Wisconsin lawmakers are struggling with how to address a shortfall in the pot of money that the state uses to build and repair highways. There are several possible solutions, but one course of action should be off the table: siphoning off resources slated to pay for the education of Wisconsin schoolchildren or helping people with low incomes get the medical care they need, and redirecting that money to pay for highways.
State lawmakers are in a bind because there is not nearly enough money in the state’s Transportation Fund to keep planned highway projects on schedule. That shortfall is largely due to the fact that Wisconsin’s gas tax has been frozen for the past decade, with inflation eating away at the value of the tax and causing a slow decline in the gas tax revenues into the Transportation Fund.
There are a variety of opinions among lawmakers about how to solve this dilemma. Read more
Transportation Tax Increase Shouldn’t Be Biased against Low-income Wisconsinites
Proposed legislation to fix local road repairs is a bad deal for poor Wisconsinites who don’t have cars. The proposal would authorize a sales tax increase that would fall more heavily on poorer Wisconsinites because the sales tax takes a higher percentage of their income. What makes that particularly inequitable is that the bill precludes using any of the new revenue for transit (e.g. bus and van service). Read more
State lawmakers have approved borrowing an additional $350 million over the next two years for highway construction and repair. That approval will drive debt repayment costs higher, take money from a pot intended to support education and health care, and once again put off a permanent solution to paying for Wisconsin’s highways.
When the budget was passed in July, lawmakers included a provision that allowed Governor Walker to seek up to $200 million this year and $150 million next year in additional borrowing authority for highways. On November 4th, the legislature’s budget committee voted to approve the entire two-year total of $350 million in borrowing authority in one shot. The vote was unusual in that it did not fall along party lines: All four Democrats on the committee joined with six Republicans to pass the measure, with another six Republicans voting no.
Wisconsin has allocated a growing share of transportation resources towards repaying money the state has borrowed to build and repair highways, and the approval of new borrowing will drive borrowing costs up even further. Read more
Paying for Road Borrowing out of General Fund Would Reduce Resources for Important Wisconsin Priorities
Governor Walker has requested additional borrowing to pay for the construction and repair of highways. He requests that the repayment costs for the additional borrowing be paid out of the state’s main fund that supports the state’s public school system, university system, and health care system, increasing the likelihood that Wisconsin will need to make future cuts to those important priorities.
Normally, the state uses money from the gas tax, placed in the Transportation Fund, to pay for highway construction and repair. But there is not enough money in the Transportation Fund to pay for all the highway projects that lawmakers want to fund. This imbalance occurs mostly because the state’s gas tax has been frozen for many years, and as inflation slowly erodes the value of the per-gallon tax, revenues directed to the Transportation Fund shrink.
Lawmakers seem determined not to find a permanent solution to the imbalance in the Transportation Fund. Read more
A sizable portion of new transportation borrowing approved by lawmakers will be repaid from the state’s General Fund, rather than from the Transportation Fund. The General Fund is the state’s main account for spending on education, health care, and communities. Using money from the General Fund to pay borrowing costs for highway projects reduces resources available for critically important institutions such as the University of Wisconsin System and public schools.
During budget deliberations, lawmakers had a tough time agreeing on how much to borrow for transportation projects. In his 2015-17 budget proposal, Governor Walker recommended borrowing $1.3 billion for transportation, but legislators balked at that amount. Instead, the legislature approved a budget that included up to $850 million in borrowing for transportation, and delayed a number of planned highway projects around the state to trim spending.
Of the up to $850 million in new borrowing for transportation, as much as $307 million of that amount could be repaid from the General Fund rather than from the Transportation Fund. Read more
Legislators have taken a break from public debate on the budget as they meet privately to try to hammer out agreement on a few key issues, including how to pay for major highway construction projects. There is not nearly enough money in the state’s Transportation Fund to pay for the highway expansion and other planned transportation projects. But lawmakers are reluctant to increase the gas tax, which is the main source for financing highway projects, and which has declined considerably over the last decade. Read more
An efficient transportation network can’t exist entirely of one-way streets. It needs to be adaptable, with multiple modes of transportation and some areas where traffic flows in different directions. Likewise, the financing for a good transportation network needs flexibility, and it shouldn’t invariably be restricted to one-way flows of revenue.
Next week Wisconsin voters will cast ballots on a proposed constitutional amendment that we think would be too restrictive. Although it would allow state lawmakers to continue to make transfers between many state funds, such as supplementing the Transportation Fund with money from the state’s General Fund, it would prohibit ever moving Transportation Fund revenue in the opposite direction. That would create a double standard for state revenue transfers. It would be a mistake to lock an inflexible policy for state budgeting into the Wisconsin Constitution, as this editorial explains.
Some who favor a constitutional amendment point to past transfers that reduced resources for transportation programs. Read more
A close look at Wisconsin’s annual fiscal report released last week reveals that state officials delayed a $25.75* million transfer, which made the budget balance larger than it otherwise would have been at the end of fiscal year 2013-14. However, that’s a cosmetic and deceptive improvement in the budget balance, since the payment will still be made during the current biennium. And because the Department of Administration (DOA) report buries mention of the delay in a footnote, that document presents a somewhat misleading picture of the difficulty of avoiding a budget shortfall in the current fiscal year. [*That figure is a correction to the original post, in which I incorrectly wrote that the delayed amount was $27.5 million.]
According to the DOA’s fiscal report released on Oct. 15, the General Fund balance at the end of the last fiscal year was about $517 million, which was $207.5 million lower than what state lawmakers were anticipating when they passed a tax cut bill early this year. Read more
Governor Walker floated the idea this week of replacing the current gas tax with a sales tax on motor fuel. It’s an interesting idea, but I don’t think it would be good public policy because it would replace a stable revenue stream with a tax source that is far less predictable. (You can read more about the idea in this Journal Sentinel article.)
Although we don’t have details of what the plan would look like, the Governor said it would be revenue neutral – at least at first. But clearly the intent is that the sales tax approach would generate more revenue over time, as gas prices increase, and I think that’s a reasonable assumption to make. However, fluctuations in gas prices mean that in any given year this source of revenue could fall well short of the anticipated level.
From a political perspective the chief virtue of the plan, perhaps the sole virtue, is that it offers a way of potentially raising more revenue for transportation projects without periodically asking elected lawmakers to vote on gas tax increases. Read more