Even with gas tax holiday, CT’s transportation coffers are flush
Despite waiving hundreds of millions of dollars in gasoline taxes since April to help families battle inflation, the state’s transportation program is on pace for a huge surplus.
Yet when Republican lawmakers demanded long-term gas tax cuts and other relief for motorists, Gov. Ned Lamont said Connecticut can’t spare it. Aging highways, bridges and rail lines need a lot of repairs, and that work has to start soon.
That’s the same message governors have used since 2015, when lawmakers moved a huge chunk of sales tax revenues into the Special Transportation Fund. Yet funds for capital projects barely have grown.
And while the tax-cutting debate appears to be unresolved, leaders from both parties, labor and business share a common assessment of the transportation program’s increasingly swollen coffers: Connecticut needs to spend more soon or risk losing not only taxpayer confidence but also its ability to maximize federal aid.
Transportation fund windfall sparks tax-cutting debate
“It’s disingenuous for the majority to claim, when we want to ease the tax burden on families … it’s going to make our roads and bridges unsafe,” said Senate Minority Leader Kevin Kelly, R-Stratford.
The tax holiday, which waived the full 25-cents-per-gallon retail levy on gasoline from last April through December — and portions of it from January until May 1 — will cost the state $330 million, according to nonpartisan analysts. Most of that loss, $240 million, falls within the current fiscal year, which began last July 1. Yet despite that hit, Lamont’s budget office projects the $1.8 billion transportation fund will close $226 million or 12% in the black.
Even as the transportation fund is running up black ink, Connecticut has just begun collecting even more revenue for its transportation fund.
A new highway mileage tax on most large commercial trucks took effect earlier this month and will generate about $90 million per year, according to nonpartisan budget analysts.
Critics argue boosting transportation expenses will further inflate rising prices of goods and services and weaken trucking and other businesses.
“Any tax is overhead to a business,” said John Blair, president of the Motor Transport Association of Connecticut, which represents about 500 trucking-related companies. “That overhead gets passed down [to consumers.] It’s simple economics.”
Minority Republicans in both chambers want to repeal this mileage tax, and some say Connecticut can afford to reduce the retail gasoline tax on an ongoing basis, rather than with a one-time holiday.
“The administration has suggested by its own actions that you don’t need that highway use tax,” said Rep. Holly Cheeseman of East Lyme, ranking House Republican on the Finance Committee, who cited the huge transportation fund surplus.
Without the holiday, the black ink would total $466 million, or 26% of the transportation fund.
“We just gave a gas tax holiday — and ended up with more money,” Kelly added. “How does that happen?”
Sales tax transfer bailed out transportation fund
It started to happen way back in 2015 when Lamont’s predecessor, Gov. Dannel P. Malloy, sounded the alarm about the transportation fund.
Created in 1983 in the wake of the Mianus River Bridge collapse in Greenwich, the STF was carved out from the rest of the budget to recontruct an aging transportation system built in the 1940s and '50s.
Powered by fuel tax revenues, the STF initially paid only the debt service on the hundreds of millions of dollars Connecticut borrows annually for its building program.
But over time, legislators also used the STF to cover the operating costs for the departments of Transportation and Motor Vehicles as well as the retirement benefits of their employees.
Improving vehicle efficiency weakened fuel tax revenues, while state officials spent more than $1 billion in pump receipts on non-transportation programs in the 2000s and early 2010s
Eventually, the transportation rebuilding program fell behind.
Connecticut borrowed $700 million for transportation projects in 2016 when the transfers began and paired it with about $700 million in federal construction grants. But DOT officials said that capital budget of $1.4 billion needed to be closer to $2 billion to cover both safety upgrades and projects to reduce congestion.
Malloy and legislators agreed to dedicate a portion of the 6.35% sales tax — specifically one-half of 1 percentage point — to the STF, to cover the debt service on more borrowing. The fund already had been receiving a small portion of sales tax receipts from car transactions.
By the time Lamont took office in 2019, that half-percent transfer was worth about $370 million. Arguing that wouldn’t be enough, the governor asked legislators to approve tolls: first in 2019 on all vehicles and one year later just on trucks.
After both failed, he convinced lawmakers to order the new highway mileage tax on most large commercial trucks.
But since then inflation has skyrocketed, taking sales tax receipts with it.
The $370 million transfer had nearly doubled by 2022. And nonpartisan analysts say it will pump $820 million into the STF this year and $875 million by 2026.
Capital program remains sluggish, DOT remains under-staffed
But while overall revenues for the transportation fund grew 57% after 2015, the capital program didn’t.
Connecticut issued an annual average of $725 million in transportation bonds between 2015 and 2018 under Malloy, according to debt reports from the state treasurer's office. During Lamont’s first term, the annual average ticked upward just 2.6%, reaching $744 million.
With huge new revenues to cover transportation borrowing, why weren’t more projects launched?
Labor says the answers involve long-entrenched problems in key state agencies.
The Department of Transportation has less staff now than in 2010, when a legislative investigation concluded it was struggling to complete projects on time and under budget.
The DOT had 3,398 budgeted, full-time positions when that 2010 study was ordered, compared with 3,361 last fiscal year. And while 3,420 currently are approved for that agency, only 2,965 were filled as of Friday.
The union that represents roughly 900 state transportation engineers, architects and planners says Connecticut is falling behind in the hunt for the talented professionals needed to launch projects.
“It’s a nationwide competition to get these young professionals out of college,” said Travis Woodward, president of CSEA-SEIU Local 2001 and a supervising engineer at the DOT. “Other states are eating our lunch.”
The Department of Administrative Services, which oversees most agency hiring across the Executive Branch, also needs to reform its review processes, which have become too cumbersome, Woodward said, adding it normally took one month to hire an engineer and now can take three.
“They know there’s an issue, but nobody knows how to circumvent it,” he added.
Lamont and Administrative Services Commissioner Michelle Gilman said last summer that efforts are being made to streamline and accelerate hiring processes.
And Chris Collibee, Lamont’s budget spokesman, added Friday that the administration and labor unions “are actively working to recruit and train the next generation of engineers, welders, pipe-fitters and contractors that will deliver on projects that will transform how we travel in Connecticut.”
Collibee added that highway, bridge and rail projects “have significant lead time” but the administration is committed to “ramping up additional projects in the near future, projects that will move Connecticut forward, helping to grow businesses and taxpayers.”
Lamont’s budget office projected it would boost annual borrowing for transportation projects to $1 billion in each of the next two fiscal years and then to $1.1 billion in 2025-26.
Cutting the gasoline tax, or repealing the new mileage levy, would undercut that effort, Collibee said.
Rep. Maria Horn, D-Salisbury, co-chairwoman of the Finance Committee, said it's premature to focus on cutting gas or mileage taxes, noting that even as sales tax revenues grow, fuel tax receipts don’t.
Connecticut is projected to collect $657 million from its retail and wholesale taxes on gasoline this fiscal year. Add to that the $240 million it forfeited this year from the tax holiday and the total reaches $897 million.
Fifteen years ago, those same two taxes generated a very similar amount, $853 million.
Adjust the 2008 receipts for inflation, though, and they represent $1.15 billion in current spending power, according to the U.S. Bureau of Labor Statistics inflation calculator. That makes this year’s tally a 22% decline.
Horn added, though, that it’s essential for the state to find a way to increase its transportation construction projects to justify the revenues currently dedicated to the program.
CT could lose big federal grants if it can’t start more projects
Even if the government should find a way to get more projects off the ground, some state officials have questioned whether Connecticut’s construction industry has the capacity to handle additional work.
Both business and labor in the private sector rejected that suggestion last week.
“You can ask every Connecticut road-builder member, every Connecticut asphalt- and aggregate-producer member, and every Connecticut ready-mix concrete producer member, and they’ll tell you they’ve been operating under capacity and starving for work for over a decade,” said Don Shubert, president of the Connecticut Construction Industry Association.
“We’re more than ready to respond, and we’ve been waiting for this opportunity,” said Nate Brown, political director and business agent for the International Union of Operating Engineers, Local 478.
Shubert and Brown both said Connecticut has lost some construction workers who’ve been forced to find work in neighboring states. That’s unavoidable, Shubert added, “with the lackluster construction prigram from the Department of Transportation that we’ve been living with for over a decade.”
But Shubert and Brown added that Connecticut can’t afford not to revitalize its construction industry with an infusion of new transportation projects.
The much-touted $1.2 trillion federal infrastructure initiative passed in late 2021 does guarantee $5.4 billion in total for Connecticut over the next five years for highway, bridge, transit and other projects.
But those funds can’t be used to supplant state spending.
More importantly, Shubert and Brown noted, states can compete for much more funding, specifically a share of a $12.5 billion Bridge Investment Program and a roughly $16 billion pool for major transportation projects that will provide significant economic impacts.
Connecticut can’t compete for those transformative grants without a more robust capital program, they said.
“We cannot waste these opportunities over the next five years,” Brown added. “We need to get shovels in the ground.”