INC NEWS - Overview of transportation funding
pats1717 at hotmail.com
Sat Mar 3 16:58:24 EST 2007
I am sending some bits from a longer report from NC ConNet that may be
relevant to actually getting the East End Connector built. If you want the
full report, please let me know.
Overall, North Carolina is spending $3.85 billion on transportation in the
current fiscal year (July 2006 June 2007). Of this, $1.04 billion comes
from the Highway Trust Fund, created in 1989 and committed by law to fund
new construction. Another $1.57 billion comes from the Highway Fund, which
dates to the 1920s and can be used for maintenance and other projects, but
whose revenue has remained relatively flat. Finally, North Carolina is
receiving $890 million in federal funds less than the amount that North
Carolina drivers contribute to national funds through gas taxes (making us a
donor state), but still a sizable transfer.
The basic challenge the state faces is that DOT cannot afford all the
projects that local governments, developers, and state legislators have
traditionally wanted it to build. In 2004, DOT leadership estimated that it
faced a $30 billion gap between project expenses and likely revenues over
the next 25 years. (Earlier this week, DOT released an updated estimate of
the gap: $66 billion). DOT leadership recommended addressing this by
shifting money from new road construction to maintenance and transit.
Transportation hawks in the legislature were not pleased with DOT, but the
financial crunch is real, and there are really only three options on the
table to address it:
* Capture a larger portion of the state budget. This was the initial
reaction of legislators in 2004. But given the way the legislature works, a
single interest isnt likely to capture that much funding.
* Cut back on road construction, focusing limited money more wisely.
* Privatize transportation, either through state built and run turnpikes,
or, more radically, through public private partnerships that contracts out
provision of transportation services like essential connector roads to
A particular issue is the need for total replacement of existing roads
nearing the end of their life; there is no "pot of money" for this and
that if money is shifted from the existing Funds, that means foregoing other
In 2000, while much of the state was suffering economic dislocation and the
state budget faced a shortfall, the Highway Trust Fund was sitting on almost
$1 billion in cash and $700 million in unused bonding authority.
Transportation legislators ordered DOT to spend out the money as quickly as
possible. DOT did so, but came just months away from running out of cash in
2005. Cash flow has stabilized, but in the meantime, world demand for
concrete and steel has increased construction prices by 45% over the last
three years, greatly increasing the gap between desired projects and
available revenues. At this rate, many projects on the official state list,
the Transportation Improvement Plan, will simply never be built but that
fact is still hard for some project proponents to swallow.
On the privitized transportation:
* Public private partnerships (P3s) work because [being privately owned]
they can raise tolls without worrying about political sensitivity. But,
because they are private and dont have access to tax-free bonding
authority, the financing costs of P3s are actually higher than publicly
owned projects. Most of the P3 investors are foreign companies; they
negotiate to own roads for 50 or 70 years, so they continue to extract
profit well after the cost is paid off in the first two or three decades a
road is in service.
* Instead of P3s, North Carolina established a Turnpike Authority just a few
years ago, and last year authorized it to pursue a total of nine projects.
Although several of these toll projects can attract bond funding, lenders
will usually not cover more than 70% of the cost of any of the projects.
The different must be funded by the state so most of the toll projects
dont actually pay for themselves. Instead, they allow the state to buy a
project at, say, 30 cents on the dollar (with the rest, plus interest, paid
in the future by tolls). To the extent that the toll projects do not
reflect the pre-existing priorities in the state Transportation Improvement
Plan (TIP), the diversion of state funding to close the gap effectively
reorders the projects in the TIP. (potentially in front of the East End
Mortgage rates as low as 4.625% - Refinance $150,000 loan for $579 a month.
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