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Guest Column: The Wrong Route to Road Funding

Lawmakers are considering a creative and innovative proposal for highway funding, but it's the wrong way to go.

By F. Scott McCown
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To find some money for roads, Senate Transportation Chairman Robert Nichols, R-Jacksonville, and Senate Finance Chairman Tommy Williams, R-The Woodlands, authored Senate Joint Resolution 2. Under current law, our Constitution dedicates three-fourths of oil and gas severance taxes above what was collected in 1987 to the economic stabilization fund, informally the Rainy Day Fund. SJR 2 proposes to amend the Constitution to divert half of this revenue stream to the highway fund. While ingenious, SJR 2 has three problems.

First, by constitutionally setting aside money for nothing but transportation, SJR 2 would make transportation more important than anything else for all time. Second, in doing so, SJR 2 would divert funds from general revenue that would otherwise be available to pay for other needs. Finally, like the lottery and education, SJR 2 would mislead Texans into thinking we have solved our transportation problems, when the only real solution is tax reform.

Transportation is important, but we have other needs. Under current law, with a two-thirds vote, the Legislature can spend money in the Rainy Day Fund on anything including transportation. Under SJR 2, there would be half as much future money available for anything but transportation.

SJR 2 would also potentially divert money in another way. Under current law, when the balance in the Rainy Day Fund equals 10 percent of the general revenue deposited in the proceeding biennium (excluding investments, interests and loans), then the state stops putting money in the fund. Instead, the money remains in general revenue, available for whatever the state needs. Under SJR 2, it would take twice as long to reach the cap, and only half as much would be left in general revenue.

Of course, we all remember the lottery. It was supposed to pay for our schools! But the lottery pays for only about four days of the school year, leaving the public confused and less willing to invest in education. SJR 2 would create a similar problem. SJR 2 would produce less than a $1 billion a year for transportation — in the best case, 20 percent of our needs and, in the worst case, less than 3 percent. Just as with the lottery, though, SJR 2 would make it difficult to convince the public to commit more.

Under current law, by 2015, if the voters approve the state water plan, the fund will have a balance of about $8 billion, which seems big, but isn’t. The primary purpose of the Rainy Day Fund is to offset unforeseen shortfalls in revenue because of an economic downturn. So the balance needs to be big enough to cover potential shortfalls. While there is no magic number, state finance experts recommend that states set aside an amount equal to 10 percent of state spending from ordinary state revenue.

Under this 10-percent standard, our state’s reserve balance should be about $10 billion. It was 18 years — 2007 — before the fund had an ending balance of more than $1 billion. Oil and gas are volatile commodities, and unusually high prices for oil and strong demand for natural gas only recently produced today’s large balance.

Of course, we should spend from the Rainy Day Fund to protect critical state services in a recession. In such an event, Nichols and Williams incorporated Sen. Dan Patrick’s minimum-balance concept into SJR 2: Any transfer from the Rainy Day Fund to highways would be contingent on the fund having a minimum balance, allowing the fund to rebuild after any spending takes the balance below $6 billion. Instead of this fixed dollar amount, a 5-percent minimum would grow with the budget, but any minimum helps.

The real problem, though, remains unsolved — our state’s need for more revenue. We have a growing trillion-and-a-half-dollar economy. Yet our antiquated revenue system — relying heavily on a sales tax on goods — takes an ever smaller percentage, leaving the state too little to support the public services necessary to sustain the economy like transportation and education.

Nichols and Williams are to be commended for trying to find a way to fund transportation. But after a session that underfunded many critical needs, left money in the bank and even cut taxes, Texas should not pay for transportation by diverting money from the Rainy Day Fund. Instead, we should solve our revenue problem.

F. Scott McCown is the executive director of the Center for Public Policy Priorities.

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Transportation 83rd Legislative Session Rainy Day Fund Special sessions