Gas tax hike still not fixing roads, won’t fund bridges until 2024

June 11, 2018

Investigative Reports

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By RICK BRUNDRETT

When S.C. lawmakers passed the gas-tax-hike bill last year, they promised every penny would go toward fixing deteriorating state roads and bridges.

Critics, though, said then that filling potholes that riddle South Carolina’s roadways was never the real priority.

Instead, they contended, the law as written allows millions of dollars generated primarily by gas and vehicle sale tax increases to be diverted to the legislatively controlled State Transportation Infrastructure Bank (STIB) to cover revenue bonds for big-ticket projects – in violation of the state constitution.

Department of Transportation Secretary Christy Hall told The Nerve on Monday that the controversial 2017 law raising the gas tax by 75 percent – known as Act 40 – is not a “windfall of funding” to the STIB. She also said the law doesn’t require DOT to transfer funds to the STIB.

But in a written response, she conceded that if DOT “needs to call on” the STIB for “financing of road and bridge projects, Act 40 provides a mechanism to do so.”

“SCDOT has set the targets for pavement conditions, bridge replacements, rural road safety and interstate widenings relying on Act 40 funds to help support the 10-year plan for rebuilding our state’s roads,” Hall wrote.

Hall didn’t directly answer how the six-year, 12-cent gas tax hike and other related tax and fee increases could be used to finance STIB debt for interstate widening projects and repair non-interstate roads at the same time. DOT has said 80 percent of the state’s 42,000 miles of roads needs to be resurfaced or rebuilt.

Before the gas-tax-hike law was passed, DOT estimated the total cost of identified interstate widening projects at about $5 billion, Hall told DOT commissioners in April. But the projected up-front costs of those projects are greater than what the 2017 law is expected to generate annually, which means DOT or the STIB would have to issue bonds to pay for the projects.

As of the end of April – 10 months after the gas tax increase and other related tax and fee increases went into effect – $219 million had been collected in a specially created state fund known as the Infrastructure Maintenance Trust Fund (IMTF), and only 8 percent of it had been spent, records show.

By law, the IMTF “must be used exclusively for the repairs, maintenance, and improvements to the existing transportation system.” But no bridge repair or replacement projects are specifically identified on the current IMTF project list, which totaled $309.2 million as of April 30, a review by The Nerve found.

In a written response earlier this month to The Nerve, DOT officials said the DOT Commission in February approved adding $15 million annually to a separate 10-year, $1.51 billion bridge-replacement program – but not until 2024 after a tax credit created under the gas-tax-hike law expires, freeing those funds for bridges.

DOT, which has identified 465 out of 750 “structurally deficient” bridges statewide to be replaced, said the new bridges will be paid for primarily with federal funds.

Taxpayer Shell Games?

DOT had planned to transfer annually about $167 million in state funds to the STIB to cover principal and interest on $2.3 billion in revenue bonds for interstate widening projects, Hall told commissioners at their regular April 19 meeting.

That included a $50 million annual transfer to the STIB under a 2013 law known as Act 98, which Hall noted “in theory” would be “replaced” by revenues generated under the gas-tax-hike law, which took effect last July 1.

“When the roads bill (gas-tax-hike law) passed, which basically eliminated the Act 98 flow of funds, the question immediately became, of what do we have to service the debt to the Infrastructure Bank?” Hall said.

At the time the 2017 law was being debated, critics, including the South Carolina Policy Council, The Nerve’s parent organization, contended that the STIB – a legislatively controlled, seven-member board that over the years has funneled several billion dollars for large road projects in a small number of select counties – was the intended beneficiary of the bill.

In a May 2017 analysis, the Policy Council said the bill was written in a way to allow DOT to divert gas-tax-hike revenue to pay STIB bond debt. The analysis said that in crafting the law, legislators changed the word “tax” to “fee,” supposedly in the belief the STIB could comply with the state constitution in using those funds to pay off revenue bonds.

The constitution bans the use of tax funds to retire revenue bonds. The Policy Council’s analysis contended the bill, as written, violated the constitution.

At the April 19 DOT Commission meeting this year, Hall said two separate lawsuits challenging the constitutionality of the 2017 law (Act 40) and a related 2016 law known as Act 275, which, among other things, allowed part of the vehicle sales taxes to be transferred to the STIB, “created a level of uncertainty … especially when it comes to bond counsel and their willingness to stand behind what we had proposed as revenue streams as stable.”

“The (STIB) expressed concerns over the ability to actually bond any of those Act 275 or Act 40 revenues in this whole unresolved lawsuit issue,” she said.

In a unanimous voice vote, the DOT Commission approved Hall’s recommendation to “continue to advance the interstate widening program through a combination of available federal, state and bond revenues,” and to “modify and implement the necessary agreements” with the STIB to “support the planned programs.”

Hall’s funding proposal for the existing interstate projects includes using more available federal funds over the next several years, issuing an estimated $1.2 billion to $1.5 billion in general-obligation highway bonds, and redirecting tax dollars as existing highway bonds are paid off in upcoming years.

“We’ve got to have it nailed down this year,” Hall told commissioners, noting the procurement process is expected to begin this summer for a massive I-26/I-20 interchange project in the Columbia area, and that bonds likely will have to be issued for the project to “bridge the cash-flow needs.”

Under questioning by Commissioner Woodrow “Woody” Willard, Hall said if there are “favorable rulings” on the pending lawsuits, the estimated total amount available for bonding would jump considerably, to the “2.4 billion range.”

From last July 1, when the gas-tax-hike law took effect, through the end of April – the mostly recently available month – only $17.5 million, or 8 percent, of the $219 million collected in the Infrastructure Maintenance Trust Fund had been spent, according to DOT and state comptroller general records – which didn’t match with each other earlier this year, as The Nerve reported.

And, as The Nerve reported in March, $17 million of the “disbursements” were payments to counties established under a previous state law and based on an amended formula using 2015 gas tax collections in counties – not on the revenue increases that took effect July 1.

So the basic question remains: When will South Carolina’s bad roads get fixed?

Brundrett is the news editor of The Nerve. Contact him at 803-254-4411 or rick@thenerve.org. Follow him on Twitter @RickBrundrett. Follow The Nerve on Facebook and Twitter @thenervesc.

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