2009 Transportation Budget – Overview

An overview of the 2009-11 Transportation Budget requires discussion of multiple, interrelated parts, including: federal stimulus funding; new state revenues (Oil Company Profits Tax); GPR and SEG supported borrowing; and, revenue transfers to and from the transportation fund and the general fund.

The Governor's original budget included a roughly $266 million increase for core state highway programs compared to the 2008-09 base year doubled. The Governor's plan was built on one-time federal stimulus dollars and $260 million in new transportation fund revenue through an Oil Company Profits Tax.

The proposal prohibited oil companies from passing the tax on to consumers, which called into serious question whether it was legally viable and put these transportation dollars in jeopardy. Several legal opinions concluded that the "anti-pass-through" provision was likely to be found unconstitutional under the Commerce Clause.

The Governor's transportation budget also diluted the value of the new tax to the transportation fund by shifting or transferring $140 million for general fund purposes; $80 million lapse to the general fund and permanently shifting $60 million in GPR costs, mostly school bussing costs, to the transportation fund.

Federal Stimulus Funds

Under the American Recovery and Reinvestment Act (ARRA), Wisconsin is eligible for $529 million in federal stimulus funds for highway and bridge work and another $81 million for mass transit.

Of the $529 million for highways and bridges, 30 percent, or roughly $159 million of the total, is reserved for local municipal projects and the remaining 70 percent ($370 million) is directed to state highway and bridge work. ($13 million of the total $370 is restricted for transportation enhancements such as bike paths, leaving $357 million for core state highway programs.)

When the Governor was putting his budget together, the federal government had not yet taken final action on ARRA legislation. The Governor's budget estimated that $269 million in federal stimulus dollars would be available for the core state highway programs in 2009-11 and he built that funding into his transportation budget. However, once the federal legislation was finalized, the Governor and the Legislature expedited the use of ARRA funds for state highways and appropriated $300 million of the then known total $370 million in the budget repair bill enacted in February (Wis. Act 2).

As a result, the Governor's 2009-11 budget plan overstated the amount of federal stimulus dollars available for the core state programs in 2009-11 by roughly $213 million. JFC reconciled the Governor's budget to reflect prior legislative action and reduced the use of federal stimulus dollars for core programs from $269 to $56 million. JFC also filled the budget gap with additional SEG and GPR borrowing to roughly maintain the 2009-11 spending levels proposed by the Governor.

The Joint Finance Committee modified the Governor's proposal as follows:

• Revised the allocation of federal stimulus dollars to reflect that significant portions of the total $529 million in ARRA funds had already been allocated for FY 09 projects under previous legislative action (Act 2).
• Increased funding for core state highway programs by an additional $31 million over the Governor's plan for a total increase of $297 million, and filled a $213 million federal stimulus funding hole in the Governor's budget with additional borrowing. JFC also revised funding within main programs by putting $5 million more into State Rehabilitation, $42 million more in Major Highways and $47 million less in SE Wis. Rehabilitation. Local road aids were increased by $29 million compared to a $7 million increase in the original bill.
• Replaced already allocated federal stimulus dollars with an additional $250 million in bonding: $200 million for State Highway Rehabilitation, comprised of $140 million in GPR backed bonds and $60 million more in SEG borrowing, and $50 million more SEG bonding for Major Highway projects.
• Adopted the Oil Company Profits Tax as introduced by the Governor.
• Deleted $60 million in permanent shifts of GPR expenditures onto the transportation fund. Transferred $140 million from the transportation fund to the general fund but replaced that amount with GPR-backed borrowing for state highway rehabilitation.
• Shifted $66 million from the transportation fund to the general fund as part of the 6 percent across-the-board reductions applied to most state agencies. Total of $206 million transferred to the general fund -- less $140 million in GPR replacement bonds -- for a net transfer of $66 million compared to the $140 million transfer and permanent shifts in the original bill.

The Joint Finance action set the template for the highway program funding levels, but the question of how to pay for those increases was far from settled when the bill left the budget committee.

The State Assembly took up the bill first and substantially modified the Governor's Oil Company Profits Tax by deleting the anti-pass through provision and making other changes. The modified tax, coupled with a $37 million transfer from PECFA to the transportation fund, provided replacement funding of $260 million.

The State Senate took a different approach altogether. In lieu of either the Governor's or the Assembly version of the Oil Company Tax -- the Senate deleted the tax and provided replacement funding of $260 million with new GPR. The Senate generated new GPR with a $315 million increase in capital gains taxes.

The two very different approaches to transportation funding were ultimately reconciled by a budget conference committee.

The Conference Committee provided roughly equivalent highway program funding by: (1) deleting the Oil Company Profits Tax; (2) eliminating a $140 million transfer from the transportation fund to the general fund while leaving the $140 million in GPR backed replacement bonds in place; (3) replacing $65 million in SEG funding for State Highway Rehabilitation with $65 million more in GPR backed borrowing; (4) transferring $27 million from PECFA to the transportation fund; and, (5) restructuring SEG-supported transportation debt.

The Legislature adopted the budget on Friday June 26, 2009 and it was signed by the Governor as Wis. Act 28 on June 29 along with 81 gubernatorial vetoes. One veto in particular could have a dramatic impact on transportation funding. The Governor's original bill included general lapse authority for the DOA Secretary to move up to $160 million from agency accounts to the general fund. (Half of that total ($80 million) was scheduled to come out of the transportation fund. Joint Finance deleted that DOA lapse authority and instead provided $355 million in additional authority under the provisions of Act 2.

The distinction is important because Act 2 contains a prohibition on DOA transferring any transportation funds used for the core state highway programs to the general fund. The Governor's veto, in effect, recreates a 2007 lapse authority provision, which gives DOA the ability to transfer up to $200 million more from agency accounts, including core transportation program funding, to the general fund.

Actual impact on the transportation fund cannot be determined at this time -- but prior history suggests that the veto puts significant highway funding dollars at risk for transfer.

Core State Highway Program Appropriations (in millions)

Source: Legislative Fiscal Bureau.

State Highway Rehabilitation Program in FY 2009-10 and FY 2010-11. 

Majors = State Major Highway Development for both fiscal years.

SE Hwy = Southeast Wisconsin I-94 North/South Freeway and SE WI Rehabilitation for both fiscal years..

Note: Act 2 $300 million in ARRA funds not factored into the 08-09 base shown above.

Note: Governor's total includes $269 million ARRA funds. JFC/Act 28 total includes $56 million ARRA funds.

Core Highway Program Funding Increases – 2009 Act 2 and Act 28:  Three-year funding increases, factoring $300 million in federal stimulus dollars for state transportation projects (2008-09)  in Wis. Act 2 plus increases in the biennial budget bill (Act 28) for fiscal years 2009-10 and 2010-11, can be summarized as follows:

Governor: $300 million federal stimulus in Act 2 + $266 million in the proposed 2009-11 budget = $566 million increase (minus) $213 million of federal stimulus already allocated in Act 2 for a Net Total increase of $353 million.

JFC/Leg: $300 million federal stimulus in Act 2 + $297 million in the 2009-11 budget bill as enacted = Net Total increase of $597m.

Transportation Budget Summary:

The Governor proposed an increase in transportation funding in his original budget. However, he handed the Legislature a transportation funding package that was built on one-time federal stimulus dollars, most of which had already been allocated in Wis. Act 2, and an untenable Oil Company Profits Tax, which was diluted by using transportation fund revenue for general fund purposes.

Joint Finance improved the package by backfilling already allocated federal stimulus funding and by reducing the net transfer of SEG for general fund purposes from $140 million to $66 million. However, these improvements were funded by $250 million more in borrowing ($140 million GPR supported and $110 million SEG supported). JFC also failed to come to terms with the flaws in the Oil Company Profits Tax and simply moved it forward in the process.

The Assembly demonstrated leadership and had the courage to modify the Oil Company Profits Tax to ensure that $260 million in new user fee revenue could be legally imposed and timely collected to fund road work this biennium.

The Senate failed to embrace the Assembly resolve and instead dramatically altered the field by deleting the Oil Tax altogether and adopting a capital gains increase to fund transportation with GPR.

The Conference Committee found a way to cobble together replacement revenue (indirect GPR and more borrowing) without adopting the Oil Tax.

Ultimately, the Governor created an imperfect ending by resurrecting $200 million in lapse authority that puts transportation revenue at serious risk for transfer to the general fund.

On balance, the state will maximize the use of federal stimulus funds and will rely on more SEG and GPR supported borrowing to address infrastructure needs over the next two years.

The bottom line is -- given the level of the budget deficit and the state of the economy -- the Legislature still found a short-term way to increase funding for core highway programs. The downside is that no real progress has been made in shoring up new transportation revenue or in developing long-term solutions to maintain the viability of the transportation fund.

Further, the additional borrowing in this and prior budgets continues to erode the buying power of the base transportation revenues going into the next session. Two years from now, the Governor and the Legislature will be faced with similar transportation funding challenges, but without a half  billion in one-time federal stimulus dollars to meet that challenge.

Bonding Authority – Transportation Related Bonding (in millions)

Source: Legislative Fiscal Bureau & Act 28

Note" Total Transportation bonding of $1.304 billion in 2009-11 compares to total transportation bonding of $541 million in the 2007-09 budget act (2007 WI Act 20); an increase of $763 more transportation borrowing this session than last session.

Other DOT Budget Highlights include:

• Authorizes $225 million in bonding for the construction of a major interstate bridge project (Stillwater Bridge provided that Wisconsin receives at least $75 million in federal funds for the project.
• Creates Regional Transit Authorities in Dane County, Chippewa Valley, and Chequamegon Bay and renames the KRM Authority as the Southeastern Regional Transit Authority. A separately created Milwaukee County RTA was vetoed by the Governor.
• Authorizes $100 million in GPR supported borrowing for Milwaukee, KRM and Dane County commuter rail projects.
• Exempts DOT highway projects from the requirement to obtain a local permit under the newly created Farmland Preservation Districts. In a separate motion relating to the Working Lands Initiative, the bill was amended to ensure treatment of legal nonconforming use in farmland preservation districts to be consistent with current law.
• Provides for primary enforcement of seat belt violations.
• Exempts borrow sites used for state highway construction projects from local zoning ordinances.