HJR 211: Joint Subcommittee to Study JLARC Recommendations on Aspects of Virginia’s Transportation Programs

June 7, 2002
Fairfax

Transportation Funding History

Staff briefed the joint meeting on the evolution of the statutory formulas for allocating highway program maintenance and construction funds. The highly ad hoc method of dedicating transportation revenues (primarily motor fuel tax proceeds) to specific projects or clusters of related projects as needs arose changed dramatically in 1977. Legislation passed by the 1977 Session of the General Assembly specifically required that (i) funds needed for highway maintenance would be allocated prior to allocation of funds for highway construction, and (ii) after allocation of revenues needed for maintenance, 50 percent of remaining highway revenues would be allocated to primary system construction, 25 percent to urban system construction, and 25 percent to secondary system construction.

This formulation was amended in 1985, following two years of study by the Joint Legislative Audit and Review Commission (JLARC) and the review of JLARC’s recommendations by a General Assembly study commission chaired by Delegate L. Cleaves Manning. Based on the Manning Commission’s recommendations, the 50/25/25 formula was changed to a 40/30/30 formula, with a multi-factor suballocation formula for distribution of constructions funds within each highway system. An allocation system was also provided for distribution of maintenance funds with the primary and secondary systems, and for distribution of maintenance funds to cities, towns, and counties that had withdrawn from the state secondary system (Henrico and Arlington).

The last substantial changes to these arrangements were made by a special session of the General Assembly called for that purpose by Governor Gerald Baliles in 1986. That session

Restyled the Virginia Highway Commission the Commonwealth Transportation Board and increased the CTB’s size to include representatives of port, airport, and mass transit interests;
Established a Transportation Trust Fund (TTF) to fund not only highway construction, but also port, airport, and mass transit programs;
Created a special Toll Facilities Revolving Account within the TTF; and
Provided, through increases in the state sales and use tax and various transportation user fees, new revenues to sustain the new TTF.

With the passage of this legislation, the distinction between highway revenues and other transportation revenues was superseded by a distinction between various transportation agencies’ trust fund revenues (those derived from taxes and fees imposed by the 1986 Special Session and flowing to them via the Transportation Trust Fund) and their special fund revenues (those derived from sources other than the Transportation Trust Fund and allocated to them through other mechanisms). From a VDOT perspective, the 1986 Special Session had, in effect, separated highway resources into a maintenance fund and a construction fund.

The major components of these funding mechanisms and their associated mathematical formulas have remained largely unchanged since.

Statutory Formulas

House Appropriations Committee staff built upon the foundation laid by the day’s first briefing to explain to the members how, due to a number of interrelated factors, in the 15 years since the last major changes to the highway allocation formulas set out in the Code of Virginia, more and more highway program funding has gone "around" these statutory formulas, rather than "through" them.

In FY 1988 the total transportation budget was $1.7 billion, and 93 percent of the highway construction budget was allocated to interstate, primary, secondary, and urban system projects according to the formulas. By FY 2003 the total transportation budget had grown to $2.9 billion, but only 40 percent ($597 million) will be distributed by formula.

Based on VDOT’s six-year financial plan, the VDOT annual budget for FY 2008 is expected to grow only to $3.0 billion—marginally higher than it was in FY 2003. Forty-six percent of this budget will go to maintenance (including city street maintenance payments) and only 41 percent to construction. Of these construction funds only about 50 percent (about 20 percent of the total VDOT budget) is projected to flow through statutory allocation formulas.

Five factors are primarily responsible for this decline in the share of construction funds being distributed by formula:

Growth in the portion of total budget going to maintenance;
Increases in set-asides and special programs at the state level, such as the Virginia Transportation Act (VTA) of 2000, bond programs, etc;
Growth in the share of total construction funding derived from federal sources;
Increasing federally mandated distribution requirements; and
Increasing allocation of "highway" funding to nonhighway projects.

Issues

The combined impact of these trends suggest that six issues, in particular, need to be addressed:

Should maintenance and construction be funded through separate dedicated revenue sources?
Has the VTA improved the distribution of highway and transit funding to key projects?
What are the consequences of continuing to rely on debt financing?
Does Virginia’s classification of highways (primary, secondary, and urban) still make sense?
What are the consequences of increasing dependence on federal funding?
Should federal funds be included when considering whether state funds are being equitably distributed?

JLARC Findings

The meeting concluded with a presentation on JLARC’s study of the equity and efficiency of highway construction and transit funding. After a review of the General Assembly’s charge to JLARC in conducting the study, including study issues that arose from that charge, and an explanation of the research JLARC had undertaken to address those issues, the commission’s efforts were summarized in eight findings:

The current system for allocating construction funds seems outdated and needs to be revised to ensure that construction funds are equitably and efficiently allocated.
The existing administrative system of highway classification (primary, secondary, and urban) needs to be replaced with a classification system (statewide, regional, and local) based on the functional purpose of the roads, and new funding regions need to be created to allocate regional construction funds.
A needs-based system should continue to be used to allocate construction funds, but VDOT should improve the process and produce a needs assessment that is both accurate and objective.
Highway construction funds should be allocated proportionally among the statewide, regional, and local road systems based on need, with more funds targeted to highways of statewide significance.
A separate bridge fund should be established to ensure that funding of needed bridge replacements is adequately prioritized.
Based on projected construction funds and estimated costs of projects identified as legislative priorities, there will not be sufficient funds to pay for identified projects of the next 10 years (a shortfall of $6.5 billion).
The General Assembly’s involvement in the funding process has had some important benefits in the near term, but the legislature may wish to reexamine its long-term role in the process and give itself authority to appoint the five at-large members of the CTB.
Public transit alternatives to highway construction need to be given higher priority in planning for Virginia’s future transportation system, especially in urbanized regions of the Commonwealth.

Chairman:

The Hon. Vincent F. Callahan, Jr.

For information, contact:

Alan B. Wambold
Division of Legislative Services

THE RECORD