INC NEWS - Overview of transportation funding

[pat carstensen]

I am sending some bits from a longer report from NC ConNet that may be 
relevant to actually getting the East End Connector built.  If you want the 
full report, please let me know.

Regards, pat

Overall, North Carolina is spending $3.85 billion on transportation in the 
current fiscal year (July 2006– June 2007).  Of this, $1.04 billion comes 
from the Highway Trust Fund, created in 1989 and committed by law to fund 
new construction.  Another $1.57 billion comes from the Highway Fund, which 
dates to the 1920s and can be used for maintenance and other projects, but 
whose revenue has remained relatively flat.  Finally, North Carolina is 
receiving $890 million in federal funds – less than the amount that North 
Carolina drivers contribute to national funds through gas taxes (making us a 
‘donor’ state), but still a sizable transfer.

The basic challenge the state faces is that DOT cannot afford all the 
projects that local governments, developers, and state legislators have 
traditionally wanted it to build.  In 2004, DOT leadership estimated that it 
faced a $30 billion gap between project expenses and likely revenues over 
the next 25 years.  (Earlier this week, DOT released an updated estimate of 
the gap: $66 billion).  DOT leadership recommended addressing this by 
shifting money from new road construction to maintenance and transit.  
Transportation hawks in the legislature were not pleased with DOT, but the 
financial crunch is real, and there are really only three options on the 
table to address it:

   * Capture a larger portion of the state budget.  This was the initial 
reaction of legislators in 2004.  But given the way the legislature works, a 
single interest isn’t likely to capture that much funding.

   * Cut back on road construction, focusing limited money more wisely.

   * Privatize transportation, either through state built and run turnpikes, 
or, more radically, through ‘public private partnerships’ that contracts out 
provision of transportation services – like essential connector roads – to 
private corporations.

A particular issue is the need for total replacement of existing roads 
nearing the end of their life; there is no "pot of money" for this – and 
that if money is shifted from the existing Funds, that means foregoing other 
projects.

In 2000, while much of the state was suffering economic dislocation and the 
state budget faced a shortfall, the Highway Trust Fund was sitting on almost 
$1 billion in cash and $700 million in unused bonding authority.  
Transportation legislators ordered DOT to spend out the money as quickly as 
possible.  DOT did so, but came just months away from running out of cash in 
2005.  Cash flow has stabilized, but in the meantime, world demand for 
concrete and steel has increased construction prices by 45% over the last 
three years, greatly increasing the gap between desired projects and 
available revenues.  At this rate, many projects on the official state list, 
the Transportation Improvement Plan, will simply never be built – but that 
fact is still hard for some project proponents to swallow.

On the privitized transportation:

* Public private partnerships’ (P3s) work because [being privately owned] 
they can raise tolls without worrying about political sensitivity.  But, 
because they are private and don’t have access to tax-free bonding 
authority, the financing costs of P3s are actually higher than publicly 
owned projects.  Most of the P3 investors are foreign companies; they 
negotiate to own roads for 50 or 70 years, so they continue to extract 
profit well after the cost is paid off in the first two or three decades a 
road is in service.

* Instead of P3s, North Carolina established a Turnpike Authority just a few 
years ago, and last year authorized it to pursue a total of nine projects.  
Although several of these toll projects can attract bond funding, lenders 
will usually not cover more than 70% of the cost of any of the projects.  
The different must be funded by the state – so most of the toll projects 
don’t actually pay for themselves.  Instead, they allow the state to buy a 
project at, say, 30 cents on the dollar (with the rest, plus interest, paid 
in the future by tolls).  To the extent that the toll projects do not 
reflect the pre-existing priorities in the state Transportation Improvement 
Plan (TIP), the diversion of state funding to close the gap effectively 
reorders the projects in the TIP. (potentially in front of the East End 
Connector)

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