States Kick Can Down Crumbling Road on Transportation Funding

Three states – Indiana, South Carolina, and West Virginia – started the year on the right foot, looking at serious proposals to raise new revenue for severely underfunded transportation construction and maintenance funds. Sadly, legislators in all three states embraced partial solutions or punted entirely, preferring short-term fixes at the expense of other budget priorities.

South Carolina lawmakers had the chance to pass a significant tax package that would increase revenue for road repairs. In January, the state’s Senate Finance Committee considered a plan that would raise revenue by $694 million annually through a phased-in 12-cent increase in the gas excise tax, along with other transportation-related fee increases. Those increases would then be offset with a combination of $398 million annually in “broad-based” income tax cuts (bracket expansion and rate reductions on the top and bottom brackets), “targeted” income tax cuts (creation of a 3.5 percent refundable EITC and expansions of a few other credits), and some reduction of business property taxes. The offsets were a requirement of Gov. Nikki Haley, who vowed to veto any bill without them. The net effect of this plan would have been somewhat regressive and would have been much worse without the EITC.

However, the unwieldy package that tried to appeal to all legislators was undone by its complexity. For example, the EITC intended to attract progressive lawmakers repelled more conservative lawmakers. After weeks of delay in the Senate and a filibuster, the backers of the more ambitious package caved. Senators instead passed a measure to raid the general fund for more road money, jeopardizing other priorities and failing to solve the state’s structural funding issues. House Speaker Jay Lucas was not pleased. “This plan kicks the can further down the road and into a giant pothole,” he decried. “It’s not really a new idea, and it’s not a solution.” Gov. Haley has urged House lawmakers to accept the Senate’s $400 million punt, but also acknowledged that the state needs a long-term fix.

The debate in West Virginia followed a similar pattern, but began with more urgency due to the ongoing fiscal challenge there. A global downturn in energy markets has hit West Virginia and many other states reliant on oil and gas revenues hard in the pocketbook. Just last week, revenue forecasts for the state were downgraded by $92 million, adding to the $354 million shortfall that Gov. Earl Ray Tomblin and lawmakers have been grappling with since January.

Gov. Tomblin began the legislative session by calling for new tax increases to close the budget gap, including an increase in the cigarette tax of 45-cents-per-pack, a new tax on e-cigarettes and a 6 percent sales tax on telecommunications. A Senate bill, SB 555, would have increased the gas tax by 3-cents-per-gallon, the sales tax rate by 1 percent and various vehicle fees and taxes to send more money to the State Road Fund. The Senate proposal would have increased revenue by $290 million annually.

State lawmakers have been unable to come to an agreement on how to solve the budget crisis or raise new revenue for roads. After the release of the gloomy revenue numbers, Gov. Tomblin announced that the legislative session would end with no budget at all. Lawmakers are expected to reconvene later this spring.

Indiana lawmakers followed a familiar script this legislative session. There, the most ambitious proposal belonged to state Rep. Ed Soliday. His plan, HB 1001, would have earmarked excess general funds and gasoline excise taxes for transportation infrastructure, allowed counties and municipalities to levy motor vehicle surtax and wheel taxes, and allowed some portion of local income tax revenues to be used for roads/bridges. The bill would have increased revenue by raising the gas tax, special fuel tax, and motor carrier surcharge tax. It also would have increased the cigarette tax to $1.995 per pack to pay for Medicaid (to offset the general fund revenues now earmarked for infrastructure). Soliday’s proposal was later amended by his House colleagues to include expanded tolls and an income tax cut for non-corporate taxpayers.

Unfortunately, HB 1001 was stripped of most of its revenue raising components once it moved to the Senate. The final bill allowed the earmarking of general fund and gasoline excise taxes to transportation and includes the provision allowing local jurisdictions to levy vehicle surtaxes and wheel taxes. But instead of increasing state revenue, the final bill relies on shifts and transfers,  including transferring surplus general revenue funds to the state highway fund, which over the next two years will generate less than $230 million in “new money” for transportation funding at the expense of other critical state investments. Gov. Mike Pence praised the final measure as short-term benefit for the state, but the bill is far less than the $1 billion investment in transportation infrastructure he initially sought.