By David Pollan
Voters statewide will decide Nov. 4 whether to approve a constitutional amendment designed to combat the state's transportation funding woes and repair its ailing road infrastructure.
"For the Greater Houston area, Proposition 1 could bring in more than $100 million—or even double that—in a given year," said Alan Clark, director of transportation for the Houston-Galveston Area Council. "Proposition 1 will be a very important source of funding for [the Houston area]. That's true whether it is part of the Houston region that is fast growing and needs new road capacity, or whether this is in older parts of the region where we need to rebuild facilities and better maintain them."
Proposition 1 would amend the Texas Constitution to allow for a percentage of revenue raised from the state's severance tax to flow into the State Highway Fund. As it stands, 75 percent of severance tax revenue—which stems from a production tax paid by oil and gas companies—fills the coffers of the state's Economic Stabilization Fund, also known as the Rainy Day Fund. The remaining 25 percent of severance tax revenue goes to the general fund to pay for public education.
With voter approval, the proposition would divide the severance tax revenue—previously allocated for the RDF—equally between the RDF and the SHF. The remaining 25 percent of severance tax revenues would still be used to help fund the state's public education system. The revenue would come without raising taxes and would have an assortment of strings attached, including a provision barring the money from being used for construction of toll roads and a mandate for the Texas Department of Transportation to identify $100 million of cost savings.
In the first year alone, Proposition 1 is expected to contribute roughly $1.7 billion to future road improvement and maintenance projects, based on estimates by the state comptroller's office.
However, transportation experts said that amount still falls well short of what is needed annually to keep up with a rapidly escalating population and aging infrastructure.
"Proposition 1 is a great first step toward increasing funding for transportation in Texas, but it really is just a first step," said Andrea French, executive director for the Transportation Advocacy Group. "TAG is very supportive of Proposition 1, but we also know that we have to look much further into the future, and the proposition is not going to be enough to sustain [what we need], so we also need to find other funding options."
TxDOT estimates its unmet annual transportation needs are $5 billion, which includes $1 billion for recurring maintenance, $3 billion for mobility projects and $1 billion for repairs related to increased energy sector activity.
"The estimated annual shortfall of $5 billion is a safe line used to project what Texas needs to stay minimally competitive with other states and basically maintain the current state of transportation in the state," French said. "We all say $5 billion very cautiously, but in my mind it is at least that much that is needed each year."
How Houston benefits
According to a report by Texas Infrastructure Now, a nonprofit organization that promotes investment in transportation funding, TxDOT is projected to spend $464.6 million on road construction projects in the Houston district in fiscal year 2016. That amount represents a $386.4 million decline in the six-year average in funding for the district.
Texas Infrastructure Now estimates the Houston district could receive an additional $221.5 million in funding if Proposition 1 passes. Clark said the additional funds would do a great deal of good.
"That is very significant, and it would help us with lots of road projects that need to be done," Clark said. "It can help with new roads that need to be constructed or interchanges that need to be constructed or reconstructed. We have lots of old infrastructure that needs replacement."
Clark said the Houston region will not identify any potential projects that could be funded by Proposition 1 money until after it has received voter approval. In the next couple of months, H-GAC will begin having conversations with local governments and transportation agencies to determine what needs the region has and what projects could benefit most from the additional funding. Assuming voters approve the proposition, Clark said he anticipates being able to make financial commitments to specific projects around March 2015.
"We obviously have a lot of needs, and we want to make sure that we have identified the best places to put that additional funding if it becomes available," Clark said.
How we got here
Transportation funding in Texas is generated primarily by motor fuel tax and vehicle registration fee revenue, among other sources. With soaring construction costs and traffic congestion, along with more fuel-efficient vehicles, most of the state's transportation revenue sources have remained steady since the early 1990s and have not kept pace with mounting transportation demands, Clark said.
The motor fuel tax rate has not been adjusted or increased since 1991 and it was never indexed for inflation, so the increase in fuel-efficient, hybrid and electric cars is resulting in lost revenue tied to the gas tax that is not being captured, Clark said.
According to a 2007 study commissioned by TxDOT, the department could lose out on $86 billion in fuel tax collections because of assumed increases in the fuel efficiency of vehicles between 2007 and 2031. To overcome that deficit, TxDOT would need to raise the state's portion of the fuel tax 665 percent from 20 cents to $1.53 per gallon of gas.
"People like the gas tax because it has been around for so long and is user-based, but it is kind of a dinosaur funding technique," French said. "We need to either do something with it or switch to a very different mainstream source of funding for transportation."
To try and keep up with transportation needs, the state has relied on debt and one-time funding sources for more than a decade to pay for construction and maintenance. Texas voters approved bond debt issuance for road infrastructure in 2001, 2003 and 2007 totaling $17.9 billion, said Scott Haywood, spokesman for Move Texas Forward, an organization created by former TxDOT commissioners dedicated to lobbying for increased funding for Texas roads.
Stagnating revenue sources and mounting debt has left the state with a cash-strapped department, he said.
"As of 2015 TxDOT is maxed out on its debt and can no longer use debt to pay for projects," French said. "TxDOT cannot borrow any more money so it has to find a different way to fund transportation. There's no more money, it is not available; it is gone as of 2015."
Alternative funding sources
Even with the passage of Proposition 1 adding a projected $1.7 billion to the SHF, funding still falls short of the projected need, which is why alternative funding sources need to continue to be explored, French said.
French said the Legislature could explore increasing vehicle registration fees both at the state and county level as well as increasing or indexing the motor fuel tax to have it mirror the cost of inflation. Both options, however, require an increase in fees that could create a contentious political climate that will be challenging to work against.
"Do you go back and properly index or increase the motor fuel tax—which is going to be a heck of a political fight—or do you look at raising vehicle registration fees," French said. "I would think you need a little bit of everything, which is why TAG is looking at more local funding options because we just do not feel like the political climate is where it needs to be for an increase on any of those fronts."
Other options include diverting new vehicle sales tax revenue from the general fund to the SHF, which could generate about $3 billion annually, or replacing the current per gallon fuel tax with a Vehicle Miles Traveled system that would accurately reflect road usage and could compensate for future fuel efficiency, she said.
"Making some difficult choices about transportation—even if the voters approve Proposition 1—will still be in our future," Clark said. "But Prop. 1 is a huge first step and will really be tremendously beneficial and very immediate in terms of its impact. If it does not pass, then some kind of increase will be the only option we can consider."
Additional reporting by Brian Walzel and Brett Thorne