Missouri transportation managers’ quest for a steady stream money to chip away at a backlog of unfunded projects took a turn this month with legislative passage of the first state motor fuel tax hike in 25 years.
Gov. Mike Parson praised the passage last week of the tax increase and is expected to sign the legislation that could generate up to $500 million for cities, counties and the state's road fund depending on how many refunds are sought by motorists.
“This bill provides much needed funding for road and bridge repairs, and we are excited to move forward on these critical infrastructure projects,” Parson said in statement.
The legislation passed the House earlier this month in a 104-52 vote.
The Republican block that holds a majority was nearly equally divided with some opponents wanting the issue to go to voters who have rejected two fuel tax increases since 2014. Votes from the Democratic minority got the bill across the line. The Senate — also controlled by Republicans — passed the legislation in March.
Parson is a Republican.
Federal COVID-19 pandemic relief from December’s aid package also has given the Missouri Highways and Transportation Commission a boost and the horizon is looking more promising with negotiations between Congress and the Biden Administration heating up on a national infrastructure package.
New funding would go to chip away at the Missouri Department of Transportation’s updated
"Regardless of where the money comes from these are identified high priority needs,” said Brenda Morris, Missouri Department of Transportation’s chief financial officer.
About 33,832 miles of roads and 10,397 bridges make up the state’s transportation system. With limited funding and voter rejection of past gas tax hikes, managers shifted several years ago to prioritizing maintenance over expansion.
Under the current funding metrics, officials estimate the availability of $5.8 billion over the next five years for additional improvements. The report identified at least $825 million in annual high-priority, unfunded annual transportation needs that over 10 years carry an $8.25 billion price tag.
“Since transportation needs greatly outweigh funding available, the challenge is determining the optimal projects to fund that provide the greatest return on investment to taxpayers,” MDOT Director Patrick McKenna writes in the report.
If signed as expected, the motor fuel tax hike could generate nearly $400 million more for the state in the coming years. Under the legislation, the state would phase in the 12.5 cent increase by 2.5 cents annually beginning this fall and continuing through 2025, but motorists could seek a refund from the additional tax.
The current motor fuel tax of 17 cents per gallon – which is one of the lowest nationally -- generated $699 million in fiscal 2020. A
Officials project the tax would generate about $77 million in fiscal 2022 with $56 million going to the state. It would generate $154 million in fiscal 2023, $257 million in fiscal 2024, $360 million in fiscal 2025, $462 million in fiscal 2026 and then $514 million in fiscal 2027 with about $390 million going to the state once the increase is fully adopted.
Those figures don’t account for refunds that motorists can seek that would reduce the new funding pot. In 2027, refunds could range from a low end of $58 million to a high end of $390 million, according to the fiscal note. The legislation also raises electric vehicle fees by 20% over five years.
Voters in 2018 rejected Proposition D, which asked if the state should raise the gas tax by 10 cents to fund long-stalled road and bridge projects. In 2014, voters shot down Constitutional Amendment 7, which would have raised the state’s sales tax by three-fourths of one cent for 10 years to fund transportation.
MDOT doesn’t comment on pending legislation so Morris declined to discuss how much additional borrowing capacity the tax hike could generate. As debt is paid down under current funding levels, some room is opening up for new money and the agency is eyeing refunding opportunities.
The Missouri Highways and Transportation Commission, which oversees MDOT and serves as the state’s transportation borrower, also plans a roughly $100 million issue in November that would
In a first for the commission, the state in 2019 pledged an annual appropriation to cover debt service on up to $300 million of borrowing. The borrowing marked the first new money issuance since 2010 as capacity was exhausted under existing revenue streams.
The agency also used its share of about $200 million of funding from December’s federal relief program to cover debt service as the dollars had few restrictions on use. That has freed up funds for projects.
Early in the COVID-19 pandemic, motor fuel taxes and other transportation-related taxes tanked resulting in a $39 million hole. Morris said the agency limited spending to essential needs, delayed some hiring, and reduced some work hours. “We managed through it until revenues” picked up, and while motor fuel tax receipts remain down, vehicle sales tax revenue has swelled. Motor fuel taxes make up about 45% of the agency’s state-based tax revenues.
In March, Fitch Ratings affirmed the highways commission’s AAA ratings on $541 million of senior and first lien state road bonds, $337 million of AA-plus on its second and third lien state road bonds and $550 million of federal reimbursement or Garvee debt. The outlook is stable.
Fitch also affirmed the AA-plus rating and stable outlook on $144 million of separate third lien state road bonds with its own unique security structure put in place for the bridge borrowing that’s based on the state's annual budgetary appropriations of general fund revenues to cover debt service.
“The ratings on bonds of all liens acknowledge relatively limited growth prospects for pledged revenues in the absence of policy action to raise taxes and fees in light of Missouri's slow population growth and increased fuel efficiency standards for cars,” Fitch noted at the time.
Pledged revenues covering highway bond debt service declined slightly between fiscals 2019 and 2020 as state road fund revenue fell by 3.9% due to the pandemic but overall revenues rose by $160 million in mostly due to the rise in federal grant moneys and modestly higher sales taxes and permit fees.
Budget
Lawmakers also sent a $35.3 billion fiscal 2022 budget to Parson’s desk. It doesn’t incorporate the state’s share of $2.7 billion in expected aid from the American Rescue Plan. Parson said he would lay out early next year how he thinks the state should use the relief.
The state holds a tight leash on borrowing but a roughly $60 million appropriation-backed deal is authorized in legislation approved this session to fund state park improvements.
The triple-A-rated state plans to competitively sell the bonds through the Board of Public Buildings over the summer. The state is also eyeing refunding opportunities, said the state’s debt manager Stacy Neal, director of Accounting for the Office of Administration.
Lawmakers failed to earmark about $130 million in state money needed to expand the Medicaid program as permitted under former President Obama’s healthcare overhaul.
Voters had endorsed an expansion in a constitutional amendment referendum last August.
Parson was opposed to expansion but included funding in his budget proposal given the ballot measure’s results. If the state doesn’t expand the program, referendum proponents have threatened to sue. The final budget raises education funding and provides a 2% pay hike for employees.
