Summary: In July an Allegheny Institute blog pointed out the irony and poor public policy arrangement of using a tax on wholesale gasoline to provide funding for building Turnpike roadways while at the same time having the Turnpike provide funding for mass transit. This requirement forces it to borrow huge amounts of money compelling the Turnpike Commission to raise its toll charges in order to meet its statutory obligation to make the payments of over $450 million a year through 2022. The blog concluded that the Commonwealth has lot of room for rethinking the convoluted and inappropriate funding mechanisms for its transportation sector.
For one thing, new Turnpike highways should be self-funded based on sound forecasts of revenue they will generate for their construction and maintenance costs. Tax dollars, especially dollars from fuel taxes, should be used on public roadways and should play little or no role in funding new Turnpike projects. And second, to use money borrowed by the Turnpike that causes tolls to be much higher than they otherwise would be to subsidize mass transit is clearly a distortion creating mechanism. Public transit provides a service to the general public and should be funded by broad based taxes that fall on the general public, whether they drive or not. Indeed, requiring the Turnpike to provide funds for mass transit that can only be done through higher tolls is a form of indirect taxation that commissions and authorities should not have the power to levy.
And recently another ironic proposal to close the FY 2017-18 budget fund short fall was offered. As originally framed on the September 5 release date, that proposal would use a set of one-time transfers from special set aside funds ($1.2 billion in all), to provide money for the General Fund. The largest transfer (in terms of total dollars) would have been $357 million from the Public Transportation Trust Fund (PTTF). The PTTF is described in the Governor’s budget proposal as “Revenues [which] come from scheduled payments by the Pennsylvania Turnpike Commission, a portion of the Sales and Use Tax, certain motor vehicle fees, vehicle code fines and surcharges, and transfers from the Public Transportation Assistance Fund and the Lottery Fund. Monies in this fund are disbursed as grants to public transit agencies for operating costs, capital and asset improvements, and programs of statewide significance.”
As of September 14, following passage of legislation in the House that contained the transfers, the total amount has been reduced by half to close to $600 million with the PTTF transfer being reduced to $50 million.
In the current fiscal year the amount coming from the Turnpike to the PTTF is budgeted at $420 million (the remaining $30 million goes to the Multimodal Transportation Fund making it the second largest revenue source in the fund (the portion of the sales and use tax is the largest at $500 million). Of course mass transit agencies and their advocates were not happy with the proposal to move money to the General Fund; the transit agency in Allegheny County, the Port Authority, issued a press release that expressed its displeasure, citing that it would have to significantly reduce service because money taken from the fund would have to be replaced with other dollars from transit operations. The Secretary of the Department of Transportation also outlined the negative effectives that would occur if the money is moved as proposed. Only time will tell how they will react to the smaller transfer amount from the PTTF.
Even though the plan to shift transit funds has been amended to a much lower dollar amount, it is important to note the problem and irony in the proposal beyond the reduction of funds available to public transit. Taking money from the PTTF would mean that, (1) sales taxes intended for mass transit are diverted back to the General Fund, and (2) Turnpike money sent to the PTTF that had to be borrowed, resulting in higher tolls, would be transferred to fund the state’s current operating expenses.
In effect, the state would be using money borrowed by a state created Commission to fund current general operations. This would be a very bad precedent that could open the door to even worse actions in the future. Indeed, setting up the Turnpike’s requirement to provide large sums to fund mass transit that requires taking on massive amounts of debt and continuous hikes in tolls to collect revenues that are not to be used for the Turnpike’s primary functions was the first step down this ill-conceived path. Bear in mind too that the huge increase in debt that has already been incurred along with the five more years of future heavy borrowing has moved the Turnpike into a net negative financial situation that will only get worse.
While well intentioned to avoid tax hikes, the proposal to divert money from special set aside funds means spending from those funds will cause lower spending from those funds on the statutorily designated items. And that raises another key point. Why are there over a hundred of these special funds with a large number receiving dedicated sources of revenue? If the items being supported by these funds are worthwhile, why are they not in the General Fund budget and getting annual appropriations based on their value to the Commonwealth? The special funds receiving funding from the Federal government are obviously required by Federal law. And some operations that use direct charges for services to cover their costs might be warranted. But, the fact that there are so many of these special funds cries out for a critical examination of their need to exist and the quality of their management.
As was noted in our previous Policy Brief (Volume 17, Number 37), moving funds is at best a stopgap measure that does not address the basic problem of spending exceeding current general fund revenue. At some point, spending will have to be cut and shifted to a lower future trajectory. Tax hikes and new taxes will not solve this problem. Economic growth that enlarges the tax base is the answer. Higher tax rates will be a hindrance to growth.
