Top Issues of 2021 Session: Highway User Revenues

With the 2021 Legislative Session rapidly approaching, MACo is profiling some major issues that stand to gather attention in the General Assembly’s work. Here, we preview the impact of COVID-19 on Highway User Revenues.

The COVID-19 pandemic has had a number of significant impacts on the revenues, expenditures, and operations of State transportation systems. Reduced travel by all modes of transportation is depleting revenues, and a reduction in demand has led to reduced service levels for most modes.

Transportation needs in Maryland are funded from an integrated account called the Transportation Trust Fund. The Transportation Trust Fund was created in 1971 to establish a dedicated fund to support the Maryland Department of Transportation.

The Transportation Trust Fund is anticipated to close fiscal 2020 with a $114 million fund balance, which is $36 million less than assumed during the 2020 legislative session. Tax and fee revenues assumed in the transportation forecast for fiscal 2021 through 2026 are approximately $900 million less than the estimate in last year’s forecast.

The Department of Legislative Services provides an overview of the Transportation Trust Fund in its annual compilation of Issue Papers:

Based on preliminary numbers from the draft Transportation Trust Fund (TTF) forecast released on September 1, 2020, the TTF ended fiscal 2020 with a fund balance of $114 million, which is $36 million lower than the target closing balance of $150 million.

State-source revenues closed out $454 million lower than projected due to the COVID-19 pandemic. The four largest areas of underattainment were the motor fuel tax (-$116 million, or -14.1%); titling tax (-$90 million, or -9.6%); operating revenues collectively for the port, airport, and transit (-$90 million, or -18.9%); and the corporate income tax (-$43 million, or -23.1%).

Expenditures were only $82 million less than projected due to the use of $336 million of federal Coronavirus Aid, Recovery, and Economic Security Act funding to support operations for transit and the airport.

Highway User Revenues – the share of State motor fuel and vehicle taxes distributed to local governments for their own road and bridge maintenance – are based on revenues from vehicle-registration fees and taxes for gas, corporate income, rental cars, and vehicle titling, all of which are down significantly due to the COVID-19 public health crisis.

The Maryland Department of Transportation in June released revised estimates for local distributions of Highway User Revenues. According to MDOT, in FY 20, 23 counties will see a cumulative reduction of approximately $8.8 million from previous estimates. Baltimore City’s FY 20 reduction totals more than $22.8 million from previous estimates.

For FY 21, MDOT estimates that 23 counties will see a reduction of approximately $6.8 million from previous estimates. Baltimore City’s FY 21 reduction totals more than $17.8 million from previous estimates.

The State created the highway user revenue formula in 1968, and for more than forty years afterward, local governments had received at least 30 percent of transportation revenues — mostly motor fuel tax and vehicle registration fees — to fund their roads and bridges. The Great Recession forced cuts to this area deeper than those in any other component of the state budget.

Following the Great Recession in 2009, the Board of Public Works cut distributions of Highway User Revenues to counties by 90% and by roughly 40% for Baltimore City. Twenty-three counties’ share of funds plummeted from nearly $300 million in 2007 to only $40 million in 2018: an 87 percent decimation. In 2018, Baltimore City alone received nearly $100 million less than it did before the cuts.

A 2018 MACo Legislative Initiative increased the county share of HUR for five years, from FY 2020 through 2024, from 1.5% to 3.2%, with additional funding also supporting Baltimore City and municipal governments.

MACo this year supported with amendments legislation that would have provided long-term stability for county transportation services by dropping the sunset from the 2018 law. The legislation passed through the Senate with amendments and was referred to the House Environment and Transportation Committee, but never received a second reading in the House due to time constraints.

More background on Highway User Revenues, as well as the impact of COVID-19 on the revenues, expenditures, and operations of State transportation systems, can be found in previous Conduit Street coverage, and in the DLS Issue Papers:

MDOT Writes Down FY 20, FY 21 Local HUR Distributions By Millions

Highway User Revenues, 2020 Style

DLS Issue Papers: Transportation Trust Fund Overview

Helpful 2021 Session Links: