Most Tennesseans would agree that the state's economy is doing well, and in some parts, it’s booming. Our state government is fiscally stable and healthy. Historically, Tennessee has enjoyed the reputation of having one of the nation’s best road systems; however, many are concerned about the growing backlog of road and bridge projects ranging in estimated cost from $10 billion to $11 billion.
President Donald Trump has vowed to stimulate the U.S. economy by pouring (at least) $1 trillion into our nation’s aging infrastructure. It’s suggested most of the funding would come through infrastructure banks, ‘public private partnerships’ or other private sector investment. Under these scenarios, governments essentially borrow money to fund infrastructure projects. Tennessee always has prided itself in having a pay-as-you-go, debt-free transportation network. As a result, it’s questionable to what extent potential federal legislation will relieve the state’s road construction backlog. To address the issue, Gov. Bill Haslam has put forth the IMPROVE Act, a proposal to increase Tennessee’s gas taxes by seven cents a gallon and diesel taxes by 12 cents a gallon.
Rep. David Hawk (R-Greeneville) has proposed an alternative, the Hawk Act, which very simply redirects 0.25 percent of the existing state sales taxes to the highway fund. Proponents of the Hawk Act claim that it is revenue neutral, simple to understand, and other taxes can be lowered in the future. Hawk estimates his proposal earmarks approximately $291 million, two-thirds of which would go to the Tennessee Department of Transportation, one-third going to cities and counties. Hawk plan critics cite the volatility of sales tax as a revenue source for infrastructure projects during economic downturns.
IMPROVE Act proponents note it also largely reallocates funds while accomplishing two things. With the vinegar of an increase in gas and diesel taxes (or user fees) comes the honey of several tax cuts: a half-cent off grocery taxes; reductions in franchise and excise taxes; and cutting the Hall income tax. The challenge in cutting certain taxes while increasing fuel taxes is that Tennesseans might notice the reductions, but they might not. However, everyone drives past a multitude of gas stations, prices vividly displayed, every day. People may drive farther to gas stations to buy gas a couple of cents lower in cost. It is estimated that Haslam’s proposal would provide $278 million to state transportation projects, of which $107 million would go to cities and counties. Proponents say the IMPROVE Act better allocates costs to specific users. Furthermore, the IMPROVE Act shifts more of the tax burned to out-of-state taxpayers since they represent a larger proportion of fuel users than those paying grocery taxes or Hall income taxes.
Critics say that tax increases are a bad idea when the state is running a financial surplus and that the bill’s indexing component links future increases in fuel taxes to the GDP. However, many taxes automatically adjust to sales prices or income that changes with inflation. When considering the issue from an accounting perspective, two specific tangible factors are total cost of fuel vs. costs of vehicle repairs and other disruptions related to poorly maintained roads.
Among the somewhat harder to quantify elements are travel or delivery delays resulting from roads and bridges in disrepair; loss of productivity from transportation improvement projects for which there’s no money; diminished long-term economic growth related to poor infrastructure, and more. The good news is that it appears as if our leaders agree that our infrastructure needs attention. The question is, will the amounts being discussed dent a $10-$11 billion backlog of projects to help us get down the road?
To read the original article in the Knoxville News Sentinel, please click here.