DoT’s Budget – How not to fund an agency

The South Carolina Department of Transportation has one of the largest budgets in state government, yet it can’t afford to maintain the state’s roads. Why? Because most of DoT’s money isn’t state money – it’s federal. 

The mission of the Department of Transportation is to maintain a public transportation system “that is consistent with the needs and desires of the public.” Increasingly, state transportation departments have been distracted from this core mission by politicians, whose needs and desires often differ greatly from those of their constituents. When politically convenient, lawmakers attempt to “stimulate” the economy through transportation spending by championing new construction projects eligible for federal funding, attempting ill-researched economic development projects, and spending excessive sums of money on administration and consulting.

South Carolina has the fourth largest state-owned highway system in the country, which makes raising the money necessary to fulfill its mission very difficult for the Department of Transportation. State lawmakers’ use of state transportation funding for pet projects (like the Clyburn Center) and economic development schemes (like the I-95 Corridor Authority, thankfully abandoned) doesn’t make that challenge any easier.

State funding for the Department of Transportation comes largely from South Carolina’s gasoline tax, one of the lowest in the nation at 16.8 cents per gallon. This doesn’t mean that the solution to the Department’s well-publicized cash crunch is a tax increase, especially since such gasoline taxes are a poor measure of actual wear and tear on highways. There are other ways the DoT can address its financial woes, including (transparent and accountable) public private partnerships that allow for the private funding and construction of toll roads. The state could also allocate wasteful spending in other areas to the DoT; considering the size and importance of the agency, the fact that it receives less than $100,000 per year in non-federal and non-gasoline tax funding is worth reconsidering.

Federal and Stimulus Funding

Federal funding for state highway departments is provided primarily through the federal SAFTEA-LU Act, which reimburses state highway departments for qualifying projects. According to the Federal Highway Administration, South Carolina’s DoT received $651,449,553 in federal funding for various transportation projects in 2010. For comparison’s sake, the total annual budget of the state that year (including federal grants) was roughly $21.1 billion. The federal grant South Carolina receives is therefore equivalent to 3 percent of the total state budget. The DoT’s total budget in ’09-10 is equal to twice that, roughly $1.2 billion, or 6 percent of the total state budget.

Six percent of the state’s total budget is a great deal of money, and if those funds were primarily devoted to maintaining South Carolina’s roads and bridges, the state would have a top-quality transportation infrastructure. Unfortunately, the high amounts of federal funding the Department of Transportation receives makes spending state money primarily on road maintenance impossible. According to the DoT’s own website, the agency “must shift dollars from maintenance in order to have matching dollars for the federal-aid highway program.” Less than a third of the roads miles maintained by the state in 2008 were in “Good” or “Very Good” condition.

2008 Road Conditions (from the Federal Highway Administration)

Of course, neither the Department of Transportation’s annual federal fund authorization request nor its expenditures report from the Budget and Control Board would provide an interested taxpayer with any real accounting of the astronomical amount of federal money that flows through the Department. These funds are, confusingly, classified as “other funds” within the agency’s budget as reported by the Budget and Control Board.

DEPT OF TRANSPORTATION BUDGET (’09-’10)

Ultimately, only a small fraction of South Carolina’s total transportation spending goes toward maintenance (the Department’s website claims South Carolina’s road maintenance is “the lowest in the nation”). The clear majority of the DoT’s spending goes toward highway engineering, including new construction. Politicians in both Washington, DC and South Carolina enjoy the opportunity to tout the construction of highways as economic stimulus, but fail to remind taxpayers of the true cost of diverting much-needed state maintenance funds towards flashy new projects.

According to the federal government, South Carolina has so far received $662,984,515 in stimulus funds for the Department of Transportation, creating 497.5 jobs (for those counting, that’s roughly $1.3 million per job).  Of course, job creation wasn’t the only purpose of stimulus spending, though it’s certainly the one most frequently cited by politicians. The only state agencies that spent more money than the Department of Transportation in stimulus money were the Department of Education ($1,284,233,484) and the Department of Energy ($1,756,291,971).

At a recent House Transportation Committee Meeting, DoT Secretary Robert St. Onge enthusiastically promised not to leave a single federal dollar “on the table.” To receive the federal reimbursement that comprises the majority of South Carolina’s federal funding, the Department of Transportation must provide 100 percent of the initial money spent, then receives only 80 percent of that total in return. Little wonder that the DoT needed a mid-year bailout from the federal government simply to pay its contractors.

Our research has shown repeatedly that federal money, while sorely tempting to state lawmakers, isn’t “free.” It comes with strings attached, endless spending requirements through maintenance-of-effort laws, programs designed by the federal government, and (perhaps worst) requirements that the state match the amount of money spent in order to receive federal funds for projects. This incentivizes the Department of Transportation to spend heavily throughout the year to complete federally-approved projects in order to fight to be reimbursed for them later.

Conclusion

This year’s legislative session will see consideration of the S.C. Truth in Spending Act, H.3067, which requires the Department to post a monthly itemized list of transactions for public viewing online. Of course, this information will only provide true transparency if it’s clear where exactly the money spent is coming from and what strings come attached. The sheer breadth of the Department of Transportation’s budget – it includes state, federal, and gasoline tax dollars, plus funds raised through the Transportation Bank – makes it incredibly difficult even for legislators to understand the true, long-term costs of undertaking new construction projects.

South Carolina’s transportation needs and challenges are unique, and efforts are currently being made to address both its contracting issues and the amount of road mileage the Department of Transportation is responsible for. In the 2012-2013 Executive Budget, for example, $75 million in budget surplus is dedicated to returning the maintenance responsibilities of certain local roads to counties in the Highway Turnback initiative. If passed, this will allow counties the option to accept total responsibility for local roads, taking a considerable amount of mileage out of the Department’s hands. And while a 2006 Legislative Audit Council audit of the Department found that it “had not implemented adequate controls to ensure that it was obtaining pre-construction contracts at a reasonable price,” a 2010 follow-up report, conducted by independent auditing firm MGT of America, found that the contracting reforms recommended by the Legislative Audit Council had been partially implemented by the Department.

Whatever happens during the legislative session this year, South Carolina should seriously consider replacing its outdated, insufficient method of transportation funding with a strategy that will 1) put expenditure totals in front of South Carolinians for consideration, and 2) allow the state to meet its transportation needs without total dependency on fluctuating federal funding. Road safety, state resources, and a great deal of taxpayer money are at stake in the solution.