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Serious Lack Of Understanding Of Public Finance

posted in: Weekly Commentary 0
By Lowell L. Kalapa
(Released on 07/29/07)

One of the bills that lawmakers decided to override really took the form of political one-upmanship with lawmakers hoping to bank points based on the emotional appeal of the issue. This is the measure that would have appropriated $3 million in state highway funds to reset stop lights and raise awareness of pedestrian crosswalk safety.

Perhaps the Governor failed to clearly communicate her objections or lawmakers just wanted to embarrass the administration’s opposition to what is a very emotional issue, pedestrian safety. The veto of that measure that was overridden by the legislature was certainly a response to the growing concern that pedestrians have fallen victim to more and more fatal or near fatal accidents. And, no doubt, some of the efforts proposed in the measure, such as recalibrating stop lights to allow more time for pedestrians to cross the streets and raising awareness about safety measures to avoid pedestrian accidents, are meritorious.

But the point that the administration disagreed with is how those programs and projects are to be funded. As approved by the legislature, these projects would have utilized state highway funds. These are funds that are paid by the highway user for the purpose of constructing state roads, repairing the state highways, and maintaining the roadways so that they are safe. The revenues for the state highway fund come from the taxes highway users pay on gasoline for highway use, motor vehicle weight fees paid when highway users register their vehicles once a year, and the state registration fee which is also assessed annually.

The taxes and fees charged to highway users are appropriate user fees as there is a direct relationship between the use of the roads and the money highway users pay to maintain and construct the roads drivers use. But one has to question what the relationship is between raising pedestrian awareness and the fees and taxes paid by drivers. One could suppose that pedestrians are endangered by drivers, but where is the pedestrians’ contribution to the funds that will pay for the awareness program?

Why should the administration quibble over a measly $3 million for pedestrian safety? Well, if indeed the highway fund was flush with cash perhaps a measly $3 million would not mean much of anything. However, as lawmakers learned this past session, the state highway fund will be faced with dire financial challenges within the next five years. In fact, it is projected that the balance – the surplus – in the state highway fund will fall to just under $5 million by the year 2013 – that is just five years from today.

None of the major resources of the state highway fund have been increased in the last 15 years. The last time the gas tax was increased, the rate went up 5 cents. The same goes for the state vehicle weight tax. And while the state vehicle registration fee went up $5 a couple of years ago, the proceeds of that rate increase did not go into the state highway fund but was instead set aside for emergency medical services.

For observers of highway fund finances, it has always been acknowledged that the taxes and user fees need to be increased periodically as they are all based on the number of units sold be it the number of gallons of gasoline, the number of pounds a vehicle weighs, or the number of vehicles on the road. None of those sources reflects the change in the cost of repairing and maintaining the state’s roads which is certainly affected by the change in the cost of living.

What does this mean to the highway user and taxpayers in general? There is a tax increase right around the corner. How much the gas tax will have to increase is anybody’s guess, but the last time the highway fund was in deep financial “kim chee,” the legislature was told that the rate would have to double from 11 cents to 22 cents. Instead lawmakers found a “new” source to tax and created the rental motor vehicle and tour vehicle surcharge, making visitors and residents pay more for their rental cars.

However, that source can be undependable as the fortunes of the surcharge rise and fall with the number of visitors renting cars. So raising that surcharge might mean a more dicey picture than raising the gas or weight tax. Depleting the highway fund even faster by utilizing the resources of the fund for non-highway projects, like stop lights and sidewalk improvements or awareness campaigns, merely hastens the day of doom when lawmakers will be forced to raise taxes.

So the point of the matter is that lawmakers should pay attention as to how the project is financed.

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