States Seek Promise of Infrastructure Money From Trump (UPDATED)

Daily Tax Report: State provides authoritative coverage of state and local tax developments across the 50 U.S. states and the District of Columbia, tracking legislative and regulatory updates,...

By Che Odom

Already cash-strapped states and cities are concerned President Donald Trump’s plans for $1 trillion worth of infrastructure projects will rely too heavily on them for financing.

Some states and groups representing them say a hike in direct federal funds is needed, as locals have already been raising fuel taxes and other fees to cover transportation needs.

They’re concerned with White House plans to cut hundreds of millions of dollars in federal grants for roads, rail, transit, water and sewer, trash, and various port projects. They’re also worried about lingering talk in Washington of eliminating the federal tax exemption for municipal bond interest.

Colorado Gov. John Hickenlooper (D) told Bloomberg BNA the federal government appears to want to shift “the burden of cost” onto local governments, just as the White House is calling for more spending on roads, bridges, and other infrastructure. That approach “doesn’t seem wise,” he said.

It isn’t clear if states and localities can take on significant additional debt and spending for infrastructure, according to John Hicks, executive director of the National Association of State Budget Officers. Two-thirds of U.S. states have reduced revenue estimates this year, and about half are still spending less than they were before the recession, adjusted for inflation, he told Bloomberg BNA.

States also are bracing for cuts to Medicaid that could accompany a replacement for the Affordable Care Act, as Medicaid spending is the second largest budget item for states.

‘Lack of Momentum’

In addition to reducing regulation and “massively streamlining permitting,” Trump pledges $200 billion in direct federal funding to leverage another $800 billion in investments from states, local governments, and the private sector. He also wants to “help state and local governments prioritize” projects to get the maximum benefit, “especially in rural America,” he said June 7 in Cincinnati, Ohio.

“Everything about it will be great,” he said. The president held a summit with governors and mayors at the White House late June 8 to discuss infrastructure.

The president’s strategy can work, Michael S. Burke, CEO of multinational engineering firm AECOM, told Bloomberg TV. The Russia probe into the Trump campaign and the “lack of momentum in Washington” on infrastructure does concern him, but he thinks a bill has a good chance of getting through Congress this year, even if pared down.

That’s because these projects, such as a gateway tunnel into New York City, would stimulate the economy, which should be appealing to Democrats and Republicans, as well as state, local, and federal governments, he said.

Nation’s Largest State

Over the past 12 months, states have sought a range of solutions to pay for public-works upgrades, from raising rates on vehicle registration to taxing millionaires.

California lawmakers and Gov. Jerry Brown (D), acknowledging that infrastructure had been ignored for too long, enacted the state’s first hike to the base gasoline excise tax in 23 years and established a new transportation improvement fee to go into effect this year. A June 8 Legislative Analyst’s Office report said the two changes will raise revenue by $5.2 billion annually for the next 10 years.

The base gas excise tax will jump to 30 cents per gallon from 18 cents Nov. 1.

The additional money will go toward improving highways, local roads, rail, freight service, ports, and trade corridor enhancements, the report said.

Tax or Not

Many states, however, have less of an appetite for tax increases. Colorado lawmakers took a creative route in May to raise dough for infrastructure because the state’s Taxpayer Bill of Rights prevents them from hiking taxes without voter approval.

The General Assembly recast the state’s hospital provider fee as an “enterprise,” which alters the character of the money raised so that it is no longer subject to voter approval. The move enables the state to execute lease-purchase agreements—through the mortgage of state buildings—to fund $1.9 billion in strategic transportation projects, in addition to capital construction projects.

The measure came after the Legislature failed to approve a proposed 0.5 percent increase in the statewide sales tax to raise $3.5 billion for transportation.

Maybe Lockbox

Connecticut, another place where the freeze and thaw of winter cracks pipes and opens holes in road, also is struggling to find money for necessary repairs and maintenance. Its Senate proposes spending $361 million on infrastructure projects, while the House proposes $866 million. Both figures may be unrealistic, because the state is experiencing a $3 billion budget shortfall over the next two fiscal years.

However, on June 6, the House passed a constitutional amendment to place whatever transportation funds exist in a lockbox so the money may not be used for other purposes. Both the governor and lieutenant governor have signaled approval for it.

More Tolls

Vice President Mike Pence’s home state of Indiana raised fuel taxes this year by 10 cents per gallon and increased vehicle registration fees to help fund a 20-year roads-and-bridges plan, as well as a $1.2 billion increase in the state transportation budget. The measures are projected to raise $5 billion over the next seven years.

The state, along with Wyoming and possible others, seeks federal approval to toll interstate highways to bolster its transportation budget.

Trump proposed relaxing restrictions on tolling interstate highways and lifting a $15 billion cap on tax-exempt bonds for private investors, among other broad principles, for his $1 trillion infrastructure plan June 7.

In Ohio, like other states, the Legislature enacted increases to driver’s license registration and service fees, which would raise $6.4 million for the state and counties that choose to enact the fee. Lawmakers also enacted a transportation budget that allows counties to levy a $5 annual license tax per motor vehicle registered within the county. The money would go toward county infrastructure costs.

Battle Continues

Pointing to tight state budgets, the National Governors Association, the U.S. Conference of Mayors, and other lobbying groups are pushing for additional money for infrastructure, private-public partnerships, and a continuation of the tax exemption on municipal bond interest.

“Stated simply, state and local governments will want to preserve the existing rule for tax exemption of municipal bond interest because to eliminate it would increase the cost of borrowing,” Charles Henck, an attorney and partner in the Washington office of Ballard Spahr LLP who specializes in tax matters, told Bloomberg BNA.

Municipal bonds are the primary means states and cities use to finance large public projects. Elimination of the exemption could make the bonds less attractive to investors. The president has said he isn’t interested in ending the exemption, but some House Republicans have said it is on the table.

Philadelphia Mayor Jim Kenney (D) said ending the exemption would be misguided.

“Anything that takes away incentives for municipalities to invest in infrastructure would be moving in the wrong direction,” Mike Dunn, Kenney’s spokesman, told Bloomberg BNA in an email.

Bipartisanship ‘Evaporated’

Those interested in preserving the tax treatment of bonds need to keep working with the Municipal Finance Caucus, Susan B. Hirschmann, CEO of the independent Washington lobbying firm of Williams and Jensen PLLC, told Bloomberg BNA.

The caucus consists of 20 bipartisan House members who work on financial issues facing states and local governments.

“I’ve been in D.C. long enough to know that an initial Executive Branch proposal, regardless of the administration, is a very long way from what eventually becomes law,” she said.

Trump’s infrastructure plan suffers from a couple of problems, lack of details and no chance at bipartisan support, said Greg Valliere, chief global strategist of Horizon Investments LLC.

A handful of Democrats might have endorsed his plan if he had “made it his first major bill,” Valliere told Bloomberg BNA in an email. “Now, unfortunately, the idea of a bipartisan approach to anything has evaporated,” he said, pointing to Trump’s use of “over-the-top” Tweets and the ongoing Russia investigations.

‘Fair Share’

U.S. Transportation Secretary Elaine Chao said last week that the federal government will do its “fair share,” but that it doesn’t want to create a disincentive for states and localities to do more. The White House said in a fact sheet for the plan that the federal government “should support more communities moving toward a model of independence.”

Trump’s budget proposal also called for cutting $928 million from a federal grant program for transit projects and $499 million from another that funds road, rail, transit, and port projects that have significant regional or national impact. It would also reduce spending from the federal Highway Trust Fund after 2020 to match declining revenue.

The transportation cuts and others in such programs as Community Development Block Grants would be “devastating” and could bankrupt small cities, Matt Zone, president of the National League of Cities and a Cleveland councilman, told Bloomberg BNA.

With assistance from Adrianne Appel in Boston; Andrew M. Ballard in Raleigh, N.C.; Tripp Baltz in Denver; Michael J. Bologna in Chicago; Christopher Brown in St. Louis; Alexander Ebert in Columbus, Ohio; John Herzfeld in New York; Nushin Huq in Houston; Laura Mahoney in Sacramento, Calif.; Aaron Nicodemus in Boston; Leslie A. Pappas in Philadelphia; Steve Quinn in Juneau, Alaska; Paul Shukovsky in Seattle; Gerald B. Silverman in Albany, N.Y.; and Paul Stinson in Austin, Texas.

To contact the reporter on this story: Che Odom at COdom@bna.com

To contact the editor responsible for this story: Ryan C. Tuck at rtuck@bna.com

State Actions This Year on Infrastructure
Alabama Bill may be reintroduced for 22 percent gas tax hike and $2.45 billion in bond financing roads and bridges.
Alaska Governor has proposed doubling the 8 cents-a-gallon motor-fuel tax to 16 cents as of July 1 and another 8 cents a gallon July 1, 2018. Current rate is the lowest in U.S.
Arizona Bill to increase fuel tax to pay for roads withdrawn because of lack of support.
Arkansas State highway commission said it would pursue a ballot initiative for the 2018 general election that would raise up to $400 million annually for road construction.
California Increase of sales and excise taxes on gasoline and new fees on vehicle registration enacted in May to raise $5 billion a year for infrastructure.
Colorado Made changes to hospital provider fee to generate money for transportation infrastructure needs.
Connecticut Senate proposes to spend $361 million on infrastructure projects, while House proposes spending $866 million. House also passed a constitution amendment to place funds in a lockbox.
Delaware Transportation didn't play a big role in the governor's budget reset proposal in March 23.
Florida Has a relatively high fuel tax that adjusts annually.
Georgia Passed a fuel tax overhaul in 2015, expected to bring in $900 million annually.
Hawaii American Society of Civil Engineers says almost 40 percent of Hawaii roads are in poor condition.
Idaho Phased gas-tax increase began with a 4-cent boost last year, taking Idaho's 25-cent-per-gallon fuel tax up to 29 cents. That will go to 33 cents a gallon July 1, then to 35 cents July 1, 2019.
Illinois State hasn't had a budget in two years, and there are no real discussions to do much with roads or infrastructure.
Indiana State raised fuel taxes by 10 cents per gallon and hiked vehicle registration fees to help fund a 20-year roads and bridges plan.
Iowa State transportation commission in May released a draft of a new $3.5 billion, five-year plan to guide the development of the state's highway system between 2018 and 2022.
Kansas State Sen. Jim Denning (R) steered passage of an amendment to the Senate's budget to cap bond debt at the Department of Transportation at $1.9 billion as part of two-year spending plan.
Kentucky State's budget director anticipates a budget shortfall of about $113 million and the state's retirement funds are draining money.
Louisiana Bill to increase gas tax, first by 17 cents, then to 10 cents, failed this year.
Maine State still debating governor's $6.8 billion biennial budget, due to be finalized by June 30. It includes 66 changes to transportation funding.
Maryland General Assembly passed $2.636 billion for the transportation program.
Massachusetts Legislature is considering a 4 percent surcharge on incomes greater than $1 million. Money from “Millionaires Tax” would go to support education, transportation.
Michigan Infrastructure wasn't a big discussion topic this past session during budget negotiations. House bill would create a Rail Freight Economic Department.
Minnesota Legislature and governor approved borrowing for roads and bridges, and hiked vehicle-related sales taxes.
Mississippi Bill to levy a remote tax to pay for infrastructure died in Senate. No taxes related to transportation funding were increased this year.
Missouri New data show it's unlikely Missouri revenues will grow enough to fully fund the budget passed by lawmakers last year, putting millions in construction projects in jeopardy.
Montana Motorists will pay 4.5 cents more per gallon of gasoline in fiscal year 2018. The tax will increase by 6 cents a gallon and by 2 cents a gallon on diesel fuel to fund repair roads, bridges and other infrastructure needs.
Nebraska Legislature didn't pass any bill raising taxes or transportation funding during the 2017 session.
Nevada No movement by Legislature on state's 33.15 cents-per-gallon gasoline tax.
New Hampshire Governor's $12.1 billion, two-year budget, which includes $84 million for bridges and roads, must be passed by June 30. Other measures would allow towns to increase car registration fees to fund infrastructure. State DOT says 32 percent of roads in poor or very poor condition.
New Jersey Governor this year seeking $400 million addition to state Transportation Trust Fund to address bridge and road repairs and transit technology upgrades.
New Mexico Governor vetoed tax increases on gasoline and diesel fuel.
New York No tax changes in the approved FY 2018 budget were earmarked for infrastructure.
North Carolina House's $2.3 billion spending plan for transportation/infrastructure, higher than Senate's, focuses more on ferries, coastal dredging, and ports and airports, while Senate budget emphasizes bridges.
North Dakota Legislature didn't pass any bill raising taxes or transportation funding during the 2017 session.
Ohio Budget raises registration/service fees and allows counties to levy a $5 annual license tax per motor vehicle registered within the county.
Oklahoma No roads infrastructure funding mechanisms came to fruition in the last session. Future road funding is being siphoned off in the name of fixing the budget.
Oregon Transportation infrastructure proposal before a legislative committee would generate about $358.3 million in new revenue in 2018, rising to about $763.0 million in year 10.
Pennsylvania Governor would like to spend $1.6 million on transportation. The Legislature is generally against taxes, so it's not clear if he will be successful.
Rhode Island State capital plan calls for nearly $1 billion for ports, $10 million for state bikeway program.
South Carolina Lawmakers overrode a veto by Gov. Henry McMaster (R) to enact an increase in gasoline tax by 2 cents per gallon annually for six years beginning July 1. The gas tax is one of nation's lowest.
South Dakota Legislature didn't pass any bill raising taxes or transportation funding during the 2017 session.
Tennessee Governor signed first fuel tax increase since 1989, which he said was softened by the largest tax cut in the state's history. The gas tax will increase 4 cents per gallon July 1.
Texas As part of Proposition 7, beginning in fiscal year 2020, if state motor vehicle sales and rental tax revenue exceeds $5 billion in a fiscal year, 35 percent of the amount in excess of $5 billion will be directed to the State Highway Fund.
Utah Legislature in March adjusted a fuel tax increase approved in 2015 but rendered ineffective because of a steep decline in wholesale fuel prices.
Vermont Lawmakers didn't pass any new transportation fees or taxes this legislative session. Governor vetoed budget.
Virginia Infrastructure is an election-year issue in gubernatorial campaign, including funding of Washington, D.C., Metro subway system.
Washington New state transportation budget contained millions of dollars to assist morning commuters on the U.S. 2 trestle. The two-year, $8.5 billion spending plan also provides money to buy new electric buses and ease I-405 congestion.
West Virginia Voters will be asked this year to approve $1.6 billion in state bonds to fund highway, road, and bridge construction and improvements.
Wisconsin During budget negotiations, governor expresses opposition in gas tax hike, but Republican-controlled Legislature is looking for increases to ensure long-term transportation-infrastructure funding.
Wyoming Legislature cut funding for transportation from the 2017-18 biennial budget; studying feasibility of implementing a toll on I-80 to fund safety, maintenance programs.

This story has been updated to clarify that the Municipal Finance Caucus is a caucus, not a cause.

Copyright © 2017 Tax Management Inc. All Rights Reserved.

Request Daily Tax Report: State