Capital Ideas II

State transportation funding lessons from 2015 – challenges for 2016

Funding: A qualified success

Utah's HB362

As part of the work of our START network, T4America tracked and reviewed all state legislation proposed this year to raise new revenue to fund transportation, along with a wide array of legislation to reform the way these funds are spent. In this report we evaluate and highlight three specific bills that show how states can find success by building legislative packages and campaigns that stick to proven keys to success.

OVERVIEW

UTAH'S HB362

Utah’s bipartisan funding bill guaranteed an increase in state and local road funding and created a mechanism for local governments to ask voters for an increase in sales taxes to fund multimodal needs, including transit — something that just over one-third of Utah counties subsequently approved in November 2015.

Utah was the third state to raise new transportation funding through legislation in 2015. The new law, passed in March, will generate approximately $76 million annually by replacing the cents-per-gallon gas tax with a new percentage tax. On January 1, 2016, the law will replace Utah’s former fixed 24.5 cents-per-gallon rate with a new rate of 12 percent of the statewide wholesale gasoline price that will rise and fall in per-gallon terms with the price of gas. Additionally, diesel, natural gas and hydrogen will see an incremental rise in their taxes until they reach 16.5 cents per gallon (an eight-cent increase for diesel and natural gas). All fuel tax revenues follow the current formula that allocates 70 percent to UDOT and 30 percent to cities and counties.

Due to a constitutional restriction common to many states, any revenue generated by the gas tax can only be used on roads. So while road funding was guaranteed by this particular legislation, local governments had to request funds from voters for other needs, including public transit. Though the state’s Unified Transportation Plan includes numerous critical transit projects, the state has never had a strong role in funding transit. Because of both that history and the significant challenge of altering the constitution, legislators and supporters faced an uphill battle to raise new funds for transit at the state level — though no region in the country has invested more in transit per capita over the last 15 years than the Salt Lake City region.

While T4America believes that states should also raise multimodal funding at the state level, the move by legislators to include the local option taxing authority provided counties with the choice of raising additional local sales taxes which could be invested in roads, transit, biking and walking or almost any pressing local need — an option that will now be permanent. Of the 17 counties that chose to put measures on the November 2015 ballot, 10 were successful in 2015 and will raise millions in new, flexible revenue that can be invested in any local need. In counties with existing public transit systems, thanks to a strong legislative effort to require that at least 40 percent of the sales tax increase go directly to transit, those counties will see immediate improvements in service, or planned expansions moving ahead.

Flickr photo of bridge farming in Salt Lake Cityby Shaan Hurley. /photos/btl/2700839269

Flickr photo of bridge farming in Salt Lake City by Shaan Hurley.

Evaluating the bill

HOW DOES IT STACK UP?

Reminder: this section is a comparison of each bill against a combination of T4America’s guiding policy principles and T4America’s overall recommendations for successful state funding or policy legislation identified in our first Capital Ideas reportClick any one of the nine titles below to expand or contract that section.

The bill is projected to raise an additional $76 million each year at the state level and an estimated $27.5 million annually in total for the 10 counties that passed their local option tax in November, according to the Utah League of Cities and Towns. Though the bill overall affirms the multimodal needs of the state, the funds generated by the gas tax are restricted to roads and highways. The legislation eliminates the fixed 24.5-cents-per-gallon rate and replaces it with a new rate of 12 percent of the statewide wholesale gasoline price, beginning January 1, 2016. That new rate cannot dip below the equivalent of 29.4 cents per gallon (i.e. a floor mechanism) or climb above 40 cents per gallon (i.e. a cap mechanism), though the floor and cap are indexed to inflation once the wholesale gasoline price exceeds $2.45. Taxes on diesel, natural gas and hydrogen incrementally rise until they reach 16.5-cents-per-gallon, an eight-cent increase for diesel and natural gas.

The bill directly increases funding for local highway needs through the existing 70/30 state/local funding split. It enabled all counties to raise additional funds for any multimodal local need through a 0.25 percent sales and use tax, with approval by voter referendum. (This provision is permanent, so counties that did not approve it this year can go back to the ballot again in the future.) Revenues from these county sales taxes would be split between the county (20 percent), cities (40 percent) and a county’s transit agency (40 percent). If a transit service area doesn’t exist in the county, the money is split between the county (60 percent) and cities (40 percent).

The bill does not include specific accountability or performance measures or changes to the project selection process. However, the existing Unified Transportation Plan — a plan developed cooperatively by the state DOT, transit agencies and metropolitan planning organizations — will help govern where money is spent. During the legislative effort and subsequent ballot measure campaigns, UDOT and other local agencies promised to voters that they planned to focus funds on maintenance and upkeep of existing assets, though there are no legislative or statutory provisions requiring that they do so. Local governments that increase sales taxes are required to submit a detailed report of revenues received from the bill. Funds dedicated to public transit have to be spent on service or capital costs, and language was included to ensure that local governments don’t supplant current general spending on transportation with new revenues — resulting in a net increase in total local transportation investment.

The bill directs the Utah DOT to explore a mileage-based road usage charge (RUC) as an alternative to the gasoline tax. The DOT is to consider conducting a pilot program and deliver recommendations to the legislature on the potential of a RUC program in Utah.

Local communities can use their 30 percent share of new fuel tax revenue on projects that incorporate active transportation elements like bike lanes or sidewalks, as long as those projects are within the right-of-way. Legislators provided counties with the option of increasing local sales taxes to fund any type of project through local option taxes. The bill does not specifically prioritize projects that enable access to jobs. The Unified Transportation Plan identifies projects needed to connect a growing population to job centers.

The bill drew broad support, including from legislators representing urban and rural areas, and the inclusion of local option taxes — though they still required approval by voters — allow different regions of the state, whether urban or rural, to address their unique needs.

Governor Gary Herbert (R) was a strong, vocal supporter of increasing multimodal transportation-related revenue in 2015.

Utah Transportation Coalition, a group that has diverse representation and includes the Salt Lake Chamber, the Utah League of Cities and Towns, the Utah Association of Counties and countless other business and trade organizations, ran a tight, coordinated campaign that began its work far before the start of this session.

The coalition conducted two years of studies to develop data, messaging and the necessary coalition needed for a successful campaign and focused the debate on the need to invest in Utah’s future and economic prosperity and the returns that would come from an increase in overall transportation investment. The coalition pointed to studies showing for every dollar invested in the Unified Transportation Plan, $1.94 was returned to taxpayers through economic gains. They also highlighted that declining revenues and rapid population growth would not allow the state to keep up the same approach to financing transportation.

“We worked together, we were all in lockstep together, we knew our message, stayed on message. We worked really hard to be the voice in the community and in the legislature about transportation, why it was so important for our economy, for our quality of life, to our healthcare.”

Abby Albrecht, Director of the Utah Transportation Coalition and Public Policy Area Director for the Salt Lake Chamber.

The story of their success

UTAH

This section is excerpted and modified from our longer, detailed profile from our website on the legislation. For more on Utah’s ambitious plans to invest in transportation and transit specifically, read our Can-Do profile of Utah and Salt Lake City. one in a series of longer profiles of similar places across the country.

Political compromises on the way to passage

After several failed efforts in 2014, legislators prioritized raising Utah’s gas tax right from the start of the 2015 session. Gov. Gary Hebert called for new revenue to fund transportation with his budget proposal. The Speaker of the House, Rep. Greg Hughes (R-Draper), wanted to drop the per-gallon excise tax and replace it with a percentage tax, which would enable the tax to rise and fall with gas prices. Senate President Wayne Niederhauser (R-Sandy), however, felt that tying the gas tax to fluctuating gas prices was too risky. Prices could rise and fall dramatically, he said, subjecting Utah drivers to suddenly higher gas prices, or revenues could fall dramatically below projections if gas prices were low. To eliminate the uncertainty, Sen. Niederhauser preferred a straight increase to the gas tax.

Hughes, however, didn’t believe that representatives in the House would pass a straight tax increase, fearing political fallout. Pegging the tax rate to gas prices would allow the state to eventually see revenues increase as gas prices rise without the political risk of imposing taxes immediately. The legislature agreed to a compromise approach, whereby the bill utilized a percentage-based approach at a level that represented an immediate increase in funding. The compromise carried through to the final bill signed into law by Governor Herbert.

The importance of including the local option sales tax

Legislative leadership and transportation chairs of both houses instructed key stakeholders including the business community, cities, counties and public transit agencies to actively collaborate on a desired local option measure to allow counties to increase sales taxes for transit and other local priorities. Including this local option provision led to a broader base of support for the overall bill and helped secure broader political support that helped ensure final passage.

Messaging

In a conservative state like Utah, supporters found that economic arguments worked best for convincing legislators and the public that transportation is a worthwhile investment. Their economic development argument was two-pronged: first, a state with a good transportation network can more easily attract businesses, which need solid transportation infrastructure to attract talent, get their employees to work and ship their goods; second, that waiting to repair critical transportation infrastructure will make maintenance cost more in the long run.

Supporters educated both the public and elected officials about why more funding was necessary overall and why Utah’s communities need to be able to raise funds for and invest in multimodal transportation projects.

A focus on air quality, an issue of great focus to Utah residents, was one of the reasons that the governor and legislature sought a multimodal approach that included transit and specifically authorized use of the funds for active transportation.

Unified Transportation Plan – unifying interests from across the state

Utah’s Unified Transportation Plan was the key focus of their singular message. It’s a statewide transportation plan synthesized from the metropolitan planning organizations’ regional plans and plans from the state DOT and the Utah Transit Authority — the transit authority for the Wasatch Front region. The unified statewide plan prioritizes those needs and outlines the agreed-to $11.3 billion priority projects throughout the state. Having a statewide plan in which everyone could see their needs reflected helped develop a holistic vision for the state’s future instead of regions competing against each other for limited funds. That unity of purpose across the state helped bring legislators on board.

On to the ballot box

Passage of the bill secured a projected $76 million in new annual funding for state and local road projects. However, additional investment in local streets, transit and bike and pedestrian projects still had to win additional approval from county commissions and voter referenda. Commissions in 17 of 29 counties chose to place a local option sales tax measure on the November 2015 ballot. Voters in 10 counties approved the local funding measure, raising an estimated $24.5 million annually, according to the Utah League of Cities and Towns. However, voters in Salt Lake and Utah counties, the two most populous counties in the state, rejected the plan. Distrust in UTA, the region’s transit agency, was a major factor in the defeat according to the agency’s chairman.

Lessons learned

This year’s move by the legislature was a key example of bipartisan cooperation and compromise, undergirded by the clear vision for investment that local leaders and civic groups have bought into. As a result of their work, the state will see an increase in transportation funding in 2016. Though they were only able to guarantee funding for state and local roads via the gas tax increase, legislators supported local leaders’ requests for multimodal transportation funding needs through local enabling legislation — permanently giving all counties more flexibility to fund these local priorities, Though it’s a challenge to upend a historical lack of transit funding at the state level paired with a constitutional restriction, the fact that the local option was only approved in a third of all counties shows the perils of failing to guarantee state funding for all modes of transportation.