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Kicking the can down the road on highway funding

photo of coeur d'alene road construction

A road construction project in Coeur d’Alene. File photo

When it comes to roads, Idaho is both big and small.

Geographically, Idaho is big, which means it needs a lot of roads. But by population, Idaho is small, which means there aren’t many people to pay for the roads.

As the many articles about “America’s crumbling infrastructure” can attest, this isn’t a problem limited to Idaho.

Matt Stoll

“Existing funding is outdated, antiquated and not sufficient,” said Matt Stoll, executive director of the Community Planning Association of Southwest Idaho (COMPASS), the metropolitan planning organization for Ada and Canyon Counties. The organization projects that by 2040, those regions will be home to 1.02 million people.

Maintenance backlog

Roads require several types of funding. Building a road in the first place requires capital funding, but maintaining a road – ranging from street sweeping to plowing – requires maintenance or operational funding. And while maintenance can be put off for a while, you can only kick that can down the road, so to speak, for so long before it becomes more expensive, ultimately requiring that the road be replaced.

In 2008, ITD released a study indicating that Idaho’s road maintenance backlog amounted to $240 million per year. Gov. C.L. “Butch” Otter tried several times to increase road funding, such as by raising the gas tax, but the Legislature voted down several attempts. In 2015, the Legislature eventually agreed up a $.07 increase in the gas tax. The total now is $.33 per gallon, the seventh-highest in the U.S., according to the Transportation Investment Advocacy Center.

More recently, COMPASS has determined a $235 million shortfall per year – including shortfalls in public transit – just for Ada and Canyon counties, between now and 2040, Stoll said.

With the good economy, which has resulted in a number of budget surpluses for Idaho, the Legislature also imposed a “surplus eliminator” for about four years. As much as half of the budget surplus from each year was targeted toward roads, for a total of about $100 million. However, that surplus eliminator was sunsetted, or expired, this year, and the Legislature didn’t renew it.

The size of the maintenance backlog isn’t clear at this point. While money has been applied to it for several years from the surplus eliminator, at the same time new maintenance needs keep accumulating and construction costs have been rising. Altogether, about 27% of the backlog has been addressed, Drake said.

photo of wayne hammon

Wayne Hammon

A number of organizations, including the Associated General Contractors (AGC), are partnering with Boise State University’s Idaho Policy Institute to update the figure. The report is due in June 2020, said Wayne Hammon, AGC CEO.

Gov. Brad Little is also waiting for the results of that study before he starts planning to improve transportation funding.

“Gov. Little has said we need to move people and commerce as safely and efficiently as possible,” said press secretary Marissa Morrison, in an email message. “Gov. Little is taking the time to truly study Idaho’s transportation funding structure and identify where we need to make investments that help communities across Idaho.” He will work with the legislature to formulate a plan after the study is done, she said.

Idaho road funding facts 

Much of the road funding in Idaho is paid for by the people who drive, whether it’s through gas tax or registration fees, which are imposed by both highway districts and the state.

Some of the gas tax is collected by state government, and some is collected by the federal government, which then returns it to Idaho.

In fact, Idaho gets more money back from the federal government toward roads than it contributes in gas tax, about $1.06 back for every $1 it pays in. That makes Idaho a “donee” state, as opposed to “donor” states such as California, which are guaranteed to get at least 95% back of what they put in, said Joel Drake, Idaho Transportation Department financial manager. However, the law that governs that distribution is a five-year act set to expire in September 2020, so things could change.

In recent years, the federal government has had to add funding because the gas tax hasn’t been enough, Dave Tolman, ITD controller, said.

“Because the Federal Highway Trust Fund does not receive as much as it is paying out, Congress has authorized general fund transfers,” he said. “Everybody is a recipient beyond what they’re paying in on fuel tax.”

Part of the problem is that the federal gas tax hasn’t been increased since 1993, Stoll said.

“Your national deficit is increasing partially because we’re unwilling to actually make the user tax fund itself.”

Altogether, a little more than half of highway funding comes from state sources, Drake said.

Highway agencies

Altogether, Idaho has nearly 300 separate highway jurisdictions, including cities, counties and individual highway districts, said Laila Kral, deputy administrator for the Local Highway Technical Assistance Council (LHTAC).

“We have an extraordinarily large number of highway districts,” Hammon of the AGC said. “Some of it is just geography, with all these little tiny districts out in the middle of nowhere.”

They were likely formed by local “bootstrap” people with the mentality “If nobody will fix our roads, we’ll fix it ourselves,” Hammon said. “But that was a hundred years ago and now they’re stuck with 7 ½ miles of road.”

Local jurisdictions are funded through the highway distribution account, which is funded by gas tax and registration fees, Kral said. ITD receives the money because it is a state agency, and then distributes 40% of it to the highway districts, she said.

“The local highway jurisdictions are responsible for submitting a local road inventory, and that is part of the formula,” she said. “It’s complicated, and a lot goes into it.”

Cities and counties can also use property taxes to raise money for roads. In addition, counties with a large amount of non-taxable federal land in them receive additional money from the federal government, known as Payments In Lieu of Taxes (PILT), Kral said.

“One thing that surprised me is how much property tax goes into roads,” Hammon said. Cities, counties and highway districts subsidize road programs because they don’t get enough from the fuel tax, he said.

Ada County Highway District is the only highway district that can raise its registration fees, Kral said. However, that requires voter approval. For example, in 2018, ACHD attempted to raise registration fee rates by an average of about $18 per vehicle, but it was rejected by a 57%-43% margin.

And while ACHD has its detractors, President Rebecca Arnold pointed out that things weren’t great beforehand.

“That’s one of the reasons ACHD was formed: People were not happy with the state of the roads,” she said. Voters chose the county-wide system in 1971 by a wide margin, she said.

Road maintenance rules

How a road is built and maintained depends on the agency responsible for it. As a rule of thumb, if a road is identified by a number – 95, 15, 84, 20/26, 55 – it’s managed by the Idaho Transportation Department (ITD). Local roads are managed by myriad local agencies, ranging from highway districts – some as small as 8 miles – to cities and, in one particular case, an entire county.

Federal money comes with strings, such as complying with the Davis-Bacon Act of 1931 regarding wages and other restrictions, said Rep. Joe Palmer, R-Meridian, chair of the House Transportation Committee. In fact, he said he’d be fine getting no federal money at all if it would mean not having to comply with the federal restrictions.

“It costs more to file the paperwork than the job is worth,” he said. “You need a full-time accountant to fill out the paperwork.”

Other funding sources

Idaho has used several other ways to raise money for roads.

  • Impact fees: Cities and counties can charge “impact fees” on new construction, which are predicated on the number of vehicle trips the new construction is intended to generate. On the other hand, ITD doesn’t have impact fee authority, and a number of the entities that could charge impact fees don’t do so, Stoll said.
  • STAR: Limited to commercial construction, State Tax Anticipation Revenue lets a developer fund road improvements that the new commercial construction needs, and the developer is paid back over time using the sales tax generated by the new commercial construction. For instance, expansion on Chinden from Linder Road to State Highway 16 is being paid for by Costco, the Village in Meridian and Cabela’s in Post Falls.
  • GARVEE: In 2005, Idaho began using Grant Anticipation Revenue Vehicles to help fund new roads, such as expansion of Highway 84 in the Treasure Valley and expansion of I95 in North Idaho. Basically, the state borrows against the gas tax money it expects to get from the federal government, builds the new roads and pays it back when the gas tax money comes in. But while GARVEE has been a great resource, it’s based on the Federal Highway Trust Fund, which is going insolvent, Stoll said.
  • Foregone funding: Government entities, including highway districts, are limited to raising property taxes by 3% per year. Districts don’t always take the full amount, but they are allowed to bank the increase and take it at a later time, known as foregone funding. For example, the Ada County Highway District has $12 million in forgone funding, said Kent Goldthorpe, District 4 commissioner. The district considered taking it in 2017, due to flooding on the Boise River.

Technology costs and benefits

As technology has improved and emissions standards have tightened, vehicles typically use less gas. Hybrid vehicles use even less, and fully electric vehicles don’t use any at all – a boon for the environment but a challenge for transportation revenue. At the same time, more-efficient vehicles aren’t necessarily easier on the roads.

“It’s not that revenue is going down, per se, but it’s not growing as fast as you would expect,” said Bob Thompson, ITD economist.

In response, the Legislature imposed an additional $75 fee on hybrid and $140 on fully-electric vehicles in 2015 to make up for their gas use, only to rescind the additional fee on hybrid vehicles in 2017. Fully-electric vehicles still pay an additional $140 annually in registration fees, which some say is a disincentive to a solution that could help Idaho in the long run. Electric vehicles don’t leak oil and gas and are safer for the environment, said Lisa Hecht, a Boise environmental activist, in an email message.

“Idaho imports nearly 100% of our transportation fuels and this drains $3 billion from the state,” said Hecht, citing figures from a fact sheet distributed by the three major Idaho electric utilities, Conservation Voters for Idaho, the Idaho Conservation League and the Idaho Consumer-Owned Utilities Association. “What would Idaho do with that money if, instead, we powered our transportation from electricity generated in Idaho?  How much Idaho clean energy would we be able to build to power that?”

Idaho National Laboratory recommended a registration premium of $72.22 for electric vehicles and $34.73 for plug-in hybrids, Hecht said. The current $140 electric vehicle registration premium is nearly twice that, she said.

Additional funding alternatives

Many government representatives mentioned local option taxing authority as one possibility, which could be used for building roads as well as for funding public transit.

local option tax gives citizens the right to vote to raise taxes for building and maintaining projects such as roads or transit. Advocates for a local option tax in Idaho cities and towns have tried for more than 10 years in the Legislature to gain taxing authority. Resort cities such as Sandpoint and Ketchum with populations smaller than 10,000 – 14 in all – are the only ones with local option taxing authority. Surveys have also found that Idaho citizens are in favor of providing that local control.

Goldthorpe noted that Utah used local option taxing authority to develop light rail and rails-to-trails paths.

Utah also makes much more use of bonding than Idaho does, Hammon said.

“In Utah, they look at it as not debt, but prepaying expenses – buying roads when they’re cheaper now,” he said.

Another funding avenue is more public-private partnerships – beyond STAR, which is limited to commercial development – such as the Northgate development in Pocatello.

Some states have an “infrastructure bank,” where they create a fund and use the interest on it to pay for capital expenses such as schools and roads, Hammon said.

“We’re one of the few states that don’t do that,” he said.

A reauthorized surplus eliminator or a temporary sales or fuel tax could fund it, he said.

“It would be nice to have a fund set up, so that if money became available, the Legislature would have a place to put it,” he said.

But it isn’t clear how quickly any of these methods could be implemented, even if they get through the Legislature.

“For the near term, the next three to five to seven years, the chief most pragmatic effective method is still on fuel and registration,” Drake said.

photo of brad little

Brad Little

Five Infrastructure Questions for Gov. Brad Little

Idaho is growing at a record pace, which means the state’s infrastructure has to support more use than ever before. What does the state’s top elected official think should be done? Here are five quick takes from Gov. Brad Little.

Roads: “We’re going to have more and better ones,” he said. “It’s going to take a combination of some new user-based fees and maybe some general funds.”

Public transit: “That’s a local issue,” he said, suggesting that the solution was local option taxing authority. “I’ve been pretty candid about my position on local option.”

His primary concern is that big-ticket merchants such as car dealers and furniture stores, faced with an additional tax, would move out of the impact area.

“I think almost any local option this Legislature would pass, I’d give it a serious look because I know what the hurdle would be.”

Broadband internet: “We’re going to have a big report,” he said, referencing the work of the Broadband Task force.

Possible options include tax policy, incentives, aggregating federal funds and providing rights-of-way on roads for internet.

“Those are all things that the task force is going to recommend.”

Electricity: With technology such as hydropower, wind, solar, and even combined-cycle gas, electricity is getting cheaper all the time, the governor said.

Nuclear: “I’d be excited if we could get it,” he said.

However, Little was concerned about an announcement on Sept. 24 that Fluor Corp. was planning to sell its government business because that is the parent company of NuScale Power, which is developing a small modular reactor for Idaho National Laboratory.

“Fluor is my cleanup contractor and my SMR contractor,” he said, adding that he was planning to meet with the company for more detail.

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