Transportation Revenues Now State’s Major Focus

This week’s Courier Herald column:

The Carl Vinson Institute of The University of Georgia held it’s Biennial program last week in Athens. Officially, it’s where new legislators are trained. Unofficially, it’s the last official/semi-public gathering of legislators before they too try to take a short break to spend time with family and friends. As such, it’s the last preview of what we’re likely to see in the upcoming session before the new year.

Much of the buzz in Athens was on transportation. Specifically, questions remain how we are going to continue to fund transportation in the wake of cars increasing fuel economy while gas taxes decline. Most of the headlines coming from Athens last week focused on the likely proposal for tax increases of some sort.

As someone who has been working on this issue for the past year in my role as Executive Director of PolicyBEST, I’ll go ahead and say that’s very likely. But what the headlines also didn’t capture was why this discussion is quite necessary.

The Georgia Department of Transportation is funded at the state level primarily by gas taxes. These funds are segregated from the general budget by Georgia’s Constitution, and are intended as a “user fee”. They may only be used for the construction and maintenance of roads and bridges.

The problem is, despite high gas prices over the past few years, revenues haven’t kept up with demand. From 2007 to 2013, the average car on the road increased fuel efficiency by 25%. That’s great news for America’s quest to become energy independent. That’s horrible news for a department that receives a majority of its state funding from a taxes on gasoline.

The problem is about to be compounded by the free fall in oil prices. GDOT’s already strained budget will likely see a $200 Million shortfall based on the price of oil last week. Some experts see the possibility of $40/barrel oil in the very near future, at least for a short while. CNBC last week had a story titled “Is $50 oil the new $100 oil?” If it is, that’s likely another $100 Million loss to GDOT under the current tax structure. That would be a 30% decline in state revenues in just one year.

Most conservatives are often happy when tax revenues go down, as it’s an opportunity to squeeze the fat out of a bloated system. The problem is, GDOT has been doing that for quite a while already. GDOT had almost 6,000 employees in 2002. By 2013, they had just over 4,000.

Some of this has necessitated increasing tasks to be outsourced, but much of the cuts have also had to do with increasing the time that maintenance is performed on most roads and bridges. Roads are generally designed to be resurfaced every 7 to 15 years. GDOT is currently resurfacing about 2% of our state roads per year, with 1% projected for next year. This means we’re effectively on a 50 to 100 year maintenance cycle. That, simply, is unsustainable. Roads after the 15 year period will likely have to be completely resurfaced (i.e, dug up and replaced). That’s a lot more expensive because we’re essentially deferring required maintenance permanently.

GDOT estimates the maintenance backlog for roads and bridges only to be $597 Million per year for ten years to restore the normal schedule. Other system requirements and the fall in gas prices may push that number closer to $900 Million before we even get to talking about new projects.

Let’s repeat that in case you missed it. GDOT needs another $600 to $900 Million dollars per year for the next decade just to maintain all of our transportation infrastructure that “we’ve already paid for”.

GDOT also has a statewide priority list, with the “essential” projects having a price tag of roughly $15 Billion. This includes $6 Billion for Georgia’s rural highways and various interstate expansion/redesign projects throughout the state. Again, assuming the essential tasks are done over a decade, that’s another $1.5 Billion per year.

Between maintenance and the essential new construction projects, the tab is already at a need of an additional $2.4 Billion. Per year. Every year. This amount does not include the long term project list that remains unfunded. To accomplish all of this over the next twenty years, GDOT would need almost $5 billion per year.

The needs are stark, but they are real. Legislators at the Biennial gathering weren’t discussing whether or not to do something. There is frank and direct discussion and debate as how best to tackle this problem.

Moving some revenues from the existing budget will likely be the first start. There are solutions from existing revenue streams that make a good dent in the amount needed. The fact that revenues are growing year over year as Georgia’s economy improves may aid in some of the balancing of what is available versus what is needed.

But, that will not likely be enough. The legislators in Athens seemed to have begun to accept this fact. They’re hoping the voters will quickly understand the need as well, as consensus for a real solution will require it.

53 comments

  1. jbsimpson81 says:

    It seems a lot of folks like the “Virginia Plan” which is not really much of a change at all. Instead of adding a few pennies to the cost of a gallon of gasoline, you tax at a percentage of price of a gallon of gas. While this effectively indexes the gas tax to inflation, it does nothing to fix the fuel efficiency problem and it certainly doesn’t help the revenue side when oil falls below 60/barrel.

    • xdog says:

      That plan could work and might pass, if you set a floor and a ceiling so the state neither starves nor exploits.

    • Dave Bearse says:

      The problem is that motor fuel inflation, or deflation as is occurring now, is much more volatile than inflation in general, and is not very well connected to road maintenance and construction expenses. Scrap taxation as a percentage of fuel cost and replace it with a fixed tax per gallon that is adjusted annually for both general inflation (much more closely aligned with construction and maintenance expenses) and general improvements in motor vehicle fuel economy.

  2. Patrick T. Malone says:

    I like the GPPF solutions in that they allocate funding over a number of sources and are more directly tied to a “users pay” approach.

  3. Just Nasty and Mean says:

    I understand we have a funding challenge that we MUST address. Some of the solutions appear obvious and simple vs: raising taxes.
    1) Move the 4th penny of the gas tax to highway fund (vs: general fund).
    2) State revenues are growing nicely w/o new taxes. Dedicate a portion of those NEW revenues to infrastructure improvements vs: other pork barrel projects.
    3) Use tolls for NEW highway construction, and new expansion lanes (User Pays!). Tolls removed once the project is paid off.
    4) Utilize PPPs for funding and fast-tracking critical projects.
    5) Charge a fee from Electric cars to pay for their share of using the roads.
    6) Use the funds for immediately NEEDED projects vs: business development/future payback
    etc.
    7) on the negative, ANY new tax will put us at a significant and growing disadvantage to surrounding states.
    I hope the Joint Committee heard loud and clear from their constituents, conservatives and party affiliations—We didn’t send you to the legislature or governor’s mansion to raise taxes. The state budget has gone from $17B to $22B in 4 years. That money–those billion$$, were siphoned off to a hundred pork projects with little to show for it.
    It’s time for the elected officials to roll up their sleeves and get to work on a solution that involves no new taxes. That’s what we sent them there for—smaller government/lower taxes.
    Time for some leadership for the taxpayer.

    • Charlie says:

      On point seven, your statement is not aligned with the facts.

      Our gas tax (total) is about a dime less than North Carolina and Florida. They are both roughly at $.55 per gallon. We are at roughly $.45 per gallon, but $11.2 cents of Georgia’s tax doesn’t go to GDOT. Redirecting that to GDOT would account for a bit over $700M. That’s about $180M from the general fund and a bit over $500M from local governments.

      …and that only gets us half way there.

      #3 we’re already doing. It still requires money. Same as #4. Will go into a lot more detail about that later.

      #5 will happen. $150 per year per electric car gets us $3 Million. That’s about 1.5% of the total need, but every bit helps.

      6) As outlined above, those immediate “needs” are $15 billion plus the $6 Billion needed for maintenance (additional funds). The total need is $74 Billion plus maintenance over 20 years. $1.5 Billion per year isn’t a wish list. It’s what we need to keep the current system in tact and fix the pressing needs that currently exist, before we try to add 4 million more Georgians to these roads over the next quarter century.

      • xdog says:

        Hey Charlie. I appreciate the detail you offer on transportation issues. Maybe you could tell me where I can read about the $15b immediate and $74b over 20 needs? On a back of an envelope basis, what’s your best guess how much is allocated for metro-Atlanta freeways to hold more cars?

        • Charlie says:

          I’m trying to figure out how to upload what I have without recreating it and/or adding 100 or so pages to servers.

          To directly answer the question, about $6BN is GRIP (rural highways) and about $6BN is various projects to rebuild I-285 across the top end and both interchanges with I-20, plus the completion of the “Atlanta Managed Lanes project).

          The balance are items outside of Atlanta such as I-16 and I-75 interchange, and the widening of I-85 North and South of Atlanta (I believe all the two lane stretches to three lanes, but haven’t dug that deep into those plans).

          The presentation didn’t reveal the full list of projects for the $74 Billion backlog.

      • Will Durant says:

        #5 only gets us around $1.6 Million by my calculations as Forbes showed Georgia with ~10.5K totally electric vehicles as of August. Many of those are the result of some Georgia Power programs to exhibit their little toe dip into something with a hint of green. Regardless, the electric vehicles only consist of 0.1% of Georgia’s registered vehicles and barring some world changing battery technology this will not increase appreciably in the near future.

    • John Konop says:

      Just Nasty and Mean,

      ……….on the negative, ANY new tax will put us at a significant and growing disadvantage to surrounding states……..

      Concepts like spending, debt…..are neither good or bad it is how you do it. This concept applies to business, personal and government. I realize going beyond a talking point may make you think, but using your brain beyond a talking point is healthy for your wallet and health.

      One of the biggest drivers for our economy is infrastructure…bad infrastructure jobs go away….good infrastructure jobs grow…. This has been the historic policy that started with founding our fathers….Who do you think paid for Lewis and Clark, railroads…..? It was the key factor that brought down the USSR…the inability to move goods and or people from one part of the country to another efficiently.

      We are in a cross in the road, we can put our head in the sand and scream meaningless talking points like the above statement you made. Or we can try to solve the infrastructure problem in a rational manner, realizing we are way behind, and do not spend nearly enough to maintain, and or grow. Bottom line investors like me who create jobs, will just pull back, and drink wine and or invest elsewhere. Your choice….

    • MattMD says:

      4B in pork projects? You’re not being serious, are you?

      I love how people who talk about lower taxes (no matter what the ramifications may be) always seem to think there is some Magic Math where billions are hidden away in “pork”. It’s complete and utter nonsense.

      It’s akin to thinking that extra $20 you found in your pants is going to get you out of debt.

  4. jpm says:

    I for one fully support user tax; not just on roads & bridges. Probably a good thing since hunting and fishing license are a good example of a user tax – and I like both.

    So just how far could toll roads and bridges take us toward meeting the O&M needs? Before people beat me up for that approach – remember our roads, ferries, and bridges in Georgia [among other States] were originally developed as toll transportation.

    We are all going to be taxed significantly for ‘mass transit’ construction that only a portion of the State’s residents will use – tolls puts more of the burden on users and leaves room for further taxation to solve the incredibly expensive metro mass transportation approach being pushed.

    So my question – just how far can tolls take us to meeting O&M costs?

    • Charlie says:

      Again, needs a full post or three (and I see Jon Richards just did one).

      It’s “part” of a solution. But the revenue vs. reward can’t be overly exaggerated as a no cost panacea.

      The average Georgian currently pays $89/year – less than $9 month – to GDOT.

      The average commuter on I-85’s managed lanes pays $4.24 per DAY.

      It’s important to put actual real world net costs to users in perspective when deciding between true user fees and approximate user fees like gas tax. There is efficiency in collection that cannot be disregarded when looking at trying to match users with taxes.

      • bgsmallz says:

        I read somewhere that financing toll road construction costs about three times as much than just raising the gas tax because of the additional complexity. I’ll have to find a source, but I’m sure it’s from Dallas as they are dealing with many of the same issues.

        The concern for me is that we’ve built vast expanses around Atlanta based upon the low cost of automobile travel. Part of the bill that you’ve so succinctly laid out is because we’ve built out and out and out and out….and I don’t think we should necessarily abandon what we’ve done and try to put the genie back in the bottle…but I cringe when folks start talking about transit as ‘only a few will use it’…If we are going to sustain a growing population and economy, (and while I know Atlanta isn’t the only key, it is a big key for the state) part of that has to be through more efficient land uses (i.e. density) and through more efficient means of transportation (i.e. transit).

        • John Konop says:

          …..part of that has to be through more efficient land uses (i.e. density) and through more efficient means of transportation (i.e. transit)….

          I agree

  5. blakeage80 says:

    The article from this morning’s reads has the PPF Pres talking about halting motor fuel taxes by County and City governments and school boards. I assume what would follow would be the state raising the motor fuel tax to fill the gap, promises to increase state funding for county/city roads and a lot of county and then city wide tax fights and whaling from teachers. It would essentially let the s*** roll down hill to local governments, but the tax payer could be in a better spot because it would force a lot of good conversations on the local level about revenue and spending. Am I off base here?

    • Charlie says:

      Not exactly, but close. I’m running out the door and will try to return for a better answer shortly.

      Readers Digest version: Current tax is a fixed excise tax plus a variable sales tax. If this was switched to a fixed excise tax of $.275 per gallon, it would be revenue neutral with last years tax collected, but would take away the one percent that currently goes to the general fund and the 5th-8th percent that goes to various local governments and agencies. That’s a total of about $700 Million (plus a unique windfall of about $50M that requires a side explanation).

      There are winners and losers there that will require some mitigation. But it’s still where I believe we need to start to match tax revenue to uses as much as possible.

      • objective says:

        and pls address when u can- why should we shortchange local govts in the process? that feels a little bit of the old “rob from peter to pay for paul” kind of scenario. that’s how that saying goes, right?

        • Charlie says:

          Every local government that I heard come before the study committee (a very small number) that addressed this said essentially:

          1) Don’t touch the local match, we already use that money.
          2) We really need you to go raise taxes because we want more stuff

          Much of what the locals currently use the money isn’t transportation related, yet they all spoke of needing more transportation projects from the state.

          I’m looking at it this way: The state needs to take it’s role responsibly and fund transportation while matching sources and uses of funds as closely as possible. If the local governments still need a larger revenue stream, then they can go to their local voters and tell them they need to replace this revenue with more local taxation.

          • blakeage80 says:

            Eesh. It sounds like we’ll have to be more vigilant about how our tax money is spent locally in order to avoid a giant local tax rise if Georgia proceeds in this manner. That’s not a bad thing, but it’s something to start thinking about now. I think it will be difficult for the legislature to be able to avoid the appearance of “raiding local tax revenues to pay for their own ineptitude”. That’s the way it will get painted by counties as they start the drumbeat for more money. Police and Firemen should prepare to endure threats of being sacrificed due to budget shortfalls.

            • abella30 says:

              I have often wondered whether it would make sense to combine some counties as well as not have so many small cities. Georgia has so many more counties compared to other states of similar size that I have to think there could be tax savings simply by eliminating duplicate services and administration through a consolidation of local governments. Tax savings from a local government reorganization could be better used to address transportation and other problems state wide.

  6. objective says:

    calling a tax is a user tax is great for public consumption- ppl can live with the concept easier. but raising the price, whether u call it a user fee or a tax, is still raising the price. so step one for most should be getting over the idea that raising the price is necessarily bad. maybe sometimes it is. but then there’s things like inflation, changes in technology, improved service and product quality, all of which push prices higher. i don’t like paying more from my pocket than anybody else, but i’m willing to, in order to get sufficient if not good roads and yes, maybe even another transit option. a knee-jerk response to say no to any new tax, to me, most likely just indicates cheapness. maybe even a willingness to freeload. but for those who think it just means the govt doesn’t have its house in order- my guess is that the best public education campaign will make no inroads with such attitudes anyways. call me naive, i believe our elected officials and staff are doing their best to provide necessary, and dare i say better-quality services, with very limited means. some might be happy to spend the time and money to complain at town halls, or vote someone out for raising taxes, but would be unwilling to spend that time and money to support our common needs. i am certainly not pro-tax, but being anti-tax in the face of such clear and present needs seems just counter-productive.
    all that said, fairness should pervade the tax system. regions who already agreed to pay extra with the TSPLOST should maybe get the chance to vote on it again if the taxes are otherwise raised. and even regions who rejected it should get the chance to vote again, if they receive agreements that the extra tax will go to certain “enhanced” transportation projects (that the base tax raise couldn’t already cover).

  7. blakeage80,

    Replacing the local sales tax on motor fuel with an excise tax (no net tax increase) would reduce the sales tax base going forward, just as with any exemption. Existing local sales taxes should be grandfathered in, so the reduction in the base would occur upon reauthorization. The state could ameliorate this with tax reform that broadens the sales tax base at the state and local level.

    • blakeage80 says:

      Thank you for weighing in. If I am following you, we’d have to have to pay higher taxes on fuel from the state plus local taxes, at least initially, then try to restructure taxes at both the state and local levels. What this would gain us is better knowledge of where fuel taxes end up being spent and an argument for broader tax reform. That doesn’t sound too terrible.

    • Charlie says:

      Yes. I have a couple of long powerpoints that GDOT used in the study committee hearings. I’m trying to find the best way to either upload or preferably, see if it’s already online somewhere else.

        • Charlie says:

          Thanks Angela.

          GDOT Commissioner Keith Golden made presentations on August 5th (where most of the above figures came from) and another that had more current data (as well as the needed 10 year maintenance numbers) on November 19th in Blue Ridge. He also gave a presentation at Biennial which was not part of the study committee.

        • Al Gray says:

          The documents posted for the Augusta meeting are only those from the DOT and MARTA propagandists. The joint committee refused to disclose the place and time of the meeting in Augusta until Monday of that same week. I requested to be able to submit a presentation for the record but was denied.

          A very well documented and powerful presentation was expressed by a Mr. Jones of Sprint Foods and that isn’t posted.

          I was the only member of the public to speak and that wasn’t posted either.

  8. Harley Levens says:

    Wow! I was just forwarded this article and had to respond to this:

    “The Georgia Department of Transportation is funded at the state level primarily by gas taxes. These funds are segregated from the general budget by Georgia’s Constitution, and are intended as a ‘user fee.’ They may only be used for the construction and maintenance of roads and bridges.”

    This is a lie that politicos are using to “justify” a tax hike scheme.

    The truth is that the Georgia General Assembly “exempted” itself from the constitutional requirements for motor fuel taxes in flagrant fashion.

    Witness the illegality in its full “glory:”

    Official Code of Georgia, Annotated § 48-8-3.1(c)

    “It is specifically declared to be the intent of the General Assembly that taxation imposed on sales of motor fuel wholly or partially subject to taxation under this Code section shall not constitute motor fuel taxes for purposes of any provision of the Constitution providing for the automatic or mandatory appropriation of any amount of funds equal to funds derived from motor fuel taxes.”

    Georgia doesn’t have a revenue problem. Georgia has a spending problem that is exasperated by these politicians’ blatant disregard for the constitution.

    • John Konop says:

      Harley Levens,

      ….Georgia doesn’t have a revenue problem. Georgia has a spending problem that is exasperated by these politicians’ blatant disregard for the constitution.

      What is your plan to pay for the needed infrastructure? Is it click your heals 3 times and say I wish?

    • Charlie says:

      Ah, the infamous “scheme” misdirection.

      The language you’re referring to is the outline of what is now commonly called “the 4th penny”. It was deemed a sales tax and not a motor fuel tax. If you’ll note almost everywhere above, virtually anyone who has a plan about fixing this believes the first step is moving the “4th penny” (which is actually a 4th percent) back to the DOT where it belongs. I and most others in this comment thread also advocate for moving the 5th, 6th, 7th*, and 8th percent to GDOT.

      That’s the $700M of existing revenue that can be used to start to fill this gap. Problem is, it’s still a $2B+ problem. No need to call it a scheme. Everyone I know is being quite direct and upfront about it.

  9. Blakeage80,

    There is no tax increase – it is a revenue neutral shift from sales tax to an excise tax that ensures that all tax on motor fuel is spent on transportation. Going forward, a new ESPLOST, for example, the tax base would be perhaps 15 percent smaller, so you would either need longer to pay off your capital projects or you would need to reduce your project list by 15 percent.

  10. Dave Bearse says:

    this morning I wrote my General Assembly representation the following about transportation funding.

    I support increasing state taxes to be dedicated to increasing transportation funding, with the following caveats:
    (1) that all additional new highway transportation funding be highway-user based, e.g. motor fuel taxes, etc, and
    (2) that any increased statewide non-highway-user tax increase also be:
    (a) dedicated to non-highway-based transportation, principally transit;
    (b) used to reduce the local one percent sales tax levied by Fulton, DeKalb and Clayton Counties to fund MARTA (for example say a one-half percent reduction in the local tax in event of a say three-quarter of one percent increase in the general sales tax to fund transportation); and
    (c) that some of the proceeds of the new state non-highway-based transportation tax increase, in addition to the portion used to reduce the Fulton-DeKalb-Clayton MARTA sales tax, be dedicated to increasing funding of MARTA.

  11. Dave Bearse says:

    Any increase in the state sales taxes for highway construction and maintenance should be off the table. The motor fuel tax is the best thing available with respect user based taxation, until a supplement or better alternate is developed.

  12. saltycracker says:

    As soon as we get some new taxes identified we can get to work on the exemptions, deductions, exceptions, subsidies……
    There are so many out there today to enjoy…….

    • Charlie says:

      I hear a lot about the need to “take away some tax exemptions” as a way to pay for this. I’m going to presume eliminating the sales tax on groceries isn’t on the table. Would love to see some specifics offered along with some revenue numbers for each proposed exemption.

      • Will Durant says:

        I would first submit the Conservation Use Valuation or Preferential Agricultural Assessment on property taxes. The original intent to save the family farms has been widely abused statewide by wealthy landowners to pay less than their fair share of property taxes, especially those with political connections. Roy Barnes and Rudy Bowen, I’m talking about you. This has become a huge loss of needed revenue to many of the rural counties.

        For sales taxes, we can start by eliminating the silly “Sales Tax Holidays”.

        • Charlie says:

          Given that the state is mostly out of the property tax business those first two are probably a better target when we get to “tax reform” than for transportation funding, but it would put some money back into local coffers that would lose if the 5th-8th percent are moved to excise taxes instead of sales taxes. I frankly don’t know enough about them to render a personal opinion as to their value vs their cost.

          As for sales tax holidays…. “wouldn’t be popular”.

          And until GA gets a mechanism to start collecting sales tax for internet transactions, this is one bone for the local brick and mortar retailers I personally don’t mind them (and me) having.

          • Will Durant says:

            I’ve stated it before as well and we are in complete agreement that going forward all taxes on motor fuels should go to transportation. I’m fine with grandfathering in the existing county splosts but any future county taxes applied to motor fuels must go 100% to transportation. The recent drop in wholesale pricing now has me agreeing with you on the excise tax over sales tax method for motor fuels. It must be tied to an annual adjustment for inflation that a pandering Governor cannot override however.

            The property tax issue needs to be addressed more as a bone to throw the counties over the issue of lost revenue that will result in exempting motor fuels from their local sales taxes.

            OK, keep the “Back to School” holiday but kill off the one for appliances. Many are scheduling remodelings and the like around that one for purchases that are going to happen locally anyway.

        • saltycracker says:

          While not participating in the conservation program, eliminating it might crush values, but eliminating it when a property is rezoned from AG or held by development interests might work for counties.

          First big hunk would be to tax internet sales. Then raise the fuel tax and end direct consumer subsidies on autos, particularly alternative energy.

          • Will Durant says:

            Not talking about elimination, just tightening up the rules. Like requiring that it has actually been used a farm in say, the last half-century or so. Owning a horse, a cow, or having some trees shouldn’t make your palatial estate a farm either.

            Internet sales tax is going to have to be addressed nationally, and in some cases internationally. I’m not smart enough to figure that one out.

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