Gas Tax Debate: Round 2

Average Wisconsin Driver Could Pay $375 More Annually For State To Maximize Federal Stimulus

Analysis By: Bill Osmulski

It seems whenever we talk about transportation infrastructure in Wisconsin lately, we’re really debating a gas tax increase. It’s a heated debate to say the least. One side believes the state needs more transportation funding. The other side believes transportation officials need to be better stewards of the funding they have now.

This debate is credited with tying up the budget process all last summer. When the 2017-19 state budget finally passed in September, the gas tax debate appeared to go dormant. Then came President Donald Trump’s first State of the Union address on Tuesday, Jan 30.

Trump’s $1.5 Trillion Plan

Some conservatives have called Donald Trump the most conservative president since Reagan, despite rumors of a forthcoming fiscally liberal agenda. Talk of a trillion-dollar infrastructure/stimulus plan was particularly concerning. After all, less than 10 years ago President Obama dumped a trillion dollars into his stimulus program that was supposed to fix our “crumbling” infrastructure while reinvigorating the economy. It did neither.

When Trump unveiled his infrastructure plan at his Jan. 30 State of the Union Address, it wasn’t $1 trillion – it was $1.5 trillion. However, unlike Obama, Trump’s plan doesn’t rely on federal funding. Instead, he plays to a common weakness in state and local politicians. They can never leave money on the table.

And so, out of the $1.5 trillion, Trump only intends to spend $200 billion from the federal treasury. States and local governments will put up $800 billion to get their piece of it. That means a 20/80 federal-local split. Usually it’s the other way around.

In order to get that $400 million in federal money, Wisconsin would have to increase annual transportation funding by $1.6 billion.

By the way, the 20-80 cost sharing will only apply to new funding under Trump’s infrastructure plan. The 80-20 split will still apply for current funding programs.

The full plan was released on Feb. 12, and conservative groups are generally okay with it. They point out that it’s a ten-year plan, so the annual federal commitment is $20 billion – a drop in the bucket by federal budget standards.

Ultimately, the infrastructure plan is more about deregulation than it is about federal funding. It would place limits on legal challenges, apply a 150-day timeline for the federal permitting process, and take the ambiguity out of environmental impact requirements.

“We built the Empire State Building in just 1 year—is it not a disgrace that it can now take 10 years just to get a permit approved for a simple road?” President Trump asked during his first State of the Union Address.

Walker and the Gas Tax

Despite the promise held by such reforms, state politicians remain fixated on the idea of more federal funding for roads.

Governor Walker made it clear during the budget debate that he would not even consider raising the state’s gas tax unless taxes were cut by an equal amount in another part of the budget. He maintains that position today, but just two days after the president’s address, made it look like he was wavering.

That Thursday morning reporters asked Walker if he would consider raising the gas tax to capture those additional federal funds. He restated his position, and then began speculating on hypotheticals.

He said he hopes congress changes the president’s cost sharing proposal to the more standard 80-20 federal-state split.

If that were the case, Walker said, “I’m willing to look at ways to add to our revenue in the transportation budget as long as we have a net neutral or really a net reduction for the overall burden to the taxpayers in this state. If we could cut taxes, income taxes or other taxes, we could look at revenues in the future, particularly if it helped us leverage federal dollars.”

Not surprisingly, the resulting headlines and Facebook posts read, “Walker Open to Gas Tax Increase.”

DOT Saves Millions

Meanwhile, Wisconsin Department of Transportation Secretary Dave Ross is working hard to prove Wisconsin doesn’t need any new funding for roads. Ross came into his position in early 2017 amidst a devastating audit of the state highway program. It found the department was wasting hundreds of millions of dollars simply due to waste, fraud, and abuse.

The Reason Foundation’s most recent Annual Highway Report also found evidence of waste in Wisconsin. In 2015, the state dropped 10 spots in its rankings, from 28 to 38, because road quality was going down while spending per mile was going up.

When Sec. Ross took over, he wanted a chance to put safeguards and efficiencies in place, to see how far current funding could go. So far, he’s providing plenty of evidence that the state is doing just fine without a gas tax hike. In August, the DOT announced it had saved $46.7 million since Ross took over due to lower than expected construction costs and let savings.

Then, the same morning that Walker was musing over a gas tax hike, Ross announced his department had saved $22.1 million over the previous six months from negotiating better contracts with vendors and reduced project estimates. DOT plans to put it towards the I-39/90 North-South expansion, pushing up its completion date by a full year.

The Mega Project Money Hole

No sooner had DOT announced its plans for the surplus than three Milwaukee area lawmakers said it should go towards a mega project in Milwaukee.

Mega projects, by definition, cost over $500 million, and tend to be in southeastern Wisconsin. They usually involve replacing aging infrastructure in the interstate highway system that’s over 60 years old.

In 2020, the DOT plans on spending about 40 percent of its highway budget on the megas, but from 2021-2023, megas are projected to only make up about 7 percent of the total highway budget.

The main projects include the Marquette Interchange (which is complete), the Zoo Interchange (in progress), the I-94 north south expansion (approved in Foxconn deal) and the I-94 east west expansion (which will connect the Zoo and Marquette Interchanges).

Sen. Alberta Darling, Rep. Dale Kooyenga, and Rep. Joe Sanfelippo held a press conference that same Thursday morning, announcing their bill that would put the DOT’s savings towards starting the I-94 east west expansion. The environmental study for that project was halted in 2016, after costing $27.2 million. It is estimated to cost $5.5 million to complete. The lawmakers said if the state doesn’t start the project soon, it will have to start the study over from scratch.

Not everyone in the Capitol was happy those lawmakers were pushing the project. Perhaps it’s because the mega projects are a key factor in the gas tax debate because of their enormous expense. If the DOT is able to make progress on them with current funding levels, it undermines the need for a higher gas tax. That is the most likely reason why the Legislature forbade the DOT from working on the north leg of the Zoo Interchange in the 2017-19 budget.

The timing of the mega projects is also important in the gas tax debate. These projects are a once-in-a-lifetime investment that the state is trying to tackle all at the same time. That means transportation spending is at a temporarily high level. In 2020, the DOT plans on spending about 40 percent of its highway budget on the megas. Fortunately, these projects will not go on forever. After 2020, their costs start to drop off rapidly. From 2021-2023, megas are projected to only make up about seven percent of the total highway budget. This means if you’re going to make the case for a gas tax hike, you’d better do it while project costs are temporally high to lock in that higher funding level.

However, the road builders’ reaction to the I-94 east west announcement suggests they’re starting to lose hope on a gas tax hike. The Transportation Builders Association registered in favor of the bill. Perhaps they’re at the point where they’ll take whatever they can get. That bill, by the way, didn’t get far before the session ended.

Crumbling Narratives

Ultimately the case for increasing road funding is dependent on the public accepting three principles. One – that the state’s roads are in terrible condition. Two – that the state is responsible for maintaining those roads. Three – that the state can’t maintain those roads without more money. Throughout the budget debate, the MacIver Institute investigated each of those assumptions, and found they don’t hold up to much scrutiny.

First of all, when it comes to the overall quality of Wisconsin’s roads, there are no easy answers. There are three different methods to rate pavement conditions and every county gets to decide which one to use, which means there’s no consistency in the results. Additionally, the audit found that the DOT will disregard any data samples it believes does not represent the overall condition of the road – something unique to Wisconsin.  When these results are compiled into statistics and reports, there’s so much room left open for interpretation that both sides in the funding debate can craft a message to suit their purposes.

Even then, the conclusions can be subject to different perspectives. For example, looking at the Reason Foundation’s Feb. 2018 highway report, you could say, “Wisconsin’s roads are terrible; Our rural arterial roads are ranked 44th in the country.” But you could also say, “Wisconsin’s roads are in great shape; only 3.31 percent of our rural arterial roads are in poor condition.” (It turns out rural arterial roads throughout the country are in such good shape, it doesn’t take much to drop to the bottom of the rankings.)

Then there’s the question of which roads the state is actually responsible for maintaining. Those arguing for more funding benefited from the misperception that the state is responsible for all of them. That’s not true. There are 115,371 miles of road in Wisconsin, and the state is responsible for 11,746 miles – that’s 10 percent. Local governments are responsible for other 103,625 miles using their own budgets. Cities like Milwaukee have put road funding low on their list of priorities and it shows. On the other hand, Washington County has a plan to maintain all its roads through prioritization, and Marquette County’s innovative maintenance strategies have produced the best local roads in the state with some of the lowest levels of state assistance. Unless the state decides to completely take over responsibility for local roads from local governments, raising the state gas tax or fees won’t help local roads. Our report on Milwaukee’s roads highlights this inconvenient truth.

Finally, there is the argument that the state cannot maintain its roads without more funding. This narrative started the summer before Gov. Walker even proposed a budget. Using some funky budget math, gas tax advocates created a false narrative that the state had a billion-dollar deficit in its transportation fund. The MacIver Institute reported that the deficit was completely hypothetical and only existed on paper using the controversial base-line budgeting system. The Legislature just passed a zero-based budgeting bill, which means they won’t be able to create that narrative again.

Going back to the Reason Foundation’s report, which uses information for 2015, Wisconsin dropped 10 places in the overall ranking specifically because “per mile spending increased even as mileage in poor condition (on urban and rural Interstates) worsened.” In other words, spending more money did not lead to better roads in Wisconsin.

The state audit of the highway system released in January 2017 offers some insight into why that might be. Wisconsin tripled its highway funding from 1997 to 2015, but DOT officials were consistently failing to budget that money appropriately. (Ironically the Wisconsin State Journal continually cites that study as evidence that Wisconsin needs to spend even more money on roads).

And so when Sec. Dave Ross took over the agency the same month that audit came out, he made reforms and efficiencies his top priority. He said the DOT didn’t need any additional funding. All he wanted was time to put his changes in place. After only one year, he’s been able to bring down the cost of road projects by $69.2 million while keeping every active project on schedule.

Of course, some advocates consider any potential project that is not immediately approved to be “delayed.” That is false. DOT policy requires contract managers to space projects out in order to increase competitiveness during the bidding process. When that doesn’t happen, the audit pointed out costs increased because DOT projects were essentially competing against each other to hire construction companies.

Gas tax advocates also claim that transportation bonding proves Wisconsin doesn’t have enough money for roads. They ignore research that shows transportation bonding is considered one of the best funding strategies throughout the country.

Tolling’s On The Table

Understandably, advocates of raising the gas tax don’t want to debate whether there’s a need for more road funding. They present it as a forgone conclusion. And so, if they can’t raise the gas tax, what about tolling?

In the past, tolling has not been considered a feasible option in Wisconsin. The federal government had to grant special permission to set up tolling, and they did not often approve requests. In fact, Gov. Walker vetoed an item in the current budget that would spend $2.5 million on a tolling study for that very reason. However, President Trump’s infrastructure plan would make it much easier for states to set up toll roads.

Senate Majority Leader Scott Fitzgerald, Assembly Speaker Robin Vos, and Assembly Minority Leader Gordon Hintz recently told the Wisconsin Counties Association they love the idea. They said it could help Wisconsin come up with the matching funds for Trump’s infrastructure plan.

This proves two points. First, that the counties are interested in the state taking responsibility for maintaining their roads – or else these state lawmakers wouldn’t be pandering on this issue. Secondly, Trump’s calculation is spot on. Politicians can never leave money on the table, even if it’s a terrible deal. The media is cheering them on.

JR Ross of talked about the tolling question on Wisconsin Eye: “If you’re Wisconsin and you have Republicans in charge, how do you raise additional revenues for transportation to attract that money?” He did not ask if they should.

As Fitzgerald said at the Counties’ forum, “We’re not going to do it with a nickel or a ten-cent gas tax increase.” He’s right.

Another Math Problem

To break down the president’s proposal, $200 billion over 10 years means $20 billion a year will be available to the states.

In 2015, Wisconsin received $800 million in federal aid for highways, or 2 percent of the total amount available. (Wisconsin spent a total of $2.5 billion on highways that year.) DOT officials confirmed to the MacIver Institute that Wisconsin typically receives 2 percent of whatever’s available from the feds.

If Wisconsin were to get 2 percent of the $20 billion available, that would come out to $400 million a year. Of course, remember there’s a cost sharing requirement of 20/80. So in order to get that $400 million, Wisconsin would have to increase annual transportation funding by $1.6 billion.

So, again, Fitzgerald is correct. Every penny increase in the gas tax raises $33.8 million in revenue, according to DOT officials. And so to get $1.6 billion, you would need to raise the gas tax by 47 cents a gallon, assuming that would not change people’s driving habits.

No conservative is going to agree to a $1.6 billion tax increase to get in on a bad deal with the feds. Tolling might be easier to obscure than a gas tax increase, but even then, consider this. There are about 4.25 million licensed drivers in Wisconsin. If you increase transportation funding by $1.6 billion, the average driver would be paying over $375 more a year in taxes or tolling or whatever else you can come up with. To be clear, that’s a $375 increase per “driver,” not “household.”

No elected official would ever be able to hide or shift that cost enough to avoid harsh rebuke. In other words, forget about that federal funding, but don’t expect that means the end of the state’s transportation funding debate. Round 2 is only getting started.