FINAL REPORT OF THE JOINT STUDY COMMITTEE ON CRITICAL TRANSPORTATION INFRASTRUCTURE FUNDING Committee Members Representative Jay Roberts Co-Chairman District 155 Senator Steve Gooch Co-Chairman District 51 Representative Terry England District 116 Senator Jack Hill District4 Representative Jon Bums District 159 Senator Brandon Beach District 21 Representative Mark Hamilton District 24 Senator Tyler Harper District 7 Representative Calvin Smyre District 135 Senator David Lucas District 26 Mr. Edward Lindsey Citizen Appointee of the Speaker of the House Mr. Steve Green Citizen Appointee of the Lieutenant Governor Mr. Chris Clark President and CEO, Georgia Chamber of Commerce Mr. Ross King Executive Director, Association County Commissioners of Georgia Ms. Hala Moddelmog President and CEO, Metro Atlanta Chamber of Commerce Mr. Lamar Norton Executive Director, Georgia Municipal Association Report prepared jointly by: House Budget and Research Office Senate Research Office December 30, 2014 Table of Contents 1. Introduction 3 2. Background 5 3. Statement of Need 6 4. Magnitude of the Problem 7 5. Essential to Jobs in Georgia 13 6. Findings of the Joint Study Committee 17 7. Concluding Remarks 22 8. Signature Page 23 2 1. Introduction The Joint Study Committee on Critical Transportation Infrastructure Funding (the "Committee") was created by House Resolution 1573 during the 2014 Legislative Session of the Georgia General Assembly. The Committee was charged with undertaking a study of the conditions, needs, issues, and problems associated with Georgia's critical transportation infrastructure and the means of funding its construction, maintenance, and repair. House Resolution 1573 expressed an urgency on behalf of the General Assembly that new sources and methods of funding transportation projects are needed to allow the transportation systems in Georgia to keep up with the needs of Georgia's growing population and expanding industries and to address long-standing issues relating to road congestion, access to industry and economic development, and Georgia's reliance on federal funding of its transportation systems. Representative Jay Roberts of the 155th and Senator Steve Gooch of the 51st were the co-chairmen of the Committee, which held eight public meetings at locations throughout the State of Georgia. Committee hearings were held as follows: August 5, 2014 at the State Capitol, Atlanta, Georgia; August 18, 2014 at the City Service Center in Columbus, Georgia; September 2, 2014 at Abraham Baldwin Agricultural College in Tifton, Georgia; September 3, 2014 at Mercer University in Macon, Georgia; September 30, 2014 at Georgia Regents University-Summerville Campus in Augusta, Georgia; October 1, 2014 at Savannah International Trade and Convention Center in Savannah, Georgia; November 19, 2014 at Fannin County High School- Performing Arts Center in Blue Ridge, Georgia; and November 20, 2014 at The Forum in Rome, Georgia. In addition to the co-chairmen, the Committee was comprised of the following individuals: Representative Terry England of the 116th, Chairman, House Appropriations Committee; Senator Jack Hill of the 4th, Chairman, Senate Appropriations Committee; Representative Jon Burns of the 159th; Representative Mark Hamilton of the 24th; Representative Calvin Smyre of the 135th; Senator Brandon Beach of the 21st; Senator Tyler Harper of the th; Senator David Lucas of the 26th; Mr. Edward Lindsey, Citizen Appointee of the Speaker of the House; Mr. Steve Green, Citizen Appointee of the Lieutenant Governor; 3 Mr. Chris Clark, President and CEO, Georgia Chamber of Commerce; Mr. Ross King, Executive Director, Association County Commissioners Georgia; Ms. Hala Moddelmog, President and CEO, Metro Atlanta Chamber; and Mr. Lamar Norton, Executive Director, Georgia Municipal Association. 4 2. Background According to data presented to the Committee by the Georgia Department of Transportation (GDOT), Georgia is home to the world's busiest airport, the nation's tenth largest road system, 1 and the fourth busiest container port in the United States. In addition, Georgia is home to 14,666 bridge structures, 4,500 miles of mainline and shortline railroads, 128 transit providers, and 103 general aviation airports. These assets have given Georgia a considerable strategic advantage in creating jobs and attracting new businesses to the state. 1 According to GDOT, Georgia's road system is currently comprised of 17,967 centerline miles of state routes and interstates, 85,738 centerline miles of county roads, and 17,754 centerline miles of city streets. 5 3. Statement of Need Like many other states, Georgia is faced with a growing crisis with regard to funding the construction, repair, and maintenance of its transportation infrastructure. Georgia primarily funds its transportation needs with a combination of state motor fuel taxes and federal funds. Georgia's motor fuel excise tax is levied at a rate of 7.5 cents per gallon of motor fuel. 2 In addition, the revenue generated by the first three percentage points of the four percent rate of the regular state sales tax that is levied on the sale of motor fuel is designated as the "second motor fuel tax" and is committed to GDOT.3 The other one percent of the regular state sales tax levied on the sale of motor fuel is diverted to general fund revenue. Transportation projects in Georgia are also funded from state general funds (for the intermodal program only), through revenues received through the sale of general obligation bonds and Grant Anticipation Revenue Vehicle, (GARVEE) bonds, and through partnerships with local governments in state-funded projects. The previously mentioned debt is repaid from state motor fuel funds, federal funds, and, where applicable, toll revenues. Georgia cities, counties and numerous Community Improvement Districts (CIDs) also maintain parts of the state's road and bridge network, and a wide variety of authorities operate airports, ports, toll facilities and transit systems. 2 See O.C.G.A. 48-9-3(a). "Motor fuel" is considered to be any source of energy that can be used for propulsion of motor vehicles on the public highways, including, but not limited to, gasoline, fuel oils, compressed petroleum gas, and special fuels. O.C.G.A. 48-9-2 (9). 3 See O.C.G.A. 48-9-14. 6 4. Magnitude of the Problem For FY2014, GDOT's state motor fuel budget was $1,002,773,264. In addition, GDOT also received roughly $1.2 billion annually in federal funds, which comprise roughly 54 percent of GDOT's annual budget.4 By comparison, federal aid comprises only 27 percent of the state of Florida's current 5-year work program. Per the FY2015 budget, Georgia transportation funding breaks down as follows: Capital Construction Projects o State Matching Funds: $213,393,476 (24 percent of the program's budget) o Federal Funds: $675,252,699 (76 percent of the program's budget) Capital Maintenance Projects o State Matching Funds: 60,560,150 (32 percent of the program's budget) o Federal Funds: $128,218,385 (68 percent of the program's budget) This funding model, particularly its reliance on motor fuel taxes levied at both the state and federal levels, creates numerous and serious challenges in meeting Georgia's transportation needs. First, the federal Highway Trust Fund is not an annual grant program. Georgia does not receive its allocation from the fund at the beginning of the year. Rather, funds are authorized from the Highway Trust Fund, but the state receives no cash from the Federal Highway Administration (FHWA) from the Highway Trust Fund until the state invoices the FHWA for a reimbursement for work already performed. Any uncertainty as to the level or availability of funds from the Highway Trust Fund can thus result in project delays or conservative scheduling of projects. Additionally, over the last decade, Congress has demonstrated an increased reluctance to deal with significant infrastructure funding issues in a responsible, forward looking manner. Recently, federal action on infrastructure authorization and funding issues has taken place in short spurts of three, six, or 12-18 month authorizations. This leaves state and local transportation agencies in dire need of stability and predictability. Second, Georgia is required to comply with numerous federal requirements, including federal environmental and labor laws, when federal funds are used for capital construction projects. This creates numerous compliance challenges and often results in project delays and significant additional compliance and reporting costs. 4 According to GDOT, with respect to the federal taxes on gasoline and diesel, Georgia receives $1.14 for every $1.00 in federal gasoline and diesel tax paid in Georgia. GDOT cited this data to counter a common misperception that Georgia is considered a "donor" state with respect to the federal Highway Trust Fund. 7 Third, reliance on motor fuel taxes levied by both the state and federal governments has created a long-term funding challenge at the same time that legacy infrastructure is in need of repair and population growth in states like Georgia necessitates expansion of road networks and transit options. 5 Numerous studies indicate that Americans are driving fewer miles each year in cars that are more fuel efficient (or, in the case of electric powered cars, in cars that do not require gasoline or diesel), the price of gas (until very recently) has climbed, consumers have demanded more fuel efficient cars, commuters have grown to demand more transit and ride-sharing options, and businesses have expanded the ability of workers to work remotely or from home. These trends have arisen over a period in which the federal government has not raised the gasoline and diesel taxes since 1993 and has not chosen to index such taxes to inflation. Chart 1 (below) illustrates the recent divergence between the average vehicle fuel efficiency and the total miles traveled by American drivers since 2000. As the trends described above continue to unfold, they will place considerable pressure on a funding source-namely, excise taxes on motor fuel-that relies entirely on the number of gallons of fuel purchased by consumers. Chart 1: Average Fuel Efficiency vs. Total Miles Traveled Why the Gas Tax Falls Short Less gas used means less revenue 18. ~':'~. 3.5m Average fuel efficiency --- __ ~,.. ~ 2m Total ..' miles traveled 12. ~1:'9. ... .... 1960 .. 0.5m 2012 DATA U.S. DEPARTMENT OF TRANSPORTATION 5 Robert Poole of the Reason Foundation has indicated that in the past 15 years, federal highway spending has increased from $33 billion a year to $53 billion. The sharp increase in costs is driven in part by the deterioration of the federal highway system, which was mostly completed by the early 1980s. 8 In fact, this is already occurring, as reliance on fuel taxes as the primary means of funding transportation has already created challenges at the federal level. As seen in Chart 2 below, which was presented to the Committee, state, local, and federal gas and diesel taxes have lost significant purchasing power since 1993, the last time Congress increased federal gas and diesel taxes. Specifically, the purchasing power of federal, state, and local motor fuel taxes has dropped by 37 percent from 1993 to 2012 and is projected to drop by 52 percent by 2023.6 Chart 2: Purchasing Power of Federal, State, and Local Motor Fuel Taxes has Dropped by 37 percent from 1993 to 2012 Federal, state and local gas tax is losing purchasing power -+-Historical CPI-U -II-Estimated CPI-U Based on 18-year Average from 1993-2011 20 10 ,__ I , PARSONS SRINCKERHOFF 6 The Committee heard testimony on this issue from Paula Hammond, Senior Vice President of Parsons Brinckerhoff. 9 Indexing motor fuel taxes is a powerful tool to ensure that revenues keep pace with the cost of the obligations they are intended to meet. Chart 3 below powerfully illustrates how indexing helped the state of Florida meet their system maintenance and expansion obligations. As Chart 3 shows, over a decade, Florida saw an increase from roughly $2.5 billion to almost $7 billion in its annual fuel sales tax receipts, which was aided by indexing its fuel sales tax. Chart 3: State of Florida Indexing of Motor Fuel Taxes ~~ Impact of Indexing Fujel Sales Tax $8,000 $7,000 $6,000 $5,000 a Annual ~ $4,000 i .5 $3,000 $2,000 $1,000 'ii~ - ~; ~ . it. f<"j ; ' '...J . ' ' J. $0 2006 2007 2008 2009 2010 2011 2012 2013 2014 iij Cumulative Clary Consulting, LLC 9i212014 10 As seen in Chart 4 below, provided to the Committee by GDOT, beginning in 2007, outlays from the federal Highway Trust Fund began to exceed the amount of funds received from the federal taxes on gasoline and diesel. The U.S. Department of Transportation anticipates that, without increases to the federal gas and diesel taxes, including by indexing such taxes to some measure of inflation, the gap between Highway Trust Fund receipts and outlays will continue to grow. Chart 4: Federal Highway Trust Fund Structural Imbalance On the Federal Side- Highway Trust Fund Structural Imbalance Highway Trust Fund Receipts and Outlays Discrepancy -RDCe~p!S -Outlays 00 75 70 66 ~oo .;5 55 ;so 45 40 35 ro 2004 2000 2008 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 20ro 2032 2034 f~S8.017bllon~Jrom~l'lilftllldto~Actovrllo#tfl'Fio~ew!i.S7lliilionlJ1Jmill!rbQmGtloi.JtafFI.M10~AI:::tn.a'llottftFinA.t.vu6t2009:Sl9Sttiloo11..-ir~Cienefaj:funttiCJ HI;JI1wW!MCI>.I356T!M!iii:~OitFt!>M:olrd'l2010;S?4t'Aito'\lrallllerl!oml~l~~Tan