Gov Haley’s ‘money tree’ isn’t the answer to SC’s crumbling roads
February 12, 2014 BY CINDI ROSS SCOPPE - Associate Editor - The State
COLUMBIA, SC — THE MONEY tree. What a great turn of phrase. In those three little words, Gov. Nikki Haley managed to conjure up visions of both surplus revenue and wasteful spending, which is what made her argument that legislators ought to use funds from the money tree to repair our crumbling highways and bridges so appealing.
I thought she was talking about one-time money — usually money that comes in over and above what the Legislature had appropriated the previous year, because legislative spending is based on revenue projections that are, quite reasonably, conservative.
And so I thought her proposal sounded reasonable — not adequate to the $29 billion problem, but reasonable. As I reminded one senator the day after the governor pitched her proposal to the public in her State of the State address, it’s more prudent to use one-time revenue on highway repairs than to commit yourself to paying for new positions or programs you might not have money to pay for the next year, and more responsible than using it for festivals and other pork.
He in turn reminded me that she wasn’t talking about one-time money. She was talking about the changes in revenue projections between the time the governor unveils her budget proposal in January and the Legislature passes a budget in June. Sort of like the changes in weather forecasts as we get closer to the day that interests us.
The governor’s proposal, then, isn’t to use surplus money to whittle away at our backlog of road and bridge repairs. It’s to raid the general fund, to divert money from the public schools and colleges and the Highway Patrol and SLED and DHEC and all of the other state agencies that went through a half-decade of largely unrequited budget cuts, and spend it instead on asphalt. It is a permanent change, not the one-year-at-a-time diversion that her message implied.
That means it likely would generate more highway funding than the governor projects — which would be a good thing but for the fact that it also would take more money away from the rest of government than she suggests. Think of it as authorizing an automatic deduction from your bank account to your favorite charity, as opposed to simply writing a check. And then expect the charity to come back every year and demand that you increase the size of that automatic deduction.
This ought to be a non-starter.
Our state always treated roads differently than everything else. We called on the people who use roads to pay for them, roughly in proportion to the amount they use them. We did this primarily through the gas tax, which has the advantage of sharing the burden with the third of drivers from out-of-state who use our roads.
We always reserved general tax revenue — which comes primarily from the sales and income taxes — for more general needs. Indeed, the sales tax was instituted, and on several occasions raised, specifically to pay for public schools.
But that approach to taxation changed last year, when the Legislature voted to divert sales tax revenue to roads, even though we weren’t adequately funding all those general needs. The diversion was small, but it came with the plan to double it this year.
More importantly, once we broke the barrier and started using general-fund revenue to pay for roads, the only questions were how soon and how rapidly they would grow. Gov. Haley thinks her plan will divert about $100 million a year; if correct, that actually means $100 million the first year, $200 million the next, $300 million the next, and so on.
It was a bad idea when the Legislature approved a $50 million diversion last year. It’s a bad idea for the Legislature to double that sales-tax diversion this year. It will be a worse idea for the Legislature to go along with the governor’s ever-increasing general-fund raid via the “money tree.”
Clearly, though, we need to do something to tackle our road-repair backlog, which, depending on whose numbers you believe, is from $500 million to $1.5 billion per year for the next decade, or two. Businesses considering bringing jobs to our state increasingly are demanding better roads. Our citizens deserve them. So what to do?
I don’t think we should increase (or reduce) any tax absent comprehensive tax reform. And I don’t think we should give any more money to the Transportation Department or State Transportation Infrastructure Bank until we reform both the governance and the operating rules for those agencies, which are best at building new roads while the ones we have deteriorate, and building new roads based on politics rather than where objective criteria show they are needed.
I don’t see any good reason for our legislators not to overhaul our tax system and reform our transportation agencies. I also don’t see any good reason to think they will do comprehensive tax reform anytime soon. But they would overhaul our road-building apparatus if the business community would lobby them as hard on that as it is on putting more money into road and bridge repair.
Then they could try something rational for coming up with that extra money. Something that doesn’t steal even more money from those essential programs that already are underfunded. Which is this: Turn the gas tax from a static fee into the sort of thing that comes to mind when we hear the word tax.
In 1987, the Legislature raised the gas excise tax to 16.5 cents per gallon. Because of the price of gas at the time, that amounted to a 20 percent tax. But it wasn’t a 20 percent tax; it was a per-gallon tax. If it had been a 20 percent tax, the per-gallon cost would have gone up as the price of gas went up, and today we would be paying about 62 cents per gallon instead of 16.5.
I don’t think we could justify a 20 percent gas tax. But gasoline and other motor fuels are exempt from the state’s 6 percent sales tax, and what we could justify is collecting the regular sales tax on gas instead of the special per-gallon gas tax. If we did that, we’d be paying about 20 cents per gallon today, instead of 16.5 cents.
The 16.5 cent gas tax generates about $500 million a year, which means that at the current gas price, switching to the sales tax would bring in an additional $100 million or so. That’s about the same as the money-tree plan.
The other alternative we could justify is to keep collecting the per-gallon gas tax, but adjust it to inflation. If lawmakers had done that when they increased the gas tax 27 years ago, we would be paying around 33 cents per gallon today. And the state would be collecting a half a billion dollars more a year. And we wouldn’t have a $29 billion maintenance backlog.
If our lawmakers did that now, then we’d at least not be digging the hole any deeper.
February 12, 2014 BY CINDI ROSS SCOPPE - Associate Editor - The State
COLUMBIA, SC — THE MONEY tree. What a great turn of phrase. In those three little words, Gov. Nikki Haley managed to conjure up visions of both surplus revenue and wasteful spending, which is what made her argument that legislators ought to use funds from the money tree to repair our crumbling highways and bridges so appealing.
I thought she was talking about one-time money — usually money that comes in over and above what the Legislature had appropriated the previous year, because legislative spending is based on revenue projections that are, quite reasonably, conservative.
And so I thought her proposal sounded reasonable — not adequate to the $29 billion problem, but reasonable. As I reminded one senator the day after the governor pitched her proposal to the public in her State of the State address, it’s more prudent to use one-time revenue on highway repairs than to commit yourself to paying for new positions or programs you might not have money to pay for the next year, and more responsible than using it for festivals and other pork.
He in turn reminded me that she wasn’t talking about one-time money. She was talking about the changes in revenue projections between the time the governor unveils her budget proposal in January and the Legislature passes a budget in June. Sort of like the changes in weather forecasts as we get closer to the day that interests us.
The governor’s proposal, then, isn’t to use surplus money to whittle away at our backlog of road and bridge repairs. It’s to raid the general fund, to divert money from the public schools and colleges and the Highway Patrol and SLED and DHEC and all of the other state agencies that went through a half-decade of largely unrequited budget cuts, and spend it instead on asphalt. It is a permanent change, not the one-year-at-a-time diversion that her message implied.
That means it likely would generate more highway funding than the governor projects — which would be a good thing but for the fact that it also would take more money away from the rest of government than she suggests. Think of it as authorizing an automatic deduction from your bank account to your favorite charity, as opposed to simply writing a check. And then expect the charity to come back every year and demand that you increase the size of that automatic deduction.
This ought to be a non-starter.
Our state always treated roads differently than everything else. We called on the people who use roads to pay for them, roughly in proportion to the amount they use them. We did this primarily through the gas tax, which has the advantage of sharing the burden with the third of drivers from out-of-state who use our roads.
We always reserved general tax revenue — which comes primarily from the sales and income taxes — for more general needs. Indeed, the sales tax was instituted, and on several occasions raised, specifically to pay for public schools.
But that approach to taxation changed last year, when the Legislature voted to divert sales tax revenue to roads, even though we weren’t adequately funding all those general needs. The diversion was small, but it came with the plan to double it this year.
More importantly, once we broke the barrier and started using general-fund revenue to pay for roads, the only questions were how soon and how rapidly they would grow. Gov. Haley thinks her plan will divert about $100 million a year; if correct, that actually means $100 million the first year, $200 million the next, $300 million the next, and so on.
It was a bad idea when the Legislature approved a $50 million diversion last year. It’s a bad idea for the Legislature to double that sales-tax diversion this year. It will be a worse idea for the Legislature to go along with the governor’s ever-increasing general-fund raid via the “money tree.”
Clearly, though, we need to do something to tackle our road-repair backlog, which, depending on whose numbers you believe, is from $500 million to $1.5 billion per year for the next decade, or two. Businesses considering bringing jobs to our state increasingly are demanding better roads. Our citizens deserve them. So what to do?
I don’t think we should increase (or reduce) any tax absent comprehensive tax reform. And I don’t think we should give any more money to the Transportation Department or State Transportation Infrastructure Bank until we reform both the governance and the operating rules for those agencies, which are best at building new roads while the ones we have deteriorate, and building new roads based on politics rather than where objective criteria show they are needed.
I don’t see any good reason for our legislators not to overhaul our tax system and reform our transportation agencies. I also don’t see any good reason to think they will do comprehensive tax reform anytime soon. But they would overhaul our road-building apparatus if the business community would lobby them as hard on that as it is on putting more money into road and bridge repair.
Then they could try something rational for coming up with that extra money. Something that doesn’t steal even more money from those essential programs that already are underfunded. Which is this: Turn the gas tax from a static fee into the sort of thing that comes to mind when we hear the word tax.
In 1987, the Legislature raised the gas excise tax to 16.5 cents per gallon. Because of the price of gas at the time, that amounted to a 20 percent tax. But it wasn’t a 20 percent tax; it was a per-gallon tax. If it had been a 20 percent tax, the per-gallon cost would have gone up as the price of gas went up, and today we would be paying about 62 cents per gallon instead of 16.5.
I don’t think we could justify a 20 percent gas tax. But gasoline and other motor fuels are exempt from the state’s 6 percent sales tax, and what we could justify is collecting the regular sales tax on gas instead of the special per-gallon gas tax. If we did that, we’d be paying about 20 cents per gallon today, instead of 16.5 cents.
The 16.5 cent gas tax generates about $500 million a year, which means that at the current gas price, switching to the sales tax would bring in an additional $100 million or so. That’s about the same as the money-tree plan.
The other alternative we could justify is to keep collecting the per-gallon gas tax, but adjust it to inflation. If lawmakers had done that when they increased the gas tax 27 years ago, we would be paying around 33 cents per gallon today. And the state would be collecting a half a billion dollars more a year. And we wouldn’t have a $29 billion maintenance backlog.
If our lawmakers did that now, then we’d at least not be digging the hole any deeper.
