Does $600 million Transportation Funding Gap Means Tolls Are Unavoidable?
CT Post, October 16, 2019
By Dan Haar
By now we know a modest tolling scheme will be part of the 10-year, $18 billion transportation plan Gov. Ned Lamont is preparing to roll out as soon as this week.
Let’s say that means something in the range of $250 million to $300 million a year. Instead of tolling whole highways from border to border, gantries will rise up at a dozen or more key bridges and other projects. Rates should be 50 cents to $1 each way, with big discounts for in-state pass-holders and rates four to six times higher for big trucks.
The picture is more or less what I wrote back in July; it’s all logical if we can’t pass broad highway tolling.
Politically it’s a hard sell as we saw last spring. Democrats in the Senate didn’t have the guts to bring a vote and Republicans in both chambers favored borrowing, with higher long-term costs, while cutting non-transportation borrowing — which Lamont is already doing with or without tolls.
Financially, tolling is as close to a must-do as anything I can imagine in government spending. Here’s the big picture: Connecticut already borrows more for transportation projects than any other state except Rhode Island. Even without stepped-up borrowing, debt payments are set to rise more than $300 million a year in the next five years, to more than $1 billion a year.
So we’re looking at a gap in the next five years of $600 million a year or so — more if federal dollars decline, less if we see a federal infrastructure program with actual teeth.
Moderate Republicans who know there’s no way around tolls (they know who they are) and wavering Democrats who can’t stand up for a hard truth will hide in the upper reaches of the Capitol dome, hoping Lamont doesn’t run into them when he ascends for his next religious greeting from on high.
Funding through borrowing back to top
For the rest of us, here’s a look at the numbers. They show why there is not a better alternative than modest tolls for specific projects — other than full highway tolling, which Lamont can’t get adopted because of those aforementioned lawmakers hiding in the dome.
Debt payments on bonds to finance major projects amount to $690 million this year. That figure is steadily rising up to $1.01 billion in 2024, a 46 percent jump, assuming we keep borrowing to cover the same yearly spending.
Connecticut already finances about half its transportation funding through borrowing. Forty-three percent, according to a Consumer Reports analysis of federal data that appears to leave some borrowing out. Only Rhode Island borrows a bigger share. A quick look at the federal data shows states such as North Carolina, South Carolina, Virginia and Texas rely on little or even no borrowing.
Connecticut raises and spends about $1.7 billion a year in its so-called special transportation fund. I’m not sure what’s so special about it but regardless, the main sources of revenue are fuel taxes ($825 million); motor vehicle fees, use taxes and other receipts ($510 million); and the sales tax on motor vehicles ($415 million this year).
Revenue for the STF, as the fund is known, is expected to be flat over the next five years, with slight increases in taxes and fees based on more activity and inflation, and slight decreases in fuels taxes due to efficiency gains and, as The CT Mirror’s Jan Ellen Speigel wrote, the rise of electric vehicles. Taxing electric vehicles won’t solve the problem.
Contrary to popular belief, the STF does not pay directly for capital projects such as road and bridge improvements. It pays for the regular operations of the departments of Motor Vehicles and Transportation, and it pays for debt on the capital spending. Other than debt, the projected 5-year increase amounts to $173 million, or 17 percent — much of that, you guessed it, in pension and health cost hikes.
Those regular operations total $1 billion this year, including pay and benefits in the two departments ($475 million); bus and rail operations ($400 million); and assorted other expenses. Those costs can be cut, of course, but former Gov. Dannel Malloy already eliminated thousands of state jobs, many in those departments, and cut the rate of spending growth dramatically. He also cut pension and health benefits.
Connecticut borrowed an average of $730 million a year for transportation projects in each of the last five years, not including refinancing. The average “true interest rate” was 3.34 percent.
The federal Build America Bureau borrowing rates are now just a hair under 2 percent. They rise and fall with long-term Treasury rates. Let’s assume the difference will stay about the same, 1.4 percentage points. That’s $10 million a year on $700 million in borrowing. The program allows for deferred interest and principal payments until after a project is done, and that saves more money still, though it extends the borrowing out many years, as The CT Mirror’s Keith Phaneuf pointed out.
If you extend the savings from that program over the entire transportation debt, it can amount to much more than the $10 million a year. But the program has limits on projects that qualify and allows borrowing for only 33 percent of a project’s cost. Some projects are mostly state financed. Zero chance it can make up the huge gap.
Now let’s look at the actual capital spending. Connecticut spent an average of $793 million a year in the previous three years and federal spending amounted to a steady $750 million. That’s $1.54 billion a year — without fixing the Waterbury mixmaster, without fixing the Hartford viaduct, without fixing the backup on I-95 in Bridgeport, without fixing the deficient and old I-95 bridges in Norwalk and elsewhere, without replacing the 1943 span of the Gold Star Bridge, and without replacing the movable, Metro North bridges that routinely cause 20-minute delays.
Fasano rightly wants to wait to make a decision on tolls until all the Build America numbers and all the project priorities are available.
“I don’t know what number we’re solving for, so if you don’t know what number you’re solving for, it’s very tough to do,” Fasano said.
He and other Republicans raise the issues of trust and mismanagement as reasons not to launch tolls. He’s right that Malloy and General Assembly Democrats spent money without a fully developed plan in place and he’s right that money meant for the STF has been diverted. In the budget for this year and next year, for example, $171 million of the motor vehicle sales tax that was supposed to go to the transportation fund was diverted back to the general fund.
In 2014, Malloy swept $76.5 million from the fund.
Fasano’s office gave me a list amounting to $681 million in diversions to the general fund since 2014. But in that time, more than $2 billion not earmarked for the fund in statute has been moved to the fund.
How can that be? A big hunk of the fuels tax and until recently, no part of the motor vehicles sales tax, was required to be spent on transportation under state law.
Let’s call that a technicality and say the folks in charge should knock off the true diversions, which a flawed Constitutional amendment adopted last year does not address. That’s still not a reason to borrow hundreds of millions of dollars more when tolls can raise the same money at less than half the cost to taxpayers.
Lamont’s plan needs to spell out the spending side as well as the revenue side in an easy-to-digest way. Malloy never did that and Lamont didn’t do it with his first tolls proposal. And so we wait.
“I have the responsibility to see if there’s another way of doing this and once I see what they’re doing, I can do that,” Fasano said of considering Lamont’s plan.
He’s right to want to see the numbers in detail. I hope he’s right about avoiding tolls but it’s hard to imagine, looking at the numbers. That $600 million gap will loom large.
As Sen. Carlo Leone, a tolls proponent and co-chairman of the General Assembly’s transportation committee put it, “The want and the reality is not equal at the moment.”