With CT tolls debate on ice, fiscal issues loom large
Will the governor put the state back on its 'debt diet?'
Connecticut’s tolls debate may be over for now, but that lull only means Gov. Ned Lamont and legislators now must resolve a daunting list of fiscal challenges left in its wake.
Absent toll receipts from large trucks, what other measures will be needed to keep the transportation program solvent for the rest of the decade?
Will Lamont, who eased his proposed debt diet to win support for tolls, again try to tighten the purse strings?
And will lawmakers respond by again attempting to seize control of Connecticut’s credit card?
“I’ve lost patience,” the governor said last week as he announced the tolls bill had fallen into political limbo. “We’re going to fix our transportation plan, and we’re ready to work with anybody who has a constructive alternative.”
Fixing the Special Transportation Fund
What does that mean?
For the short term, the governor said, it involves shifting priorities.
On paper, the budget’s Special Transportation Fund — which repays the borrowing that sustains highway, bridge and rail upgrades — is in fine shape, projected to run modest surpluses through 2024.
But appearances can be deceiving.
Those numbers only hold up if Connecticut keeps fixing infrastructure at its current pace that barely maintains a state of good repair — and leaves very little for strategic projects that enhance traffic flow.
The transportation fund currently supports roughly $800 million per year in state borrowing, which in turns leverages about $750 million in matching federal grants.
But DOT officials say as aging, overcrowded highways and bridges demand more costly repairs, $1.5 billion-to-$1.6 billion won’t get the job done, and something closer to $2 billion per year will be needed.
Based on that assumption, the transportation fund hits insolvency around 2025 or 2026.
As a stop-gap measure, Lamont said he favors taking about $200 million in borrowing supported by the budget’s General Fund — borrowing currently used to support school construction, conservation efforts, state building maintenance and economic development — and shifting that to transportation.
‘I hate to do it this way’
“I hate to do it this way,” Lamont said. “It’s bonding in place of other things that are priorities, but right now there’s no other option on the table.”
But another $200 million per year isn’t a long-term fix. It only postpones insolvency for a few more years, administration officials say.
Truck toll receipts would have added $150 million-to-$200 million per year.
Equally important, they would have helped Connecticut qualify for low-interest federal transportation loans.
This means Connecticut could have borrowed significantly more for infrastructure repairs.
If legislators won’t consider tolls, they could consider raising fuel taxes for the first time in seven years.
But Connecticut has two taxes that impact the price of gasoline — not to mention one of the highest fuel tax burdens in the nation.
When distributors bring fuel to local gas stations, the state applies an 8.1% wholesale tax. [A state-approved surcharge effectively raises the rate to 8.81%.]
This equates to nearly 15 cents per gallon, based on current wholesale prices, according to the according to the Connecticut Energy Marketers Association. But when oil prices skyrocketed in 2007 and 2008, the tax generated as much as 26 cents per gallon.
Regardless of the amount, gasoline station owners say they build the entire cost into the base price charged motorists, who also face a flat, 25-cents-per-gallon retail tax.
The wholesale tax last increased in 2013, following a schedule adopted in 2005. The retail tax last was changed in 2000, when legislators and then-Gov. John G. Rowland lowered it from 32 to 25 cents per gallon.
Neither Lamont nor any legislators have proposed any fuel tax hikes to date this year. The governor often has said tolls and other user fees were more reliable than increasing gasoline taxes, given the increasing fuel efficiency of vehicles.
The two fuel taxes together provide roughly half of the revenue for the $1.73 billion Special Transportation Fund.
Another option to mitigate the absence of toll receipts would be to increase sales tax revenues dedicated to transportation.
The sales tax currently provides about 30% of the STF’s revenues, and legislators passed a bipartisan plan in 2017 to increase that share steadily through the mid-2020s.
Lamont and his fellow Democrats in the legislature voted in June to scale back that increase, and Senate Minority Leader Len Fasano, R-North Haven, said officials should not deviate from that schedule any further.
More importantly, the tolls-centered transportation plan Lamont supports also was counting on sales tax transfers to the STF to ramp up again in 2022, jumping by more than $180 million that year.
In other words, maintaining that transfer plan wouldn’t push off the projected insolvency of the transportation fund. It just would stop it from happening even sooner.
‘Debt diet’ debate is far from over
And there’s also no guarantee legislators will accept the governor’s proposal to redirect $200 million in bonding away from non-transportation projects and into highways, bridges and rail lines.
Connecticut has one of the highest debt burdens, per capita, of any state, prompting Lamont 13 months ago to propose a “debt diet.”
The governor relented two weeks ago, proposing $1.77 billion in new general obligation bonding for this fiscal year — borrowing to bevrepaid out of the budget’s General Fund and not the STF.
That was more than $400 million beyond what the governor wanted, much of its focused on economic development priorities of Democratic legislators. And administration officials made it clear this was an olive branch to build support for tolls.
Now that tolls are on hold, sources say the “debt diet” is back in play.
Sen. John Fonfara, D-Hartford, co-chairman of the Finance, Revenue and Bonding Committee, said he hopes the administration’s bonding proposal from two weeks ago is still on the table.
“I take the administration at its word,” the Hartford lawmaker said. “I thought those decisions were based in good [borrowing] policy.”
Fonfara, who says bonding is a key tool for economic development and to help poor communities in lean fiscal times, introduced a bill last year that would have wrested control of the State Bond Commission from the Executive Branch and given it to the legislature.
It sailed through the finance committee, but legislative leaders then tabled it and instead tried to negotiate a middle ground with Lamont.
But if the bonding debate gets heated, the Democratic governor may have allies on the other side of the aisle.
Senate and House Republicans have argued for the past decade that state borrowing is too high, and Fasano warned last fall that if Democrats sent a bloated borrowing plan to Lamont — and if the governor vetoed it — Senate Republicans would not support an override.
“I would still hold to that position,” Fasano said. Democrats lack the two-thirds’ majority needed to override a veto by themselves.
“I think the Republicans recognize we have to prioritize and keep borrowing within our limits, keep it as lean as possible,” added Rep. Chris Davis of Ellington, ranking House Republican on the finance committee.
The battle over the state’s credit card also extends to borrowing for school construction. And sources said another dispute between Lamont and legislators — which was put on hold during the tolls debate — is now coming to the forefront.
Who controls borrowing for school construction?
Legislators from both parties balked last November when the administration unilaterally moved the Office of School Construction Grants and Review — which annually oversees hundreds of millions of dollars in construction grants to school districts — from the Department of Administrative Services and into the Office of Policy and Management. A high-profile agency that houses the governor’s budget staff, OPM is seen as closely involved with implementing the administration’s political agenda.
Critics said the move threatens a process that not only works well, but has traditionally been immune from politics.
“This reeks of politics,” Deputy House Minority Leader Vincent J. Candelora, R-North Branford, said at the time. “There is not a good reason to make this move.”
Administration officials said the move only was about increasing efficiency, but conceded it would require legislative approval, and submitted a bill this month to retroactively endorse the switch.
But the legislature’s Education Committee raised a bill this week to block it. Though full language hasn’t been drafted, the bill’s title starts with “An Act Prohibiting the Transfer of School Construction from DAS to OPM.”
This consternation surrounding the transfer comes at a time when the flow of money funding new school construction projects or major renovations has been significantly scaled back in recent years. The administration has insisted that this is the result of making sure that only projects that are close to being shovel-ready are brought before the legislature for approval, and eventually by the State Bond Commission.
But Kostantinos Diamantis — who heads the school construction unit — told the Education Committee that the downturn is going to continue because of a “self-imposed cap” of about $400 million in grants per year.
Education writer Jacqueline Rabe Thomas contributed to this report.
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