Conduit Street

In the budget analysis for the Maryland Department of Transportation’s State Highway Administration, the Department of Legislative Services (DLS) discusses the Administration’s proposal for providing additional local aid through the 6% sales tax on gasoline and offers alternatives to the distribution of local aid for transportation.

The Governor’s transportation plan would continue to provide Highway User Revenues (HUR) to local jurisdictions using the current distribution and create a new “Local Transportation Infrastructure Aid Account” for the distribution of the new revenue generated through the 6% sales tax.  When the sales tax is fully phased-in, local jurisdictions would receive 20% of this new revenue distributed using the existing HUR formula of registration and road miles.

DLS raised the following issues with respect to the Administration’s proposal for local transportation funding:

• a redundant local aid program has been created;
• counties and municipalities receive the majority of the funding, not Baltimore City as in current program; and,
• any revenue shared with local jurisdictions reduces the amount of revenue to the State.

DLS recommended the following:

DLS recommends that the department discuss with the committees the Administration’s proposal for local aid. DLS also recommends that during the General Assembly’s deliberations on the Administration bill that instead of creating a whole new mechanism to distribute local aid that the existing HUR program be used to achieve any policy objectives.

In the Department’s response to this recommendation it indicated that the new local aid account clearly identified the priorities for the new funding.  However, the Department would “be pleased to work with the committees on alternatives to distribute funding through existing programs if that is the intent of the Maryland General Assembly.”

As indicated, DLS also discussed alternatives the budget committees may wish to consider for the distribution and use of local aid for transportation.  These alternatives included:

• Creating a general fund aid program using the corporate income tax and the rental car sales tax;
• Maintaining the existing structure;
• Providing operating and capital grants (operating grants – smaller HUR grant giving Baltimore City a larger share for its unique funding arrangement, restoring municipalities to their historic level since they do not have the same taxing authority, and providing counties an appropriate funding level to be determined; Capital grant – local jurisdictions would submit requests for local capital projects); and,
• Creating a revolving loan fund or state infrastructure bank

DLS recommended that the Department discuss the various local aid options presented, in particular, the revolving loan concept.

The Department indicated the following in its response:

There is a strong argument to retain the connection between state and local transportation and the way it is funded. The existing local aid structure has many benefits and, if possible, those should be retained as a means to provide a basic level of transportation funding to counties and municipalities.

With respect to operating and capital grants:

MDOT would support modest increases in operating and capital grants as a way to reserve funding to match local jurisdiction support when applying for discretionary loans from the federal government.

Further, the Department stated that:

Before establishing a revolving loan program or infrastructure bank, MDOT recommends seeking input from local governments and the private sector on what they would need to see in a program.

As previously reported on Conduit Street, the Governor has released his transportation plan, SB 971/HB 1302 the Maryland Transportation Financing and Infrastructure Investment Act of 2012.  This legislation would apply the State’s 6% sales tax to the price of motor fuel.

Although, this proposal will provide additional transportation aid to local governments, it is not in the same manner as historically advocated by MACo.  Instead of providing for a full restoration of Highway User Revenues (HUR) back the historic 70% State/30% local share, it maintains the existing split of HUR, 90% State/10% local.  It then establishes a new “Local Transportation Infrastructure Aid Account” to allocate new revenue from the sales tax on gasoline to local governments.

Below is a more detailed description of what is being proposed.  County-by-county estimates of the fiscal effects of this proposal are also available.

Highway User Revenue

• Maryland counties and municipalities are budgeted to receive their full allocation of shared revenue per statute under the current funding formula – 90% State/10% Local share, which is effective in FY 2013 – not the 70% State/30% local share as advocated by MACo
• Of the 10% of local share of HUR – Baltimore City will received 80%; Counties, 16%; and Municipalities 4%, the same as under the current formulas

Local Transportation Infrastructure Aid Account (LTIAA)

• Establishes a new account for the purpose of sharing more revenue with local governments
• New revenue generated by the application of sales tax would be shared with the local governments on an 80% State /20% local basis
• The distribution of funds would be – Counties receive 70%; Municipalities 20%; and Baltimore City 10%
• Funding to local governments would be phased-in  like the 6% sales tax, 2% in each year over a minimum of 3 years
• At a 2% rate, local governments would receive 10% of the new revenue generated
• The local share would increase to 15% at the 4% rate and 20% at the 6% rate

When combined with Highway User Revenues, the revenue generated from the application of the sales tax will restore both municipalities and Baltimore City to approximately 70% of their 2008 funding levels and will restore the counties to nearly half (42%) of their 2008 funding level.

MACo’s Legislative Committee will be discussing this proposal at its meeting on Wednesday, February 22.

After weeks of waiting, the Governor has released his transportation plan, the Maryland Transportation Financing and Infrastructure Investment Act of 2012.  Straying from the recommendations of the Blue Ribbon Commission on Maryland Transportation Funding, this legislation would apply the State’s 6% sales tax to the price of motor fuel.  This revenue raising tactic was considered by the Commission, but not adopted in its final report.  From a press release from the Governor’s Office:

The proposed legislation phases in a six percent sales tax on motor fuel at two percent each year for three years that will generate an additional $613 million in revenue to address Maryland’s urgent transportation infrastructure needs and support an estimated 7,500 jobs for Maryland families. The sales tax would be applied to the retail price of motor fuel minus any federal and state taxes.  An average retail price of motor fuel will be calculated by the Comptroller’s Office every six months based on the average of the prior six months of actual prices of regular unleaded gasoline.

The Governor’s legislation includes a “braking mechanism” that will temporarily cease the phasing of the tax for consumers in the event of a dramatic spike in the price of gasoline. If the price of gasoline in year one were to increase by more than 15 percent over the prior year, the rate in year two would remain at 2 percent.  This test will be calculated in each subsequent year until the full rate of 6 percent can be applied.

This legislation would also restore some level of transportation aid to local governments.  However, not in the same manner as historically advocated by MACo.  MACo has consistently advocated for full restoration of Highway User Revenues back to the historic 70% State/30% local share.  Instead this proposal maintains the current 90% State/10% local share and establishes the Local Transportation Infrastructure Aid Account to allocate new revenues generated by the sales tax to local governments. According to Summary Document outlining the proposal:

• The new revenue generated by the application of sales tax would be shared with the local governments on an 80% State /20% local basis.
• The distribution of funds would be:  Counties=70%; Municipalities=20%; and Baltimore City=10%.
• As with the application of the sales tax, the revenue sharing would be implemented in three phases.  At a 2% rate, local governments would receive 10% of the new revenue generated.  The local share would increase to 15% at the 4% rate and 20% at the 6% rate.
• When combined with Highway User Revenues, the revenue generated from the application of the sales tax will restore both municipalities and Baltimore City to approximately 70% of their 2008 funding levels and will restore the Counties to nearly half (42%) of their 2008 funding level.

Read the Baltimore Business Journal coverage of the proposal here.