PAYING FOR PAVEMENT

The current legislative debate over a transportation bond highlights the problem of making hard and fast promises. To pass a budget, legislative leaders agreed that no borrowing would be included in the package. That has left a $60 million bond, supported by the Transportation Committee, in limbo when the state is facing a $1 billion backlog in road and bridge work.

Given that Republicans, and many Democrats, have also pledged to not raise taxes, which include the gas tax, a major source of road money, there are few options for funding transportation projects. While the bond endorsed by the Transportation Committee is needed so that state does not fall farther behind in maintaining and upgrading roads, bridges and other infrastructure, it is only part of the solution. There must also be a legislative commitment to seek new ways to pay for such work. Seemingly radical ideas such as privatizing roads or collecting tolls must be considered as the gas tax covers a decreasing portion of upkeep and improvement costs.

Last fall, the Department of Transportation announced that it would have to defer about 20 percent of the projects, worth about $130 million, included in its work plan for the next year because of changes in the federal funding system and the rapid rise in the cost of construction material.

By re-engineering projects and putting off those that couldn’t be completed by next June, the department cut $40 million from the deferral list. Another part of the solution was to use $15 million from the Highway Fund and $15 million from the General Fund to cover some of the cost. The final suggestion was a $60 million bond, which promptly ran into the Republicans’ staunch opposition to borrowing that led to an agreement among legislative leadership to forgo bonds to ensure two-thirds support for the supplemental budget.

The Transportation Committee, however, has not given up on the need for a bond to fill the funding gap. The committee approved using a relatively new transportation financing tool called the Grant Anticipation Revenue Vehicle, or GARVEE, which allows states to borrow against future federal allocations to complete current projects. New Hampshire last year approved a $195 million bond and 23 other states have used GARVEE financing. Although not required, the proposed Maine bond would be subject to a referendum vote.

According to an informal survey by the Florida Department of Transportation, construction materials are rising in cost by double digits each year. Putting off projects means they will cost substantially more.

This is just the type of scenario where borrowing using GARVEE bonds makes sense, according to a recent analysis by The Brookings Institution. “… using GARVEEs as a financing tool to accelerate development and construction of needed projects where the cost of inflation outweighs the debt costs makes sense,” the report says.

However, it cautions against using the bonds for political purposes.

Passing this bond will partially solve a short-term problem. Finding new ways to pay for road work must be a top priority for the next legislative session.