Delaware’s $97.5 Million Pot Hole

June 17, 2013

Delaware Governor Jack Markell recently proposed a one cent increase in the state’s gasoline tax. The state currently levies a 23 cent tax on each gallon of gas—one of the lowest in the Northeast region. Governor Markell argues that the increased revenue will help fund road maintenance and improvements at state parks and waterways. He’s half right—Delaware doesn’t have enough revenue to fund its current road system, and gasoline taxes are a way to connect the users of roads to the cost of providing them.

In a perfect world, we’d just charge for the ability to use a road. The best way to prevent overuse and rapid degradation of public roadways is for the people who most use them to also be the ones who bear the cost. Ideally, privately or publicly owned tolls would charge users according to which road they use, how often they use it, and the amount of damage their vehicle causes. This often isn’t feasible, however, so governments traditionally tax gasoline instead because it can serve as a proxy for road use.

Unfortunately, Governor Markell’s Capital Budget proposal also links gasoline taxes to the funding of public parks, railroads, and local buses. . There is no link between the users of roads and the users of public parks. Why should drivers bear the cost of these other government services? And if it’s possible to connect users of roads to their cost, why can’t park, rail, and bus users pay for themselves too?

Unfortunately, Delaware doesn’t have enough transportation revenue to pay for its infrastructure (see table below). The proposed final operating budget for the Department of Transportation this year, including debt services, turns out to be only $339.5 million. That’s easily paid for by the $455 million that Delaware expects to collect in tolls, gas tax, and vehicle registration fees. It would seem that the roads could pay for themselves. But not included in that Operating budget figure is the cost of new capital improvements, for which the Governor has proposed bond issuance of $184.2 million on a proposed $213 million worth of capital improvements. Combining the cost of both the Operating and the Capital budgets leaves $97.5 million which will either be added to the Transportation Trust Fund debt or come from the state general fund revenues.

Delaware Department of Transportation Budget
(in millions)

Total Transportation Revenue: $ 455
Operating Budget: $ (339.5)
Capital Budget: $ (213)
Deficit/New Debt $ (97.5)

Even after cutting out parks, rail, and bus funds from the 2013 budget, the deficit would still be $82.2 million. That’s better than other states, but Delaware is still simply spending more on roads than it takes in. And since the gasoline tax hasn’t been raised since 1995, inflation has eaten into the effective revenues. The Department of Transportation is essentially operating on a 1995 gas-revenue budget under 2013 prices. The best way to reform the system would be to force users of roads to bear their own costs by increasing the price of tolls, vehicle fees, or the gasoline tax. On Friday, Senator Marshall (D) introduced the actual senate bill which proposes not a once cent, but instead a ten cent fuel-tax increase. Even if fuel consumption remained constant, the additional revenues still result in $47 million in new debt. Such a significant tax proposal so close to the end of this legislative session on June 30th will likely go nowhere.

The moral of the story? Delaware could see a hole in the total transportation budget to the tune of $97.5 million. That hole will have to be plugged with state general funds or with new debt from the Governor’s bond proposal. Bond issuance would increase the debt services cost of the Transportation Trust Fund which already consumes about a quarter of all transportation department revenues. Either way, through bond issuance or a cash injection from the state General Fund, Delaware’s roads aren’t paying for themselves. And although it’s a step in the right direction, a one cent gas tax increase isn’t enough fill that hole.

More on gasoline taxes here.

More on Delaware here.

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