Friday, December 10, 2010

It is a good deal... let me find the credit card

Governor Bob McDonnell wants to take advantage of low construction costs brought on by the slow economy to jump start road building in the Commonwealth. His transportation plan calls for spending about $4 billion over three years to ease congestion and, as a side benefit, to create much needed jobs. Laudable goals. Road construction has languished in the Commonwealth while congestion has gotten worse. Folks in road building could certainly use the work. With costs, both highway construction and interest rates, at near historic lows now could be the time to get more miles for the dollar.

But... there's always a "but" isn't there... make no mistake about it, the Commonwealth will have to go deeper into hock to pay for the roads. Unfortunately the governor's plan fails to address just how we'd pay back those loans. Delegate Ward Armstrong (D-Henry Co.), House minority leader and a potential gubernatorial candidate, issued a press release saying of the plan,
This is just the latest in a long line of irresponsible and half-baked ideas that fail to address our core problem of generating a long-term sustainable source of funding for our transportation needs...
So where would Governor McDonnell find the dollars? He says some of the money would come from saving and unspent funds of over $1 billion "discovered" in a recent VDOT audit. So, that really doesn't represent much new spending, but rather money that is already in the pipeline for maintenance and other projects. The governor's plan anticipates $700 million from as yet unrealized future surpluses and from privatization of state ABC stores. Perhaps this is his way of pressuring the General Assembly into moving ahead on his plan to sell the liquor business, but legislators are far from being sold on deal, especially in light of a recent report of the Joint Legislative Audit and Review Commission questioning administration numbers. According to JLARC, the "profits" would be closer to $300 than the $500 million the governor projected. Plus, while it would be upfront money that could be used for current transportation, the sale would mean a loss of state revenue each and every year in the future.

Beyond that, the governor plans to borrow $2.9 billion in a mix of state-backed and federal-backed bonds. The $1.1 billion federal-backed bonds, it appears, are repaid from future federal transportation grants-in-aid to the Commonwealth. So, we'd have future loss of revenue from the sale of ABC stores, loss of some future federal transportation aid, and future interest payment to service the increased debt. And the Commonwealth already has obligations to repay money to VRS and for other bonds that helped balance previous budgets.

It is irresponsible to spend money without clear plans and a reliable revenue stream for repayment of the debt to be incurred. Future governors and legislators will be forced to choose between core services such as schools and public safety or raise taxes. As Delegate Armstrong noted,
When you don’t pay now, someone has to pay later. Unfortunately the Governor’s lack of leadership on transportation has resulted in a plan that amounts to a back door tax increase on our children.
Perhaps now is the time for the Commonwealth to revamp its gas tax. Start a process of small periodic increases in the current 17.5¢ per gallon state gas tax to raise it to a level consistent with inflation. That rate was set in 1985 and its buying power is closer to 8¢. But, the governor seems dead set against that - he'll just max out another credit card.

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