Highway User Revenues – What’s On The Table?

County governments, still feeling the permanent effects of devastating cutbacks to state roadway funding, have made restoring Highway User Revenues a perennial legislative priority.

In this article, we explain the Governor’s proposed funding in the FY 2018 budget, its components, and where it fits into the broader debate about a multi-year restoration back to historic funding levels.

Part 1 – Highway User Revenues, Deep Cuts Linger

Technically, Highway User Revenues (HUR) are not a budget line item, but rather they are a statutory distribution of the transportation revenues themselves. A share of fuel taxes and other transportation revenues, set by state law, is directed to local governments through the HUR formula. The dramatic drop in that funding is illustrated in the Department of Legislative Services’ “Overview of State Aid To Local Governments” below:

In the FY 2018 proposed budget, the Governor does not make any changes to Highway User Revenues per se. The distributions to local governments remain in place — 1.5% across 23 counties, and 0.4% across the municipalities. Because transportation revenues are expected to decline slightly, so will these local distributions (compared to the amount in FY 2017).

Part 2 – Extra Grants, Take One (FY 2016 and onward)

Given the Governor’s commitment to restore local road funding, he introduced a multi-year restoration bill during his first legislative session, in 2015. That bill failed, but the Governor has remained committed to the principle, and in his subsequent budget has introduced extra funding – in the budget, not by statute – to make comparable distributions.

2015-transp-grantsIn 2015, the Governor proposed a supplemental budget, with $25 million in new “transportation grants” to local governments. The essential effect of this extra funding was to keep funding flat for each of the three recipients of HUR (because municipal governments has previously received a special municipal-only grant from other sources, their share of the $25m was the largest). The General Assembly passed the budget with that funding intact – thereby creating a two-tier funding for local roadways, using a combination of Highway User Revenues (by statutory allocation) and Grants (by a budget line item). The grants were designated to be distributed (among municipalities and counties) according to the same formula as HUR, and their use was restricted to the same purposes as HUR funding. While they look different in the budget, these funds are effectively just an additional layer of HUR funding.

Part 3 – Extra Grants, Take Two (proposed for FY 17, and again for FY 18)

After the General Assembly did not pass legislation requiring a phase-in restoration of HUR, the Governor still followed through on his intention to fund incrementally more funds, beginning in FY 2017. The Governor proposed to do so by expanding the extra transportation grants, to effect the first year of the 8-year phase-in proposed in his own bill (HB 484 of 2015). This extra $28 million layer of funding was proposed to be distributed more in keeping with the traditional HUR formula:  $23.7m across 23 counties, $3.5m to Baltimore City, and $1.4m to municipalities.

During the 2016 legislative session, this funding was passed by the full Senate, and passed by the full House. However, in a surprise late-session decision, the conference committee appointed to resolve differences in the budget plan struck the final layer of grant funding — and the $28 million of new funds was struck from the budget, leaving only the “hold harmless” grants to continue for a second year.

fy18-proposed-transp-fundingThe Governor has responded by submitting a FY 2018 budget, once again, with the first installment of the phase-in funded as extra grants. The county-by-county detail on these grants is available online from the Department of Legislative Services.

The debate for the General Assembly, again this year, will primarily be the affordability of the “new capital grants” — the line in the chart at left totaling $28 million. That is the difference between a simple flat-funding budget and the first installment toward a multi-year restoration of local road funding – a top priority for MACo.

Is The Terminology “Capital Grants” A Problem?

At the February 1 meeting of MACo’s Legislative Committee, DLS Director Warren Deschenaux offered his opinion that the term “capital grants” for the extra transportation funding was a misnomer – in budgeting parlance, “capital” refers to buildings and permanent structures – and would not ordinarily include the sort of routine maintenance and repairs that constitute the bulk of local Highway User Revenues spending. This follows on similar concerns raised by the staff analysts during last year’s debate.

A solution exists, though, as recommended by the staff analysts:

To ensure adequate oversight by the General Assembly, it is recommended that language be added to the budget bill making the appropriation of this local transportation aid contingent on enactment of legislation modifying the HUR formula and authorizing transfer of the appropriation to the operating program of the State Highway Administration (SHA) to be distributed pursuant to changes made by that legislation.

In other words – eliminate the special capital grants, and simply add the extra distributions via the original statutory formula distribution of transportation revenues. This could be done for one year only, or in some ongoing basis. By placing the new revenues in the HUR statute, all the assurances and protections of that longstanding program would apply, and the full range of proper uses would be continued. The technical issue has a fairly simply solution – particularly in a year where a budget reconciliation bill is expected to be part of a final fiscal package.

The Road Ahead For The 2017 Session

MACo, the Maryland Municipal League, sympathetic legislators, and many other stakeholders who support the restoration of local roadway funds will focus on:

-retaining the funding level provided in the proposed FY 2018 budget

-pursuing a statutory change to lock in a multi-year restoration of funds back to historic levels

Michael Sanderson

Executive Director Maryland Association of Counties