The Answer to Road Funding: Tax Hikes?

THE LATEST PROPOSAL TO FIX OUR ROADS ASSUMES STATE GOVERNMENT DOESN’T HAVE ENOUGH MONEY

Last week, H.3412 was placed on the Senate calendar for consideration. Originally the bill would have merely shifted revenue from the sales tax of motor vehicles – currently dedicated in part to the Education Improvement Act fund (EIA) – to the State Non-Federal Aid Highway Fund. Once it reached a Finance subcommittee, however, the bill changed dramatically: suddenly it became a catch-all transportation bill. At present it contains nearly every idea floated by the legislature over the course of this session regarding the state’s infrastructure needs, and almost all of them propose giving the state more money.

Provisions of the bill include:

1. Adding four new members to the State Transportation Infrastructure Bank (STIB) appointed by the majority and minority leaders of the House and Senate respectively.
2. Requiring the Department of Transportation to budget funds for bridge improvement equal to the amount of bonds issued by the STIB for bridge improvements plus an additional $100 million.
3. Raising the state gas tax annually by the average Consumer Price Index (CPI) inflation rate of the last ten years. This tax increase is not to exceed a raise of one and a half cents per year. Currently South Carolina consumers pay an additional 16.8 cents per gallon in taxes and fees, and this change would bring that rate to 17.2 cents the first year it takes effect.
4. Raising the biennial vehicle registration fee to $12 on all passenger vehicles, common carrier vehicles, farm trucks, and property carrying motor vehicles (“eighteen-wheelers” and other large trucks) under 6,000 pounds. The $12 increase from all of these fees will be directed to the Local Transportation Infrastructure Fund (created in this bill). That fund will distribute its revenues as follows: $500,000 annually to each county transportation commission, an additional $500,000 annually to each county transportation commission in a county that imposes by referendum a new 1 percent sales tax with the revenues to go to transportations projects, and the remaining funds will be distributed evenly between all county transportation committees.
5. A new fee – the biennial Highway Infrastructure Improvement Fee – on property carrying vehicles based on their weight. Consequent revenue will be deposited in the new Local Transportation Infrastructure Fund.
6. The “elimination” of sales tax on motor vehicles and the imposition of a Road Impact Registration Fee of the same amount. The revenues from this fee are to be divided between the EIA Fund, the Interstate and Bridge Improvement Fund (created by the bill), and the General Fund for one year. The following year the revenues will be split between just the EIA and Interstate and Bridge Improvement fund. (Note: The reason for turning sales taxes into “fees” is that fee revenue can be used to secure the issuance of bonds, which sales tax revenue cannot.)
7. The issuance of $500 million in new state bonds for transportation infrastructure upon the approval of the Budget and Control Board (BCB).
8. The creation of the Interstate Bridge Improvement fund with the power to issue bonds for existing mainline capacity, interstate, and bridge projects.
9. A new biennial road user fee of $120 on electric vehicles, and of $60 on hybrids. (In a classic case of government’s left hand not knowing what its right hand is doing, state law currently allows for an income tax credit for the purchase of a plug-in hybrid vehicle.)
10. A new fee on commercial motor vehicles in place of property tax. The assessment ratio for the new fees is the same as the previous assessment ratio for the property tax.
11. A new $87 fee in place of property tax on commercial motor vehicle trailers and semi-trailers. The first $17 million in revenue from this new fee will be divided among counties based on ratios of state and federal highway miles they contain, and any revenue above $17 million will go to the Local Transportation Infrastructure Fund.
12. Counties as mentioned above may impose a 1% sales tax by referendum with the proceeds to go towards transportation projects.

Estimates have placed the potential new bonding capacity created by this bill at $1.3 billion – nearly the size of the entire Department of Transportation’s budget for the current fiscal year. On top of this bonding capacity, the legislature saw fit to create the massive new Local Transportation Infrastructure Fund.

The fundamental assumption in all this is that the state’s roads are decaying for no other reason than that state government doesn’t have enough money to take care of them properly. Evidently the amended bill’s proponents, including Finance chairman Hugh Leatherman, have not considered the possibility of increasing funding for road maintenance by cutting other items in the massive $24 billion budget (some suggestions here). Nor, apparently, have the bill’s supporters wondered whether the state’s transportation problems have more to do with priorities than with a revenue shortage (more on that here).

South Carolinians already bear a high tax burden relative to their low per capita income, pay one of the highest sales taxes in the nation, and pay higher fines and fees than most other states’ taxpayers. State government’s failure to maintain our roads isn’t the fault of South Carolina taxpayers; it’s the fault of the state’s policymakers, and accordingly the remedy should deal with government structure and backward priorities rather than merely with revenue.