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State lawmakers and transportation advocates have their summer homework cut out for them in crafting a politically feasible way to begin addressing a projected $20 billion shortfall in the state’s transportation funding over the next two decades.

Transportation funding headed for ‘cliff’

Margaret Donahoe, the executive director of the Minnesota Transportation Alliance, has been raising concerns to legislators that engineering and road building firms will take a massive hit if lawmakers don’t provide funding for transportation. (Photo: Matt Johnson)

State lawmakers and transportation advocates have their summer homework cut out for them in crafting a politically feasible way to begin addressing a projected $20 billion shortfall in the state’s transportation funding over the next two decades.

The most immediate dimension of the problem looms much nearer. It involves what some lawmakers and policy folk refer to as the “funding cliff” from which Minnesota is set to tumble in fiscal year 2016. Due to a couple of kinds of borrowing from the state’s Trunk Highway Fund, the amount of money the state has for road construction will decline by more than $250 million a year in the fiscal year that begins July 1, 2015.

Two funding sources are set to run dry at roughly that time. One is the trunk highway bonding that was approved in the 2008 transportation funding bill that the Legislature passed by overriding Gov. Tim Pawlenty’s veto. The other source is advanced payments for transportation made by the state with the expectation of being reimbursed by the federal government. The so-called advance construction will be depleted around that point unless Congress passes a new funding bill.

The 2008 trunk highway bonding has been steadily declining, according to the Minnesota Department of Transportation. It was $241 million for the 2013 fiscal year. It will be down to $111 million in 2015 and will plummet to $24 million in 2016. Part of the revenue streams that make up the Trunk Highway Fund – such as gas tax receipts and future federal funding – will be spent on paying off the debt service on the bonds.

Rep. Mike Beard, R-Shakopee, the minority lead on the House Transportation Finance Committee, said he backs a modest increase in the gas tax. He’s hoping for increases of 1 cent a year for six years or 2 cents a year for three or four years to get projects built. (Staff photo: Peter Bartz-Gallagher)

As for the advance construction that was done in expectation of receiving federal funds, the state spent $188 million in 2013. That will fall to $15 million in 2016.

While there will still be money from sources of funding like the gas tax and motor vehicle sales tax, the current projections for the drop-off will put a crimp in the state’s highway program, said Mark Gieseke, office director for capital programs and performance measures at MnDOT.

“The impact will be less spending on construction,” Gieseke said. “There would be few projects or smaller sized projects.”

Industry frets over job prospects

The projected decline in spending has the construction industry worried. Margaret Donahoe, the executive director of the Minnesota Transportation Alliance, has been raising concerns to legislators that engineering and road building firms will take a massive hit if lawmakers don’t provide funding.

“When you look at that kind of a drop-off in funding, what that means, of course, is it’s a drop-off in jobs,” Donahoe said. “That means fewer projects for people to work on. You’re going to see the number of people employed in the industry drop off pretty significantly.”

But getting increased funding passed at the Capitol has proven to be an uphill battle, despite the fact that the governor’s office and both houses of the Legislature are controlled by DFLers.

The Transportation Funding Advisory Committee (TFAC), which was appointed by Gov. Mark Dayton, released a report in December 2012 that projected the state is short $21 billion over the next 20 years of what it needs to maintain Minnesota’s transportation system in its current state. Building a world class transportation system in the same time period would require a funding boost of more than $50 billion. The TFAC report floated a variety of funding scenarios, including increases to the per-gallon tax on gasoline and the motor vehicle registration tax.

Key legislators on transportation issues were hoping to use the TFAC report in this year’s legislative session as a blueprint for a substantial transportation funding package. The stage was set in January when Dayton proposed to increase the sales tax in the seven-county metro area to pay for transit projects.

The chairmen of the House and Senate transportation committees, Rep. Frank Hornstein and Sen. Scott Dibble, who are both Minneapolis DFLers, were set to unveil a budget of increased funding for transit in the metropolitan area and roads and bridges in greater Minnesota when the wheels fell off, so to speak. Dayton proved to be unwavering in his opposition to a gas tax hike. Fearing that the funding for Twin Cities transit would get stranded in the Legislature without a complementary funding boost for greater Minnesota via the gas tax, Hornstein and Dibble shelved their proposals.

Revenue raisers stalled in 2013

In the run-up to the session’s adjournment on May 20, the Senate offered some funding increase proposals and sent a gas tax increase to conference committee. But in the end, the only funding from the session came in the form of $300 million in trunk highway bonding, which Hornstein and Dibble were quick to assert isn’t the same as increased funding.

The prospects for transportation funding increases are uncertain at this point, and advocacy groups and lawmakers are regrouping and trying to put together an acceptable proposal. The most recent hint of movement came last weekend, when the Pioneer Press reported Dayton might be open to a gas tax increase that’s indexed to the cost of living.

With the funding drop-off looming in FY 2016, Rep. Mike Beard, R-Shakopee, the minority lead on the House Transportation Finance Committee, said he backs a modest increase in the gas tax as a solution. He’s hoping for increases of one cent a year for six years or two cents a year for three or four years to get projects built.

“Going forward, I think that we, bipartisanly, should educate the public about the need for a penny or two pennies a year increase for a period of years in the gas tax, because that can be spent on roads and bridges,” Beard said.

The 2008 trunk highway bonding and the advance of federal funding were done as a way to expedite projects. The downside is that the money that was pumped into the system then is running out, and the debt needs to be repaid. Beard said lawmakers will need to decide in the not-too-distant future whether they want to keep spending levels from taking a nosedive.

“The get-ahead money that we have been using for the last six or seven years, that’s going to go away,” Beard said. “We have to have a frank discussion about the get-ahead money: Do we want to keep that coming and keep moving?”

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