New state-budget plans to borrow almost $1 billion–or about one in six dollars spent–to pay for state transportation programs over the next two years is one of several warning signs the Wisconsin Taxpayers Alliance (WISTAX) cites in a just-released report, “Wisconsin’s Transportation Funding Dilemma.” Now celebrating its 81st year, WISTAX is a nonpartisan, nonprofit public policy research organization dedicated to educating the public and press about major state and local issues.
This borrowing accounted for 16.5 percent of state transportation revenues in 2010-2012 compared to just 6.2 percent during 1998-2001. “Use of transportation fund revenue to help balance the general fund budget” was a major factor in the shift to borrowing, according to the WISTAX study, which goes on to note: “In every year from 2002 through 2011, lawmakers transferred money from the transportation fund to the general fund–a 10-year total of more than $1.4 billion.”
As borrowing has increased, the share of the state transportation budget going to debt service has grown. WISTAX found that these mandatory debt payments rose 230 percent from $93.3 million in 2002 to $306.9 million in 2012. Debt service accounted for only 4.1 percent of transportation expenditures in 2002 but 9.5 percent by 2012. According to a recent gubernatorial transportation finance commission, that percentage could claim nearly a quarter of transportation fund revenues in 2023.
“Rising debt service costs mean fewer dollars available for highway construction and repair, or for other transportation needs,” the WISTAX report observes.
As borrowing has increased, the state transportation fund has relied less on its traditional sources of revenue, mainly gas taxes and registration fees. In 1998-01, these revenues provided about 62 percent of transportation fund income; by 2010-12, that percentage had fallen to 50 percent.
Several other factors, economic and social, also contribute to this decline. Unlike state income and sales taxes that automatically generate more revenue with wage and price inflation, the 32.9-cent gas tax–the nation’s sixth highest–and the $75 annual vehicle registration fee (22nd highest) are “flat” and lose value with inflation.
WISTAX illustrated the difference by comparing revenue growth of several major state taxes for two recent time periods. During the first, 2002-2007, when gas taxes were indexed (adjusted for inflation), collections for the income (32 percent), sales (13 percent), and gas (16 percent) taxes all rose. However, during 2007-2012, after gas tax indexing was repealed and a recession occurred, income (7 percent) and sales (3 percent) taxes eked out modest growth, while gas tax revenues fell 2 percent.
Societal and technological changes are also at work. Slower economic and population growth, along with the rise in the state’s average age, are all contributing to downward pressure on vehicle purchases and miles driven, and with them, registration fee and gas tax revenues. In addition, gas tax collections are adversely affected by increased fuel efficiency of vehicles, which will continue to improve with tighter federal fuel economy standards, e.g., 54.5 miles per gallon by 2025.
All these factors contribute to WISTAX’s finding that “in 2012, Wisconsin gas stations sold 77 million fewer gallons of gas than in 2004.”
If state officials cannot rely on significant growth in existing transportation taxes and fees, and increased debt loads make borrowing less feasible, WISTAX frames Wisconsin’s transportation funding dilemma in a simple question: “New taxes or less spending?”
Recent estimates from the governor’s transportation commission highlight the issue. Existing transportation taxes and fees are expected to generate $25 billion over the next 10 years. During that same period, the commission says Wisconsin will require $27.0 billion to keep spending at 2013 levels, $30.8 billion to maintain current transportation services and road conditions, and even more if it wants to accommodate future congestion or “capacity” problems. In its final January report, the commission recommended spending $31.8 billion over the next decade.
If accurate, these estimates suggest that the state must either trim its transportation budget to accommodate future revenues or face a 10-year funding gap of at least $2 billion, if not $7 billion, according to the WISTAX report. And that led its authors to observe that “ultimately, the answer comes down to a matter of political will.”
A free copy of The Wisconsin Taxpayer magazine, “Wisconsin’s Transportation Funding Dilemma,” is available by visiting www.wistax.org; emailing wistax@wistax.org; calling (608) 241.9789; or writing WISTAX at 401 North Lawn Ave., Madison, WI 53704-5033.
