- Overview
- Summary of 2002 Transportation Funding Ballot Measures
- The Shift Toward Voter-Approved Measures
- Table 1: 1957 State Motor Fuel Taxes Adjusted for Inflation to 2002 
- Table 2: Trend in Selected Revenue Sources for Transportation Features
- General Evaluation Criteria for Local Transportation Funding Measures
- Table 3: States with Constitutional or Statutory Provisions Restricting Expenditure of State Gasoline Tax Revenues to Highways
- Evaluating Five Transportation Funding Measures in Depth
- Recommendations

Overview: .

Voters across the country are increasingly being asked to approve new funding measures for transportation at the polls. In 2002, as many as 41 transportation measures appearing on the ballot could — if approved — be worth as much as $117 billion in new funding over the next 20 years. This emerging trend marks a significant shift in the traditional method of financing transportation projects and programs – away from legislatively-approved user fees (e.g. gasoline taxes) and towards voter-approved general revenue taxes (e.g. sales taxes, general fund budget revenues, bonds, etc.). The move towards voter-approved transportation financing is found to be a product of two trends: (1) the reluctance to increase traditional "user fee" revenues, especially state gasoline taxes that have failed to keep pace with inflation; and (2) the demand for more public transit projects which are difficult to finance from traditional user fees.

This report places these ballot measures in the broader context of transportation finance, recognizing that each of these funding measures varies greatly in terms of effectiveness, equity, balance, and ability to meet stated goals. The report also sets forth five criteria to help voters and policy-makers evaluate pending and future ballot measures through an in-depth review provided by five case studies. The report recommends (1) broader public involvement in the initial development of transportation ballot measures, (2) an end to the "trust us" approach of failing to specify projects or dedicate locked-in funding categories, (3) the elimination of restrictions on the expenditure of state gasoline taxes on public transit, and (4) more emphasis on coordinated land use planning and growth management as part of larger transportation ballot measures. Further recommendations are made for improving the content, consistency, accountability and overall public support for future transportation financing measures presented to voters.

Next year, Congress will debate the reauthorization of the federal surface transportation law, known as TEA-21, a law that increased federal funding commitments to state and local governments by more than 45 percent. While the substantial growth in federal investment under TEA-21 is a matter of record, recent efforts by state and local governments to increase transportation funding are much less described and understood. This report is intended to provide some insights into what is now occurring at the state and local level — where roughly three out of every four transportation dollars nationwide are now raised — by examining selected funding measures that are appearing before voters. .

These funding measures provide a glimpse into the changing alignments governing how the nation’s transportation infrastructure needs are financed, contradicting popular assertions that users pay for all the improvements to these systems. While some observers assert that the nation’s surface transportation infrastructure is funded by "user fees" – taxes on fuels, tires, vehicle sales, registrations, etc. – the reality is that these systems are only partially funded by users of the system. This report shows that there is now a trend away from user fees, where direct users in the future may carry even a smaller share of the costs of maintaining and expanding our transportation systems. Of the 41 transportation funding measures on the ballot this year, only four attempt to increase state taxes on users, with all of the other measures proposing to increase general taxes directly or indirectly in support of future transportation improvements. .

The financing of our nation’s transportation system relies on a complex arrangement of user taxes and fees as well as general fund taxes that, collectively, underpin the expansion and maintenance of our nation’s bridges, highway, street and sidewalk networks and our public transportation systems. Prompted by the growing number of ballot measures appearing before the voter in 2002, this report examines some of the trends in transportation finance to provide some context for voters in reviewing pending ballot measures as well as for policy-makers at the federal and state level who next year will be considering new financial commitments to transportation infrastructure

The Shift Toward Voter-Approved Measures .

The 41 transportation funding measures on the ballot in 2002 are evidence of a new trend away from asking direct users of the system to finance future infrastructure needs. This shift towards an increasing prevalence of voter-approved local tax and bond measures and a declining reliance on so-called user fees needs to be more closely examined and analyzed by transportation interests. Overall, there appear to be two main reasons for this trend:

· The growing reluctance to increase traditional transportation user fees such as state motor fuel taxes; .

· The growing popularity of public transit which is difficult to finance through traditional "user fee" methods like state motor fuel taxes. .

Table 1 shows the relative purchasing power of federal and state motor fuel taxes, adjusted for inflation, over the last 35 years. Interestingly, federal fuel tax rates have outpaced inflation over time, while state fuel tax rates have fallen substantially behind, by about 50 percent.

To illustrate this point during the most recent five-year period, Table 2 shows revenue growth for federal and state motor fuel taxes during the period 1995-1999. It is noteworthy that revenues from state fuel taxes largely follow driving rates, as measured by vehicle miles traveled (VMT). The growth in federal revenues – nearly seven times the growth in VMT – reflects the 1998 Congressional commitment to increase transportation spending under TEA-21. This suggests that while federal commitments were rising, state governments – both governors and legislators – generally chose not to increase motor fuel taxes in support of transportation investment. In fact, after TEA-21, only six states increased their gasoline taxes faster than the rate of inflation – most didn’t increase gas taxes and five states actually decreased them. At the same time, the growth in non-user fee revenues outpaced even the growth in state motor fuel tax revenues.

Since state governments have been reluctant to pursue increases in traditional transportation user fees, local governments have been forced to turn to the general taxpayer – and often the voter – to support transportation infrastructure. Historically, local governments have not been given access by their states to user fees, such as motor fuel taxes, to finance transportation improvements. In addition to the difficulty local areas confront in gaining access to user fees, many state constitutions and statutes limit the expenditure of transportation user fees for anything other than highway improvements (see Table 3). In light of this development many local officials are asking state governments to open up state gasoline tax revenues and transportation trust funds for use on public transit and other local transportation projects. There is an increasing belief that states should not continue to sequester state transportation trust funds for their own uses, excluding the legitimate transportation needs of local governments, while asking local governments for additional project funding for the state system.

In many markets, particularly urbanized areas, local decision-makers have also not been receiving their "fair share" of revenues from the user fees that are generated in their areas, as state allocation decisions over both federal and state funds often move resources disproportionately to other parts of their respective states or state policies work against local control over project selection when resources are provided. As a result, localities are forced to turn to the general taxpayer and general taxes to support additional highway and street investment – including some state-owned roadways –as well as for alternative transportation investments, such as public transit. The transportation funding measures appearing before voters in 2002 animate these circumstances, as local officials seek increased local funding support for transportation. The pending measures also underscore the view that increased investment in public transportation is seen as a high priority all across the nation.

The longer term implications of this growth in local transportation ballot measures are significant, and ominous. If states are not willing to address the need to increase state gas taxes to fund projects, including public transit, and continue to shift the burden to local property, sales and general taxes, they will displace resources needed to fund other core functions of local government—schools, police, fire protection, parks and recreation etc. This report seeks to call attention to these developments in transportation finance and invite discussion on its longer-term implications.

General Evaluation Criteria for Local Transportation Funding Measures

This analysis of 41 transportation funding measures initiated across the country in 2002 seeks to provide voters some guidance on how to evaluate them for their effectiveness, equity, and balance. The measures on the ballot, if approved, could raise as much as $117 billion for transportation projects and operations over the next 20 years. This report poses the following questions to evaluate the measures:

(1) Where Will the Revenue Come From?

The source of revenue for transportation funding measures is becoming a critical question for transportation financing in general and local voter-approved measures in particular. While traditional "user fees" such as gasoline taxes promote more efficient use of the transportation system, their popularity appears to be waning among state policymakers. While federal gasoline taxes have kept pace with inflation since 1957 (just after the inception of the Interstate highway program), state gasoline taxes have not. Local sales taxes and other sources, including bonds, are increasingly being used to finance local transportation projects and, in effect, help offset the shortfall in state gasoline tax revenues. While sales taxes and gasoline taxes are regressive, both also have inherent advantages and disadvantages. Sales taxes are increasingly popular in part because they are far more flexible than gasoline taxes and can fund public transit operations. So-called GARVEE bonds are a newer innovation that promise future transportation revenues as payment for retiring bond debt – unfortunately they have negatively impacted state transportation budgets, and should be avoided until significant structural flaws in the financing mechanism can be worked out.

(2) How Will the Revenues Be Spent?

How revenues from a transportation funding measure are spent is typically the most controversial aspect of any financing effort. Local funding measures – particularly sales taxes – are often the most flexible source of funding for public transit operations. The public and many interest groups respond well to both a balance of projects – with a strong emphasis on public transit in metropolitan areas – along with an assurance that the money will be spent on specific projects or program types. Voters must also consider whether revenue is tied to specific projects or programs. The "trust us" approach of failing to specify either project or program categories is far from ideal. A significant problem on the expenditure side is the lack of ongoing maintenance and operations funding for both road and public transit, and the frequent absence of any land use planning criteria or incentives for local growth patterns that will protect the public’s infrastructure investments. San Mateo County, California, presents an excellent case study in the use of transportation funds as incentives for better land use thereby reducing future needs for costly new transportation infrastructure.

Third-party monitoring is critical to ensure that transportation agencies and taxing authorities are accountable to users of the system and to their fiscal sponsors. Oversight committees should include a broad representation of agency staff, elected officials, stakeholders, interest groups and users of the system (the disabled, senior citizens etc.). Performance measures should be built into the funding measures to gauge the effectiveness of projects and programs in attaining public goals such as mobility, safety, air quality improvement, and traffic congestion relief. Sunset clauses to limit the life of the funding measures and require winning renewed support from voters after 10, 20 or 30 years also adds additional accountability assurances.

(4) How Do Proposed Projects Relate to Existing Plans and Processes? .

Projects and programs funded via transportation ballot measures must reflect, rather than bypass or ignore, the planning process and existing plans. Under ISTEA and TEA-21, regions and states must produce continually updated short-term and long-term transportation plans. These plans run the gamut from a wish-list of projects, to detailed descriptions of proposed infrastructure changes or additions, including an analysis of those proposed projects’ impacts on regional air quality.

Projects or programs contained in ballot measures should relate to and reflect those existing plans or processes. While ballot measures serve as an important mechanism by which citizens can voice their opinions about what the state or region’s transportation system should look like, the authors of such measures must consider the plans already in place. Failing to do so could have detrimental impacts on agency budgets and efforts to improve mobility, safety, or air quality.

(5) Is the Proposed Initiative at the Appropriate Level of Government? .

Finally, the voter must consider whether the proposed project or program will be administered at the appropriate level of government. Regional planning has gotten somewhat of a boost within recent legislation. Transportation problems and needs, like so many other issues today, no longer follow the political lines and boundaries that were established hundreds of years ago. While regions vary throughout the country, they are typically comprised of a traditional urban core and its multiplicity of outlying suburbs – often also encompassing several counties.

The federal transportation funding laws, ISTEA and TEA-21, greatly strengthened the regional transportation planning process. Those laws gave Metropolitan Planning Organizations (MPOs) increased funding and expanded authority to select projects and mandates for new planning initiatives in their regions in an effort to ensure that the transportation infrastructure would reflect regional needs and land use patterns. While a regional approach to transportation planning may be imperfect, it is no doubt an improvement over state-driven programs, which often don’t reflect regional needs. A regional approach is also sometimes an improvement over a purely locally-based method, which may not be coordinated with other regional projects or goals.

Evaluating Five Transportation Funding Measures in Depth

In addition to an overall analysis of historical trends and a snapshot of 2002 transportation-related ballot measures, this report analyzes five measures in greater detail to illustrate how they could be evaluated for effectiveness, equity, and balance. The five were selected based on geographical distribution (one in the West, one in the Northwest, one in the South, one in the Midwest and one in the Mid-Atlantic region of the U.S.), scope (two statewide, one regional, two local), and anticipated impact. Of the five chosen for in-depth analysis, Alameda County’s Measure B transportation sales tax was approved in November 2000 and Missouri’s Proposition B was rejected by voters in August 2002. The three remaining measures — the Miami-Dade County sales tax in Florida, Referendum 51 in Washington State, and northern Virginia’s regional sales tax referendum – will all appear on the ballot November 5, 2002. Initial findings once the five evaluation criteria are applied to the measures can be summarized as follows:

(1) Alameda County, California: the passage of Alameda County’s Measure B sales tax in November 2000 presents a useful yardstick by which to judge other financing measures. Though using a more regressive sales tax, great care was taken to ensure that the measure’s programs benefited lower income residents by dedicating one-third of revenues to public transit operations. Additional dedicated funding categories provided revenues for bicycle and pedestrian safety, land use incentives, local street and road repair, and new public transit and highway capital projects. The eventual measure won a rare show of unanimous support from a broad range of stakeholders and the public took notice, approving Measure B with 81.5 percent support.

(2) State of Missouri: the failure of Missouri’s Proposition B in August 2002 by nearly a 3-to-1 margin was seen as a rejection of a poorly assembled plan that amounted to an effort to pay down previous funding obligations. The proposition would have set aside 13 percent of its funding for public transit and other "multimodal" measures, an amount that critics and many voters felt was too little to make much of an impact. The measure would have increased the state gasoline tax by four cents and the state sales and use tax on vehicles by a half percent. The general sales tax would have generated about 60 percent of the total revenue for the measure. The measure also failed to devolve much of its revenues down to the regional and local level and asked the voters to believe in the "trust us" approach.

(3) Miami-Dade County, Florida: a half cent sales tax measure on the November ballot will fund a variety of transportation projects including rail transit, bus transit, road repairs, highway widenings, sidewalks, bikeways and neighborhood-based improvements. The measure grew out of a unique and impressive community-based effort to identify the most pressing transportation problems countywide.

(4) Northern Virginia: the sales tax referendum appearing on the November 5th ballot has been broadly debated on many if not all of this report’s evaluation criteria. Among these are the failure to lock in dedicated funding streams (i.e. almost half of the funding follows the "trust us" approach), the lack of any provision for performance measures or coordinated land use planning, and the problems that a subregional measure poses for the plans and processes already in place at the regional level – particularly for the entire region’s air quality conformity.

(5) State of Washington: Though drawing from a variety of revenue sources, including a heavy reliance on user fees, Referendum 51 has drawn vocal opposition from a broad cross section of public interest groups for failing to spend enough of its funding on a wider range of transportation choices. The groups are asking for at least one-third of the measure’s funding to be dedicated to transportation choices (public transit and other alternatives to solo driving) and a greater focus on traffic safety projects. Other analysts point out that the measure is almost exclusively focused on capital projects influenced more by politics than sound policy, with little funding included for project maintenance or repairs.

While a total of 41 transportation funding measures are appearing on the ballot in 2002, the ones selected provide a great deal of insight into the trends and issues that prove to be consistent throughout each.

Recommendations

While local transportation funding measures will vary widely according to the different transportation needs of any given region or state, the following seven recommendations can provide an important guide for improving the content, consistency, accountability and overall public support for future transportation financing measures presented to voters.

(1) Make Traditional User Fees – Especially State Gasoline Taxes – More Flexible: As of 2002, 30 states have prohibitions in their state constitutions or statutes on the expenditure of state gasoline taxes on public transportation services. These restrictions are arcane, outdated and are a large part of the reason voters are turning to ballot measures to help fund public transit.

(2) Index Gasoline Taxes to Inflation: If politicians are unwilling to raise gasoline taxes, states need to begin indexing gasoline taxes to at least match the increase in the consumer price index. Gasoline taxes may not play the dominant role in raising transportation revenues that they once did, but they should be maintained as an important part of the "user fee" financing structure.

(3) Develop New User Fees to Supplement Gasoline Taxes: While gasoline taxes are important in terms of being a "user fee," it’s clear that their purchasing power and their political viability are eroding quickly. New forms of user fees must be developed as a means of providing additional transportation revenues and maximizing economic efficiency in the use of the transportation network. Possible user fees include road and bridge tolls, congestion pricing charges, a "vehicle miles traveled" (VMT) fee based on the distance driven, and energy taxes on vehicles with minimal fuel efficiency.

(4) Avoid the "Trust Us" Approach: One of the biggest problems that both stakeholder groups and many voters have with local financing measures is that they necessitate a basic trust of government and public agencies. One way to get around this mistrust is to end or discourage the practice of allowing large parts of funding measures to be left unaccounted for until after the election. At the very least, funding measures should specify specific program categories and purposes that funding will be distributed among. Measures should also contain performance measures and statistical analysis to substantiate promised benefits.

(5) Require Greater Stakeholder Involvement: Stakeholders and members of public interest groups should be closely involved in the development of transportation funding measures early on. An additional mechanism to ensure ongoing public involvement and encourage the trust of the voters (and the good will it takes to return to the voters in subsequent elections) is to establish citizen oversight committees that consist of both citizen appointees as well as specific interest groups. A good model is Alameda County’s Measure B approved in 2000 that contained both a citizen advisory committee as well as a citizens’ watchdog committee.

(6) Apply a Social Equity Test for Non-User Fees: Since general fund revenues are typically spent on health care, education and other social service programs, voters and officials must apply an "equity test" for non-user fee financing of transportation. The simple question is "who benefits and who pays?" In the case of poorer families paying sales taxes, it stands to reason that poorer families should also benefit from the programs and projects in the tax expenditure plan.

(7) Encourage or Require Land Use Incentives in Funding Measures: The missing component of all too many transportation financing measures is growth management and land use. Additional transportation investments will do nothing to meet future transportation needs if growth pressures and land use decisions are not closely coordinated. This must become a routine component of any responsible transportation finance measure and can help win additional voter and stakeholder support.

This year’s transportation funding measures appearing on the ballot mark a significant shift in how the nation’s transportation infrastructure needs are being financed. While some form of user fees (e.g. gasoline taxes) will continue to play an important role in transportation finance in the near future, the trend towards voter-approved measures looks to be only getting stronger. It is vital for transportation interests and decisionmakers to understand why this trend is happening, to do what they can to improve the content and consistency of the measures in terms of integrating them with existing transportation plans and processes, and perhaps most importantly re-orient traditional state and federal funding sources towards better supporting the trend toward better transportation choices.