Gas-Tax Hike Just One Way to Fund Infrastructure Upgrades, Think Tank Says

John Reitmeyer | October 27, 2015 | Transportation
Privatization, borrowing and "general fiscal discipline" also recommended by conservative Manhattan Institute

A new report issued by a conservative think tank takes on the issue of funding infrastructure improvements in a tight economy, including whether hiking a gas tax — something up for debate right now in New Jersey — can be an acceptable option.

The study from the Manhattan Institute notes that “in some cases” increasing a state’s gas tax and using a portion of the new revenue to pay for local infrastructure projects can be part of a roadway-funding solution.

But it also holds up an example from Indiana that involved the long-term lease of the state’s toll road to a private consortium to generate nearly $4 billion for roadway investment.

“Regardless of the specific policies adopted, state and local governments need to ask tough questions and make difficult decisions about what roadways they can afford to maintain, at what service level, and how to pay for them,” according to the report titled “Beyond Repair? America’s Infrastructure Crisis is Local.”

The report was released as leaders in New Jersey have been trying to figure out what to do to sustain the state’s Transportation Trust Fund, a pot of money supported by New Jersey’s 14.5-cent gas tax that will only have enough revenue coming in to pay down its significant debt as of June 30, 2016.

Gov. Chris Christie has yet to say what his plan is for renewing the fund, which spends roughly $1.6 billion in state dollars annually on road, bridge, and rail projects, including a funding program that pays for local road improvements. The fund also draws matching federal dollars, though Congress this week is facing its own high-stakes transportation-funding decision. Unless a temporary extension is passed by the end of the week, some federally funded projects could be interrupted.

Many lawmakers in New Jersey have called for hiking the state gas tax, which is the second-lowest among U.S. states and hasn’t been increased in more than two decades. But with Christie currently seeking the GOP’s 2016 presidential nomination and all 80 seats in the Assembly on the ballot next week, the issue has largely been put on the backburner.

And most New Jersey residents right now remain opposed to a gas-tax hike, according to the results of a Rutgers-Eagleton Poll released last week. Only 37 percent of those polled by Rutgers-Eagleton said they would support an increase, while 57 percent said they would not.

Aaron Renn, a senior fellow at the think tank who wrote the report, said calling for a tax hike is a “convenient place to go for a lot of people.” He also noted earlier this year in Sonoma County, California voters shot down a proposal to increase the sales tax by just 0.25 percent to raise money for roadway funding.

[related]Renn’s study concluded there are other ways to help ease infrastructure-funding problems for local governments, which aren’t really impacted by the federal funding concerns because much of their mileage doesn’t qualify for federal aid in the first place. The recommendations include, among others, freezing new roadway building, giving road-maintenance control over to homeowners associations where appropriate, and issuing bonds when the borrowing will fund longer-term projects and not just routine maintenance.

While raising a gas tax was also listed last among the report’s eight recommendations, Renn put maintaining “general fiscal discipline” at the top of the list. That’s because funding for roads can often get “crowded out” in local budgets by other spending items, like those established in contracts with employees and investors.

“It is easier to let streets crumble than to avoid paying employees and bondholders — at least in the short term,” the report says.

And in many places, including New Jersey, a big portion of local spending goes to cover public-employee pension liabilities.

Christie and Democratic legislative leaders enacted a series of public-worker benefit reforms in 2011, including forcing workers at all levels of government in New Jersey to pay more toward their pensions.

That effort was held up as a model in a Manhattan Institute report released last month, but Christie wants to make new changes because the pension system remains roughly $40 billion in debt. He’s called for, among other reforms, freezing the current pension system in favor of a new retirement plan with some features of a 401(K).

Though there may not be an obvious connection between pension shortfalls and infrastructure funding, but from a budgetary perspective it’s there, Renn said.

“If New Jersey didn’t have a pension problem it would be a lot easier to solve your infrastructure problem,” he said.

The report also held up a solution that former Indiana Gov. Mitch Daniels used to address his state’s road-funding deficit 10 years ago, which was leasing the Indiana Toll Road to a private consortium for an upfront payment of $3.9 billion. That became a politically acceptable course to take after Daniels explained to constituents that his state simply couldn’t afford to make all of the infrastructure investments that were promised before he took office.

“Often, being honest with the public about an inability to properly fund roads can result in politically challenging but needed actions,” the report says.

But around the same time Daniels was privatizing the toll road in Indiana, then-New Jersey Gov. Jon Corzine was considering a similar proposal for New Jersey’s toll roads. His privatization plan, however, never won support in the state Legislature or among voters despite Corzine’s attempt to sell the proposal during a series of town-hall meetings.

Given New Jersey’s fiscal lingering constraints, Renn suggested it might be worth taking another look at the idea.

“There are a lot of assets in New Jersey that are potential revenue-generating assets,” he said.

“I think it’s understandable that the public would be skeptical,” he said. “Once you kind of have some picture of reality you can make some decisions about what you want to do about that.”