The Palmetto Insider

The blog of the South Carolina Policy Council

Road Maintenance Fund Reduced by 25 Percent

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Last week, we detailed how the House budget will shift $15 million in insurance funds to an airline incentives program – and another $10 million to bail out a private, for-profit golf tournament (the PGA Tour’s Verizon Heritage).

As the Policy Council continues its budget analysis, we want to highlight another instance of raiding state funds to pay for General Fund and other spending. This time it’s transportation dollars.

The proviso in question is 90.17, and it transfers $10 million from the Non-Federal Aid Highways Fund to the General Fund.

What is the purpose of the Non-Federal Aid Highways Fund? Maintenance of roads not eligible for federal grants.  That is about half of the roads in South Carolina.

What will happen if this fund (typically around $39 million) is depleted by $10 million – or 25 percent? Fewer roads will be maintained.

The transfer raises some interesting questions about the potential ramifications of a new bill (4033) recently passed by the House. The proposal would authorize the creation of public-private partnerships (PPPs) to build and maintain roads in South Carolina. The Policy Council explains the pros and cons of the bill in a new legislative fact sheet.

In short, PPPs offer an opportunity to leverage private capital while reducing costs for taxpayers. More than half the states have implemented PPPs, which have functioned as a tool to fund roads that typically go unfunded and unbuilt.

First, under a PPP approach to building and maintaining roads, maintenance will become more of a priority.

The current approach – which seems to de-emphasize maintenance in order to obtain short-term savings – has proven costly to taxpayers.

Private investors, however, see things differently. Private entities that have a lengthy lease on a road – and a profit motive behind the project – will be incentivized to ensure the road is kept in great condition. This maximizes users and tolls.

Second, privatizing the road building process will cost taxpayers less.  But what to do with all that “excess” revenue?

If this year’s House budget is any indication, lawmakers will spend it by using highway dollars to fill budget gaps. But this is not the purpose of PPPs. And it is not the purpose of the Non-Federal Aid Highways Fund.

The Non-Federal Aid Highways Fund is essentially made up of revenue from the gas tax and various fees and licenses. By transferring $10 million out of this fund the General Assembly is assuming the fund can already cover such repairs and other needs. Which means the fund is … well, overfunded.

Put more simply:

The Non-Federal Aid Highway Fund is partially funded through taxes and penalties collected by the DOT. This money is supposed to be used for road maintenance. But if the money is not being used for this purpose, then shouldn’t these taxes and fees be reduced?

Likewise, if the state moves forward with transportation reforms that reduce the cost of building roads, shouldn’t the savings be refunded back to taxpayers?

Whose money is it anyway?

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Written by Geoff Pallay

March 23, 2010 at 1:19 pm

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