A New Federal Approach to Transportation Funding

While still focused on transportation at the state level, the Council is highlighting a new and innovative idea at the federal level that not only seeks to solve transportation issues, but also encourages companies to reinvest in the United States

An immediate concern for Georgia is the dwindling resources to fund critical transportation infrastructure needs.   Resolving Georgia’s transportation needs by finding alternative solutions is a top priority for the 2015 legislation session.  The state is effectively seeking an estimated $1.5 billion in new revenue for transportation infrastructure. 

Georgia is contemplating solutions to aid in bringing in revenue for the next 20 years and beyond.  New revenue sources and methods of funding can potentially allow Georgia to keep up with the growing population by addressing issues related to road congestion, by increasing access to industry and economic development locations, and by reducing Georgia’s reliance on federal funding. While the General Assembly is currently considering several options,  a long-term plan is needed to help fund transportation infrastructure.

The state needs to address the transportation funding shortfall quickly and practically.  Georgia is home to the world’s busiest airport, the nation’s tenth largest road system, and the fourth busiest container port in the United States.  These strategic advantages give Georgia the ability to create jobs and attract new businesses.  We primarily fund our transportation needs by the state motor fuel tax and federal funds.  Despite the robust growth that the Atlanta Region and the state of Georgia as a whole have experienced over the past decade, Georgia has maintained one of the lowest levels of motor fuel taxation in the nation.

According to the Georgia Department of Transportation (GDOT), the 2014 fiscal year motor fuel budget was $1 billion.  GDOT also received roughly $1.2 billion annually in federal funds, which is roughly 54 percent of GDOT’s annual budget.  By comparison, federal funds comprise only 27 percent of Florida’s budget.  The 2015 fiscal year budget Georgia transportation funding breakdown is as follows:

  • Capital Construction Projects
    • o   State Matching Funds: $2.3 billion (24 percent of the program’s budget)
    • o   Federal Funds: $6.2 billion (76 percent of the program’s budget)
  • Capital Maintenance Projects
    • o   State Matching Funds: $60 million (32 percent of the program’s budget)
    • o   Federal Funds: $1.2 billion (76 per cent of the program’s budget)

As you can see, the reliance on federal funds creates numerous challenges in meeting Georgia’s transportation needs.  As Americans are driving fewer miles each year in cars that are more fuel efficient (cars that do not require gasoline or diesel), the heavy reliance on motor fuel taxes has created a long-term funding challenge.  Commuters have grown to demand more fuel efficient cars, more transit and ride-sharing options, and businesses have expanded the ability of workers to work remotely or from home.  All these options have made sustaining the previous level of revenue impossible.

These trends have occurred over a period in whichthe federal government has not raised gasoline and diesel taxes since 1993.  Indexing the motor sales tax may be a viable option.  Over the last decade, Florida has met their system maintenance and expansion obligations by indexing the motor sales tax, resulting in a net increase of $4.5 billion.

According to GDOT, Georgia currently ranks 49th in terms of state spending per capita on roads; therefore more state investment in transportation is needed.  Road congestion on major highways costs the state billions each year in lost productivity.  These problems are only expected to grow as Georgia continues to experience rapid population growth.  Georgia’s current infrastructure investment significantly constrains the state’s ability to meets its obligations over the next twenty years.  The funding gap is seriously expanding with projections totaling $86 billion, leaving a $74 billion unfunded balance.

Since State gas tax revenues can only be spent on roads and bridges as required by the Georgia Constitution, any state transit expenditures must come out of the State General Fund.  This fund receives revenues through the sale of general obligation bonds and Grant Anticipation Revenue Vehicle, (GARVEE) bonds, and through partnerships with local governments in state-funded projects.  The development of new toll lanes could help facilitate and help expand infrastructure improvements but this alone is not enough.

Another tool in the toolbox is a solution which incentivizes infrastructure bonds.

This has been introduced by Maryland’s 6th District Congressman John Delaney is the Partnership to Build America Act.  The idea has strong bipartisan support for proposing financial legislation to help provide capital for rebuilding our country’s transportation, energy, communications, water, and education infrastructure.  The Partnership to Build America Act could potentially leverage $50 billion to provide up to $750 billion in loans and guarantees effectively establishing the American Infrastructure Fund, or AIF.

Rather than using appropriated funds out of the federal budget, the Partnership to Build America Act uses a bond sale.  U.S. corporations would be incentivized to purchase these Infrastructure Bonds by allowing them to repatriate a certain amount of their overseas earnings tax free.  Repatriation is the act of an individual or company bringing foreign capital into a home country and converting it to the domestic currency.  An individual or company who repatriates capital is usually converting foreign earnings (returns on foreign investment) into their home country’s currency.

Domestic corporations are frequently taxed on the profits that they repatriate, a factor enticing the firms to leave their profits overseas.  A similar tactic was used in the passing of the American Jobs Creation Act in 2004, where a repatriated tax break allowed foreign earnings to be taxed at a rate of 5.25%, significantly lower than the usual corporate tax rate of 35%.

For every dollar invested in the bonds, assuming a 1:4 ratio, a company repatriates $4.00 tax-free for every $1.00 in Infrastructure Bonds purchased.  The $4.00 can be spent by the companies however they choose.  The aforementioned leverage potential of $50 million and providing up to $750 million in loans or guarantees is a 15:1 ratio.  The financing would foster more Public-Private Partnerships which at least 25% of the projects financed through the AIF must meet the public-private partnership model. The Partnership to Build America Act upgrades America’s crumbling infrastructure. 

There are several individuals who agree this bill can upgrade the infrastructure.  Senators Michael Bennet (D-CO) and Roy Blunt (R-MO) introduced this piece of legislation in the upper chamber in January 2014, with bipartisan support.  Fast forward to the third week of January 2015, Congressman Delaney filed the bill ahead of the President’s State of the Union to make it clear new policy remedies bringing both parties together is feasible.

The Partnership to Build America Act could help fund Georgia’s infrastructure

The benefits of the Act are outlined below:

  • A creation of a large-scale infrastructure financing capability with zero federal appropriations
  • A creation of jobs short-term and helps the U.S. remain competitive from a transportation perspective
  • Allows for repatriation of overseas earnings and tax savings
  • Allows for U.S. Corporations to help the economy grow jobs
  • Encourages and creates a framework for growth in public-private partnerships
  • Allows for state and local governments to project decisions

The American Society of Civil Engineers gave the current state of the U.S. transportation infrastructure a grade of D+.  Congressman John Delaney and Congressman Mike Fitzpatrick wrote, the legislation would create an infrastructure finance entity, capitalized by $50 billion from the private sector in exchange for a tax break on repatriated earnings, which can be leveraged to provide $750 billion in infrastructure financing in transportation, water, energy, communications, and educational facilities. This will make it cheaper for states and local municipalities to finance their infrastructure projects.

An innovative solution, like Partnership to Build America Act, is potentially what is needed as another tool in the tool box to help fund Georgia’s infrastructure funding issues.  A federal option, outside the Highway Trust Fund, could help alleviate the burden felt by motorists who end up paying for toll lanes.

Ultimately, a larger role will be placed on states to help fund transportation improvements but taking action now and passing this Federal legislation can facilitate economic change by helping transform our transportation infrastructure.  Funds will be disseminated down to the state and local level which potentially can help alleviate the funding gap issues Georgia will be experiencing in the future.  

Another tool in the toolbox such as this will help Georgia obtain the resources to better handle highway congestion.