Taking the Longer Look at Transportation Funding

In this year’s summary of Aid to Local Governments, the Department of Legislative Services prepared its typical ten-year trend on Highway User Revenues. Here’s why it’s essential to peek back just one more year – to put this important fiscal issue in some real context. Spoiler alert: the story really, really changes.

What are Highway User Revenues, Anyway?

Highway User Revenues (HUR) are the share of gas tax and vehicle titling tax dedicated for local roadways and bridges. Maryland is like most states, where there are no local gas taxes – all these revenues are levied by the State. Since most roads (about 5 of every 6 road miles) are actually maintained by local governments, the State has historically shared a portion of these revenues, through a formula, to the county and municipal governments who maintain most of the roads.

The Ten-Year Trend Looks Encouraging

State Funding for Local Highway User Revenues ($ in Millions)

Data from the Maryland Department of Legislative Services

It sure does. When we start at FY 2010 and advance to the FY 2020 budget, it looks like a gradual—but meaningful—move forward for these local dollars.

FY 2020, as proposed, is the result of a hard-fought effort resulting in bipartisan legislation to create a new funding tier for local roads and bridges. That funding level should remain in place for five years, through FY 2024, unless the budget is cut or the statute changed again. That funding stability was welcomed by local transportation planners, who are able to forecast a revenue stream without year-to-year uncertainty about political wrangling.

However… ten years is only part of the story.

Look Back to See the Rest of the Story

Let’s go back just one more year, and see what this ten-year trend-line of funding for local roads and bridges looked like last year:

Local Highway User Revenues Since Fiscal 2007

Data from the Maryland Department of Legislative Services

Wait… can this possibly be right? Over $550 million in FY 2008? How did that turn into a ten-year trend-line that starts at only $164 million?

“The Great Recession” happened. Maryland, like all state governments, saw a massive drop-off in income tax and sales tax revenues, along with the dramatic economic downturn. Amidst a scurry to reconcile the State’s finances, cutbacks were made to the FY 2009 and 2010 budgets in many areas including about $160 million in reductions to county-only Highway User Revenues by the General Assembly, as part of that year’s budget reconciliation bill. That was a plan for short-term fiscal relief to benefit the State’s general fund.

Things got worse…revenues were again written down in the summertime. In August of 2009, just a few weeks into the new fiscal year, the Board of Public Works approved a dramatic cut to Highway User Revenues – a 90% reduction of remaining funds for all 23 counties, and for the municipalities. Nothing like that had ever been proposed before. Since these were mid-year cutbacks, with the General Assembly out of session, the BPW approval was all it took. Suddenly, local governments were canceling virtually all their repairs and maintenance projects, releasing contractors, and postponing any new construction.

Short Term Fix Becomes Permanent Policy

Things were not much better by the 2010 session. That year’s budget reconciliation bill called for the Highway User Revenues to again be cut and diverted to the State General Fund. But that year, the cut was made ongoing – not just for one or two years, but for future years as well.

Since then, the modest upward trend started. Some modest growth was built into the funding shift in 2010. Some one-time funds were made available for municipal roads in FY 2014, and then extended into subsequent years. From FY 2016 through FY 2019, varying levels of additional capital grants were included in each year’s budget, as a partial response to local governments’ pleading for attention to the neglected local roads and bridges that had been on this “starvation diet” for years.

The 2018 session saw a good step forward – roughly $20 million more in funding, and a pledge for it to last five years. But that progress from FY 2010 (the year of the first big cutback) overlooks that this entire funding cycle is a betrayal of the long-term fair funding split that served Maryland so well for decades.

What About Baltimore City?

Baltimore City has always been an outlier with transportation. No exception here.

City Government maintains all the State roads in its boundaries (except parts of Interstates 95 and 83) – no other jurisdiction has such a responsibility. So, the City share of Highway User Revenues had always been outsized to reflect this enormous fiscal obligation.

In 2009, when the deep cuts came, the Board of Public Works adopted a 90% cut to other jurisdictions, but only a 40% cut to Baltimore City. On the surface, that suggests the City was spared the full effect of the cutback. But consider the amount of the funding lost – City funds dropped by a breathtaking $94 million from their FY 2007 high to the FY 2011 level. Other large jurisdictions lost a lot (Baltimore County lost $40 million for reference) but Baltimore City absorbed by far the deepest reduction.

Then and Now

So, this is where we used to be (the budget in place during the 2009 session, before the cutbacks):

Local Highway User Revenue Allocations in Fiscal 2009

Data from the Maryland Department of Legislative Services

And, here’s where we are for the year ahead – same chart, a decade or so later (2019 session):

Local Highway User Revenue Allocations in Fiscal 2020

Data from the Maryland Department of Legislative Services

So… THAT is the real story. For decades, the State recognized that:

  1. Vehicle users are the appropriate way to fund transportation infrastructure; and
  2. Maryland doesn’t allow its local governments any local gasoline or vehicle taxes; so
  3. Sharing 30% of the State transportation revenues was the fair way to maintain local roads.

But the Great Recession caused this principle to be cast aside. And subsequent decisions have locked it into long-term policy.

We now pay for local transportation needs through local property taxes. It’s not what the voters want, it’s not the deal they believe they’re getting, but it’s the reality in local government.

What Should We Do?

MACo, representing county governments, and the Maryland Municipal League (MML), representing cities and towns, are not pushing Highway User Revenue legislation this year. It’s a change – it’s been our mutual top priority for years. We recognize the effort to create the new funding tier for the next few years, and appreciate that broad bipartisan effort.

But we ask that State policymakers remember this important context. We still have not fixed this problem. It’s still the largest issue between the State and the counties…the county governments are now being funded at about 20 cents on the dollar compared to the last good years.

It’s been ten years. Three elections. Some members are going to lose track of this. Don’t let that be you.

Remember How It’s Supposed To Be – The gas tax should fund roads everywhere. We should fix it when we can.

Michael Sanderson

Executive Director Maryland Association of Counties