Proposition 7 would redirect $2.5 billion of state taxes to roads


During the legislative session this spring, highway advocates said passage of Proposition 7 this fall finally would allow the Texas Department of Transportation to reach what had long seemed unattainable: adequate funding of the state’s highway needs.

However, with Texans poised to vote on the proposed constitutional amendment directing some state sales taxes to TxDOT, the goal posts apparently have moved again.

A study committee in 2011 had said the agency, which was spending about $9 billion a year at that time, needed an additional $4 billion a year to keep congestion at bay and properly maintain the 80,000 miles of the state highway system. TxDOT later said it required an additional $1 billion each year to repair badly damaged roads in the state’s oil boom areas.

With the passage last year of Proposition 1, driving more than $1.7 billion of oil and gas production taxes to TxDOT in the first year alone, and an additional $700 million of general state tax money redirected to roads during the 2015 legislative session, this newest constitutional amendment seemed like enough to hit that $5 billion goal.

If Texans approve it, Proposition 7 would move to TxDOT an estimated $2.5 billion a year in sales tax revenue, starting in late 2017.

And starting two years later, TxDOT would also begin to get a portion of motor vehicle sales tax revenue, likely allowing TxDOT funding to grow as the economy expands.

But the Texas A&M Transportation Institute, in legislative testimony in September, said that upon further review and with revised assumptions about costs and traffic, that won’t be enough. Engineers with the state-funded institute said that, even with the new Prop. 1 money and other moves to boost TxDOT funding this year, the department still needs an additional $5.7 billion a year through 2030 for expansion and proper maintenance of highways.

If adding toll roads disappears as an option, a disappearance that an increasing number of legislators are advocating, then the need expands to $7.4 billion a year, the institute said.

And now revenue from Proposition 1, with oil prices stuck in the $40 to $50 per barrel range, is slumping. Texas Comptroller Glenn Hegar, who in January predicted the amendment would generate $1.2 billion this year and another $1.2 billion in 2016, last week in a revised state revenue estimate downgraded that 2016 figure to $594 million.

Given all that, Proposition 7, with little or no organized opposition (it passed the Legislature by a combined 172-1 vote), has taken on even more importance to highway advocates.

“It’s not just a quality of life issue. It’s a job issue,” said Jack Ladd, president of Move Texas Forward, a nonprofit that advocates for transportation spending. Fortune 500 companies, he said, look first for a good labor pool in a city. Then they ask, Ladd said, “how long is it going to take to get to those jobs?”

Like Proposition 1 last year, Proposition 7 wouldn’t raise taxes, instead redistributing revenue from existing state taxes. But the money flow is more complicated this time, and potentially confusing to voters.

If the constitutional amendment passes, nothing would happen with TxDOT funding in the current or next fiscal year. But beginning Sept. 1, 2017, TxDOT likely would begin to get to a significant piece of state sales taxes.

Proposition 7 would stipulate that, beginning with the 2017-18 fiscal year, the first $28 billion of state sales tax (about what sales taxes brought in the 2014-15 fiscal year) would continue to go to the state’s general fund. That fund covers most state spending, including public schools and higher education, prisons and health and human services. Then, assuming more money came in, the next $2.5 billion each year would go to TxDOT, and could be spent only on designing, building and maintaining nontolled roads.

Any sales tax revenue above $30.5 billion would revert to the general fund.

However, the measure goes on to require that TxDOT get money from a separate pot of state money, that generated by the motor vehicle sales tax. Once revenue from that source exceeds $5 billion, TxDOT would get 35 percent of any money above that level.

The sales tax portion expires in 2032 and the motor vehicle sales tax provision would die in 2029. But the amendment would allow the Legislature to extend each of those funding streams to TxDOT for 10 years at a time.

Hegar’s latest revenue estimate would seem to bode well for TxDOT. It shows sales tax revenue hitting $30.48 billion in fiscal 2017, the year before the amendment kicks in. And motor vehicle sales tax would be just over $5 billion in fiscal 2017, the comptroller estimates, two years ahead of the time TxDOT would benefit from revenue over that threshold.

The Legislative Budget Board this spring estimated that provision would bring TxDOT an additional $430 million in 2020.

“At this point I don’t see anything that dramatically or materially would change that,” said James Bass, TxDOT’s chief financial officer. “But there’s a lot of time between now and then.”


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