislation sets the stage for most of the new revenue to be diverted to the State Transportation Infrastructure Bank, or STIB.

During last month’s commission meeting, the DOT Secretary explained that the gas tax revenues were intended to finance bonds for interstate widening (rather than road repair), but that the gas tax bill (Act 40) and 2016’s STIB bond bill (Act 275) were challenged by lawsuits:

“There’s questions over the real availability of being able to bond those revenue streams, which calls in to question our ability to service that planned debt load to the infrastructure bank.” (emphasis added)

The lawsuits allege that both Act 40 and 275 are in violation of a rule in the state constitution, which states says all acts and resolutions must “relate to but one subject.”

Because the constitutionality of these laws has been called into question, the STIB appears reluctant to leverage those new funds for bonding purposes. Accordingly, the DOT proposed to fund those capital projects with a conglomeration of federal funds, new DOT general obligation debt, and existing funds.

During the year since the bill took effect, the gas tax hike has raised over $219 million, according to reports by the Comptroller General’s office. However, only a fraction has been spent, most of which was passed on to the counties. As of April 2018, only $537,110 has been used for actual road project disbursements.

That would make sense in the context of the plan to put new tax dollars into the STIB instead of directly toward road repair. The STIB can leverage that money into ten times the amount – which means that the more revenue accumulates, the more STIB can then generate via bonding.

 

Why bonding tax revenue is unconstitutional

The gas tax hike was not primarily intended to repair the state’s roads. It was a mechanism to generate more revenue for STIB bond debt. Through this bill, lawmakers have not only put off repairing roads indefinitely, they have blatantly – and deliberately – violated the SC constitution.

The South Carolina constitution states that tax revenue cannot fund revenue bonds. Revenue bonds are backed by a separate revenue stream generated by a government-provided service (like college tuition fees, etc.), not by the state’s tax base. This is to ensure that capital projects benefit the people who are required to pay for it.

While the STIB funds capital road projects, the majority of those projects are centered in a handful of counties. As the STIB exists to finance these projects and does not provide services for which fees can be charged, it does not have its own revenue stream. To get around this, lawmakers renamed the gas tax “a fee” so the STIB could use those funds to leverage revenue bonds. As the Legislative Audit Council noted in 2016, it’s “uncertain whether this process is consistent with the Constitution.” State law clearly defines a fee as “a charge required to be paid in return for a particular government service or program made available to the payer that benefits the payer in some manner different from the members of the general public not paying the fee.”

Clearly, the gas tax is a tax, not a fee, and as such cannot constitutionally be used for STIB revenue bonds. Not only is this scheme to divert gas tax revenue to the STIB unconstitutional, but it uses dollars that should have gone directly to road repairs – which was the only purpose presented to the public – and will also saddle taxpayers with billions more in debt.

The DOT should renounce the deliberately unlawful diversion of tax dollars and spend the existing IMTF funds to immediately begin repairing roads and bridges, starting with the most critical. That is what lawmakers promised the people of South Carolina.

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