Fix Our Transportation Policy

In the back and forth between the Department of Transportation, the Governor’s office, the Treasurer and the Attorney General over the plan to let a road builder partly fund the the last section of the I-485 loop in Charlotte, a great deal of the context of transportation policy has been temporarily forgotten. Why are things so bad that contractors have to find some of the dollars for a major project around our largest city?

The context is this: our transportation finance system is failing us, and the legislative mechanism by which money is allocated to projects needs repair.

Under Governor Perdue, great strides have been made to drain the Board of Transportation of direct influence over highway and minor road projects. Hopefully, gone are the days when individual Board members can get a set of lights or a turn lane so their new drive-in fast food store or gas station can profit.

The next step must be to continue the work of professionalizing the project selection process and overhauling the transportation finance system. That means reforming the Highway Trust Fund, getting serious about revenue reform including crafting a revenue source for the Intermodal and Congestion Relief Fund – that new but empty pot for the state to use for transit and rail projects – and being prepared to thoughtfully re-assign more responsibility for transportation to local governments.

Reforming the Highway Trust Fund

The problems with the Highway Trust Fund (HTF) should be well known. The Fund breaks the state into districts and allocates money to them based on a 1989 list of intrastate highway projects, population share and regional equity. Most of the money for the Fund comes from sales taxes on vehicles, plus a smaller portion from the gas tax and various fees. The HTF is in the unenviable policy position of being underfunded and also a poor budget allocation mechanism: there is not enough money to do what has to be done, and money goes out the door to areas with less pressing needs.

The result is that big projects such as the Yadkin River Bridge replacement on I-85 completely soak the Fund for most districts, while other districts get sparcely used bits of their intrastate system upgraded. Its a dumb use of resources now based on formula twenty years old. The Fund must be reformed.

The current HTF finance allocation formula must be scrapped and two principles guide the new one: the interstate highway system must have a new separate fund (that may or may not be augmented by toll revenues) and population must be the foundation of any new HTF formula.

Specific projects can no longer be mandated by HTF legislation. Project selection must be based on professional assessment, environmental sustainability and a process characterized by public input and review. Greater transparency is a must.

Rid the Board of Transportation of Political Patronage

Stripping the Board of power over project selection is not the answer to the problem that the Board is usually used to reward political loyalty rather than expertise over transportation issues. A strong state administrative ethical code must include candidate selection processes based on merit and expertise, not nepotism and favors.

Tackling the Revenue Problem

Transportation revenue streams are long overdue for reform. The unavoidable fact is that our infrastructure needs cannot be met by current funding mechanisms. Tolling may help underwrite large projects but is politically unpopular. Road privitization is fraught with dangers and usually confers massive windfalls on private companies to the detriment of the public.

So what can be done? There are smaller reforms that can help. For instance, the loophole that favors auto dealers by exempting any trade-in value from sales tax on replacement vehicles must be closed.

But, in general, the finance reform challenge is more fundamental. The gas tax is an anachronism. As fuel efficiency increases, collections per mile travel fall. A temporary answer, necessary but difficult, may be to increase the fixed component of the state gas tax (now 17.5 cents per gallon) or to increase the variable component rate (currently 7% of wholesale, calculated twice yearly). It should be noted that the federal government will be under immense pressure to lift the federal gas tax from its current level of 18.4 cents per gallon making state action on the gas tax a little tougher.

But fiddling with gas tax rates is a temporary fix. North Carolina needs to take the lead on moving the region and the country forward towards a vehicle-miles travelled tax system. In a future with more hybids and non-internal combustion engine vehicles, it is the rational direction.

A State Revenue Stream for Non-Highway Transportation

The new Intermodal and Congestion Relief Fund needs a permanent revenue source. It cannot survive on ad hoc transfers from the General Fund. Possible candidates include vehicle sales taxes, registration fees or, eventually, a portion of a vehicle miles traveled tax.

Local Governments Can Take a More Prominent Role

One way to take some of the some of the fire out of state-level decisions over resource allocation could be to delegate more responsibility for roads to local government. The 1930s takeover of the road system by the state is long distant in the rearview mirror now. Local governments probably need to assume a greater role for financing local transportation. Along with this new responsibility, new rules guiding access to matching state money by locals should be predicated on the alignment of local transportation planning in Metropolitan Planning Organizations (MPOs) or regional oversight bodies with local land use policies. For too long, local transportation and land use planning have developed in isolation.

At the local level, linking funding more closely to land use that encourages compact development is critical. This can be done through innovations such as Vehicle Utility Fees, Vehicle Impact Fees and better known albeit lighly used funding methods such as tax increment financing and special assessments. The local funding principle should be that direct beneficiaries of big transportation projects and upgrades should, if they are economically able, contribute more to the cost of those projects.

Much to Do

The 21st Century Transportation Committee made a lot of noise for many months in 2007 and 2008 about the need for reform. The big outcome has been the creation of a referndum-dependent public transportation-dedicated sales tax for all of North Carolina’s counties. That was a huge achievement and a sea-change in North Carolina’s transportation policy. But the work is not half done. Action on public transportation cannot forgive inaction on roads. Big challenges remain.

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