Malloy trades transportation setbacks for budget savings

Eighteen months after unveiling a 30-year, $100 billion program to rebuild Connecticut’s transportation system, Gov. Dannel P. Malloy faces a program headed for deficit in two years and still lacking constitutional safeguards to secure transportation revenues against future cuts.

But while the administration insists it won’t stop fighting for improvements it sees as crucial to the state’s economic future, it had to sacrifice that objective somewhat — for now — to convince legislators to begin shrinking state government and to avoid raising taxes.

The governor agreed in the tentative budget deal he struck with Democratic legislative leaders for 2016-17 to reduce the level of sales tax receipts dedicated to transportation by $50 million.

“We are very committed to our principles – we sought long-term, reoccurring savings, refused to raid the rainy day fund, and considered raising taxes to be out of the question,” Malloy spokesman Devon Puglia said. “Compromising on what we consider to be the most important priority for the state was pivotal to reaching an agreement that accomplished those goals. But that does not mean we are in any way less committed to transportation, or that our drive to transform our infrastructure has dropped one iota. Instead, we’re continuing to move forward with the planning and design of many, many projects, and to reach a good budget agreement, we proposed compromises to help move the conversation forward and tackle the challenges before us.”

The reduction in sales tax funds for transportation will mean spending $15 million less next year on smaller projects funded out of the budget — rather than financed. But Puglia said most adjustments will involve reductions in services,  and not scaling back infrastructure rebuilding plans.

The $100 billion investment Malloy is seeking is an omnibus figure that reflects both existing transportation operating and capital funds — both from state and federal sources — as well as projected growth in spending over three decades.

The key to making it all work, though, is having enough funds in the budget — in the Special Transportation Fund in particular — to cover debt payments on all new state transportation bonds. Those state bonds, in turn, would enable Connecticut to qualify for larger amounts of federal transportation aid.

State sales tax receipts were supposed to provide the Special Transportation Fund with enough new money to cover the initial “five-year ramp-up” of the 30-year program — additional costs the state would face between 2016 and 2020.

According to the legislature’s nonpartisan Office of Fiscal Analysis (OFA), even after losing $50 million of the $130 million in new resources originally earmarked for transportation, the fund would remain narrowly in balance both next fiscal year and in 2017-18.

But things change by the fourth and fifth years of the “five-year ramp-up.”

OFA projects the Special Transportation Fund will be $46 million — or just under 3 percent — in deficit in the 2018-19 fiscal year. The shortfall grows to $92 million, or 5 percent, by 2019-20.

There are several problems behind this trend including:

• Underperforming gasoline tax receipts, and particularly those tied to a volatile percentage-based tax on wholesale fuel transactions.
• Transportation fund debt service costs will rise faster than originally anticipated, not only because of new work, but as Connecticut whittles down its backlog of bonding for already approved projects. According to the state treasurer’s office, the state has more than $3.2 billion in financing approved for transportation capital projects that’s never actually been borrowed and spent. That’s nearly double the $1.7 billion backlog that existed in January 2011.
• And retirement benefit costs are spiking throughout the state budget, a problem caused largely by decades of inadequate saving by legislatures and governors before 2011. The transportation fund will need to find $11 million extra in 2018-19 to cover its share of the annual pension contribution, and $12 million in 2019-20.

The transportation fund does have about $165 million in reserve. But the state’s General Fund under the new budget deal still faces deficits of about $1.3 billion and $1.4 billion in the first two fiscal years after the November state elections, which could place even more pressure on officials to drain further resources from transportation.

A special panel created by the governor and legislature to find ways to fund the transportation improvements from 2021 through 2045, offered several options in January, including restoring tolls to highways, increasing gasoline taxes and further boosting sales taxes.

The governor has said he wouldn’t consider proposing any of those things until after legislators endorse a state constitutional amendment to secure all of these revenues for transportation use only.

But legislators balked at endorsing this “lockbox,” noting that — with big deficits projected for the overall state budget on the horizon — this only would place more pressure on other budget programs not shielded by a constitutional amendment.

Sen. Beth Bye, D-West Hartford, co-chair of the Appropriations Committee, said just before budget negotiations began this spring that many vital programs are at stake and deserve equal consideration. “There are no sacred cows in this budget,” she said. “There couldn’t be.”

“The lockbox is the very definition of a structural change — that’s why we are such ardent supporters of it,” Puglia said, adding the administration would fight for it again in 2017. “We know we need to transform our transportation system, and we will get this done. It’s critical to our ability to invest in our economy and attract new businesses.”

“I don’t view transportation as a sacred cow,” said R. Nelson “Oz” Griebel, president of the MetroHartford Alliance and a member of the state’s Transportation Finance Panel. “Without a robust transportation system, our ability to retain and attract private-sector employment, capital investment in R&D and real estate alike is going to continue to be impeded. Transportation is critical to the job retention, the job and wage growth that is going to drive the tax revenues we need to do all of the other programs in the budget.”