Transportation funding gap widens as gas tax revenues weaken

Transportation funding gap widens as gas tax revenues weaken

Secretary of Transportation Brian Searles speaking before members of the Vermont House and Senate on Wednesday. VTD/Josh Larkin

Secretary of Transportation Brian Searles speaking before members of the Vermont House and Senate on Wednesday. VTD/Josh Larkin

Vermont’s transportation system faces an annual shortfall of $240 million over the next five years. A new report predicts the average gap between the state’s annual funding sources, roughly $457 million, and the cost of paying for basic infrastructure needs, estimated at $700 million per year.

This year alone Vermont will see a roughly $30 million gap in state transportation revenues, according to Rep. Patrick Brennan, the chair of the House Transportation Committee. The shortfall could affect the state’s ability to draw down more than $100 million in federal highway funds. That’s because the federal Department of Transportation requires states to come up with a 20 percent match rate. Last year, the state had to borrow money to draw down all of its federal funds.

Meanwhile, state officials anticipate federal funding could decline significantly this year and into the future. This transportation fiscal cliff comes at a time when Vermont is rebounding from years of infrastructure neglect and is making permanent repairs to roads and bridges damaged by Tropical Storm Irene.

“The infrastructure is coming back slowly,” Brennan said. “If we don’t address the money situation, we’re going to lose all the ground we’ve made over the last few years so I’m hopeful we can come up with something in the short term and maybe in the long term we can look at larger ticket items like vehicle mile tax.”

The latest information about the state of the state’s Transportation Fund was published this week in a new report from the Section 40 Committee on Transportation Funding.

The study indicates that this year’s gap is part of a long-term, national transportation revenue trend that could have a lasting impact on the state’s infrastructure and economy. If the state doesn’t take immediate steps to generate new revenues on its own, state officials warned that road repairs will be delayed and bridges that need to be replaced could be put off-limits for heavy vehicles or closed.

Even so, maximizing federal funds remains, the state’s primary strategy, according Brian Searles, the secretary of the Agency of Transportation.

“We can see a time coming when our federal funds would be at risk because of a reduction in state funds,” Searles told lawmakers on Thursday. “So our job is together to pursue some strategies to increase levels of federal funding … because there is no way or at least it’s going to be very difficult to raise $240 million plus a year. We’re a small state — you’ve already heard half our budget comes from federal sources — we just don’t have the capacity to do this on our own.”

The report outlines the causes of the state and federal revenue shortfalls and cites 15 possible revenue sources that could shore up the state’s transportation coffers.

Officials look for other sources of revenue

The problem is part of a national trend. The main revenue source for the Highway Trust Fund is the 18.4 cent per gallon federal gas tax. As Americans have reduced consumption, gas tax revenues have slipped. Consequently, Congress has had to shore up the Highway Trust Fund with money from the General Fund. The federal Highway Trust Fund, which funds 50 percent of Vermont’s transportation budget each year, could go bankrupt if Congress, which is faced with deficit reduction cuts, decides to gut funding for the program. The federal government is also changing its reimbursement formula for states, and that shift could have a negative impact on Vermont’s access to highway money.

State transportation fund revenues are somewhat more diversified. The 20-cent per gallon state gas tax generates about $61.6 million per year, or about 24 percent of the state budget. (Over the next 20 years, state gas tax revenues will decline by about 50 percent, officials said.) The state’s $253.9 million in revenue sources include motor vehicle fees ($75.6 million), purchase and use taxes ($58.3 million), a transportation infrastructure bond fund ($22.8 million), diesel taxes ($16.1 million) and other revenues ($19.5 million).

The Section 40 Committee on Transportation Funding proposed tax and fee increases that could be used to fill the $30 million state gap this year. The options include increases in taxes or fees on vehicle inspections, leases, rentals, tires, gas, fuel, diesel, vehicle registration, the purchase and use tax and an ad valorem vehicle tax. A potentially controversial items on the list include a reduction in the purchase and use tax contribution to the Education Fund.

Searles said the state needs to look at short-term tax and fee increases, though he declined to give specifics until the governor’s budget is released next week. “Everything,” he said, “will be on the table.”

Agency of Transportation officials held up a 1.51-cent vehicle miles travelled(VMT)  tax as an eventual substitute for the gas tax. Car manufacturers in the United States are developing GPS technology to track vehicle miles, and insurers are looking to use VMT as a way to more fairly apply premium rates for drivers, Searles said.

Searles said a utility-based, VMT model could take a decade to implement and would have to be initiated at the federal level. The state could then piggyback on the program.

The VMT raises many policy questions, including personal privacy and social equity issues, Searles said. Is it appropriate to monitor where and how far people travel? Is it fair to ask low-income people who live far from work to pay more for transportation?

Other states are also trying to raise transportation revenues in anticipation of federal cutbacks, Searles said. Oregon is working on a VMT this year, and he pointed to Massachusetts Gov. Deval Patrick’s recent proposal to increase revenues for transportation by $1 billion a year. “Everybody is looking at this,” Searles said. “We have to have our own conversation about what works for us.”

Brennan said none of the taxes and fees will be popular.

“I don’t think anything we do will make the general public happy because it will inevitably involve some money coming out of their pockets whether it be a few pennies on the gas tax, or whether it’s the VMT tax or a tax on tires or vehicles, it’ll affect the public a little bit,” Brennan said. “It all boils down to what the public requires or wants for a transportation system.”

The Section 40 Committee on Transportation Funding also looked at the possibility of eliminating $55 million in funding for town highways. Steve Jeffrey, a member of the committee and the executive director of the Vermont League of Cities and Towns, said in that scenario municipalities would have no recourse but to raise local property taxes.

“To the degree that we try to meet this $240 million gap by cutting back on expenses and the potential that some of those would be focused at municipalities is a big concern to us,” Jeffrey said.

Towns maintain 80 percent of the road mileage in Vermont, Jeffrey said.

Anne Galloway

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