Central Arizona Governments
Central Yavapai Metro. Planning Org.
Flagstaff Metropolitan Planning Org.
Northern Arizona Council of Gov’ts
Southeastern Arizona Governments Org.
Western Arizona Council of Gov’ts
Yuma Metropolitan Planning Org.
RTAC TRANSPORTATION UPDATE
October 28, 2013
Fall Update
STATE BUDGET HAS SIZABLE SURPLUS, LONGER-TERM UNCERTAINTIES REMAIN: Arizona ended the last state fiscal year on June 30th with close to a $900 million carry forward balance and over $450 million in the rainy day fund. Year-to-date revenues are 3.8% higher than last year and are forecasted to grow at a 5.3% to 5.8% rate through 2017.
Considering the condition of the state budget during the recession, this is a dramatic improvement. However, legislative budget staff estimates a gradual spend down of the current balance as ongoing expenditures are expected to exceed revenues through 2017. The budget will be potentially impacted by the lapse of the temporary sales tax increase, the implementation of business tax cuts, a slow and uncertain economic recovery, debt and state program roll-overs which accumulated over the recession, lawsuits regarding Medicaid expansion and K-12 inflation, federal actions, and demands for higher spending levels for a variety of public programs such as education and child protective services.While the economy continues to grow at a relatively slow rate, the growth has now been constant for several years and is reflected by increasing public revenue collections as indicated by the current state budget surplus.
While state general fund revenue growth has been a constant, the same cannot be said for Highway User Revenue Funds (HURF). Current year-to-date collections are only 2.6% higher than last year and unlike the general fund revenues, follow two years of no growth. Last year’s collections are comparable to 2004 levels and roughly $200 million or 14% less than the total from 2007.
As lawmakers attempt to set a course for structurally sound future budgets, eliminating the HURF raids must be a part of that direction. For far too long, the state general fund has been propped up by the redirection of this funding which is generated by transportation-related activities to pay for transportation infrastructure. Since 2001, over $1.7 billion has been transferred including $127 million last year. None of this funding was considered excess to transportation needs. In fact transportation funding sources have been deemed antiquated and grossly inadequate for quite some time. The constant funding raids have greatly exacerbated these inadequacies. The state’s current long-range transportation plan estimates a $63 billion funding gap between revenues and needs.
While the state tax cuts currently being implemented are intended to boost the state economy, infrastructure investment also boosts economic growth, and conversely, inadequaciesharm economic productivity and growth potential not to mention the impacts to public health and safety, the cost of living and quality of life.
There is clearly a need to modernize how we pay for our infrastructure. In the meantime, right now, this legislative session, we need to stop the HURF funding raids and at least slow the deterioration of our highways, bridges and roads.
FEDERAL GOVERNMENT SHUTDOWN, DEBT DEFAULT AVERTED FOR NOW, UNCERTAIN & HIGHLY VOLATILE YEAR LIKELY: After a 16-day shutdown, federal lawmakers reached a temporary agreement to fund government and temporarily suspend the federal debt ceiling which was set to be reached sometime in late October. The agreement reopened the government, enabling operations to continue at last year’s funding levels through January 15th. The debt ceiling was suspended until February 7th. The previous limit level of $16.7 trillion will be surpassed by that date. It is estimated that the ceiling would need to increase to $17.8 trillion to get through 2014 based on current debt obligations.
Moving forward on the budget, the House and Senate have both passed separate budget resolutions and the agreement calls for a conference committee between the two chambers to develop a compromised version by December 13th. The 29-member committee which does not include any Arizona members will start its deliberations this Wednesday. The House and Senate are $91 billion apart on non-defense discretionary programs which will be a substantial hurdle to overcome in addition to the continued fight over the debt ceiling and implementation of the federal health care act. Another $20 billion in sequestration cuts is also scheduled to be implemented in mid-January. In other words, we may experience “déjà vu all over again” in a couple of months with the budget and debt ceiling.
Most of the federal highway programs are relatively insulated from shutdowns as they are funded through the Highway Trust Fund which is separate from the federal general fund. There are some exceptions and indirect impacts. Some programs are funded directly by the general fund such as TIGER and next year’s funding level will be impacted by whatever budget agreement is reached. Transit, rail, and aviation programs and agencies are subject to lapses of funding and furloughed officials. Highway projects requiring reviews by federal agencies such as the U.S. Army Corps of Engineers and EPA are impacted by the shutdown of those agencies.
In all likelihood, the potentially greatest impact on surface transportation will be the indirect consequences of these current political battles and the future ability of lawmakers to reach a consensus on some very challenging transportation issues later in the year. The current authorization bill (MAP-21) for surface transportation programs and their funding sources expires after September and the Highway Trust Fund continues to trend towards insolvency the year after. The Highway Trust Fund currently spends about $40 billion a year on highways, bridges and roads and $8.5 billion in transit programs while collecting roughly $34 billion. At that pace, unless revenues are increased by roughly $15 billion a year, current spending levels would need to be reduced by roughly 30%. Arizona currently receives approximately $675 million a year in federal highway funding. Such a reduction would reduce annual federal highway funding to Arizona by over $200 million.
While federal transportation funding sources must also be modernized, in the short-term, we must secure adequate funding levels to protect Highway Trust Fund solvency and at least maintain current federal highway investment levels.
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