The House and Senate have officially agreed to disagree about how to pay for additional transportation infrastructure, setting up negotiations between the two chambers to reach a compromise. The Senate’s version of House Bill 170 is markedly different from the text the House sent over, with some changes that are worthwhile and some that represent a step backward. When lawmakers get together to hash out their differences, they should keep in mind which is which.
Things the Senate got right:
1. Shifting some future revenue growth to transportation. The DOT needs a predictable stream of dedicated revenue, up to a point. There’s also value in leaving some funding above that minimum level up to legislators each year, as a measure of accountability. Likewise, while it’s probably impossible to fund the entire needed increase in transportation funding without some kind of tax increase, there’s value in minimizing that increase. Not all revenue growth can go to transportation: Enrollment growth in schools and health-insurance plans take up a big chunk of it. But it’s reasonable to expect transportation, as a high priority of this state, to take up some of the increase as well.
The structure of this provision, while seemingly technical, is also important. The annual appropriation of $250 million envisioned by the Senate version is intended to help the DOT make debt payments for past borrowing, which takes up a large part of annual motor-fuel revenues. So the DOT is already budgeting for those payments, and in years when the Legislature didn’t fork over the $250 million, DOT would still have the money to make those payments. But in the years when the extra money did go to DOT, the agency would have more money available for infrastructure projects.
2. Dropping the shift of local tax revenues to the state DOT. This may sound strange if you recall my saying one thing the House got right about its version was … shifting the local tax revenues. I still believe it would be right in principle to require all motor-fuel tax revenues go toward transportation infrastructure. But when local governments cried foul, the solutions incorporated into the bill became so bad that they don’t justify keeping that principle.
At one point, an analysis of the final House version showed county governments alone would end up, in aggregate, with an extra $58 million in tax revenues — with no requirement to spend that money on transportation. That would have been the result of removing the local sales tax on motor fuel but raising the rate on everything else to 1.25 percent from the current 1 percent. That would have meant a substantial tax increase in many places. After additional state matching funds were included, almost every county would be better off, perhaps to the tune of almost $200 million overall.
The higher sales-tax rate in particular isn’t worth adhering to even a very sound principle.
3. Getting rid of the biannual sales-tax holiday. The sales-tax holiday, pitched as a way to help families with back-to-school supplies, is a clunker of a tax policy. It shifts consumption from one week to another more than stimulating consumption, and doesn’t generate the kind of economic activity that different measures with the same price tag could. This year, the holiday is expected to remove $40 million from state coffers, rising to $42 million next year. That money is much better used to pay for transportation infrastructure.
4. Lowering the rate of automatic increases in the motor-fuel tax. Once the gas tax is converted to a pure excise tax, it will remain flat in the face of inflation — unless it is indexed to some kind of inflationary measure. The House version tied it to both inflation (for the construction industry, not general consumption) and increases in fuel-efficiency based on the federal CAFE standards. But it didn’t cap the increase that could take place in a single year, meaning taxpayers could see a sharp increase in any given year, or perhaps in consecutive years.
The Senate version doesn’t cap it, but it includes a de facto cap by tying the index solely to the Consumer Price Index. CPI inflation generally amounts to 2-3 percent a year. At the tax rate of 24 cents/gallon the Senate version sets, over 10 years the tax rate would grow by 5-8 cents/gallon. So a motorist who drives 12,000 miles a year with a vehicle that gets 20 mpg could expect to pay $30-50 more each year in gas tax by 2025 — keeping in mind that his wages should have gone up at the same time. But if he trades up to a vehicle that gets 24 mpg by the end of that decade, he would be paying only $2-17 more each year. If he’s driving a 28 mpg vehicle by the end of that decade, he would be paying less in gas tax.
That’s how much changes in fuel-efficiency affect gas taxes. Indexing helps keep funding on a more level trajectory, but limiting the index protects taxpayers.
The Senate also got some things wrong — which I’ll address in a separate post.