Below is the HillCo client report from the June 24 Senate Select Committee on Transportation Funding, Expenditures and Finance hearing.

The committee met to discuss:
1. The future reliability of all current state transportation funding sources.
2. Alternatives that may increase available state funding for transportation, including an examination of increases to current transportation-related funding streams and possible dedication of non-transportation related funding streams toward transportation.
3. The use of debt financing in state transportation funding, including the uses of the Texas Mobility Fund, and the effects on long-term transportation planning of using debt financing.
4. Alternative transportation funding options used nationally and internationally.
Lt. Gen. Joe Weber, Executive Director, Texas Department of Transportation (TxDOT)

  • Texas voters have the chance to enhance the infrastructure in Texas through Prop. 1 in the constitutional amendment election
  • TxDOT it a modern agency that must continue to adapt in order to continue to be a good steward of the state’s resources
  • TxDOT is improving engineer design software which will be more efficient and effective
  • Texas has a window of opportunity to get things done because of the energy boom the state is experiencing

James Bass, CFO, TxDOT

  • Many states are experiencing serious challenges in transportation finance; funding is rapidly reaching the end of what was just a temporary spike in contracting funds
  • Increasing fuel efficiency of the nation’s fleet is decreasing the amount of gas tax being generated
  • The revenues in the state highway fund are being affected by inflation as highway construction costs are rising rapidly
  • If state motor fuels tax had been indexed to consumer inflation, another $1 billion would currently be available to TxDOT through fuel taxes; it would be even higher if it were indexed to construction cost inflation
  • Motor registration fees are also not indexed to consumer inflation; again, it would have been more if indexed to construction cost inflation
  • Reimbursements from federal partners comprise 1/3 of TxDOT’s budget; because congress has not passed a long-term reauthorization of the transportation bill the federal highway fund is becoming unreliable; later this summer the federal highway fund will not be able to fully reimburse the state so short term borrowing is more important than in the recent past
  • Texas mobility fund is estimated at $6.9 billion in contracting ability
  • 98% of the revenue dedicated to this fund come from inspection fees, license fees and title fees
  • Recently refinanced some current bonds and were able to get lower rates; saved the state $150 million in future debt service
  • Recently refinanced some outstanding Prop 14 bonds to save a little over $100 million for future debt service payments
  • In 2011 a report by the 2030 Committee assessed the state’s transportation needs; in order to maintain roads and keep congestion at 2010 levels the state would need $10.8 billion each year for the next 20 years
    • There is around a $4 billion gap in available funding over necessary funding
  • Increased road use due to energy development is wearing down roads in those oil patch areas and would take another $1 billion each year to counteract that wear and tear
  • Sen. Kevin Eltife noted the state’s debt has effectively doubled over the last ten years and a big part of that is TxDOT bonds; raising taxes and paying cash for these projects is far more conservative an approach than debt
  • Chairman Robert Nichols noted Prop. 14 bonds have an available capacity of $700 million and Prop. 12 has an available capacity of $300 million but those dollars are already allocated to projects
  • Sen. Judith Zaffirini asked if there are any recommended changes to the motor fuels tax
    • Do not advocate any changes but some states have recently increased their rate; some states also index their rate to inflation; there is also talk about increased fuel efficiency and alternative fuels killing the fuel tax and states moving toward a mileage based assessment
  • Zaffirini asked how inconsistency of federal funding will impact TxDOT
    • Taking a conservative approach, planning for fewer projects
  • Zaffirini asked about the status of the $250 million windfall in registration fees from last session
    • It ended up being $267 million; still available for appropriation in the state highway fund
  • Zaffirini asked about the gravel road plan in the energy sector
    • There are no plans to treat any additional roadways with high-end unpaved surfaces
  • Zaffirini asked about the tolled SH 130 having problems
    • Do not anticipate the developer will have a payment default in June; traffic and revenue projections have been far less than anticipated; a long term solution between the developer and their lenders needs to be in place by the end of the calendar year according to Moody’s
  • Sen. Kel Seliger noted that not only has funding been unpredictable and irregular but the agency has as well; noted a bridge project in his district has been scheduled for renovations but nothing has been done for quite some time; robust funding must be accompanied by some type of confidence in the agency
    • Weber agreed that management and prioritization processes within the agency may not be adequate
  • Sen. Juan Hinojosa would like to see ideas from the agency for new funding sources
    • Bass noted a $.01 increase to motor fuels tax rates would raise $116 million per year; raising the rate for diesel by $.05 would generate $200 million per year; if the legislature decided to send 100% of motor fuels taxes to TxDOT it would be around a $700 million per year increase; a $10 increase in vehicle registration fees would generate around $210 million per year
  • Sen. Carlos Uresti made the point that 238 counties of 254 in the state are impacted by oil and gas industries and the others still have oil and gas traffic moving through them; why is the “oil patch” idea still around when so much of the state is impacted
    • Just a legacy term; some counties are affected to a greater extent
  • Sen. Donna Campbell asked about the $1 billion needed from the energy sector; how would that money be spent
    • It would be used to repair existing damage and to armor up roads that are expected to be damaged, not used to gravel roads
  • Campbell asked if the $4 billion shortfall figure is only for maintain existing infrastructure or also to build new roads
    • It accounts for maintenance and enough added capacity to maintain congestion at 2010 levels
  • Campbell asked what is needed over and above that number for enough added capacity to improve congestion levels
    • It would depend on how much of a congestion decrease is desired; would need a guidepost decrease level to make that analysis
  • Nichols noted the unappropriated amount from the registration fee windfall coupled with additional funds is around $400 million that the agency cannot use; around 10 years ago, a rider in the budget was written to allow dedicated revenue streams to be use by TxDOT for maintenance and construction if the appropriated amount is less than the amount in the fund
    • Before the funds are used, LBB approval is required
  • Nichols noted in 2005 the legislature put that restriction in and now the money cannot be used ; could take a look at that next session
  • Hinojosa noted $135 million is from the offset in DPS funds and $267 million is from the registration fees
    • Bass noted there is another $25 million from the sale of some land that goes into that unappropriated amount as well
  • Seliger asked if registration fees go anywhere else
    • They all go to the state highway fund but some is withheld by counties; oversize and overweight permits send some money to GR and some to the state highway fund
  • Campbell asked about the $400 million; can it be used now
    • Not without approval

Thomas Galvan, Transportation Analyst, Legislative Budget Board

  • Driver’s license fees primarily go to the state highway fund
  • Motor vehicle registration fees collected by counties are primarily deposited to the county road and bridge fund up to $60,000 per year; after that 50% goes to the county road and bridge fund up to $25,000 and the rest goes to the state highway fund
  • Part of inspection fees go to the Texas mobility fund and part to the clean air fund
  • Seliger asked what those funds go to in the clean air fund
    • Different programs administered by TCEQ
  • Seliger noted those don’t go primarily to transportation needs
    • Historically there has been more money coming in than being appropriated; the balance available for certification for the ‘14-15 biennium is around $209 million
  • State traffic fines for conviction of traffic violations send 30% to trauma centers and around 70% to GR; if drivers responsibility surcharges and traffic fines reach $250 million, the amount over and above that is sent to the mobility fund
  • Seliger asked if there are unexpended balances in the trauma fund
    • Yes, not sure what that balance is
  • Zaffirini noted that just because some dedicated accounts have unappropriated funds, it does not mean there is not a need for those funds in the programs they have been dedicated to
  • Campbell noted that there still may be excess that the programs do not need that could go to transportation needs
  • The gasoline tax sends 25% to the available school fund and 25% up to around $7 million to county road funds; the remainder is sent to the state highway fund; 1% also goes to the comptroller for administration
  • Campbell asked how much the 1% is
    • Around $30 million per year; subject to appropriation
  • Fines for gross weight and axle weight limitation overages are deposited to local treasuries; the funds are then sent to numerous accounts
  • For unappropriated amounts in the state highway fund; a request is deemed approved if the LBB doesn’t send a letter of disapproval within 15 days of the request
  • Nichols asked about estimates on diesel fuel tax; lots of major fleets are converting over to natural gas; will negatively impact revenues
  • Combined motor fuel tax deposits for 2001 were just over $2 billion; $2.336 billion in 2013
  • Registration fee revenues for 2000 were $744 million; $1.36 billion in 2013
  • Returns from the federal highway fund vary from around 85% to 120%; averages about 94%; those numbers are the ratio of what we send to Washington and what comes back to Texas
  • For the trauma account the unused balance for the ’14-15 biennium is around $94 million

Whitney Brewster, Executive Director, Texas Department of Motor Vehicles (DMV)

  • Brewster detailed which accounts receive funding from vehicle registration and title fees
  • HB 2202 (83R) redirected DMV revenue streams into the new TxDMV fund; HB 6 (83R) abolished the TxDMV fund and redirected those fees to GR
  • Campbell noted that county collected funds are deposited electronically now but the county can keep the funds in interest bearing accounts for up to 34 days; what is done with that interest
    • Not sure about the restrictions on those dollars; they are deposited to counties’ general funds

John Heleman, Chief Revenue Estimator, Office of the Comptroller

  • Motor vehicles sales tax is the second largest tax that goes to GR behind the general sales tax
  • The tax has been volatile in the past decade; in 2003 and 2009 it declined substantially in response to the recession but also rebounded strongly; in the last decade it has increased from $2.5 billion to $3.5 billion
    • In the decade before it grew at approximately the same rate as personal income
  • A sales tax of this kind will grow somewhat faster than the motor fuels tax which is volumetric but the fuel tax is much more stable
  • The motor vehicle rental tax is somewhat more stable
  • The manufactured housing tax has been decreasing due to the end of the housing boom and increased mortgage rates
  • General sale tax collected on automotive parts and tires is substantial; approximately 2% of the entire general sale tax; if the legislature wanted to address this item it would be good to have a precise definition of auto parts; if the legislature wanted to deposit these to a dedicated account, it should create a line item on the tax form
  • Alternative fuels are taxed at a rate of $.15 per gallon instead of $.20; approximately 75% of that goes to the highway fund and 25% to the school fund

Kirk Davenport, Office of the Comptroller

  • Prior to August 31, 2013, the tax on CNG and LNG was based on the registered gross weight and miles travelled by the vehicle registered in Texas; vehicles registered outside the state paid $.15 per gallon; now they all pay the set amount of $.15
  • Nichols noted vehicles converting to CNG and LNG will pay 25% less in fuels tax and lots of conversions are being made

David Ellis, Research Scientist, Texas A&M Transportation Institute

  • Agree that it would take an additional $4 billion per year to maintain 2010 pavement and mobility conditions
    • That number assumes the same percentage of toll roads, inflation, population increase, fuel efficiency, etc.
  • If there is a desire to increase mobility rather than maintain the 2010 levels it would require more money but not at a linear rate
  • This summer the institute will be building a component for CNG and LNG at greater penetration within the revenue estimation models
  • The highway cost index has outpaced the consumer price index at a significant rate; this is a function of materials cost which are mainly commodities (oil, steel, cement, etc.)
  • Considering all cost factors, a road built in 2010 would cost about 20% more in 2014 and about 50% more in 2018
  • Nichols asked about toll roads
    • There are currently just over 400 center lane miles of toll roads in Texas with a revenue of $1.3 billion per year