Diversifying State Transportation Trust Fund Programs

Increasing the flexibility of state transportation trust funds gives states more options for combating various transportation-related problems, including congestion, dwindling air quality, and deteriorating highway infrastructure. It gives planning organizations more options in addressing these issues, such as creating and improving mass transit systems and establishing alternatives to traditional transportation, such as pedestrian and bicycle paths and park and ride lots. Most states still have not embraced the changes in transportation demands or adopted the reforms necessary to encourage desperately needed transportation improvements. Because of the variability in state transportation needs, a variety of creative approaches should be considered.

The majority of states rely on highway trust funds or road funds to disperse transportation funds. Currently, 14 states have transportation trust funds, 24 have highway-only trust funds, 7 have both, and 5 have neither.(1) The majority of the available funds are derived from state motor fuel taxes and, as a result, most transportation trust fund reform centers on more flexible requirements for spending this revenue.

However, any bill diversifying trust funds must be carefully worded, because many states, as a result of facing increasing fiscal deficits, are using trust fund money for non-transportation purposes. Other states have constitutional amendments against making any changes to trust fund spending. This doesn’t mean that states should give up hope. Instead, they should focus on working around these challenges and adopting any, or all, of the various policy reform options described below. New York, Rhoad Island, and Wisconsin have taken innovative approaches to increase state transportation funds.

Policy Options

All fifty states have a motor fuel tax, but 34 of them dedicate all of the revenue exclusively for highway use, either by statute or constitutional provisions.(1) This dedication of funds for a specific purpose is known as earmarking. State legislatures can generate more funding for transportation improvement by diverting funds from highway construction and using them to support transportation alternatives.

Weaken Earmarking Provisions

This involves changing existing statutes or modifying constitutional amendments regarding transportation funding, and allowing motor fuel tax revenues to be spent on transportation alternatives. Transportation alternatives would encompass intercity passenger transit systems, such as bus and rail, pedestrian and bicycle paths, park and ride lots, and high occupancy vehicle (HOV) lanes. This policy may be more easily adopted in states that possess statutory earmarking provisions.

Expand Earmarking Provisions

By expanding the definition of “highway purpose” and “highway project” to include park and ride lot creation, pedestrian and bicycle infrastructure improvements, and air pollution reduction, policymakers can then legally work around earmarking provisions. This option may be more appealing to states that have constitutional highway earmarking provisions.

Use a Creative Tax

Besides weakening or expanding existing state earmarking provisions, states can increase taxes using a creative tax. By adding a regular sales tax to the motor fuel tax, legislators can increase revenue for transportation alternatives, such as mass transit systems, and bypass existing highway-only provisions. Similarly, increasing registration and licensing fees, tolls, and other automobile-related taxes could also help to circumnavigate earmarking and fund alternative transportation projects at the regional, local, and metropolitan level.

Examples of Reform

New York

New York does not have a single transportation trust fund, but instead has varied sources of transportation income that are directed to many transportation-related trust funds and accounts. These accounts, including the transportation infrastructure renewal fund, mass transportation operating assistance fund, dedicated highway and bridge trust fund, dedicated mass transportation trust fund, and the transportation safety account, are established under Article VI of the State Finance laws of the New York State Consolidated Laws. Although these accounts fund certain types of transportation programs, there is a good amount of latitude as to how the money is spent. New York has a Transportation Dedicated Funds Pool, which “includes portions of the Petroleum Business Tax, the Motor Fuel Tax, and motor vehicle fees.”(2) According to New York’s Division of the Budget, money from the Transportation Dedicated Funds Pool goes toward the dedicated mass transportation trust fund, dedicated highway and bridge trust fund, and mass transportation operating assistance fund. In addition, there is a supplemental petroleum business and aviation fuel business tax (Section 301-j of Article 13-A of state law), which is allocated as follows: Sixty-three percent to the state highway and bridge trust fund, 34 percent to the state mass transportation trust fund (with most of these funds earmarked for New York City’s transit authority), and 3 percent for other mass transportation projects.

Rhode Island

State of Rhoad Island General Laws § 31-36-20 specifies that all income from motor fuel taxes be deposited into the Intermodal Surface Transportation Fund (ISTF). The ISTF is the state transportation trust fund; the same statute directs the allocation of these funds. However, only part of the ISTF funds are specifically allocated – $0.0625 per gallon of taxes imposed to public transit, $0.01 per gallon to an elderly and disabled transportation program, and approximately $0.02 per gallon (the exact amount varies by fiscal year) for general revenue. This formula accounts for less than ten cents per gallon of the fuel tax; any revenue above this amount is directed to the Department of Administration, subject to annual appropriation by the General Assembly. At the start of fiscal year 2003, Rhode Island’s gasoline tax increased by two cents to $0.30 per gallon. The state’s 2003 gas tax income was allocated as follows: Twenty-one percent to the state public transit authority, 3 percent to the Elderly Disabled Transportation Program, 7.5 percent to the state’s general fund, and the remaining 68.5 percent to the state Department of Transportation.(3)

Wisconsin

Wisconsin Statutes § 25.40 establishes a “separate nonlapsible trust fund designated as the transportation fund.” The state fuel tax, created by Wisconsin Statutes § 78.01, requires that all Department of Transportation collections, a range of transportation-related fees and taxes, federal transportation funds, and any money in the state general fund appropriated for transportation uses, are all placed in the transportation fund. Transportation fund money is allocated under Wisconsin Statutes § 20.395 for a range of transportation-related state and local programs, including general transportation aid to counties and municipalities, studies of and grants for urban rail transit systems, employment-related transportation programs, elderly and disabled transportation programs, highways, bridges, and policing.