Donald Fry: Transportation trust fund or slush fund?

By Donald C. Fry

Historically, Maryland’s economy and culture have been shaped by transportation.

Maryland has traditionally capitalized on its mid-Atlantic location and deepwater inland access to the high seas. This is where the American railroad was born in the 1800s to efficiently move goods and people from our port to the Midwest.

Maryland has always been a state through which much of the nation’s commerce flowed, where businesses thrived as a result, and where transportation has been a central element that defined our state’s economic competitiveness and quality of life.

So how is it that, during the last two decades, Maryland’s elected leaders have paid so little attention to such a vital resource — Maryland’s transportation infrastructure?

And, with the state already facing an estimated $80 billion backlog of planned highway, transit, port, and airport projects not yet funded for construction, why are state fiscal analysts currently proposing to permanently divert $60 million annually from Maryland’s already depleted Transportation Trust Fund to the state’s general operating fund?

The answer is, frankly, that Maryland’s leaders appear to have taken for granted our state’s historically superior transportation resources, and the pot of money that funds them. Two key factors have contributed to decades of institutional inattention to the Transportation Trust Fund’s long-term fiscal health.

First, lawmakers have been unable to muster the political will to increase the state’s 23.5 cents-per-gallon tax on gasoline and the 24.25 cents-per-gallon tax on diesel fuel since 1992, when they last adjusted gas tax rates. In the 21 years prior to that, gas tax rates were increased five times. Motor fuel taxes are the single largest source of revenue to the Transportation Trust Fund.

Nor have lawmakers been able to index the gas tax to inflation, though there were unsuccessful attempts in the General Assembly in 2000, 2007, and 2009 to do so. In 2009 there were also unsuccessful legislative attempts to increase the gas tax by 5 cents per gallon. 

In 2004, lawmakers increased vehicle registration fees to raise an estimated $166 million annually. In the 2007 special session, they passed a measure that earmarks 6.5 percent of sales tax revenue for the Transportation Trust Fund. It was the major element in a package that also included increases to corporate income taxes, vehicle excise taxes, and vehicle titling fees intended to generate a combined $400 million in new revenue annually to the fund.

However, the Transportation Trust Fund has yet to realize the full benefits of that 2007 sales tax allocation, largely due to the second major factor that has contributed to the fund’s current state of fiscal distress — the long-standing penchant in Annapolis for “raiding” it.

Only months after the 2007 special session, the 2008 General Assembly decided to compensate for revenue lost due to its repeal of the computer services tax by reducing the Transportation Trust Fund’s share of sales tax revenue to 5.3 percent until FY 2014, when it is scheduled to revert back to 6.5 percent. This shifted approximately $250 million to the General Fund over five years.

Now, the state’s Department of Legislative Services suggests that lawmakers make that revenue reduction permanent, yielding the General Fund an estimated $60 million annually after 2014 from revenue previously designated for the transportation fund.

Should lawmakers enact this proposal, it would be at least the 12th time during the last 26 years that Transportation Trust Fund revenues have been legislatively transferred to the General Fund.

Most of the almost $600 million in transfers since 1984 were enacted to close operating budget shortfalls. While much of the funding transferred before 2004 was eventually paid back to the trust fund, $127 million was not, state records show. The 2008 revenue transfer and the one currently proposed would be permanently lost to the fund.

A perplexing irony is that transferring Transportation Trust Fund revenue to the General Fund takes money from a transportation resource that has experienced only a 3.2 percent average revenue growth since 2000 and gives it to a fund that has enjoyed twice that rate of growth.

This is precisely why the Greater Baltimore Committee has repeatedly called for some kind of a firewall to protect transportation funding from such raids and will support firewall legislation again this year. 

In the long term, we clearly need to figure out how to structurally strengthen Maryland’s transportation funding. And when we do, voters must have absolute confidence that money earmarked for transportation will not be siphoned off for other uses. That’s why it would be smart for lawmakers to stop the fiscal raids now. 

It’s a counterproductive habit that our state leaders must break. They must find a way to make the state’s Transportation Trust Fund a true “trust” fund instead of a slush fund.

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