Road Funding Takes a Toll on States
By Eric Kelderman
After three years of stagnant transportation spending, states are embarking on a road-building binge but still struggling with how to pay for new pavement. One answer increasingly is pay-as-you-go for motorists.
An injection of new money for transportation projects is on the table in a number of states that are projected to run surpluses this year, though roadwork will be competing for dollars with schools and health care. The longer-term problem is that the largest source of funding for the nations roads and transit systems state and federal gasoline taxes cant keep up with demand for road construction and its spiraling costs.
To fill the gap, states more than ever are turning to toll roads, and in the latest twist, considering leasing those roadways to private companies in exchange for cash up-front to build more infrastructure. The latest example is Indiana, where lawmakers are debating a proposal from Gov. Mitch Daniels (R) to lease the 157-mile Indiana Toll Road to a consortium of foreign companies for $3.85 billion.
Chicago, Texas and Virginia already have privately run toll ways. While governors from California to Virginia also are proposing more conventional ways to boost funding for roadwork such as bonds and increased registration and license fees — transportation experts see privatization as a future source of highway funding.
“Tolls have come to be considered as the most logical source of revenue to supplement the eroding value of the [federal gas tax],” transportation researcher C. Kenneth Orski said at a Washington, D.C., conference on state policy.
After dipping or growing only meagerly between 2002 and 2004 ranging from a 0.4 percent drop to a 1.3 percent rise, overall spending on highways and byways increased 8.8 percent through December 2005 as states budget pictures brightened, according to data from the U.S. Census Bureau.
In addition, states are getting an infusion of federal gas tax dollars from the five-year, $286 billion transportation law passed by Congress last year — a 38 percent increase over the previous highway plan.
But federal gas taxes arent keeping up with the cost of road building. Materials and labor for road construction rose 35 percent from 1998 to 2005, while the consumer price index rose 19.8 percent, according to the American Road and Transportation Builders Association.
Federal gas taxes are not linked to inflation — nor to the price of fuel — and have lost an estimated one-third of their value since 1993, when they were raised to their current rate of 18.4 cents per gallon, according to a study paid for by the U.S. Chamber of Commerce. State gasoline taxes range from 7.5 cents per gallon in Georgia to 45.7 cents in New York. Only Connecticut, Florida, Kentucky, Nebraska, North Carolina and West Virginia have gasoline taxes that vary with the price of fuel or inflation. Wisconsin will no longer index its gas tax after this year’s annual adjustment.
Gas tax revenues will fall $1 trillion short of meeting transportation needs by 2015, the Chamber’s study predicts.
To replace shrinking gas taxes, Daniels in Indiana wants to give a consortium of foreign companies a 75-year lease on a 157-mile stretch of a major east-west artery carrying Interstates 80 and 90 between Ohio and Illinois.
Indiana’s move follows the lease of the 7.8-mile Chicago Skyway for $1.83 billion, and lease agreements for toll roads in Canada, several European countries, Japan and Taiwan, according to a report by the nonprofit Reason Foundation, a libertarian think tank.
Besides privately operated toll roads in California, Texas and Virginia, about $20 billion worth of private-sector toll projects are likely to start construction within two years, according to the study.
In Texas, Gov. Rick Perry (R) has launched a 50-year plan to build nearly 1,500 miles of privately run toll roads along the portions of I-69 and I-35 that cross the state.
“Looking at the rapid pace of change in attitudes toward tolling, it is quite conceivable that by the end of this decade, toll facilities will become the primary means of expanding highway capacity,” said Orski, who publishes a newsletter on developments in transportation.
Still, some citizens and lawmakers are raising doubts about corporate control of the highways, especially by foreign companies. Bills to allow private toll roads in Missouri and Utah have run into opposition in the state legislatures.
For the second year in a row, the Colorado Legislature is considering a state constitutional amendment that would prevent the state from taking land for a privately run toll road, dubbed the Super Slab. The amendment, which needs two-thirds approval from the Legislature to be considered by voters in November, would stop a private developer from trying to build and operate a $2 billion north-south toll road on Colorado’s Front Range to ease congestion along a crowded 21-mile stretch of I-25. Gov. Bill Owens (R) vetoed a similar measure last year.
David Burwell, senior vice president at the nonprofit Project for Public Spaces, said a backlash against the use of eminent domain powers to take land for private development also could deter other toll-road proposals.
Many other governors are proposing more traditional means to ease pent-up demand for transportation projects delayed after state revenues went into a tailspin in the 2001 recession.
In California, Gov. Arnold Schwarzenegger (R), trying to repair his political standing before the November elections, has reversed his earlier vows to rein in state spending and is proposing a $222 billion plan to rebuild the states aging infrastructure, including $107 billion for transportation projects. Schwarzenegger is recommending $68 billion in new state debt, along with a host of new fees and tolls to pay for his rebuilding plan.
In Virginia, Democratic Gov. Tim Kaine’s first budget proposal includes a $4 billion plan to fix traffic congestion, fulfilling a campaign pledge to commuters in the suburbs of Washington, D.C. To pay for new roads and other transportation improvements, Kaine is proposing a 2 percent increase in automobile sales taxes, a 2.25 percent increase in insurance premiums and larger fines for moving violations.
Minnesota Gov. Tim Pawlenty (R), also facing re-election this year, wants his state to issue $2.5 billion in bonds for road projects. His plan includes a state constitutional amendment that would dedicate auto sales taxes to the states transportation budget.
Voters have had mixed reactions to increased gasoline taxes and bigger state debt to maintain roads. Washington voters elected last year to keep a 9.5-cent-per-gallon gas tax increase, while voters in Arkansas and Oklahoma rejected more state borrowing for road projects.
“The condition of roads is not so far gone that a new infusion of cash wouldn’t help,” said Michael A. Pagano from the College of Urban Planning and Public Affairs at the University of Illinois at Chicago. But it’s unclear whether state budget surpluses will be able to fill the need.
“The problem is that long-term obligations — pensions, post-employment benefits and infrastructure repair — have been delayed long enough that the newfound revenue will have competing demands,” Pagano said.
The country’s transportation network has suffered from overuse and a lack of maintenance, according to the American Society of Civil Engineers. A third of the nation’s roads are substandard, and 27 percent of bridges are deficient or obsolete, according to the ASCE. In addition, traffic congestion costs an estimated $67.5 billion annually in wasted time and fuel, the association reports.