Friday, August 24, 2007

The road replacement blues

Today's story in the Milwaukee Journal-Sentinel on Milwaukee's inability to properly budget for city street resurfacing brings up one major issue: In the Mayor's quest to rectify the situation (i.e. reduce the replacement cycle for side-streets from 163 years to 60 years), where is the money going to come from?

You can bet that it won't come from the city's general fund. Crime is the issue of the day and I can guess where any spare property tax dollars will flow.

A more likely scenario is for the city to try to persuade the state to grant more aid for street repair. Currently, over half of the city's budget for street, alley and sidewalk reconstruction and maintenance comes from state and federal aid (see page 129 of the city budget, here). The problem with the city trying to hit up the state for more street repair dollars is that the state may have problems of its own in raising revenue in the near future. There are a few trends that need to be highlighted.

First, we are driving less. The theory is that since gas costs more these days, folks have cut back on driving (see below chart).

While that's good for the environment, that's bad for the state budget since the state gets revenue from a tax on gasoline. Also, we are not buying as many SUVs. Again, this is good for the environment, but bad for gas tax revenue. There is nothing like a gas-guzzling vehicle to produce a revenue windfall for government. That windfall will likely abate as we enter the hybrid car era. See the below chart to note the recent tapering in fuel tax collections.

Lastly, the legislature recently repealed the automatic indexing of the gas tax - a policy that increased the gas tax on an annual basis without any vote or debate. Some would call this taxation without representation, others would call this an effective revenue enhancer. The non-partisan Legislative Audit Bureau has said the following about the repeal of the gas tax:

"In the fiscal estimates for the bill, the Department of Revenue and the Department of Transportation estimated a loss to the Transportation Fund of $5.1 million for the portion of Fiscal Year 2007 affected by the bill, with reductions of $26.0 million for FY 2008 and $41.9 million for FY 2009."
In other words, Wisconsinites can count on less and less money from the gas tax in the coming years. Sure, the city may still try to hit up the state for funds to repair it's crumbling infrastructure, but the data suggest that this strategy won't pay unless the state raises taxes or everyone buys an SUV as their next car. Pick your poison.

No comments: