Change for the dollar

March 18, 2003

It can be crinkled, ripped, folded and rolled. But the minute you cut dollars there's a problem.

For over 10 years the Intermodal Surface Transportation and Efficiency  Act (ISTEA) and the Transportation Act for the 21st Century (TEA-21) have offered tremendous financial relief to the road and bridge industry. There also has been a vibrant economy, which in turn has produced vibrant sales and gas tax receipts.

It can be crinkled, ripped, folded and rolled. But the minute you cut dollars there's a problem.

For over 10 years the Intermodal Surface Transportation and Efficiency  Act (ISTEA) and the Transportation Act for the 21st Century (TEA-21) have offered tremendous financial relief to the road and bridge industry. There also has been a vibrant economy, which in turn has produced vibrant sales and gas tax receipts.

But the celebration has been replaced by a recession just when the highway and bridge industry is approaching another monumental turn. TEA-21 expires this year, and with it comes growing uncertainty at the state level. The system may continue to improve, but the real question is at what pace?

Slow but effective

The fruits of TEA-21 have ripened slowly. The process is normal, according to Greg Cohen, P.E., vice president of government affairs for the American Highway Users Alliance.

"I think we're just beginning to see what TEA-21 has accomplished because of the slow spend-out rate," he told Roads & Bridges. "The budget offices in Washington have assumed about a seven-year spend- out rate, with most of the money in TEA-21 going out in the second or third year after it was programmed. It just takes time."

And since the primary focus of TEA-21 was to maintain the current system, most are seeing the effects of the most powerful highway bill when it comes to highway and bridge repair.

A new report issued by University of North Carolina at Charlotte Prof. David Hartgen reflects an improvement on the maintenance end. The study found that the state highway systems are improving in condition. Since 1996, the percent of poor condition rural interstates has improved from 3.9 to 1.9%, while the percent of poor condition urban interstates has improved from 8.8 to 5.5%. Less than 1% of rural major roads are currently in poor condition, and the portion of deficient bridges has declined from 30.4 to 26.8%.

Breaking the numbers down further, Hartgen made the following conclusions:

* The percent of poor condition rural interstate roads varied from zero in 24 states to 29% in Arkansas;

* The percent of poor condition urban interstates ranged from zero in nine states to 28% in Hawaii;

* The percent of poor condition rural major roads varied from zero in seven states to 3.5% in South Dakota; and

* The percent of deficient bridges ranged from 5% in Arizona to 54% in Rhode Island.

Hartgen also rated the cost effectiveness of each state's highway system. The top 10 were: (1) North Dakota; (2) Wyoming; (3) South Carolina; (4) Georgia; (5) Idaho; (6) Nevada; (7) Oregon; (8) Montana; (9) Kentucky; and (10) Alabama. California (44); New York (45); Michigan (46); Arkansas (47); Hawaii (48); Massachusetts (49); and New Jersey (50) were the worst.

The Federal Highway Administration recently released a positive stack of paperwork regarding the nation's infrastructure program.

Its Conditions and Performance Report, based on year 2000 data, found the increased investment in surface transportation by all levels of government since the 1998 enactment of TEA-21 has greatly improved the condition of existing highways and bridges. In 2000, 86% of total U.S. road mileage was rated acceptable in condition terms, compared with 85.4% in 1999.

The funding delegation process, however, has been a bit lopsided. During FY 1992-2001 states have obligated $27.6 billion, or 82.5% of the available funding, toward the maintenance of the interstate system. The bridge program did not receive quite as much attention during the same 10-year period. States showed a 73% obligation rate for bridges, which means $7.9 billion was left on the table in favor of funding other programs.

Deficit caretakers

The downturn in the economy has thrown many states into the black sea of debt. Alabama, California, Colorado, Idaho, Iowa, Kansas, Kentucky, Maryland, Massachusetts, Minnesota, Missouri, New York, Oklahoma, Texas, Virginia and Washington are among those suffering the worst crunch in not years, but decades. Oklahoma is facing its worst budget crisis in its history.

To help fill in fiscal losses, many governors are turning to state DOT funding, which in some cases is already in dire straits. There were about 36 measures related to transportation funding on state and local ballots last November. Almost two-thirds of the money requests asked voters to approve higher county, sales or property taxes to generate more funds for transportation projects--11 passed and 11 failed.

Still, state legislatures insist on transferring whatever possible over to the general fund account.

"That's just outrageous," said Cohen. "Diverting money from their highway trust funds to the general funds to fix budget problems this year is the wrong way to go. Unfortunately, people who are doing these things are thinking in the short term."

The state of Washington suffered one of those November losses when Referendum 51, a $7.8 billion statewide transportation tax package, was convincingly rejected by voters.

"Our legislature right now is looking for alternative funding packages for transportation," Amy Arnis, financial planner for WDOT, told Roads & Bridges. "The next step is for them to propose another solution."

WDOT's money problems actually started back in 1999 with the passage of initiative 695, which reduced car registration fees.

"So it basically took away our motor vehicle excise tax and we had a significant funding dip for transportation," said Arnis.

The current budget WDOT is operating under is $1.3 billion, but it's expected to fall to $1 billion a year from 2003-2005 and could be as low as $700 million during 2005-2007.

"The legislature did appropriate a higher level of bonding to bring us through the current biennium (2001-2003), but now as we move to 2003-2005 the percent of our gas tax revenue is being dedicated to debt services which are starting to climb," added Arnis.

A measure called Senate Bill 1 was supposed to transfer the sales tax of motor vehicle related parts and accessories over to the Colorado DOT. According to CDOT spokesperson Stacey Stegman, the department was expecting about an additional $200 million a year. The extra money was supposed to fuel what are called Strategic Transportation Projects, which are high-priority corridors across the state. But the promise faded with the recession, and STPs are currently on hold.

"In the current year we are budgeted at $794 million. That's down over the last several years of being at over $1 billion," said Stegman. "It means now we have to be as lean as possible. We've made cuts in all of our operating expenses to maximize dollars going to construction."

The Louisiana Department of Transportation has lost its biggest lock and key. Last year a constitutional amendment was passed that allowed the transfer of money over to the state's general fund.

"The state has been running such large general fund deficits every year for the last few years, and more and more of the state revenue has been getting tied up with dedicated funds," Ronnie Brewer, budget director for LDOT, told Roads & Bridges.

Making matters worse is the two-sided opinion of Louisiana voters. In a telephone poll conducted late last year, 58% rated the road system a "D" or an "F." However, asked if they would support an 8-cent-per-gallon gas tax increase as a funding measure 63% said no. Another 46% also opposed a 4-cent hike.

Brewer believes the DOT has done a better job in living up to the focus of TEA-21, which is maintaining the system. The major inconvenience, which hasn't been addressed, is road capacity.

"We're just losing ground there so fast," said Brewer. "I think people get confused and when they get caught in traffic jams they say the roads are bad."

Officials at the local level are trying to control their own destiny. In a recent Surface Transportation Policy Program Progress newsletter, Richard Mauro of the Denver Regional Council of Governments wrote about the need for an equity funding platform for transportation dollars within the state of Colorado that could have implications for local control in TEA-21 reauthorization. A request has been made to the Colorado legislature to set a funding floor where 90.5 cents of every transportation dollar contributed by the region is returned to the region. The thought is to establish a system similar to the funding equity among the states established in TEA-21.

Mauro said the Denver region, which holds about two-thirds of the state's population, contributes 53% of the state transportation funding but receives just 36% of those funds in return. Equity funding would generate an additional $2.7 billion in capital, operating and maintenance dollars over the next 30 years to the city and county of Denver.

More TEA?

What figure is in? That's the question at the federal level as the life of TEA-21 comes to an end this September.

President Bush recently signed a $397.4 billion spending bill for FY 2003, which includes a $31.8 billion package for the highway industry. The administration opposed such financing earlier in the year, stating the money simply wasn't available.

In early February, the U.S. DOT said the Bush team was ready to release a $247 billion transportation bill which would provide funding through 2009. The yearly breakdown was as follows: $31.1 billion in 2004; $32.1 billion in '05; $33.2 billion in '06; $34.1 billion in '07; $35 billion in '08; and $35.8 billion in '09.

Even though the administration claims it's a 19% increase over the level guaranteed by TEA-21, it falls far short of what the system needs.

The American Road & Transportation Builders Association (ARTBA) released its plan, "Two Cents Make Sense," in late 2002. The aim here is to add capacity to the nation's roadways.

Congestion is a growing inconvenience in the U.S. Hartgen's study said urban interstate congestion has worsened, from 44.1% congested to 50.9%. A report from The Road Information Program, The Interstate Highway System: Saving Lives, Time and Money, but Increasing Congestion Threatens Benefits (See This is a stickup, February 2003, p 10), takes it a step further by marking the proportion of urban interstate miles that are considered significantly or severely congestion increased from 33% in 1996 to 41% in 2001.

The ARTBA plan would annually index the federal motor fuels excise to the Consumer Price Index and then further adjust the federal highway user fee rate, depending on incoming revenues to the Highway Trust Fund, by a penny to a penny-and-a-half per gallon. At most the total annual adjustment, including indexing, would be about two cents per gallon. This would increase the federal highway investment in $5 billion per year increments from $35 billion in FY 2004 to $60 billion in FY 2009.

At press time, the Bush administration did not have a comment on fuel indexing. A straight-up increase in the federal fuel tax also seemed unlikely.

But there may be a way to fatten the money envelope without the index or the tax increase. According to Cohen, the additional drawing down of the cash balance in the Highway Trust Fund and additional bonding authority for certain types of projects are just two ways to strengthen the cash flow to $40-50 billion.

"You also can recapture several billion dollars by just cracking down on fuel tax evasion, particularly in the southern U.S. where aviation fuel is being used in diesel engines and sold at a much lower tax rate," he said.

Whatever the new spending level turns out to be, the federal government needs to shoot at the right targets. Cohen believes focus may be on programs, like environmental streamlining and safety. If that is the case, he warned, there may be a difference in definitions.

"I think the government tends to address things that people do to endanger themselves, like drinking and driving and seat belts. While we support that, I think they may have missed a great opportunity to shine a little light on doing some physical changes."

About The Author: Bill Wilson is editor of Roads & Bridges.

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