State Treasurer Jim McIntire has a warning for lawmakers and the governor: The state gasoline tax isn’t lucrative enough to withstand more and more debt to build highways.
As of 2016, a full 70 percent of the state’s gas-tax proceeds, or close to $700 million yearly, will be paying off Washington State Department of Transportation’s current projects. Various proposals in Olympia this year have suggested using 80, 90, even 100 percent of the gas tax to finance more construction bonds.
McIntire’s critique, in a Dec. 11 letter, was sent to leaders in the Legislature and to Gov. Jay Inslee, who last week announced a $12 billion, 12-year transportation plan, to include $3.1 billion in new bonds.
The state is nowhere close to missing a payment, and its existing highway bonds enjoy a top-tier, AA+ bond rating. However, McIntire worries the state’s credit rating could suffer if lawmakers were to load all their desired projects onto the proverbial credit card.
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“No more than 50 percent of MVFT [motor-vehicle fuel tax] should be pledged to bond finance,” he wrote, even if that means doing fewer projects under a pay-as-you-go philosophy.
Inslee spokesman David Postman replied that new dollars, from carbon fees the governor has proposed, will increase road maintenance, and therefore reduce the future costs of replacement work.
The governor’s plan is to use carbon fees to cover road maintenance, stream culverts, safety programs, transit, bicycling and walking grants, while completely bonding gas taxes for road construction. Oil companies would likely pass at least some of their fees to the public at the gas pump.
David Schumacher, director of the Office of Financial Management, added that any new carbon money would bolster the state’s creditworthiness, since bonds ultimately rest on the “full faith and credit” of the state. “The fact we are adding additional, unbonded dollars to the system mitigates some of those concerns,” said Schumacher, who reports to the governor.
Elected officials have worried about evaporating gas taxes for years, as cars become more efficient, and the average citizen drives fewer miles.
Because of these trends, an expected windfall from an 8-cent increase in the gas tax during the ’00s turned out to be lacking. Olympia kept huge projects like the Highway 520 bridge, I-405 widening through Kirkland, the Highway 99 tunnel, Tacoma carpool lanes, and I-90 Snoqualmie Pass East alive by scrapping others and skimping on maintenance. A year ago, Transportation Secretary Lynn Peterson touted a $32 million repainting of the rusty I-5 Ship Canal Bridge as reason to boost the gas tax.
Historically, the gas tax has been relied upon for both maintenance and new projects.
At current rates, legislative reports predict 58 percent to 70 percent of the state’s gas-tax proceeds will go for debt from 2014 until 2030. The squeeze will tighten if new, lower forecasts of a 1 percent annual decline in vehicle miles come true.
McIntire said gas taxes have become so unreliable that they’re hard to forecast for more than two quarters into the future — so there had better be a big cushion in a 25-year bond term.
“We need to have some sense of humility as far as what we’re going to count on,” he said.
Gas taxes are 55.9 cents per gallon, of which 18.4 cents go to the federal government and 37.5 cents to the state, which in turn distributes one-third to cities and counties.
The governor’s transportation package proposes selling another $3.1 billion in bonds, completely obligating the gas tax. Those bonds would give a jump-start to projects including Highway 167 from Puyallup to the Port of Tacoma, an I-405 widening from Bellevue to Renton, the north Spokane freeway, and a new Seattle segment of Highway 520.
Inslee’s plan would then shift $1 billion in maintenance from the traditional funding source of the gas tax to carbon fees, assessed to the state’s 130 biggest polluters.
“At this point, we haven’t seen all the details,” McIntire said in an interview. “The notion we would leverage the gas tax more, is something I can’t support.”
McIntire said lawmakers know his misgivings, and he’ll be surprised if their final package further leverages the gas tax. He said cap-and-trade fees lack a track record, in bond markets.
OFM’s Schumacher replied it’s certainly possible to sell bonds that assume carbon fees can be used as a secondary source of cash — to backstop the gas tax, if money becomes tight.
“It’s new and it’s going to take time,” he said. “For the treasurer to be a little bit cautious, that’s a good thing.”