Filling in the Potholes: Highway Funding Options

NV road construction funds

The Nevada Department of Transportation lists 13 current projects [NDOT] and the planning division suggests another round of major projects running from 2015 to 2018. [NDOT pdf]  This makes sense given that the population of Nevada in 1990 was 1.221 million, the population was 2.019 in 2000, and the population grew to an estimated 2.839 million as of 2014.  The problem, of course, is how to pay for the construction and maintenance of roads and highways to meet escalating population demands.  The current financial resources are explained by NDOT:

“State highways maintained by the Nevada Department of Transportation are financed with dedicated highway-user revenue and federal funds. No General Fund (general tax) revenue is used. State and federal highway funds are principally derived from vehicle fuel tax and registration fees.” [NDOT]

Clark and Washoe counties index their taxes to the price of fuel, a ballot measure in 2016 would make such indexing statewide, and this should be considered in the light of two factors. First, the relative volatility of fuel prices, and second, the increasing population of the State, up 132% since 1990. [LVSun]  So, where does the money come from?

“Figures compiled by The Associated Press show the total amount of money available to states from the Federal Highway Trust Fund has declined 3.5 percent during the five-year period ending in 2013, the latest year for which numbers were available. During that span, the amount of inflation-adjusted federal highway money dropped in all states except Alaska and New York.

In Nevada, the 6 percent drop from 2008 to 2013 comes in spite of a 41 percent increase from 2003 to 2013. At the same time, needs in Nevada are mounting. Current funding levels only provide 60 to 70 percent of what’s needed to maintain state highways, according to a recent report card from the American Society of Civil Engineers.” [LVSun]

The idea that current funding levels from both state and federal sources only meets 60 – 70% of our needs isn’t an appealing thought.  Could it be that the state might see more assistance from Federal sources?

“A temporary funding patch on highway funding is scheduled to expire in May and lawmakers in Congress have been at odds over a long-term plan. A federal fuel tax increase appears unlikely.” [LVSun]

We should note that the last time the Federal gasoline tax was increased was in 1993, when it was raised to 18.4 cents per gallon. [WaPo]  That was when the population of Nevada stood at approximately 1.411 million, and the price of a gallon of gasoline was about $1.16/gallon. Nevada’s state gasoline tax was 24 cents in 1993 and has dropped to 23.804 (-0.2%) as of 2014. [TPC pdf]

One of the obvious problems with pegging highway construction and maintenance financing to the price of a gallon of gas is that more fuel efficient cars on the road means fewer trips to the pump.  Another factor to consider is the increasing use of public transportation.  Indeed, in spite of the drop in fuel prices recently, national transit ridership figures are up. [NYT]  While increasing revenues from higher gasoline taxes would help resolve some immediate funding issues, the source is less robust than we might need in the long run.

As noted previously, AB 21 introduced in the Nevada Legislature as of December 20, 2014, calls for the issuance of ‘special obligation bonds’ for the financing of highway projects. Specifically, it allows for extending the maximum maturity from 20 to 30 years.  This, too, is problematic.  The extra ten years may allow for an extension of repayment schedules, but it also allows for the piling up of interest.  If the “coupon” on a transportation related bond is approximately 4.0% [MuniNV] then that extra 10 years could be rather expensive.

At compound interest rates, $10 million would end up costing about $21 million in 20 years, or about $32.4 million in 30 years. [MC] Even simple interest rates would add $8 million to the cost of a $10 million project at 20 years, and $12 million in 30.

There’s always the Throw Up Your Hands and Let Someone Else Do It Solution, i.e. Privatization.

“Another idea tossed around in the Legislature is high occupancy transit lanes — better known as toll roads. The fast lanes, aimed at reducing congestion, could be financed by a private company, which would own the lane and keep the toll revenue for a set period of time.

“We’re going to look to private industry to help us with some of our issues,” said Republican Assemblyman Jim Wheeler, who chairs the Assembly Transportation Committee.” [LVSun]

This, too, comes with some significant costs.  A few of these can be categorized under the general heading of “public control.” For example, how can taxpayers be assured of the implications of “non-compete” clauses? Must adjacent municipalities add traffic lights and decrease speed limits in order to guarantee usage rates (i.e. toll revenues) for privatized roadways or access lanes?  Is the state required to agree to compensation clauses which demand that the state pay the investors if it adds an exit ramp or other fixture which might reduce toll revenues?  What of the effects of clauses which seek to divert traffic to the toll lanes or roads? For example, if a state were to contract with a private corporation for a toll road it might agree to 4.5% of the revenue if the speed limit were set at 45 mph, or 9% if it agreed to set the limit at 60 mph?  What implications might that have for public safety and general transportation policy? [PIRG pdf]

There’s also the old business adage to consider: You can’t control what you don’t own.  This leads to more questions.  Does the contract require that the private corporation adopt the best practices and most modern maintenance standards?  Will the state get what it is due?  Again, if the contract is for 99 years and the investors are assured they’ll get their returns in 20, then is the state actually losing money on the deal?  When speaking of long term contracts, it’s also important to consider how long the contract should last.  It’s not only difficult to value projects over a 50 year period, it’s also a iffy proposition to determine if that 50 years is too much to give away to private corporations. [PIRG pdf]

Sometimes, getting things done “on the cheap” can lead to more problems than the initial ‘solution’ intended.

There are other ideas we might want to consider:

#1. Take some of the pressure off the road/highway system by improving options for public transit.  If congestion is causing havoc in some urban areas, consider light rail or bus transport to ease the problems.  Some consideration might be given to comparative costs involved in installing options from funding sources other than the highway funds, and providing the public with transit choices other than using private cars. This could be especially useful in crowded urban areas.

#2. Give some consideration to options other than in 10 year intervals for special obligation bonds. If the costs are increased with a 20 year bond, then they’d be less at 25 than they would be at 30.

#3.  Consider the current structure of Nevada’s vehicle registration fees, some of which are earmarked for transportation needs. 

There are no magic solutions, no silver bullets, when it comes to addressing public infrastructure projects like roads and highways.  What is needed is some careful study of the implications of transportation policy with an eye towards Nevada’s future population trends, projected revenues, and estimated capacity to pay for long term projects.


Filed under gasoline prices, highways, Infrastructure, Nevada economy, Nevada politics

2 responses to “Filling in the Potholes: Highway Funding Options

  1. DB: I love the idea of increasing use of public transport. (I like it personally because I have experienced the benefits. I have, at 68, still never driven a car in my life, and don’t expect to do so. Even now, when mild COPD and knee problems makes taking subways impossible and buses difficult, I need to go out infrequently enough that I spend less on car service and paying a friend to drive me, when necessary, or doing things for me that I would do myself, like shopping than I would for car insurance, not to mention car payments.)
    But NYC is special, with a long history of public transportation. I wonder — and I am specifically asking, not challenging — how difficult and expensive it would be to add such systems to other cities. Buses would seem to be the simplest, but even that requires purchases of new buses, frequently acquiring the land for a new garage/terminal, reworking of some traffic patterns — which includes the costs of numerous reports detailing the impacts, etc. — and may involve the widening or redesign of some streets. Not a gigantic ‘men into space’ expense, but still a costly enterprise for a Republican-led ‘low taxes except on ordinary people’ state.
    This leads to the question whether this is something that needs private money — and what sort of problems would that entail, what sort of consumer gouging or other ‘fees’ would be required for a corporation to find it worthwhile — and reopen the public/private debate. But is this something a state or city would contemplate spending the money on, and could the service-starved red states afford it over other important needs?

    This is so often the problem, and one I’d love to see you address, the question of what happens if the state suddenly does get a windfall (or decides opening the purse is a necessity even if it means a hike in taxes). How do you divide it, how do you decide between ten areas all of which are so starved for money that they could use (and do deserve) all the suddenly available funds. Education, hospitals, police and fire and emergency services, social services and ‘safety net,’ homeless services, other infrastructure, housing all are just as needy and just as deserving as transportation, but — barring an incredible windfall (and no, marijuana legalization — much as I support it — will not bring in the taxes expected as more and more supply forces the prices down) there is not enough money likely to show up to satisfy all needs, if you split it evenly you’ll get not enough for any, and how do you pick when you know advocates for all the others will paint you as a heartless meanie if you don’t give them their share.

    (NYC is a prime example of this. If you give money to the uniformed services — and they are united so that a raise for one is usually a raise for all — the teachers and government unions complain that they are getting short-changed. And they are, but there really is only so much money squeezable out of a budget, only so many taxes to be raised. And we have immense pockets of wealth — and quite a few public-spirited rich people. For a Nevada or worse a Mississippi, it’s harder even to find money to go after.)

    It’s all needed, but how do you decide where to start, or which are the projects where ‘half funded is worse than not doing them?

    • My bad. I left the question of light rail and other innovative forms — even the Edmonton ‘Freezeway’ for people to skate to work, though that’d hardly fit Nevada — but they seem, particularly rail, to require much greater investment, much more purchasing of right of ways, and FAR TOO MANY areas for corruption. Again I see the problems, do you see the solutions?

      And totally OT but can you address the question of how far you think the cap for Social Security should be raised? I’ve heard people say ‘get rid of it altogether’ but there was a reason why it’s there. The idea was to support people in necessity, allow them to retire with dignity, and to put more money in circulation. But I think there was always a fear that the higher the cap, the higher the payoff, and that people getting relatively small checks would resent the sized checks that a rich man would get if all his income was both taxed and returned to him. (SS is not a revenue-raising plan overall and never should be.)

      To put the problem into a simple image, imagine the size check Mitt Romney would receive at 72 under a ‘no cap’ situation, or Alex Rodriguez, or the rich singer you most hate. Oh, and because rich people take better care of themselves, they live longer in general, and take more out, more that us sickly poor folk make up for by doing the system a favor and dying early. The cap limits this effect, but a no cap system would mean cutting down the repayment rates a bit too much, so Romney and I might lose 25-50% of our checks — which he can afford and I can’t.

      The cap needs raising, but how much would you raise it by, given that question?