Needed: A Little Thought Before Raising Taxes to ‘Fix Our Roads’

May 21, 2015

Inside Insight

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DUMPING MORE MONEY INTO THE SAME SYSTEM WILL YIELD THE SAME RESULTS, MORE EXPENSIVELY

On Tuesday, we attended a news conference at the State House in Columbia. The event was held by the Fix Our Roads Coalition – a pro-gas-tax-hike nonprofit organization whose corporate members have received more than $300 million from the South Carolina Department of Transportation since fiscal 2013. The event was well attended by both news media and tax-hike supporters. It lasted too long – a half hour is too long for a presser – but that’s only because so many “coalition” members insisted on speaking. Each speaker, moreover, said roughly the same thing – South Carolina’s roads are really really bad and should be fixed – as if anybody disagrees.

The coalition’s aim, of course, was to urge lawmakers to pass a bill that raises taxes for the express purpose of repairing the state’s road system. In theory, that position makes sense. But at no point during the event did anyone say the Department of Transportation needs more money than it has. For a group urging the government to take more money from taxpayers and give it to DOT, that would seem to be a pretty important point to explain. Nor did anyone explain why the state’s roads are in such terrible shape in the first place. That, too, ought to be among the first things to understand in this debate – not an afterthought.

As it happens, there are excellent reasons for believing that simply raising taxes in order to “fix our roads” is a terrible idea, and those reasons have nothing to do with “politics” or “ideology.” They are rooted in the convoluted and corrupt reality that is South Carolina’s transportation funding system.

(1) No one is accountable.

Lawmakers do not claim responsibility for decisions made by DOT – and in fact they claim to citizens to have zero influence over the agency – but the fact is that nearly every major decision-maker in South Carolina’s road funding system is either a lawmaker or a legislative appointee. The result? A citizen concerned or angered by the state of his local roads has no one to contact and no one to hold accountable. He can contact the governor, but the governor’s power is limited to a few appointments to boards dominated by legislative appointees.

That leaves lawmakers. And since the few lawmakers who actually have power over the transportation system are only accountable to the roughly 30,000 constituents of his district – and since that district will, for precisely that reason, boast some of the best roads in the state – no one pays a political price for the incompetence, waste, and favoritism for which our road system is justly notorious.

(2) Our road funding system prioritizes new and expansionary projects over routine maintenance.

South Carolina’s roads system has three main sources of revenue: gas tax revenue, federal funds, and debt financing by the State Transportation Infrastructure Bank (STIB). Of these sources, gas tax revenue is the only that can be dedicated to road maintenance. Federal money cannot be used on road maintenance, and STIB financing is used exclusively for new expansionary projects. Of DOT’s current $1.6 billion budget, less than $300 million is eligible to maintain and repair any state road. Even worse: Over the last four years, average annual funding for DOT’s highway maintenance program has dropped by $40 million or nearly 16 percent – 25 percent when adjusted for inflation.

The federal matching system, moreover – whereby the state gets federal money to match state money on federal funding-eligible roads – further incentivizes DOT to concentrate on new and expansionary projects.

(3) No one knows how much new money, if any, the Department of Transportation needs.

The Department of transportation has an annual shortfall, we’ve been told, of either $1.5 billion (if we include expansions, new roads, and mass transit projects) or $550 million (if we include only maintenance and repair). There is no publicly available empirical evidence for these numbers. They are either the guesstimates of politicians or sheer inventions. Indeed, the extra $550 million DOT supposedly needs for maintenance and repair comes from a report by the consultancy CDM Smith, which has received $11.7 million from South Carolina transportation agencies since fiscal 2012 – hardly a reliable source for accurate numbers on this subject.

(4) The unaccountable STIB exists to favor politically important counties with mostly debt-financed largesse.

Virtually all the problems of South Carolina’s road funding system are concentrated in one rogue agency – the State Transportation Infrastructure Bank. It’s largely controlled by two legislators, it funds whatever its board wants, irrespective of objective priorities; it favors politically influential counties over the far more numerous rural counties where roads are in the worst condition; and its exacerbates the tendency to place more importance on expansions and new projects than on maintenance and repair. The STIB’s budget is a mystery, too: audit documents for 2014 indicate the agency (or “bank”) received $220 million, but the state budget for that year listed its total budget as $50 million.

(5) Nothing about the Department of Transportation would suggest that it is a well-run agency.

Before taking hundreds of millions of dollars from taxpayers and handing it to a state agency, surely the first order of business is to decide whether that agency meets a basic standard of functionality. Yet almost no one in this debate has raised the question of DOT’s governance and competence.

Even at first glance, however, there are strong hints of nepotism and cronyism. Three members of DOT’s eight-member commission – Mike Wooten, Woodrow “Woody” Willard, and John Hardee – have had  business ties with DOT before and/or during their time on the Commission. One of them, Hardee, is the son-in-law of Sen. Hugh Leatherman, who holds more power over the transportation system than any other person; his appointment to the Commission was not unrelated to that relationship. Indeed, a subsidiary of the company he works for has maintained a long running and lucrative contract with DOT. There seems to be a revolving door, too, between DOT’s top staffers and the agency’s contractor companies.

Apart from all these cozy relationships, though, the agency itself has not proven itself a model of efficiency. The agency paid a staggering $2.37 million for a report on its financial needs – yes, a report – and despite what appear to be serious problems with theft, the agency no longer maintains an officer responsible for fraud and waste investigations.

None of this mattered at Tuesday’s news conference, however. All that mattered to the “coalition” is that South Carolina’s roads are really really bad and a tax increase would make them less bad. The first part is obvious. The second is a delusion.