Wednesday, November 13, 2013

Use Mix of Cash and Debt Financing to Fund PA Transportation Projects

Capital stock and franchise tax could pay debt service, PBPC Director Sharon Ward testifies

HARRISBURG, PA  — Pennsylvania could significantly increase its long-term investment in roads, bridges, and public transit with a mix of cash and debt financing, testified Sharon Ward, Director of the Pennsylvania Budget and Policy Center, before a state House committee today.

Ward said the commonwealth could float $2.5 billion in new debt to fund transportation projects, with the annual debt costs paid for by keeping the capital stock and franchise tax at its current low rate, rather than phasing it out. Alternatively, lawmakers could put a minimum corporate tax in place with revenue dedicated to paying down the debt, she said.

“Repairing our transportation infrastructure, including roads, bridges, transit, rail, and airports, is a core function of government and a high priority in 2013,” Ward testified before the House Finance Committee. “Funding this infrastructure will create jobs, strengthen Pennsylvania’s economy, and prevent dangerous and costly bridge failures, potentially saving lives.”

Most states use a balance of borrowing and cash to fund transportation projects, but Pennsylvania is among a handful of states that largely funds transportation projects on a pay-as-you-go basis. Roads typically last 30 years, while rail infrastructure can remain functional for up to a century – making these types of projects good candidates for long-term financing, much like purchasing a home.

“Financing long-term road improvements with long-term bonds means that drivers, long distance truckers, and all businesses that profit from a good transportation system will contribute to the roads they are using now and 15 years from now,” Ward said.

Pennsylvania is in good fiscal shape to take on new borrowing. By several measures, the commonwealth’s debt levels are low and declining in the years ahead. Interest rates are also low, reducing the long-term costs of borrowing and allowing Pennsylvania to step up its investment in transportation with less of an increase in the gas tax or other user fees.

Keeping the capital stock and franchise tax at its current low rate could fund most of the debt costs of borrowing $2.5 billion for transportation projects – just under $200 million annually. The capital stock and franchise tax rate has already been cut by nearly 93 percent since 1998 and, under current law, will be eliminated in 2016.
Ward presented the transportation funding idea as an alternative to legislation that would redirect about $1.2 billion in sales taxes paid on motor vehicle purchases out of the state’s General Fund and into the Motor License Fund to fund transportation projects.

Ward testified before the House Finance Committee that two bills on this subject, HB 1630 and HB 962, would create a permanent fiscal crisis for the commonwealth, forcing funding cuts to hospitals, schools, early childhood programs, nursing homes, and other services as important as transportation.

“While some may think this is a ‘pain free’ way to dedicate more funding to roads and bridges, in reality this is a classic case of robbing Peter to pay Paul,” Ward said.

The Pennsylvania Budget and Policy Center is a non-partisan policy research project that provides independent, credible analysis on state tax, budget and related policy matters, with attention to the impact of current or proposed policies on working families.

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