How Federal Funding Has Ruined S.C.’s Roads

AND WHAT WE CAN DO ABOUT IT

As South Carolinians hit the roads for summer vacations, they’ll  have plenty of opportunities to discuss the state’s poorly maintained roadways. The potholes, crumbling bridges, and highways last paved during the Nixon administration will likely raise the topic in many a vacation-bound car.

State House politicians, too, have been discussing South Carolina’s roads quite a lot lately. Roads are currently a national topic, and news that the National Highway Trust Fund (NHTF) is set to run out of money some time in August unless a transportation reauthorization bill is passed, has brought to the topic to South Carolina headlines again. As of Tuesday, July 15, the U.S. House passed a bill to fund the NHTF for ten additional months using “pension smoothing.” There is still no news on a Senate plan or vote on this bill.

The possibility of a disruption in federal funds may sound alarming to South Carolinians who’ve been led by state politicians to believe the only way to properly fund roads is through federal funding, debt financing, and gas tax hikes. But while a reduction in federal funding of state roads would be disruptive if it occurs without warning, a reduction could be a blessing in disguise. That’s because the federal financing method used to fund many state infrastructure projects is inefficient, outdated, and may in fact increase the total cost of infrastructure projects in South Carolina.

Eligibility

The first problem is that federal road dollars are distributed based on a funding match, typically an 80 percent federal, 20 percent state funding ratio. Under this formula, SCDOT bears all the original costs of a project eligible for federal funding and is then reimbursed at the 80 percent rate.

The system sounds logical, but consider – only about half of South Carolina roads are even eligible for federal funding. So not only are half of state roads getting no federal funding, the match system encourages the state DOT to spend more of its funds on eligible roads in order to get more federal funding. And that, of course, leads to the total neglect of many important state roads. Federal funding, then, distracts from objectively high priority projects determined by maintenance needs. SCDOT also notes that federal funds generally cannot be used for routine maintenance – meaning that some roads that are eligible still get neglected.

Overregulation

The federal government also reduces the overall funding states have at their disposal through cost driving regulations. Prevailing wage regulations established by the federal Davis Bacon Act set a “floor” for wages paid to workers on federally funded projects. Prevailing wages are on average 22 percent above market wages and increase the cost of federally funded projects by a full 10 percent. Duplicative responsibility between the states and federal government for planning of federally funded projects – many projects require state and federal officials to oversee them when only one is necessary – also helps to drive up costs.

And those costs have gone up enormously. In 1956, the year the highway trust fund was established, total federal, state, and local expenditures on administration and research amounted to 6.8 percent of construction costs. By 2002 they had risen to 17 percent. Overall, former head of the Federal Highway Administration Robert Farris suggests that federal regulations increase costs by 30 percent.

Donor State

Finally, in addition to causing South Carolina to waste state tax dollars, the Highway Administration also deprives South Carolina of its rightful share of funds from the Highway Trust Fund. The Trust Fund is financed by federal fuel taxes paid by residents of each state. Naturally some states pay more in federal fuel taxes than others. Since the creation of the Highway Administration and the Trust Fund, South Carolina has been a net donor state to the fund, receiving less in fund disbursements than it contributes in taxes. From 1956 up until very recent history for which data is available, South Carolina has received on average roughly 84 cents for every dollar it has contributed to the Highway Trust Fund.

What can we do?

While some state politicians have been willing to float transportation funding ideas, most have relied on generating new sources of tax revenue. Gov. Nikki Haley, meanwhile, has only promised a plan to be revealed at some point in the future. But South Carolina doesn’t need to increase taxes or wait for some kind of clever funding plan. There are simple reforms that can be made now.

First, the state needs to wean itself from its addiction to federal road funding. State road expenditures should be based first on maintenance priorities – not on which projects will draw down matching federal funds.

True enough, this will have the effect of reducing the gross amount of federal road funding coming in to South Carolina. But by eliminating reliance on federal funding, the state will no longer be vulnerable to sudden disruptions of service that may result from federal funding shocks.

Moreover, funding roads with only state and local dollars will decrease the total infrastructure costs in the state. Why? Because the state will no longer need to comply with the federal government’s innumerable and byzantine road construction regulations. And relying on only state and local funds will allow the state to focus one of the most important infrastructure expenditures: maintenance.

There are also a number of other reforms the Policy Council has suggested. SCDOT should devolve much of the 63 percent of state roads in South Carolina it maintains to the responsibility of localities along with an appropriate share of state gas tax revenue for localities to use to maintain these roads. The State Infrastructure Bank, which uses debt finance to fund expansionary road projects in politically favored counties, should be eliminated. And a new requirement should be put into law that eliminates or at least limits the amount of funding that can be spent on new road construction before all SCDOT maintained roads are rated in good or very good condition by an evaluator independent of state government, whether that evaluator is private or a federal entity.

Another alternative lawmakers should consider is the elimination of the state fuel tax in favor of a mileage based user fee (MBUF). Under an MBUF, drivers would pay a fee calculated by the number of miles driven over a set period. Miles driven could be recorded by a GPS device, or, if citizens object to that for privacy reasons, they can be recorded through an electronic device called a “dongle” that can be set to record miles driven but not location, or even through a simple manual odometer reading.

The MBUF has several advantages over a fuel tax. Unlike the fuel tax, which is also often labeled a user fee, the MBUF is based on a fairly accurate measurement of who is actually using the roads. The fuel tax, by contrast, is inequitable. Vehicles that get far better gas mileage use less fuel than those that don’t, but wear out roads at a more or less equal rate. Also, under an MBUF commercial truckers can be charged at a slightly higher rate per mile due to the increased damage their vehicles inflict on roads. Some states have already experimented with MBUFs and have seen encouraging results.

There is a world of infrastructure funding options for South Carolina, but to fully benefit from them state policymakers must stop trying to figure out clever ways to increase the number of tax dollars dumped into a failed system.

*Update. The House bill to fund the NHTF through next may has been sent to the president for signature.

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