MEMO To: Governor Phil Bryant, Lt. Governor Tate Reeves, Speaker Philip Gunn and the Members of the Mississippi Legislature From: Russ Latino, State Director of Americans for Prosperity Mississippi Subject: Transportation Funding Most Mississippians believe that the maintenance of roads and bridges is a core function of government. In debates over whether to increase the fuel tax, this point is not really in dispute. The question is whether additional funds are needed and, if so, how to find those funds. AFP Mississippi believes that there are five levels of analysis that should occur before the Legislature ever considers raising the fuel tax. First, we should assess the impact of an increase on your constituents. Second, we should accurately define the scope of the problem the Legislature is being asked to fix, taking into account the biases. Third, we should assess MDOT s current operation to identify inefficiencies and/or waste. Fourth, we should assess government spending holistically to identify resources being spent elsewhere that could be appropriately shifted to road and bridge maintenance. Fifth, we should assess whether funding our transportation infrastructure through fuel taxes is a sustainable model. (1) Impact of Increase on Your Constituents While AFP Mississippi has not had the benefit of seeing legislation on this subject, the Mississippi Economic Council s original proposal called for an additional $375 million in transportation spending annually. It has been circulated that this revenue may be raised in the form of a 15 cent/gallon increase in the existing fuel tax, along with other potential fees. A $375 million tax increase would result in a tax liability increase of over $500 for the average family of four. Per House District, this represents an increase of $3,073,770 on your constituents. Per Senate District, this represents an increase of $7,211,538 on your constituents. POLL: On February 11-13, 2016, The Polling Company, Inc., under the commission of AFP Mississippi, performed a survey to gauge the position of registered Mississippi voters on a variety of issues, including Mississippi s fuel tax. Respondents were first told what they currently pay in state and federal fuel taxes and asked if that is too low, too high or just about right. 41% of respondents indicated it is too high. 47% indicated that it is just about right. Only 5% indicated it is too low. When asked whether they would support or oppose an increase in the gas tax, 86% of respondents said they would oppose, with 72% voicing strong opposition. This opposition cuts across all demographics, ideologies and party affiliation. (A copy of the poll is attached). 1
(2) Accurately Assess the Scope of the Problem MDOT is charged with maintaining approximately 11,043 miles of state-controlled interstates and highways. According to the Reason Foundation s 21 st Annual Highway Report, our statecontrolled roads rank 8 th nationally, our urban interstates 6 th nationally and we have the 2 nd least congested roads in the nation. (A copy of the full report will be provided to you upon request). These rankings would suggest that we have something to be proud of as a state, though the last ranking also suggests that perhaps we have overbuilt since 1987 when Mississippi began an aggressive highway expansion. By way of comparison, the state of Alabama, which has a population 62% larger than Mississippi s, maintains 11,064 state-controlled miles (only 21 more miles). In addition to state-controlled interstates and highways, Mississippi provides assistance for local roads under the State Aid Program and local bridges under the Local System Bridge Replacement Rehabilitation Program (LSBP), both administered by the Office of State Aid Road Construction in conjunction with Boards of Supervisors. At present, approximately 19,005 miles are actually designated under the State Aid Program. In 2001, the Legislature authorized counties to use State Aid and LSBP funds for roads and bridges not designated in the State Aid Road System. According to the January 6, 2014, MDOT PEER Report, Mississippi s overall road conditions are similar to national averages for all states and with respect to contiguous states Mississippi is in the middle for its road conditions. With respect to bridges, the PEER Report indicates that from 1992 to 2010, Mississippi showed more progress than its contiguous states in decreasing its percentage of deficient bridges. In 2010, Mississippi performed better than the nation than the national average on bridge condition. Of the $375 million in additional revenue proposed by the Mississippi Economic Council, it is our understanding that $300 million is slated for MDOT and only $75 million is slated for local roads and bridges. This division is particularly important if the majority of our roadways and bridges that are in poor condition and which are driving this consideration fall outside of state control. At a minimum, a study of our roads should be conducted by a disinterested party to ensure proper understanding of the condition of our roads and bridges and to determine usage/priority. 2
(3) Assessing MDOT/State Aid The information contained in this section is primarily drawn from a PEER Report dated January 6, 2014 and the Reason Foundation s 21 st Annual Highway Report. MDOT S MODEL According to the PEER Report, MDOT s model is unique in that transportation commissioners are elected. Mississippi s unique three-member Transportation Commission is elected by the people and does not report to the Governor. This is the only selection process of DOT leadership in the nation that involves neither the Legislature nor the Executive Branch. This structure introduces the potential for political influence in the decision making of the commission and of the department. According to research, states can limit political influence on transportation policy through certain best practices, such as avoiding giving the commission the authority to nominate or select the department of transportation s director, avoiding geographic representation by commissioners and staffing the commission with citizens, not elected officials. The potential danger in our current model is that decisions get made based off of where votes or other forms of support are concentrated, but not on the basis of need. This leads to inefficient use of resources and potentially to neglect in underrepresented areas. MDOT S WORKFORCE MDOT has 3,460 employees. In FY2013, MDOT paid salaries and benefits of $158,112,337.00 to its workers for an average salary of $45,697.21. 86% of MDOT s employees work in MDOT s maintenance and construction program. 1,550 Full-Time Equivalent Maintenance Employees 1,413 Full-Time Equivalent Construction Employees MDOT has 195 engineers on staff and an additional 83 engineers-in-training. In addition to staff engineers, MDOT spent approximately $42.7 million in FY2010, $47.5 million in FY2011 and $48.5 million in FY2012 on outside engineers. Based on PEER s estimates, MDOT could save approximately $21.8 million per year in engineer consultant costs by recruiting skilled professional engineers and offering them a salary comparable to that available in the private sector. MDOT S REVENUE In FY2013, MDOT reported total revenues of $1,142,586,779.00, including approximately: $571 million from federal sources. 3
$283 million from Mississippi s fuel taxes (70% of fuel tax revenue). $40 million from additional state taxes and fees (e.g. tag fee, lubricating oil tax). MDOT S BUDGET In FY2013, MDOT reported total expenditures of $1,107,888,517.00, including approximately: $556 million on outside contractors. $158 million in salaries and benefits. $3 million in travel expenses. $146 million in contractual services. MDOT allocates its budget according to six main budget areas: Construction In FY2013, MDOT spent approximately $794 million on construction, including $151 million on new capacity, $348 million on system preservation and $112 million on the HELP Program (in total, MDOT has obligated the state to $1.45 billion in debt through the HELP Program). Maintenance In FY2013, MDOT spent approximately $157 million on what it deemed to be maintenance. Debt Service In FY2013, MDOT spent approximately $65 million on debt service. Administration, Equipment and Buildings In FY2013, MDOT spent $48,198,990. Enforcement In FY2013, MDOT spent $14,280,580 on Enforcement. Aeronautics, Rails and Other (Ports and Waterways and Public Transit) In FY2013, MDOT spent $29,831,708 on Aeronautics, etc. MDOT v. OTHER STATES According to the Reason Foundation s 21 st Annual Highway Report, MDOT spends $99,493 per state-controlled mile. This is good for 15 th in the nation. Other Southeastern states that spend less include South Carolina ($39,403), West Virginia ($39,883), North Carolina ($52,282), Virginia ($70,017), Kentucky ($70,566) and Arkansas ($72,796). MDOT ranks 16 th (lowest) in Administrative Disbursements Per Mile ($6,258). MDOT ranks 5 th (lowest) in Maintenance Disbursements Per Mile ($7,884). MDOT ranks 18 th (lowest) in Capital and Bridge Disbursements Per Mile ($74,960). STATE AID/LSBP There are presently 19,005 miles designated under the State Aid Program, although a 2001 law allowed counties to use State Aid funds on roads not designated in the system. Since 1950, State Aid has spent close to $3.5 billion. As of June 30, 2014, State Aid had nearly $245 million in projects in contract stage. 4
State Aid/LSBP estimates receipts and disbursements of approximately $207 million for FY2016. State Aid receives 23.25% of Mississippi s fuel tax, which for FY 2016 was estimated to be $57 million. PROCESS AND TRANSPARENCY CONCERNS The PEER Report suggests that MDOT suffers from certain process and transparency concerns: MDOT has not made sufficient progress in fully implementing its performance measures for each of its system-wide goals so that system-wide progress can be tracked over time. Relative to other states, MDOT has room for improvement in measuring departmental efficiency. MDOT has no department-wide effort to analyze its workforce in relation to its current and future workload. MDOT provided PEER with project workload information that accounts for roughly 7.6% of its in-house engineers. The primary concern is that the majority of engineers workload is not tracked. Therefore, PEER could not verify, with MDOT official documentation, whether MDOT is utilizing its in-house engineering resources efficiently. However, in some cases, MDOT was unable to document the selection and prioritization process used in the past to justify projects on its prioritized lists. MDOT s five-year plan does not provide sufficient transparency to show how projects change from year to year. MDOT staff did not provide sufficient documentation to show why each of the projects on MDOT s new capacity list was added or why funding has been directed to certain projects on this list. Without this knowledge, PEER (or any third party) is unable to determine whether MDOT has historically allocated its funds to the highest priorities that meet funding source requirements and that are financially feasible. For fourteen of fifteen new capacity projects with year of need beyond 2050, MDOT has spent approximately $88 million on environmental studies and rightof-way. Prior to FY2014, MDOT allocated maintenance funds to each district based on the vehicle miles traveled within each district rather than on need. MDOT plans to use a statewide need-based method for allocating maintenance funds to districts in the future. However, in the interim, MDOT could not provide a defined formula for allocation of funds in FY2014 or 2015, nor could MDOT provide a timeline for when it plans to use only the needs-based method. Until this transition to a needbased method is complete, MDOT does not ensure that the state s highest priority maintenance needs are met. However, the department does not maintain proper documentation of the evaluation and selection process as required by law. In addition, MDOT does not 5
conduct a cost-benefit analysis to determine whether the issuance of H.E.L.P. bonds is both cost-beneficial and feasible to the state. A 2011 report by the Pew Center on the States and the Rockefeller Foundation rated each state on whether it had essential information to identify what it is getting for its transportation dollars in the areas of: (1) safety; (2) jobs and commerce; (3) mobility; (4) access; (5) environmental stewardship and (6) infrastructure preservation. States were given a leading the way, mixed results, or trailing behind. Mississippi was one of 19 states scored as trailing behind. RECOMMENDATIONS Before even considering raising taxes, the Legislature should undertake an independent study and audit of MDOT and State Aid s processes to determine: Whether MDOT should be brought under the office of the Governor or have some other change in governance to ensure efficiency and transparency. Whether MDOT is adequately prioritizing maintenance out of its existing budget. If at present MDOT spends approximately $400 million on system preservation and maintenance (per FY2013 budget), that leaves approximately $800 million in their budget. Whether each of the deficiencies identified by the PEER Report are legitimate, whether they have been remedied and, if not, how best to remedy them. Whether the bidding process used by MDOT results in favorable contractual terms with vendors. Whether MDOT is correctly staffed and achieving reasonable workforce utilization, including inquiry into how it uses in-staff versus contract engineers. PEER already identified the potential of over $21 million in savings. Whether MDOT is applying an appropriate decision making framework for new capacity projects. Whether modest transfers can be made from the general fund to overcome any MDOT funding deficiencies. Whether we should use non-road expenditures from gas tax revenues, or stated differently, whether we should limit spending of gas tax revenues on roads and bridges. Whether we should re-examine the highway funding formula and the methods for funding the formula. Whether we should use Rainy Day funds on infrastructure. Whether we should use BP money on infrastructure and whether such spending should be limited to the Mississippi Gulf Coast. Whether we should consider a highway reduction plan that decommissions under-utilized roads and bridges. Whether and how to better track road and bridge spending at the local level, either through the State Aid Road Program or otherwise. 6
4) Assessing Government Spending Even if there is insufficient funding for roads and bridges, we should not raise taxes without first assessing government spending and waste holistically. Since FY 2004, tax, license and fee collection in Mississippi has gone up by 42%, from $5.2 billion to $7.4 billion a year. Spending in Mississippi (including federal dollars) has gone up 38%, from $11.7 billion to $16.2 billion a year. Debt (not including PERS) has gone up 59%, from $3.4 billion to $5.4 billion. Since FY 2004, cumulative inflation is 29%. Mississippi's population has grown by 3% from 2.889 million people to 2.994 million people. What this means is that our taxes, spending and debt as a state are all dramatically outpacing inflation and population growth. By contrast, the median income for a Mississippi household has increased only 2%, from $34,733 to $35,521. Government is growing too fast. People are being asked to give more and more while living on less and less. For many years, the prevailing political ideology in Mississippi has preached smaller government and lower taxes, but it does not appear to be reflected in the size of government. There is fertile ground to reduce the size of government and AFP Mississippi would welcome the opportunity to have those conversations with the Legislature and aid, in any way, possible in identifying areas ripe for savings. 5) How Best to Pay for Roads The gas tax collections make up a relatively small portion of MDOT s budget. Over the last 10 years, collections on the gas tax have actually gone down by approximately $20 million a year. This is largely a result of the fact that our vehicles have become more fuel efficient and, in some cases, do not run on gas. Merely increasing the gas tax does not fix its long term viability problem. At some point, the State will have to devise another method of paying for our roads. There are options including user fees and more comprehensive tax reform that the Legislature should proactively consider. REVENUE NEUTRAL PACKAGES? In closing, it bears addressing the idea of a trade off or revenue neutral package. If the increase in gas tax is genuinely met with an equal decrease, there are three questions: (1) who is the beneficiary of the decrease and does it result in inequity; (2) who does the burden of the increase fall on and does it result in inequity; and (3) if it is genuinely revenue neutral, how does it solve the need for additional infrastructure revenue? On this last question, a package that is genuinely revenue neutral, would require cuts in other areas equivalent to the increased funding to MDOT. This could just as easily be accomplished by cutting and shifting existing funds, versus raising taxes. 7