Just Fix It Wisconsin

Wisconsin’s transportation-funding problem: Possible solutions, and how we got here 1/22/2017

1/22/2017, Wisconsin State Journal – In recent years, attempts to agree on a long-term funding fix for Wisconsin roads have had as many starts and stops as a morning commute.

Attempts thus far have hit a dead end. But groups and state lawmakers supporting such a fix, including Assembly Republican leaders, hope the impasse ends in 2017.

Their foil has been Gov. Scott Walker and his legislative allies, who say taxpayers can’t afford the higher taxes or fees that would bring state road funding into balance.

The alternative is cutting costs, which likely would involve delaying road maintenance and expansion projects throughout the state — or shelving them altogether.

There’s little question in either party or among most interest groups that Wisconsin’s approach to funding transportation is unsustainable.

Revenues from fuel taxes, the single biggest funding source for transportation in Wisconsin, have flatlined. On the spending side of the ledger, road construction costs have increased more sharply than inflation. Many Wisconsin highways are at the end of their half-century lifespan, meaning they must be rebuilt from gravel.

In 2013, a bipartisan panel sounded the alarm. It issued a report that found the state Department of Transportation would need an average annual increase of more than $1.3 billion each year from 2014 to 2023 simply to maintain the state transportation network in its current condition.

The fuel tax and vehicle registration fees are the two revenue streams that accounted for 90 percent of the more than $1.9 billion that last year went into the state transportation fund, the primary funding source for transportation in the state. Federal aid is the other main source.

The transportation-funding situation has been years in the making. Here’s how we got here:

End of indexing

Wisconsin’s 30.9-cent fuel tax is collected as a fixed amount on each gallon of fuel sold, meaning its revenues don’t rise with inflation like the income or sales tax.

In 2005, lawmakers and Walker’s predecessor, Democratic Gov. Jim Doyle, agreed to end the practice of indexing the state’s gas tax to inflation.

The decision to stop indexing becomes more costly to state coffers with each passing year. By the end of the 2015-16 fiscal year, it had cost the transportation fund nearly $1.2 billion, according to figures provided by the nonpartisan Legislative Fiscal Bureau.

Had indexing remained in place, the state’s gas tax today would be 37.4 cents per gallon instead of the current 30.9 cents per gallon.

Another factor has been the increasing fuel efficiency of vehicles. Even when motorists drive more, they don’t buy as much fuel — and don’t pay as much tax.

Interstates reach obsolescence

Many of Wisconsin’s U.S. interstates were built in the 1960s and have been resurfaced multiple times since.

They’re now reaching the end of their expected 50-60 year lifespan — the point at which they must be completely rebuilt, which is far more costly than resurfacing.

While these highways could simply be resurfaced again, the lifespan of a resurfacing project declines the longer it occurs after the highway was built, meaning such work brings diminishing returns.

Increased borrowing

In the absence of new revenues, leaders from both parties increasingly have turned to borrowing during the last decade to keep road projects on track.

“Doyle put the amount of borrowing on a new trajectory,” said Todd Berry, president of the Wisconsin Taxpayers Alliance. “Walker has kept that up to a significant degree.”

The results: more and more money flowing into the transportation fund goes to pay down debt. The state spent more than $340 million on transportation fund debt service in the most recent fiscal year.

Projections show by the end of the next budget cycle, nearly 1 in 4 dollars flowing into the fund would go toward debt service — up from about 1 in 10 a decade ago.

Highway construction costs up

The cost of building highways in Wisconsin has gone up significantly in recent years, far outpacing both revenues and the broader rate of inflation.

The trend is shown in the upward trajectory of the state’s construction cost index, which accounts for material and labor costs of asphalt, concrete, steel and earth work.

The index more than doubled from 2003 to 2016, according to figures provided by the nonpartisan Legislative Fiscal Bureau.

Big projects

Some critics say the state has spent too heavily on large highway expansions, the biggest of which can cost upward of $1 billion.

Examples include the Zoo Interchange project in Milwaukee County and the expansion of U.S. Interstate 39-90 in Rock and Dane counties.

The Wisconsin Public Interest Research Group, in particular, has criticized the DOT for road expansions that siphon money from road maintenance or transit.

Those projects aren’t all about adding lanes, though. They also include ground-up rebuilds of aging highways that would’ve been needed with or without the expansion component.

POTENTIAL REMEDIES

Here are some of the actions lawmakers could take in response:

Do nothing

This could be the most politically palatable choice for lawmakers who fear voter backlash to a tax or fee increase, or to the scrapping of a key road project in their part of the state.

But inaction has consequences, too. One example came from former Transportation Secretary Mark Gottlieb, who testified to lawmakers at a December hearing that, without an infusion of new revenue, the share of state highways in poor condition would double during the next decade.

Cut costs

Statehouse Republicans generally agree some savings can be found at the DOT. They differ broadly, however, on how big of a dent they think it could make in the overall picture.

A state audit of the DOT highway program, results of which are expected later this month, could point to areas of savings.

Some GOP lawmakers, state Sens. Duey Stroebel of Saukville and Chris Kapenga of Delafield among them, say a full repeal of the state’s prevailing wage would save money on projects.

Other cost reductions could come from delaying or shelving highway projects. For example, in Dane County, Walker’s request for the next two-year transportation budget would cause a two-year delay of the Verona Road expansion project.

Raise taxes or fees

Obvious options are the per-gallon gas tax, which has been 30.9 cents a gallon since 2006, or the annual vehicle registration fee, which has been $75 per automobile since 2008.

Those two revenue streams were about 90 percent of the more than $1.9 billion that last year went into the state transportation fund.

A 1-cent increase in the gas tax would generate about $33.4 million per year, according to figures provided by the nonpartisan Legislative Fiscal Bureau to Assembly Republicans.

Other potential options include a sales tax on fuel — on top of or in lieu of a gas tax — in which the tax is assessed as a percentage of fuel sales, as is applied in Illinois, or a so-called “hybrid fee” on electric and hybrid vehicles that pay less or no fuel tax, as is applied in Michigan.

Toll roads

Assembly Republican leaders have voiced interest in toll roads, which would be new in Wisconsin.

They argue toll roads have the advantages of being optional to use and that they hit out-of-state motorists in addition to Wisconsinites.

But starting to toll motorists wouldn’t be easy. Tolling U.S. interstates would require federal approval, a complex process that is far from certain. A broad-ranging tolling plan would require federal legislation, an even heavier lift.

Considerable time and expense also would be needed on the front end. A recent state DOT study found any plan for toll roads in Wisconsin would take at least four years to implement and require an upfront capital expense from taxpayers of between $350 million and $400 million.

Tap a different fund

Lawmakers and Walker in recent years have used dollars from the state’s general fund, filled with income, corporate and sales tax revenues, to pay for transportation costs.

It’s a reversal of what occurred under Doyle, when the transportation fund was tapped to pay for schools and other expenses otherwise financed through the general fund.

The governor and lawmakers could go even further down that path in future years. That could create tension, however, with key state functions paid for through the general fund, such as schools, universities and health care.