a.  Basic statement of the problem. 

• How can states generate sufficient funding for transportation to meet expanding needs?

b.  Transportation needs are growing

• More users and more travel on our roads and throughout the system
• Deteriorating infrastructure
• Travel growth increasing – increasing demand on highways
• Transit systems.  Many states looking to develop alternatives to highway travel or to cut traffic congestion.
• Travel on highways.  Many roads congested.
• New concerns about transportation security.  Transit security, infrastructure security.

c.  Money available for state spending on transportation is more uncertain 

• Overall, states have had tighter budgets over the last couple of years
• Less money available in the budget for transportation

-  Budgets squeezed by K-12 and Medicaid spending. 

-  Portion that can be used for transportation is shrinking.

• Transportation funding not a high priority for state fiscal officers

d.  About this report

• The report will provide information about how states get money to fund transportation
• The report will give state legislators options

2.  Transportation funding needs.  What does transportation money buy?

a. Expenditures for highways

• Capital outlay

- Costs associated with highway improvements. 

- Land acquisition and other right-of-way costs

- Preliminary and construction engineering

- Construction and reconstruction costs

- Resurfacing, rehabilitation, and restoration       costs of roadways and structures

- System preservation activities

- Installation of traffic service facilities such as guard rails, fencing, signs and signals

• Maintenance
• Highway and traffic services

- Costs associated with the operation and management of highways. 

- Traffic control operations including expenditures for operating traffic control and surveillance systems for monitoring and controlling traffic flow. 

- Cost of snow and ice removal

- Miscellaneous costs for highway beautification, litter control, vegetation management, erosion control and air quality programs.

• Administration

- General expenses for administering a state or local highway program that are not attached to a specific project.  Includes costs for overhead, engineering, research, highway planning, litigation and publications.

• Highway law enforcement and safety

- Expenses for state highway patrol traffic supervision activities, highway safety programs including driver education and training, motorcycle safety programs, vehicle inspection programs and enforcement of vehicle size and weight limitations.

• Debt service

- Expenses incurred from borrowing funds for highway, road and street projects.  Includes expenditures from the sale of highway bonds, bond administration expenses, interest and redemption payments.

- Debt service has become much bigger for states.  For example, starting July 2006, New Jersey will have to spend its entire Transportation Trust  Fund to pay off the loans used to pay for transportation projects in the 1990s.

• Intergovernmental payments

- Transfer of funds between different levels of government. 

b.  Expenditures for public transportation

• Similar categories of expenditures as highways
• Vehicles and equipment – Rail cars, buses, transit vehicles, ferries, etc.
• Terminals and transit facilities – Bus, ferry and rail stations
• Personnel – Drivers, conductors, fare collectors

3.  Sources and distribution of funding for transportation

- How does the current transportation funding system work?

- Where do states get money?

- How much is being spent on transportation (highways, transit)?

a.  Overall spending amounts on transportation

1). Highways – FHWA Highway Statistics

2). Public Transportation – Survey of State Funding for Public Transportation

b.  Federal transportation funding

• Amount paid by the federal government for surface transportation (FHWA statistics for highways)
• The federal Highway Trust Fund

            - Explanation of how the HTF receives and distributes funds

            - The mass transit account

• SAFETEA-LU

      - Spending programs

      - Earmarks vs other funding mechanisms

• Federal financing programs (TIFIA, SIBS, GARVEES)
• Federal-aid to state and local governments
• Homeland security funding

c.  Local transportation funding

• How much do local jurisdictions contribute to transportation?
• How do local jurisdictions fit into the funding picture?

d.  State transportation funding

1) Background

• Funding contributed by states
• Survey of State Funding for Public Transportation

2) State funding mechanisms

• Revenue sources

- Gas tax   

- Other transportation taxes

- Motor vehicle fees

- Tolling

- Registration

- Driver's license fees (chart)

- Oregon road users proposal

- State trust funds connected to gas taxes

- CMV payment (weight/distance taxes)

- Other

• Financing mechanisms

- Bonds

- Federal financing programs

3) Distribution of state revenue

• Amount states pay to counties and cities
• Is gas tax dedicated?
• State restrictions on the use of gas tax revenues
• Any states with dedicated funding for transit?
• State investments in rail
• Technological solutions for finance
• Problems with distribution of gas tax revenue within states.  Evidence that it is often biased against urban areas so that urban areas and cities become donor regions within the state.  (Brookings Report).  
• Pay-as-you-go vs. financing projects

4.  Funding obstacles

a.  Economics

• The purchasing power of gas tax revenues is declining.  States have raised gas tax rates, but not enough to keep pace with inflation. 
• The federal transportation spending levels are not increasing.  The reauthorization bill will keep spending levels relatively the same.
• Concerns about the continued viability of the federal Highway Trust Fund.

b.  Societal changes

• Impact of hybrid vehicles and greater use of alternative fuels.  More use could mean less revenue from gas taxes.
• Vehicle miles traveled (VMT) and fuel consumption are not increasing as rapidly as they once were, so gas tax revenues are not increasing. 

c.  Political concerns

• Political difficulties with raising gas tax rates.
• Amtrak funding cuts are shifting the financial burden to states for passenger rail. 
• Citizen initiatives have cut transportation funding.
• Resistance to tolls.
• Fairness concerns.  Concerns that certain types of vehicles such as CMVs pay their fair share and don't pay too much or too little for transportation.
• Concerns about financing vs. pay-as-you-go.

d.  Legal restrictions on use of transportation funds

• A greater percentage of transportation funds are needed for debt service.  See New Jersey is a current example.
• Restrictions on the use of gas tax revenues for only highway purposes.  30 states have restrictions on use of gas tax revenues (Brookings report 2003)  22 states have constitutional restrictions.  8 states have statutory restrictions.  Severely restricts ability to spend on transit.  From 1998 – 2001 only 11 states spent more than 5% of gas tax receipts on transit.  Only 4% of states spent more than 15% of gas tax receipts on transit.  If states don't use gas tax revenue on transit, it is difficult for them to receive federal funds for transit projects because the federal money usually has matching requirements.  It's difficult for states to raise enough money from other sources to meet federal matching requirements.
• Earmarks send money to specific transportation projects, some of which may not be priorities in the state.

e.  Other potential obstacles

5.  Options for Legislatures to Raise more Transportation Money

- Menu of options

- Pros and cons of options

a.  Mechanisms to collect new revenue (From Oregon legislative report)

• General Fund – The use of state general fund revenues for road funding
• Battery Tax – Excise tax on the sale of car batteries.  Flat fee or percentage of the sales price.
• Bicycle Fees – Excise tax on bicycle sales or registrations.
• Congestion Pricing (variable pricing, value pricing, peak period pricing) – Charging motorists tolls for using congested roads during peak driving hours.
• Drive-Through Service Fee – A transaction fee on drive-up service at a retail establishment
• Electricity Generated by Vehicle Tax – A charge on wattage generated by an electric or hybrid electric vehicle.
• Emissions Fees – Fee placed on the amount of pollution put into the air.
• Facility Tolling – Charging a toll for a motorist's use of a transportation facility such as a limited access roadway or bridge.  Collection of the toll can occur through tollbooths, electronic tolling or other means.  Toll rates can be variable depending on the purpose of the toll.
• Indexing the Gas Tax to Inflation – Linking the gas tax to inflation rates.  Avoids the need to seek legislative approval each legislative session for the increases needed to keep pace with inflation.
• Indexing the Gas Tax to Fleet Fuel Efficiency Improvements – Adjusting the fuel tax rate for changes in average fuel economy for a passenger vehicle.  Indexing the fuel tax for fuel economy protects the fuel tax revenue stream from changes in fuel economy because vehicles with high fuel economy pay less in fuel tax than other vehicles.
• Mileage Fee (Vehicle Miles Traveled Fee) – Motorists are charged a fee for every mile driven within the state.  Mileage data can be collected from a variety of methods such as paper reporting or electronic means.  The fee charged can be flat or variable depending on numerous factors such as time of day, amount of congestion, cost of improvements, etc.
• New Vehicles Tax – Charging new vehicles purchased in the state a tax for causing the vehicle to be imported into the state.
• Parking fees – Placing fees on parking spaces.  Viewed as a behavior modification device rather than a fund raiser.
• Property Taxes – State taxes on personal or real property.
• Registration Fees – Flat fees a vehicle owner pays for the privilege of driving a particular vehicle within a state.
• Rental Car Tax – A fee for daily rental car use.
• Road Utility Fees – Adds an access charge to a utility bill for property that provides access to the trunk highway system.  The key question is the basis upon which the fee should be charged.  Possibilities include motor vehicle trip generation estimates, number of parking spaces, number of employees, front footage, flat fee.
• Safety Violation Fee – A fee imposed for traffic safety violations.
• Studded Tire Fee – Charge purchasers of studded tires for each tire sold in retail in the state.
• System Development Charges – Charges paid by a developer for placing a new burden on a specific part of the road system that will require road improvements to accommodate the increased traffic flow related to the development or a combination of developments.
• Temporary Visitor Access Fee – A fee charged to tourists for temporary access to the state's road system.
• Tire Tax – An excise tax on the sale of tires in the state.  The tax could be a percentage of the sales price or a flat fee.
• Title Fees  - Fees on the title for motor vehicles per transaction.
• Transportation Impact Fee – A fee imposed on new development to pay for the transportation improvements required to support the development.  These impact fees are determined based on the number of vehicle trips each class of property generates.
• Use Fuels Tax Increase – Charging a tax for the use of electricity, natural gas, hydrogen and similar fuels in a vehicle in a manner similar to the gas tax.
• Vehicle Impact Fee (Transportation Access Fee) – A one-time charge placed on a vehicle when the vehicle is titled or registered in the state for the first time.
• Vehicle Ownership Tax – Personal property tax on motor vehicles.
• Weight Mile Truck Tax – Charging trucks exceeding 26,000 pounds by weight and distance traveled in the state. 
• Other

b.  State procurement tools that can be used to save money or accelerate projects

• Special purpose agencies – Agencies established to develop a single project.  Intended to streamline the process.
• Development agreements – Agreements with private sector companies to develop projects.  Intended to encourages private sector involvement and funding support and reduce the need for public funding.
• Design-build and Design-build-operate-maintain contracts – Intended to accelerate project schedule by keeping design and construction or design and maintenance together and allowing construction to start sooner.  A procurement or project delivery arrangement whereby a single entity is entrusted with both design and construction of a project. This contrasts with traditional procurement where one contract is bid for the design phase and then a second contract is bid for the construction phase of the project.
• Long-term warranties – Agreements with contractors, builders, etc. to guarantee the quality of the work  Intended to increase the quality and longevity of the work and reduce the necessity of inspection and oversight.
• Outsourcing – Distributes responsibility for maintenance and asset preservation to private entities.  Designed to save costs and encourage innovation.
• Public-private partnerships

c.  Bonds and financing tools

• Anticipation notes – Securities issued when money is anticipated from a specific source such as bonds issues, future tax revenue, or future revenue from the federal government.
• Revenue bonds – Bonds issued to finance projects that generate revenue such as toll roads or bridges.
• General obligation bonds – Bonds issued for projects that do not generate revenue. 
• Limited and special tax bonds – Bonds that are paid through proceeds from a special tax.
• Start-up User Fee Financing
• Federal credit programs - TIFIA
• Combinations of funding and financing
• Grant Anticipation Revenue Vehicles (GARVEEs) – Anticipates future federal revenue.  Intended to accelerate projects.
• State Infrastructure Banks (SIBs) – A state or multi-state revolving fund that provides loans, credit enhancement and other forms of financial assistance to surface transportation projects.
• Other bonds and financing mechanisms

6.  State Legislation, Programs and Trends

• What is the latest state legislative activity?
• Interesting and new programs
• Trends in state transportation funding

Sample State Legislation on Transportation Funding in 2005*

Delaware	Fall 2005 Special Session could be called on transportation finance, 15-member study committee to issue report
Maine	Approved 1.3 cent gas tax increase plus indexing
Minnesota	Approved 10 cent fuel tax increase over two years, vetoed by Governor.  Plan would have provided $7.3 billion for road and mass transit projects over 10 years
Nevada	--Legislature turned down 2 cent gas tax increase --Transportation Board task force to consider tax increases to pay for $5 billion in new highways
North Dakota	Approved 2 cent gas tax increase and annual increase of $10 for motor vehicle registration
Oklahoma	Ballot initiative to raise $170 million, 5 cent gas tax increase and 8 cent diesel tax increase to go to vote September 13, 2005
Oregon	--$100 million infrastructure bond passed by Senate July 2005 --Begins pilot test of mileage tax in Sept. 2005
South Carolina	Legislature turned down 7 cent gas tax increase
Texas	--2003 extensive tolling proposal reaffirmed, raised toll equity cap --Gas tax indexing bill failed
Virginia	--Approved $850 million for road construction and expanded rail service using surplus funds --Possible $1 billion payment to Virginia by consortium to operate Dulles Toll Road
Washington	Passage of $8.5 billion for transportation improvements, 9.5 cent gas tax increase over 4 years, initiative to repeal has enough signatures
Wisconsin	Enacted gas tax indexing in 1985, .8 cent increase in 2005

* All information preliminary and subject to further verification.

7.  Case studies

• States that identified transportation funding as a critical issue in NCSL fiscal survey (HI, MN, NJ, NY, Utah)
• States that have been affected by citizen initiatives (WA)
• States that have implemented innovative funding measures

8.  Potential Appendices

• Fees that go to state highway funds
• States with restricted uses for gas taxes
• Sources of transportation revenue by state
• Chart of registration fees, registration fee schedule, schedule of other fees used to fund transportation
• Selected state actions on transportation financing

 Transportation Committee 2005 Annual Meeting Presentations