MO Money, MO Problems for MoDOT Funding
MoDOT’s funding future is certainly looking brighter these days. The department’s user-funding base is, at long last, providing more revenue. Since 2013, motor vehicle sales tax revenue increased by more than 10% and license fee revenue is up by 2.6%. Even state fuel tax revenue, which many feared was entering terminal decline, is on the upswing. In the last year, MoDOT’s highway user revenues increased by a total of $27 million. For all this we can probably thank a better economy and lower fuel prices (an average price of $1.66 per regular gallon as of 1/11/2016). Fears of an imminent funding crisis have, for now, subsided. As an added bonus, the federal government passed the FAST Act late last year, opening up the possibility of increased federal funding for MoDOT.
However, in an ironic twist, the increased federal support promised under the FAST Act could once again put Missouri in a bind. As we’ve discussed before, the federal government gives highway funding to states in the form of individual project grants, not as a lump sum. This means that for MoDOT to get federal money for highways, it needs to spend state money. Thus, increased federal support through the FAST Act requires increased state spending.
Back in early 2014, MoDOT officials predicted decreased federal support (of 19% in 2016), not a steady increase, as is now expected (see the chart above). While a decrease in federal dollars was feared, it also meant less revenue would be needed to maintain state matching funds. Even so, MoDOT officials at the time predicted they would not have the funds necessary by 2020.
With more federal funding available, MoDOT’s situation today is similar to that in in 2014—left wondering whether it will be able to match all federal dollars in the coming years. The key difference is that in 2014, the loss in federal funds would have meant the MoDOT would not have had the funds to maintain the state highway system. Now, it would mean the state was not taking advantage of all federal funding that will become available (which would then be redistributed to other states). Better problem.
Furthermore, as we’ve stated before, nearly all major highway projects receive a $4 to $1 federal to local match, meaning that it does not take much increased state revenue to match significant federal dollars. For example, the dollar gap between pre– and post–FAST Act projections should reach $305 million by 2020. MoDOT would need to spend $76 million in additional state-based revenue to cover that gap.
How will MoDOT cope? The department is already using creative accounting to get federal dollars for projects that were previously ineligible. The state legislature is also looking to shore-up the department’s user-funding base through increased fuel taxes and the possible introduction in tolling. If policymakers can focus on fair and economically sound solutions, Missouri should be able to capitalize on the better funding environment for transportation.