Federal fiscal uncertainty could erode states’ infrastructure funding options

 

By Donald C. Fry

Now that state lawmakers have passed legislation to raise an estimated $3.4 billion in new revenue during the next five years to address the state’s crisis in funding transportation infrastructure, the next transportation funding challenge looms not in Annapolis, but in Washington, D.C.

Maryland, like most states, relies heavily on federal funding to pay for at least half of its major highway and transit projects.

But the current federal transportation authorization legislation known as MAP 21, an acronym that ironically stands for “Moving Ahead for Progress in the 21st Century,” expires on October 1, 2014. After that, prospects for the long-term solvency of the federal transportation fund appear to be in serious jeopardy.

When it was passed in 2012, the MAP 21 bill was heralded as legislation that, with a budgeted total of $118 billion, would bring 27 months of much needed transportation funding certainty and program stability.

However, the Congressional Budget Office reported to Congress on April 24 that both the Highway account and the Transit account of the federal Highway Trust Fund will be insolvent in fiscal 2015.

With an abrupt ending forecast for federal transportation funding certainty and with federal sequestration in effect, the pressure in Washington is to decrease, not increase federal spending.

This would ratchet up fiscal challenges for Maryland and other states that already face other major issues that constrain state budgets.

Such issues include Medicaid spending growth that is crowding out other needs, underfunded state retirement promises, local government fiscal stress, and state budget practices that hinder fiscal stability and mask imbalances, Joshua C. Greene, a partner in Patton Boggs, the world’s largest public policy firm, told state lawmakers in February.

The federal Highway Trust Fund “no longer can serve as a source of capital for new infrastructure,” noted transportation expert Ken Orski said. “And funding large capital-intensive projects with current user-fee revenues no longer is feasible.”

Eventually, with diminishing capacities to finance costly, multi-year construction projects on a “pay-as-you-go” basis, states will increasingly finance such projects through long-term obligations and public-private partnerships, Orski forecasted.

Maryland, which just passed a transportation revenue increase, has vast transportation needs. The single top-priority projects in each of Maryland’s 23 counties and Baltimore City will cost more than $12 billion. There are billions more needed for other projects on local priority lists.

Meanwhile, transit system expansion projects are always beyond any state’s sole fiscal capacity.

For example Baltimore’s badly-needed Red Line – which would convert the region’s hodge-podge of disconnected rail transit into a comprehensive integrated system that would give our region’s commuters and citizens vastly upgraded transit options – is approved for $1.25 billion in federal funding, approximately half of the project’s cost.

Many other states are not waiting for Congress to address the uncertain federal funding issues and are enacting transportation revenue increases.

It’s important to remember, however, Maryland’s transportation revenue increase this year had little to do with fears of federal cutbacks in Washington. It was passed to begin addressing a more than $40 billion deficit in state funding for roads and transit resulting from 20 years of transportation funding complacency in Annapolis.

So, where does the projected uncertainty of federal transportation funding leave Maryland? Despite our elected leaders’ political courage in enacting an unpopular gas tax, it leaves us facing the need for new innovative thinking and public-private partnership investment.

Maryland’s just-enacted public-private partnership legislation, intended to nurture private-sector interest in funding infrastructure that is critically needed if our state is to retain an edge in the uber-aggressive competition for business growth, is an encouraging first step.

But legislation is only the first step. The financial plans and partnership deals will be the key.

More than ever, Maryland needs fresh, creative thinking in both the public and private sectors about non-traditional infrastructure-funding options.

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