MacIver News Service
By M.D. Kittle
MADISON, Wis. — A graduated revenue shift could raise a half billion dollars annually — and nearly $5 billion total over 15 years — for Wisconsin transportation projects, according to a memo from the nonpartisan Legislative Fiscal Bureau.
State Rep. Joe Sanfelippo (R-New Berlin), in an op-ed published Tuesday, argues the state doesn’t need to raise its gas tax to fund its transportation needs.
Instead, Sanfelippo proposes transferring a portion of the revenue generated from the sales tax on the sale of motor vehicles and related parts and services into the transportation fund. Currently, Wisconsin’s 5 percent sales tax goes to the general fund — including the estimated $1.03 billion annually in state sales and use tax collections from automobile and vehicle-related sales.
Gov. Tony Evers and his transportation secretary-designee want an 8-cent-per-gallon increase in Wisconsin’s already-high gasoline tax to help bring in some $600 million in new revenue over the next two years for the state Department of Transportation. While polls show Wisconsin voters support finding more money to fix the state’s roads and bridges, a strong majority don’t like the idea of hiking the gas tax.
“All of the focus has always been, the only way to get additional funding for transportation is by raising taxes. That’s just not the case,” Sanfelippo told MacIver News Service. “If we want to prioritize our spending we can fix the problem without raising anybody’s taxes.”
Sanfelippo’s plan would ultimately transfer half of sales tax revenue from auto sales into the transportation fund, but gradually over the course of 15 years. In the first fiscal year, 2019-20, the amount would be 10 percent of the targeted sales tax revenue, rising to 15 percent in 2020-21, 20 percent the following year, and then more gradually to 50 percent by 2033-34.
The proposal, in the first few years, would generate considerably less revenue for transportation than Evers’ budget calls for. It would bring in an estimated $103.5 million in the first year, $155.3 million in the second, and $207 million in the third year, according to a Legislative Fiscal Bureau memo.
By fiscal year 2025-26, however, when 30 percent of sales tax money is flowing in, the transportation fund will take in more than $310 million. Annual revenue rises to $517.5 million in fiscal year 2033-34, for a cumulative transfer of $4.97 billion over the 15 years.
With an anticipated $1.8 billion in higher combined tax revenue ahead, Sanfelippo said it’s foolish and unsustainable to depend on escalating gas taxes to fund transportation. The governor’s proposal also calls for the return of indexing, tying the gas tax to the rate of inflation. Doing so gets lawmakers off the hook for having to vote on increases — taxation without representation, critics contend.
“What we’re saying is, take some of that money that is collected on auto sales and instead of pouring it into the general fund, start over time putting it into the transportation fund,” Sanfelippo said.
The southeast Wisconsin lawmaker asserts the revenue shift would put transportation funding on a “sustainable path,” something he said “Band-Aid” fixes like gas tax hikes won’t ultimately do.
State Rep. Scott Allen (R-Waukesha) tweeted Wednesday that Sanfelippo has “some great ideas that need legislative support.”
“Graying of WI resident also contributes to less gas consumption — older people drive less. Gas tax is unsustainable source of revenue,” Allen wrote in another tweet.
The DOT’s Fund Solvency Report Study, released in December 2016, projected a decline in fuel consumption, in large part because of better vehicle fuel efficiency.
“Revenue from the motor fuel excise tax is projected to decrease as gasoline consumption is forecast to decline. Gasoline consumption is estimated to decrease due to a projected 36.4 percent increase in new vehicle fuel efficiency, increasing gasoline prices and modest increases in disposable income,” the report states.
Sanfelippo said his plan also would help control growth of state government going forward. That’s where folks on both sides of the aisle get a bit itchy.
“We know, unfortunately, no matter who is in charge, that increased revenue from one budget to the next is always being spent on growing government,” the lawmaker said.
While Republicans may slow the growth of big government more than their Democrat colleagues, government never stops growing no matter who’s in charge. Even with conservatives in control of the Legislature and the governor’s office during the past eight years, state spending expanded. The GOP’s last budget topped $75.7 billion, a 2.1 percent increase from the previous biennial spending plan, which was an increase from the last two-year budget.
Evers’ budget proposal increases spending by more than $6.2 billion, conservatively.
The governor’s office did not respond to MacIver News Service’s request for comment.
Some Republicans expressed concern that shifting revenue from the general fund would create a budget “hole” for the myriad government programs and services the state provides. Sanfelippo’s proposal would require the Legislature to make some tough decisions, to prioritize with potentially hundreds of millions of dollars less in the catch-all general fund.
But it also ultimately pumps in more revenue into an area of government that politicians and a lot of voters believe is a key funding priority. While a recent Marquette Law School Poll shows 57 percent of respondents don’t support a gas tax increase, polls consistently find repairing the state’s transportation system is at the top of Wisconsinites’ priority list.
An ongoing concern is the amount of bonding the state uses to fund transportation projects. As of December 2018, the state had a total of $3.346 billion in transportation fund-supported debt outstanding: $1.578 billion in general obligation debt and $1.768 billion in transportation revenue obligation debt, according to the LFB memo. Now factor in principal and interest repayment, and the total climbs to nearly $4.7 billion combined. Still on the horizon, nearly $200 million in remaining general obligation bonds and $210.2 million in transportation revenue obligation bonds that have been authorized but not yet issued.
“In addition, as of December 2018, the state also had $879.4 million in transportation-related, general fund-supported, general obligation bonding outstanding,” the Fiscal Bureau memo states.
The DOT spent $357.6 million on debt service in the last budget, which equaled 18.7 percent of its transportation fund revenue. Transportation policymakers recommend that level not be allowed to exceed 25 percent. Evers’ transportation budget includes $329.2 million in new borrowing, down from previous budgets but still a money suck.
Under Sanfelippo’s plan, debt service would continue to grow on existing bonds during the first four years, but annual savings would begin in the fifth year, growing to $206.9 million by fiscal year 2033-34. With retired debt service, and a proposed moratorium on new transportation-related bonding, annual revenue available for the transportation fund would grow to $724.4 million by the time the full sales tax revenue transfer goes into effect in the fifteenth year.
As the LFB memo states, not until fiscal year 2027-28, when available revenue is estimated to top $438 million, would the annual amount of additional transportation cash exceed the annual amount of $418.4 million in bonding authorized over the past decade.
“As a result, less funding for state transportation infrastructure improvements would be available under this proposal than has been provided in recent biennia using existing transportation fund revenues and bonding,” the memo states. “Further, assuming no other revenue increases during his period, no additional revenues would be available to provide increased funding for DOT’s local transportation programs.”
However, in the later years of the proposal, when revenue transfers increase and annual debt service declines, “more funds would be available for DOT’s state and local infrastructure development programs than have been available in recent biennia when significant amounts of bonding were needed to fund those programs.”
“The amounts of additional revenue would continue to grow each year through 2039-40, when all existing debt is currently scheduled to be retired,” the Fiscal Bureau notes.
State Rep. Bob Kulp (R-Stratford), chairman of the Assembly’s Transportation Committee, said he hadn’t read the entire plan as of Wednesday afternoon, but he said Sanfelippo should be applauded for thinking outside the box. Kulp said the proposal could go farther, however.
“My first impression was, why only half? Why not the whole automobile tax,” he said. “Goodness, if we can get closer to solving our transportation funding issues using these methods and only taking half of (the automobile tax revenues), that’s a very good approach.”
Kulp said he does have concerns about what the revenue shift could mean for local road funding in his north central Wisconsin Assembly district.
“We want to make sure we’re accounting for that difference as well,” the lawmaker said.
Sanfelippo said his plan is also dependent on reforming a state transportation agency that has wasted billions of taxpayer dollars, according to a 2016 audit. DOT accountability and savings realized through better practices are top of mind for fiscal conservatives who aren’t inclined to reward a transportation department that has been such a poor steward of the revenue it receives.
“A combination of stable funding and long-term reforms will make this a sustainable program,” Sanfelippo said.
M. D. Kittle is an investigative reporter with the MacIver Institute. Bill Osmulski also contributed to this report. Reposted with permission.