How should Maine fix its transportation funding shortfall?
In June, Gov. Janet Mills signed LD 945, a resolve that created the Blue Ribbon Commission To Study and Recommend Funding Solutions for the State’s Transportation Systems. The 15-member commission is charged with making recommendations on how to sustainably fund the state’s highway and bridge projects and fix the funding gap that currently exists. According to Bruce Van Note, the Commissioner of Transportation, the annual shortfall sits at approximately $232 million. The committee’s findings and recommendations are scheduled to be submitted to the Committee on Transportation by December 4, 2019 for review.
Maine’s Highway Fund is the primary funding source to construct, reconstruct and repair the state’s roads and bridges. Most of the revenue in this fund is derived from fuel taxes and motor vehicle fees. According to the governor’s 2020-21 budget overview, fuel taxes generate nearly 69 percent of highway fund revenues and motor vehicle registrations and fees make up about 27 percent.
The Highway Fund is constitutionally separate from the General Fund, the account where most state government revenue resides. Article IV, Section 19 of the Maine Constitution stipulates that:
“All revenues derived from fees, excises and license taxes relating to registration, operation and use of vehicles on public highways, and to fuels used for propulsion of such vehicles shall be expended solely for cost of administration, statutory refunds and adjustments, payment of debts and liabilities incurred in construction and reconstruction of highways and bridges, the cost of construction, reconstruction, maintenance and repair of public highways and bridges under the direction and supervision of a state department having jurisdiction over such highways and bridges and expense for state enforcement of traffic laws and shall not be diverted for any purpose, provided that these limitations shall not apply to revenue from an excise tax on motor vehicles imposed in lieu of personal property tax.”
In a meeting on November 25th, some members of the committee suggested increasing the gas tax as one possible solution to fill the funding gap. Even the Bangor Daily News Editorial Board suggested a tax increase should be part of a potential solution. However, a one cent increase in the tax would only raise approximately $7.5 million in revenue. Therefore, the gas tax would need to be doubled (increased by 30 cents per gallon) to fill the $232 million annual gap that currently exists.
The Tax Foundation’s analysis of gas tax rates across the nation shows that Maine has the 26th highest gas tax in the country. For comparison, California ranked first for having a 61.2 cent gas tax and Alaska came in last at 14.66 cents per gallon. While a 30 cent increase in the gas tax is highly unlikely, and probably politically unpopular, the committee has talked about a smaller increase coupled with a reallocation of other resources to the Highway Fund.
While the Blue Ribbon Commission is tasked with finding a holistic solution, it is important to note that they do not have to increase fuel taxes at all to fill the funding gap for roads and bridges. In fact, a simple reallocation of funds that are currently collected by the state would be nearly enough to fill the funding gap. In the 128th Legislature, Rep. Wayne Parry introduced LD 1106, a bill to dedicate all sales tax revenue from auto-related sales to the Highway Fund, in an attempt to fill the funding gap and ensure bonding is less frequently used to build or repair our roads, bridges and transportation infrastructure. According to Maine Revenue Services, the state collected more than $224 million from the sales tax on auto-related sales in 2018.
One of the concerns raised by individuals and organizations that testified against LD 1106 was that reallocating more than $200 million in revenue from the General Fund to the Highway Fund would translate to less funding for K-12 education and other General Fund purposes. However, building and maintaining roads is a core function of government and needs to be satisfied before other priorities are met. Reallocating sales tax revenue from auto-related sales would be a way to do that without increasing taxes on Maine citizens. In fact, a reallocation of revenue should have taken place before Gov. Mills’ budget was passed by the legislature.
Gov. Mills’ 2020-21 biennial budget grew spending by more than 10 percent compared to Gov. Paul LePage’s last budget. Gov. LePage’s last budget spent $7.22 billion whereas Gov. Mills’ spends nearly $8 billion for state government operations over the biennium. After that spending spree, the legislature approved a $105 million transportation bond package to fund roads and bridges, which was put out to voters for their approval in November. While the measure passed at the ballot box, this amount of spending and bonding raises important questions about the role of government and which priorities it should take care of first. Frankly, it appears that lawmakers and the governor paid for all their pet projects without allocating the necessary funding for one of government’s core priorities: roads and bridges.
According to a May 2019 revenue report from the Revenue Forecasting Committee, the state is slated to collect at least $8.37 billion in the 2022-23 biennium. If the Blue Ribbon Commission sincerely wants to fix the funding gap for transportation infrastructure without harming Mainers with new taxes, they will need to reallocate revenues from another state government fund. Because incoming revenue continues to surpass projections, it is unlikely that lawmakers would need to make large programmatic cuts if they choose to use sales tax revenue from auto-related sales to fill the $232 million funding gap. Besides, there are undoubtedly other programs that are currently being funded but are less of a priority than our transportation infrastructure.
In contrast, an increase in the gas tax would harm low-income Mainers and those who commute long distances. For instance, a 15 to 20 cent increase to the gas tax would cost someone who buys 400 gallons of gas annually (7.7 gallons per week) approximately $60 to $80 more per year. These individuals already spend around $120 on the gas tax that is currently in place. In short, a consumer who purchases 400 gallons of gas annually would spend a total of $180 to $200 annually on state gas taxes. This back-of-the-napkin calculation doesn’t factor in the 18.4 cents per gallon federal gas tax that is imposed on all drivers in the United States, or our prospective participation in the Transportation and Climate Initiative which would artificially increase the net price of gas and diesel fuel.
Moreover, the State of New Hampshire already levies a smaller gas tax rate of 23.83 cents per gallon. An unintended consequence of increasing Maine’s gas tax could be that individuals who reside in Maine’s border counties cross the border into the Granite State to purchase gasoline, avoiding higher prices at the pump. This net increase in gas prices would likely result in reduced consumption at gas stations in Maine border counties, as well as lower-than-anticipated tax revenue for state government because less people would be purchasing their gas in the Pine Tree State.
In addition, gas taxes are quickly becoming an outdated form of generating revenue for governments. For one, gasoline consumption does not appear to be increasing. According to United States Energy Information Administration data, the amount of finished motor gasoline supplied to consumers has started to level out while fuel efficiency in newer vehicles continues to increase. Consumers can travel longer distances on a single tank of gas and therefore do not need to purchase fuel as often. Further, as electric vehicles continue to penetrate the market, revenues will continue to decrease because those drivers are not subject to fuel taxes.
In summation, the Blue Ribbon Commission would be wise to produce a solution that does not increase taxes on Mainers. Not only is Maine one of the highest-taxed states in the nation, but it is also has a poverty rate of 12.9 percent. Using existing revenue to fill the $232 million funding gap for transportation infrastructure is the most effective method to solving this enigma without harming Maine residents and businesses.