Governor Moore and his Transportation Secretary have laid out hard decisions ahead, as the State faces a shortfall in its Transportation Trust Fund supporting all modes of transportation statewide. Among the proposed cutbacks are several with direct county impact. This Q&A style “Deep Dive” will walk through what’s on the table, what lies ahead, and where things could land for the short and longer term.
Q: Let’s start with the basics, how does Maryland fund transportation projects, generally?
The A-B-C’s here are pretty straightforward. Maryland has a stand-alone special fund that supports the many modes of transportation across the state. This is somewhat unusual – other states have different modes (like airport, transit, highways) on islands and treated as individual units – but in Maryland they all are supported by the consolidated Transportation Trust Fund.
From the MDOT website:
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 (MDOT). The use of this integrated trust fund approach allows Maryland tremendous flexibility to meet varying transportation service and infrastructure needs. The continuing commitment to these needs has provided Maryland with the excellent infrastructure system necessary to support the economic growth of the State.
All activities of the Department are supported by the Transportation Trust Fund, including debt service, maintenance, operations, administration, and capital projects. From the funds available for the capital programs, certain capital funds must be paid to the Washington Metropolitan Area Transit Authority and paid as capital grants to local jurisdictions.
The Motor Vehicle Administration is a somewhat stand-alone entity, with user fees and charges designed to create substantial cost recovery for its operations, as an exception to the general rule that the TTF covers all transportation services. The other principal exception is the Maryland Transportation Administration, that collects tolls on certain facilities, and supports its own projects and maintenance costs through those revenues.
Q: Where does the TTF get its funding?
Maryland, like nearly all states, powers its transportation mainly through revenue sources connected to transportation activities: taxes on vehicles, motor fuels, and registration fees.
The Department of Legislative Services, in its FY 2024 budget analysis of the Department, offered this tidy summary:
Noteworthy here, and important to the fiscal crisis appearing now – the Department routinely leverages its own revenue sources, along with federal distributions, by issuing bonds for capital projects. So, there is an underlying “leverage” in the Department of Transportation that is unlike any other State agency or department.
Q: What’s the financial worry right now?
In the continuing equation of revenues and expenditures, the current shortfall has been brewing for a while. Again from the DLS analysis from the 2023 legislative session, the nonpartisan fiscal staffing agency raised these concerns as their #1 “issue” in the Department’s overall budget analysis:
The State has, in recent years, diverted general fund revenue (from non-transportation sources) to help support certain components of the Transportation program, especially the subsidy of DC Metro-area transit. But project costs, stagnation in motor fuel revenues, and a decline in short-term federal funding have conspired to create a fiscal crunch landing now.
Q: So, what is the plan to adjust for the shortfall?
The clearest overall source of information on the proposed response is the summary document from MDOT, distributed in early December to many stakeholders including county leaders. That 23-page document is available on the MDOT website. From the MDOT summary:
To balance the budget, MDOT is tightening its belt across all modes and The Secretary’s Office (TSO). Each mode and TSO will reduce its operating budget by eight percent, in addition to reductions to each modes’ capital program. This document outlines the many steps necessary to produce a balanced CTP, including reductions internal to the Department and delays to capital projects and programs delivering results across the state.
With a planned January 2024 release for the final CTP, this document reflects the difficult reality of the Department’s funding situation and associated feedback received from each county and Baltimore City as part of the Department’s CTP visits this fall. States across the nation are struggling with how to best fund transportation systems in a rapidly changing economy as the efficacy of traditional sources of revenue, like the gas tax, continues to decline. Fixing the state’s transportation funding program will require a comprehensive solution that not only funds today’s projects but ensures the long-term solvency of our Transportation Trust Fund.
The 8% reduction standard is across multiple modes, with many details spelled out in the MDOT summary. It’s a dire adjustment overall, and will trim back services and reduce the number and scale of many state-supported projects.
Q: Isn’t the State already digging into transportation funding?
Yes, the General Assembly created the Transportation Revenue and Infrastructure Investment Needs Commission, scheduled to meet through the end of next year and make its recommendations on long term financing options. From its website:
So, that group is pointing toward interim recommendations for this session ahead, but it won’t have its final reports until late in 2024.
Q: Okay, that’s the big picture. Where does this hit counties?
County governments in Maryland have no transportation revenue source of their own – no local gas tax, no revenue from license plates or the vehicle tax. It all is levied by the State and sent to local governments through a formula – the widely-discussed Highway User Revenues.
Local governments own and maintain around 83% of the statewide road miles, and these funds have long been an essential fuel to keep local roadways safely maintained.
There’s a profound history with Highway User Revenues – created in the 1960s and serving Maryland fairly for decades. But budget cuts in the 2009 “great recession” clipped back the share of these funds sent to local governments, and the political struggle to restore that fair balance has been a frustratingly slow process.
Read this social media thread from MACo’s own Kevin Kinnally for some important context for where we’ve been with Highway User Revenues, and where these cuts will land and exacerbate the already dicey situation for counties:
So, among the cutbacks in the MDOT plan is to cut back the statutory level of Highway User Funds to the 23 counties from 18% to 15.6%. That’s going to be a cut of more than $13 million to the 23 counties. And the effect would be double in FY 26, when another statutory increase will be wiped out, roughly doubling the effect on the counties going forward.
Baltimore City takes an even harder hit here, with a $32.9 million reduction in FY25, and again roughly doubled in the following year. Cities and towns suffer a $6.6 million reduction in the coming year.
The full details of the HUR reductions, including county-by-county effects, are shown in an MDOT summary chart online.
Q: What else beyond Highway User Revenues? Other Bad News?
Sadly, yes. Once again, reflecting the lack of any local transportation revenue authority, the State has supported locally operated transit systems (or LOTS, as the program is styled) through supporting grants based on local services.
Unlike the 8% reductions being effected in multiple areas, the plan calls for a 40% reduction in State-supported LOTS funds, roughly a $24 million cut on its own:
The metro-DC area already shoulders the largest county-supported service, so the reductions are largest there in total numbers, but this budgetary impact will surely be felt across every local service system.
Q: So, how does this whole plan happen? Is it a done deal, or will it need approval, and by whom?
First – the Department of Transportation, as an executive branch agency with a unique degree of flexibility in its fiscal operations, has the ability to restrain spending within and across its own agencies and projects. So, those proposed cutbacks could simply take effect on July 1 (the start of the next fiscal year) or even sooner, at the Governor’s or the Department’s discretion. No new legislation, regulations, or oversight-body approval is needed for those internal belt-tightening measures.
The LOTS program is funded by the Department, but there is not a statutory formula or mandate that it be funded at any specific level. Legislation from 2023 actually sought to create clearer mandated funding levels, but the bill did not pass including those elements – only the general structure. So, the Administration/Department may introduce its proposed budget for FY 2025 (in January) to include the reduced funding levels proposed in the summary above. No statutory change is required to make that reduction, either.
Highway User Revenues are different. That formula, and the year-by-year distribution is set in state statute, and would have to be amended by the General Assembly to effect the changes being proposed. The cutbacks directly contradict the General Assembly’s policy decision from just a couple years ago — but the fiscal circumstances of the TTF have changed and the reductions may be an unavoidable component of the fiscal plan ahead.
Look for the proposed reductions to Highway User Revenues to be introduced either as part of a multi-component Budget Reconciliation and Financing Act (a traditional bill introduced to make any statutory changes required to balance the proposed fiscal plan, since the budget bill itself may not do so), or in a stand-alone bill introduced on the Administration’s behalf. That means a public hearing, and an opportunity for comment from stakeholders including local governments.
Q: Where is there more information on all this?
The MDOT landing page for the current Consolidated Transportation Plan has the most centralized resources for understanding the effects on your county.
Quick links:
Highway User Revenue reductions by local jurisdiction
The current/prior path of slowly restoring local HUR funding
Locally Operated Transit proposed reductions
Summary of the current LOTS program
And as always, contact the MACo staff with any further questions or insights.
