We all know the Highway Trust Fund (HTF) is in trouble. Based on current HTF revenue projections, there will not be enough funding for the Federal Highway Administration to reimburse states for new highway projects beginning in fiscal year 2015.
Of course, the responsibility for funding and delivering highway transportation projects is shared by federal, state and local governments, but state and local needs continue to overwhelm available resources. As a result, some states are getting creative in trying to shoulder their share of the responsibility.
States are turning to a host of innovative finance mechanisms, such as bonding and debt instruments, federal debt financing, credit assistance, public-private partnerships, and alternative taxing options, to help extend traditional funding sources.
In November, I attended the recent Infrastructure for the Future summit in Washington D.C., sponsored by the American Highway Users Alliance and the Volvo Group. The summit was a way to broaden the support base for the next highway reauthorization bill. Members from associations representing manufacturers, retailers, trucking and state governors, were invited to speak on how the failing infrastructure in the U.S. is impacting each of their segments.
Sean Connaughton, outgoing secretary of transportation for the Commonwealth of Virginia, spoke about the success of Virginia’s tax reform that is solving his state’s transportation funding woes.
Virginia implemented a transportation-dedicated sales tax last year, which is expected to generate $6 billion over the next six years. The state did away with its statewide 17.5 cents-per-gallon tax at the gas pump entirely, in favor of a new wholesale tax of 3.5 percent on gasoline and 6 percent on diesel, along with an increase in the state’s general sales tax. In the heavily populated Washington suburbs and Tidewater area, motorists pay an extra 2.1 percent sales tax on gas purchases. Drivers of electric and hybrid vehicles pay a $64 annual fee.
“We tried everything; tolls, an infrastructure bank, every idea you can think of to raise money for transportation,” said Connaughton. “Even with all of these things, we were still going to run out of money. That’s why we reformed the tax structure.”
The new structure gives the state a boost in its road funding coffers. In previous years, a maximum of $200 million to $250 million was dedicated annually to paving projects. With the new tax funds, Virginia will be closer to $500 million a year.
Senator Barbara Boxer, Democrat from California and Chairman of the Senate Environment & Public Works Committee, has suggested that Virginia’s new funding scheme, particularly the new wholesale sales gas tax, could be a model for a replacement of the federal gas tax.
Virginia is just one example of a state stepping up to the plate and not waiting for the federal funding issue to get better. Is your state or local government doing anything unique to help with transportation issues? Drop me a line at Lisa.Cleaver@cygnus.com.
Thanks for reading!