The Future of Funding

What does the future of transportation funding look like? The answer is, it’s too soon to tell.

What does the future of transportation funding look like?

The Commission meets regularly with elected officials, staff, and business and community leaders in meetings throughout the state. The single message heard most often—in communities large and small, rural and urban —is that more revenue is needed to take care of basic transportation system needs.

Not just more revenue, but more predictable, stable revenue that keeps pace with inflation and allows communities to better manage their transportation assets. For decades, fuel taxes have been the primary source of roadway funds for local and state agencies. This made sense in many regards since fuel taxes related to highway and roadway use. Historically, the more people traveled, the more they paid and the more revenues were generated to support ongoing transportation needs.

Planning for Declining Fuel Tax Revenues

For decades, fuel tax revenues were fairly stable, predictable, and inexpensive to administer. That model has eroded. Increasing fuel efficiency and adoption of electric vehicle technology—both of which are good things—reduce gas tax revenues. In addition, the federal government’s share of funding for transportation has declined sharply over the last 25 years, in part because the federal gas tax of 14.4 cents per gallon is the same today as it was 25 years ago. Congress last increased the gas tax in 1993. Responsibility for funding the nation’s infrastructure is increasingly devolving to states and local government.

At the state level, the vast majority of new state gas tax revenues generated over the last 15 years are earmarked for big projects, debt financing, and competitive programs; little of the 26.4 cents added to the state gas tax since 2003 goes back to counties and cities directly in the form of discretionary revenues. Instead, nearly 100 cities and counties have enacted local option taxes to augment state funds available for local projects and programs. What we know is that it won’t rely on gas tax revenues as it has in the past. It’s likely to rely more on direct user fees, like tolls or mileage-based fees.

Road Usage Charge Pilot Project

The Road Usage Charge (RUC) pilot project underway in 2018 will provide useful insights into the practicality and fairness of a mileage-based fee replacement for the state gas tax. The pilot project will help us understand how a mileage-based road usage charge would work for different drivers in different parts of the state, and whether a charge such as this is a good way to pay for our transportation system needs in the future.

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Feedback from two thousand participants will help the Legislature determine if this is an equitable and sustainable way to fund transportation. We expect there will be more opportunities for funding collaboration with the private sector, though we don’t know yet all the forms that may take. We do know that new models of cooperation will accompany the new models of mobility that are emerging early in this century. There are likely to be increased opportunities for regional coordination, too.

RTPOs and MPOs are uniquely positioned to help Washington make the kind of adaptive, nimble investment decisions we’ll have to make in the coming years. They already have in place the mechanisms for regional coordination and collaboration among relevant constituencies, and they maintain the strategic long-range plans for their regions and facilitate regionally coordinated project reviews and prioritization informed by adopted land use plans. RTPOs and MPOs ensure consistency between local and regional objectives, as well as between regional and statewide objectives. Involving them more in state-level funding decisions will result in better state and local decisions. With these uncertainties in mind, 2040 and Beyond includes an array of practical recommendations to support our transportation funding needs.

Recommendations to Support Funding

Near-Term Strategies

1

Address the growing backlog of maintenance and preservation at state and local levels, prioritizing investments in the existing system before allocating funds to make it larger.

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This is not a new recommendation. Increased revenues dedicated to maintaining and preserving the existing transportation system are needed to keep life cycle costs as low as possible and avoid much costlier reconstruction or replacement projects. It is irresponsible to fund projects that add system capacity at the expense of needed maintenance and preservation of the existing system. This is a disconnect between established funding priorities and how we spend our limited transportation funds. Taking care of the existing system, protecting investments the public has already made in our transportation system–these are activities worthy of ribbon cutting ceremonies.

2

Establish alternative, sustainable revenues to meet statewide transportation needs, based on results of ongoing research into road usage charging and other approaches.

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The Transportation Commission’s Road Usage Charge (RUC) pilot project is underway in 2018-2019. The RUC will provide useful insights as to the suitability of a user-fee based system in supporting ongoing system funding needs. Whether it is turning to this kind of a user-fee model or some alternative, Washington simply cannot continue to rely as it has on the gas tax as a viable long-term funding source for transportation. Making continued progress on identifying and implementing a reasonable, sustainable alternative revenue source underpins the rest of Washington’s transportation objectives.

3

Support efforts to include non-federal revenues in the funds awarded by the regional planning agencies. RTPOs and MPOs play an important role in awarding funds to regional priority projects.

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When federal funds are used, the effectiveness of this funding is constrained by additional administrative and reporting requirements that increase costs for most projects—and for those local projects whose price tag is relatively small, the proportion of these costs outweigh the benefit of the funding. Because of the added administrative demands that come with federal dollars, many local agencies in Washington do not have the resources available to manage their own federally funded projects, though they regularly manage their own local and state funded projects. The state should seek ways to diversify the revenue stream available to RTPOs and MPOs, and reduce the challenges posed by federal funds, to help stretch limited resources and get more done for the traveling public.

4

Encourage more consultation between the legislature and RTPOs and MPOs to review. Legislative funding recommendations for consistency with established regional priorities prior to significant funding authorizations.

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As required by law, RTPOs and MPOs convene local and state transportation agencies across the state in an ongoing collaborative planning process to understand and address near-term and long-term mobility issues. Regional processes identify priority projects and programs to address those issues in a consistent and coordinated fashion. Active consultation with RTPOs and MPOs in the identification and evaluation of funding priorities as a part of statewide funding initiatives can ensure alignment between project investments and established funding priorities.

5

Remove the ten-year sunset clause associated with the voter-approved local option sales tax authorized for Transportation Benefit Districts (TBD).

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Remove the ten-year sunset clause associated with the voter-approved local option sales tax authorized for Transportation Benefit Districts (TBD).

Long-Term Strategies

1

Encourage innovative public-private partnership (P3) funding opportunities to achieve public objectives

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New 21st century partnership models are arising that can enhance ongoing coordination and collaboration between government and the business community. Governments need to explore innovative arrangements between public sector, private sector, and not-for-profit organizations to accomplish public goals. For example, a non-traditional public/private partnership with manufacturers of highly automated vehicles might accomplish low-cost, mutually beneficial roadway maintenance and striping.

2

Identify and put forward a value-capture alternative to Tax Increment Financing to support public and public-private partnership financing of transportation infrastructure.

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Tax increment financing (TIF) is one of the most widely used economic development financing tools nationwide. It works by allowing local governments to capture the increase in property tax revenues generated by economic growth in a defined area —a process called “value-capture”—and using that additional increment of value as a revenue stream to help finance needed infrastructure. Washington state does not allow traditional TIF mechanisms and has in place some alternate mechanisms that enable some aspects, but not all, of a TIF mechanism.

3

Create an account for emergency relief funds that cities and counties can quickly access to repair and rebuild infrastructure damage due to natural events.

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Federal emergency relief funds are often slow to appear after a disaster, hindering efforts to repair damaged infrastructure quickly. Even relatively short transportation system disruptions can significantly affect business continuity, which has ripple effects throughout the community. Studies have shown that 30 percent of companies that experience catastrophic loss in a disaster fail within two years and another 29 percent shut down after this time. As such, there is a need for a funding mechanism that allows cities and counties to respond in real time to make the necessary repairs—including temporary fixes—that keep people and goods moving during recovery.

4

Identify a dedicated source of revenues for retrofits that increase system resilience.

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The capacity for Washington to effectively respond and recover after a disaster will depend in large measure on how well our transportation system withstands the shock. The answer to that is going to depend on how we fund that system. Revenues dedicated to resiliency planning and implementation will support those response and recovery efforts that are in our future.