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Unfortunately A Tax Hike Is On The Way

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By Lowell L. Kalapa
(Released on 09/09/07)

Motorists and businesses across the state should prepare themselves for a hike in taxes and/or user fees to shore up the state highway fund.

Although lawmakers hiked the state fuel tax by a penny per gallon this past session and extended the $3 rate on the rental of motor vehicles for a year, those were only band-aid responses to the fact that the state highway fund is ailing. It is estimated that the fund balance will drop below $5 million by the end of fiscal year 2013 if nothing is done to enhance the revenue picture.

How did the highway fund fall into this situation? Drivers will tell you that it appears that for years little, if any, work was done on the state’s highway system and, as a result, roads have been deteriorating. As a result, revenues exceeded expenditures through approximately 2003. Recognizing that all this deferred maintenance would eventually cost more in the long run, about 2004 the highway department made aggressive efforts to try and catch up with all of the maintenance issues that had been neglected for more than a decade. Perhaps the reticence to undertake an aggressive repair and maintenance program was a result of the fact that the legislature authorized and the administration implemented a transfer of nearly $150 million from the state highway fund to the general fund at a time when the general fund was hurting for money.

While raiding the state highway fund has long been criticized, it was a common practice for the legislature during the late 1990’s as they searched for ways to continue to fund general fund programs. Unfortunately, that meant that the highways division didn’t have the resources to do the scheduled maintenance of the state’s highways. With years of neglect, the cost now of going back and picking up all the deferred maintenance will mean many more millions of dollars as the repairs must be more than cosmetic.

This year the legislature again decided to use state highway funds to pay for pedestrian awareness programs and crosswalk improvements, perhaps based on the rationale that since the endangerment of pedestrians in crosswalks involved drivers, that the funds should come out of the highway fund to which drivers contribute. But what about the pedestrians? Advocates argued what difference did it make that the funding for pedestrian safety came from the highway fund? The point missed is that if the highway fund were used to fund these programs it would be $3 million nearer to the brink of insolvency. It would also mean any “revenue enhancement” (read tax hike) would have to be that much larger and come that much sooner.

This is exactly the question that was raised in the discussion about how to shore up the state highway fund. What should be the definition of who is a highway user and are those who use the state’s highways contributing their fair share? For example, a law was approved recently that earmarks 2% of the federal funds received for highways for the construction and maintenance of bikeways. And while they are federal funds, it means that what is spent on bikeways has to be made up from state highway resources.

A one-time registration fee of $15 is paid by bicycles and mopeds and the money accrues to the counties in which they are registered. Thus, none of the fees paid in order to be permitted to use bicycles or mopeds on the state’s roads accrue to the state, yet a portion of the federal funds that are granted to the state must be spent on facilities that are used by bicycles. Since they are users of the state’s roads, should these “vehicles” be asked to pay an annual registration fee to the state?

And what about the efficiency of the department? While the general public may not be able to determine whether or not the department is operating efficiently, it is certainly the responsibility of the legislature to provide oversight and demand accountability of the department. Without that oversight and verification that highway user revenues are being used wisely and efficiently, it will be difficult to justify raising highway taxes. Although a legislative staffer noted that the legislature merely authorized the director of finance to transfer the highway funds to the general fund, the point was missed that the legislature didn’t have to authorize the director of finance and the legislature did not have to appropriate general funds on the assumption that the highway funds would be transferred.

Regardless, some sort of tax increase or new source of tax or fee revenue is just around the corner, for without it, the fiscal integrity of the highway fund and the bonds dependent on it will be in jeopardy.

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