“There’s red ink and red blood all over the states. It’s bad out there.”
That statement was made by a state highway official, who did not wish to be identified. He was referring to the growing budget problems at state departments of transportation, ever more frequently accompanied by layoffs, early retirements, reduced benefits and other retrenchments.
It’s not a pretty picture, said a veteran bridge design engineer in a state with one of the largest highway construction programs in the United States: “I’m worried when there are more lawyers in our DOT than bridge designers. That’s a sign of the times. States aren’t kinder and gentler. It used to be that you would spend 40 years — most of your life — with your DOT and be even closer to them than to your family. You used a car from the department and would go out at any hour if you were called. How do you keep this spirit of dedication if the state cuts away benefits?”
States are taking drastic steps, including postponing much-needed highway and bridge projects, as revenues continue to fall.
“It’s a very difficult year out there,” Jennifer Gavin, a spokesperson of the American Association of State Highway and Transportation Officials (AASHTO) in Washington, D.C., told Construction Equipment Guide (CEG). “It has been said to be the worst state budget situation in about 50 years.”
What’s Happening
As corporate revenues fall, states are collecting much less corporate income taxes and capital gains taxes. Likewise, as car sales flatten, so do sales tax receipts. With unemployment relatively high, revenues from individual income taxes are lower. State legislatures are hard put to find money, in the light of such budget shortfalls, for highway construction, repair and safety programs, and important projects to relieve increasing traffic congestion.
The National Conference of State Legislators (NCSL) in Washington, D.C., reported that 29 states raised taxes and 16 raised user fees to close budget gaps in Fiscal 2002, which was the first year since 1994 to experience a net tax increase among states. The conference said these increases totaled $9.1 billion during the fiscal year.
The fiscal pressures are even more stringent in the current 2003 fiscal year (ending June 30 in many states).
“In July, 2002, we calculated that the budget gap for all states for Fiscal 2003 would total about $49 billion,” said Bill Wyatt, NCSL’s public affairs manager. “Between July and November, states took action to close that deficit to $17.5 billion [for the current fiscal year].”
With reserve funds one-third of their previous highs, the next fiscal year looks rocky.
“We expect things to get worse in Fiscal 2004 but haven’t put a number on it yet,” Wyatt told CEG.
The American Legislative Exchange Council (ALEC) in Washington, another organization representing state lawmakers, estimated that state deficits could reach $60 billion to $90 billion in Fiscal 2004.
At least eight governors, whose states include Connecticut, Idaho, and Arkansas, have proposed tax increases for next year.
“The surprising thing is that all eight are conservative Republicans long-known as good tax cutters and fiscal conservatives,” said Jason White, a reporter for Stateline.org, an independent news organization, funded by the Pew Charitable Trusts, working as a resource for journalists on state issues.
Further information on the fiscal situation in states is available on ncsl.org, alec.org, and stateline.org.
Impact on DOTs
As the economy continues to sputter, state DOTs aren’t collecting enough user fees — such as auto registration fees, sales taxes on new vehicle purchases and gas taxes — to adequately fund their dedicated transportation funds. And state legislatures aren’t coming to the rescue.
State DOTs and industry observers told CEG that important highway projects are being put on hold, or threatened, because of the fiscal pressures.
“It seems as if, so far, states have escaped with relatively painless moves, including drawing from reserve funds and raising so-called sin taxes, which haven’t significantly affected services,” said White. “Now, however, you are seeing some pretty serious, drastic cuts and pretty serious tax concerns. I would think the cuts would impact highway programs. When it’s a battle between education, funding healthcare for low-income Americans and funding roads, it’s safe to say transportation will be affected.”
The Connecticut DOT has a $650-million deficit in the current fiscal year and faces a $1.5-billion deficit in Fiscal 2004. It has laid off at least 2,000 people in all state agencies; at least several hundred of these have been in the DOT in the past two months as part of a statewide initiative to reduce the budget. These were the first DOT layoffs since the early 1970s. An early retirement program is being considered.
“There are projects which are being reprogrammed,” said Sue Sharpley, director of communications for the Connecticut DOT in Hartford. “With less money, we are concentrating on priority projects for the next few years. Interstate roads are obviously more critical. We are getting more federal money for them, and traffic volumes are greater so they have to be addressed more than state secondary roads.”
Sharpley said Connecticut is delaying some projects until Congress OKs Fiscal 2003 highway funding. This is expected by the end of January, when funding under a continuing resolution expires. (The industry is seeking $31.8 billion for the year.)
“Projects which we have planned for the rest of the fiscal year can’t start up without knowing that the money is coming,” Sharpley said. “Likewise, any long-term work can’t start until we know the financing. The clock is ticking here and we’re cautiously optimistic.”
States usually have a constitutional imperative to balance their budgets. Gov. Robert L. Ehrlich, newly elected governor of Maryland, has proposed taking $300 million from the state’s transportation trust fund to help balance Maryland’s budget. He also would take $100 million from county transportation funds. Ehrlich said the transfer of funds wouldn’t affect highway projects for the next two years. The Washington Post, however, editorialized that this “looting” could affect long-term construction work.
Roads are definitely hurting in Colorado. Facing a severe shortfall in its general fund, the state legislature has cut off the $200 million per year that it provided to the DOT from a sales tax on vehicle parts and accessories.
“As a result, we’re not moving forward with additional phases of major improvements in our 28 strategic transportation high-priority corridors,” said Stacey Stegman, a spokesperson of the Colorado DOT in Denver. “We’ll focus on maintenance and surface improvements for the next few years, though we’ll finish anything that we’ve already started.”
Colorado won’t move ahead on new construction contract phases of I-25 through Colorado Springs, I-70 west of Denver, I-25 between Denver and Fort Collins, the I-25, U.S. 36 and I-270 interchange area and U.S. 160 and U.S. 550 in the state’s southwest area.
“We’re also doing much more design work in-house rather than contracting out this work to consultants,” said Stegman. “We’ll have to look at staffing problems in areas which are slower than others, moving people to busier areas. We don’t anticipate letting anyone go, and hope we don’t have to.”
In Iowa, gas tax receipts haven’t increased as fast as other years and fewer new cars are being sold, reducing sales tax receipts. Iowa relies on taxes alone for its road fund, using no bond issues. It has been forced to delay projects and lay off some people.
“We’ve had to move some projects out of our program cycle, or delay them, rather than letting contracts,” said Dan Franklin, director of policy and legislative services at the Iowa DOT in Ames, IA. “A number of people have taken early retirements and we’ve been reducing our workforce about 10 percent over the last couple of years.”
Franklin said states also are confronting uncertainty of federal dollars until Congress approves new transportation funding for the current fiscal year and passes a new multi-year transportation bill.
“We don’t know how much federal money we will receive and what reauthorization of the highway bill will be like,” he commented.
Mike Monseur, a spokesperson of the Illinois DOT in Springfield said: “The fiscal problem is nationwide. We’re recovering from a recession. It’s a snowball effect. You feel the pinch, in taxes and everything else, anytime you hit a slow economic time and try to make a recovery.” Monseur was interviewed the same day as Timothy W. Martin was sworn in as the new secretary of transportation in Illinois, appointed by the new governor, Gov. Rod Blagojevich, a democrat. “The state has a huge budget, and, right now, we don’t know if any important projects will be affected [by budget shortfalls],” he said.
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