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Six trends spell trouble for transportation funding
updated 3/12/2013

MountainChartsmall.gifBetween 2001 and 2009, the Oregon Legislature and Congress provided record levels of resources for transportation programs, allowing significant investment in all transportation modes. Today, however, the Oregon Department of Transportation and Oregon’s transportation system face significant long-term funding challenges. By 2016, the total dollar volume of ODOT’s construction program will have fallen to a level below where it was before lawmakers passed the first Oregon Transportation Investment Act in 2001, not counting the Interstate 5 bridge replacement project. (Click the image to the right for a larger view of the chart.)

Falling State Highway Fund revenue: Over the last half decade the State Highway Fund has suffered a significant decline in projected revenues. ODOT’s June 2009 revenue forecast projected $6.9 billion in gross State Highway Fund revenue from 2010 through 2015 for ODOT and local governments. But the December 2012 forecast projected $476 million less in revenues over that same period—a drop of nearly 7 percent.

Debt service: The Oregon Transportation Investment Act program authorized ODOT to use bonding for the first time in 2001. Bonding allows ODOT to build projects much faster than the previous “pay-as-you-go” funding approach. But it’s similar to the difference between paying cash and using a credit card: bonding also means significant debt service over an extended time that reduces funding available for new projects.

In the 2013-15 biennium, ODOT’s budget includes $472 million in debt service from the State Highway Fund and federal highway funds.  The majority of additional revenue ODOT receives from the OTIA and Jobs and Transportation Act (JTA) programs will pay for debt service or for other purposes specified by the legislature.

ODOT’s State Highway Fund resources are essentially committed to three things:

  1. debt service
  2. the cost of running the agency
  3. maintaining highways

This leaves virtually no state funding for new capital projects in the Statewide Transportation Improvement Program (STIP) other than the JTA projects and matching funds for federal resources. And it leaves federal funding as the exclusive funding source for construction projects.

Federal funding at risk: The federal surface transportation program invests more than half a billion dollars in Oregon highway and transit projects each year. However, because the federal fuels tax has not been raised since 1993, the funding level for the federal highway and transit programs is about $15 billion more per year than the Highway Trust Fund is taking in. On four occasions since 2008, Congress has transferred a total of $55 billion in general fund resources into the Highway Trust Fund to make up the difference.


When the Trust Fund’s balances are once again exhausted near the end of 2014, Congress will be forced to either find new revenue or significantly cut funding for highway and transit projects. Given the current fiscal and political situation, increasing the fuels tax in the face of high gasoline prices is not considered feasible, and further infusions of general fund resources could be difficult.


If Congress does not find additional resources for the transportation program, federal surface transportation funding will have to be cut by about 30 percent. This would result in Oregon’s annual federal highway program funding decreasing by $150 million, and the state’s annual transit funding could drop by about $30 million.

ODOT is currently working with stakeholders to select projects for the 2015-2018 STIP.  If significant cuts are made to federal transportation funding, ODOT will have to cut or delay some of these projects.

Construction cost increases: Construction costs more than doubled between 2001 and 2008. While construction costs have decreased since the onset of the recession, in 2010 costs remained nearly 70 percent higher than in 2001. As a result, each dollar ODOT spends buys much less construction activity than it did a decade ago. When adjusted for cost increases, ODOT’s construction program will be much smaller in 2015 than it was in 2001.

Fuel efficient vehicles: The gas tax provides about 45 percent of the State Highway Fund’s ongoing revenues and the federal gas tax provides a significant majority of the resources flowing into the federal Highway Trust Fund. However, gas tax receipts have been flat or declining for half a decade. This may be a continuing trend: Nationwide gasoline use peaked in 2006—before the recession and high gas prices reduced driving—and many experts project it will stay flat into the future, as fuel efficiency increases and non-gasoline vehicles gain market share.
 
Fuel efficiency of new vehicles has increased by 23 percent since 2004. And fuel efficiency standards for new vehicles are scheduled to rise to 54.5 mpg by 2025.
 
Lack of adequate and dedicated funding for non-highway modes: Because of limits on the use of the State Highway Fund and federal transportation resources, Oregon’s investments in transit, bicycle/pedestrian projects, ports and rail have been episodic. Oregon has no way to sustain the significant investments being made today in non-highway modes over the long-term. There is no adequate, dedicated source of funding for non-highway modes, and most of the funding sources ODOT has used are shrinking. For example, ConnectOregon has been constrained by the state budget situation, and non-highway modes are highly reliant on federal funds that face significant risk of being cut.
Implications
Faced with these funding challenges, ODOT will be focusing on its most basic mission of maintaining and preserving the highway system, investing scarce resources strategically to minimize the deterioration of the system. New strategies are being developed across all modes to ensure that scarce resources are being invested to get maximum return on investment. Since 2011, ODOT has been reducing its workforce to help bring expenses in line with state revenues; our goal is to achieve a 5 percent reduction by 2015. Governor Kitzhaber has assembled a Non-Roadway Transportation Funding Working Group to develop a dedicated funding source for non-highway modes.