KYTC Chief of Staff Outlines Road Fund Issues, 'SHIFT' Proposal

Mar 30, 2017

Credit Matt Markgraf, WKMS

Note: Some updated information from a follow-up message added to the article.  

The Kentucky Transportation Cabinet is forming a road project prioritization model called the "Strategic Highway Investment Formula for Tomorrow" - or SHIFT - in an effort to shore up funding, and offer certainty for, the ailing road fund. KYTC Chief of Staff Asa James Swan outlined the plan, discussed the cabinet's financial issues and suggested reforms at a West Kentucky Regional Chamber Alliance meeting in Benton on Thursday. 

Funding Issues

Kentucky gets about $700 million annually from the federal government (for projects like I-69 and the Henderson Bridge), but he said the road fund is running out of money at the state level. All of the 1,400 state-funded projects identified in the six-year road plan (which is what KYTC operates on) amounts to $6.5 billion, but state appropriation over that same time period is only $360 million. He added that these projects were "worthy" and "needed."

"I feel like KYTC has been set up for failure," he said, questioning how anyone can expect 100% of the projects with 5% funding. "We've had leaders in the past who have promised the moon but haven't been willing to pay for things."

"It's been very easy for our political leaders to say 'I got it in the road plan' but what a lot of us because we're busy raising our kids and going to work, what we don't know is just because it's in the plan doesn't mean it's funded," he said.

Regarding the ‘Pause 50’ on road projects, Swan said that was part of an effort to keep the cabinet from going bankrupt. "What we found out is that in the second week of August, according to our model, which we triple-checked... we were going to go negative in the road fund in Kentucky... We were going to bounce checks." The second week of August is when gas tax revenue gets paid out to local governments.

Swan offered some context to the cabinet's budget woes. He said the state legislature requires $100 million in the road fund at any given time. The cabinet spends $10 million a day. When the gas tax dropped, every penny amounts to $32 million for the road fund. The Pause 50 program was implemented to reign in spending. Swan said the cabinet identified $100 million in 'de-obligated' funds (leftover money from projects), Pause gained $145 million in projects in 'right-of-way' and 'utility phase' status and another $30 million in an overall revenue increase from people driving more. He said after the August payout there was $110 million left.

He said the Pause 50 program will "hopefully" un-pause on July 1.

Swan said about $143 million of the road fund is allocated to other parts of the state government (for instance $80 million goes to the state police, the state treasurer receives about $250,000). He said this goes back to a period of time when the gas tax was at 32.5 cents (as opposed to 26 cents now) and the road fund neared $700 to $800 million. When the gas tax dropped and spending remained the same, lawmakers did not go back to the road fund and stop the money transfer.

Swan suggested moving this money back to the road fund over time. "We would love to see some of those things cleaned up," he said, adding that the $143 would not be a direct tax increase but would be handled on the general fund side. "The general fund is going up but the road fund right now is going down, right at the time we need it to go up the most and it's going in the opposite direction."

Regarding the federal government allocation of $700 million per year, guaranteed for five years in the latest transportation bill, Swan said Congress can appropriate but choose later not to allocate. He's not worried about it, though: "We've been assured that those are the dollars we're going to get out of the highway trust fund."

Update: Swan said in a follow-up that the road fund debt totals $2.1 billion. He had mentioned $800 - $900 million in bond debt during the presentation, which is how much is owed in federal fund debt.

Credit Matt Markgraf, WKMS

'SHIFT' Proposal

Update: Swan followed-up and said legislative approval is not required and will be done through the cabinet and Bevin administration, however they would like legislative approval so it goes into the statute for future administrations.

The cabinet is proposing a SHIFT model and similar models have been adopted by other states like North Carolina, Ohio and Tennessee. The model is still in a proposal period and would need to be brought into law by the legislature. Aspects are being tweaked and the six-year road plan will run through the formula soon. He added that after implementation, the model and metrics could change and priorities could change as prices change.

The KYTC model is proposing a criteria of 25% safety, 20% congestion mitigation, 20% economic development, 20% asset management, 15% cost/benefit analysis. He added that projects scoring lower would be kicked down to regional scoring, of which those percentages would be compressed to 70% and the local communities could determine a new 30%.

WKCRA members voiced concern that the model might favor larger cities over rural regions as the rationale could be that population centers may naturally offer more economic value in terms of dollars and the simple number of people could skew the percentage scale.

Swan said he wants the model to be fair and equitable. "We've had a lot of regionalism that has divided our state over the years and we are just gently reminding our leaders that when Louisville does well, we all do well. When Murray does well, we all do well, too."

Area development districts or metro planning organizations would be given a certain number of projects to sponsor to identify as projects of importance to compete for funding. Also, road, bridge or rail projects that "connect the system" even in rural areas may get points they wouldn't have otherwise received.

The goal of SHIFT, he said, is to offer some certainty in the road fund using a data-driven approach over political decisions. It would also present a model to take to lawmakers when considering reforms like raising the gas tax by showing what projects could be funded if the tax was at 26 cents versus 32 cents, for example.

Other Possible Reforms

Kentucky Transportation Cabinet officials are hoping lawmakers find ways to increase revenues for the struggling road fund during a special session on tax reform. The session is likely to come at the end of summer or early fall.

"Everything will be on the table. We're going to look at everything that we do in terms of hard-earned tax payer dollars that we bring to Frankfort. Governor Bevin has been very clear - we're going to the right thing and we're going to spend it as though it's our own money. And that's something that I feel very strongly about for the Transportation Cabinet because it has not been that way in the past, at least as much as it should."

He said there are “no tricks left up our sleeves” and suggested lawmakers consider deregulating some areas and increase fees in others. Expanding tolling operations is one way to add funding. Others include increasing the gas tax and updating registration and licensing fees. He said some fees actually cost the cabinet money.

"If there's a service where there's a fee we should not be losing money as a cabinet providing that service to somebody. That's just fair." The $12 car registration fee hasn't changed since 1968, he said.

Some WKRCA members suggested adding tolling to the new bridges connecting Land Between the Lakes or on other roads if the return would mean road projects in the region, such as 641 South from Murray to Tennessee - the top priority of the Purchase Area Development District. CFSB President Betsy Flynn said, "I would be happy to pay a toll to take a four-lane road to Paris, Tennessee."

Swan said KYTC's funding comes through taxes, tolling and grants. "We have to look for different ways to fund things," he said.

Toll Credits

When asked about the status of federal toll credits, Swan said when Kentucky's parkways were built in the 70s and 80s, since they weren't interstates, the federal government allocated $2 billion to Kentucky in credits (not real dollars). This money had been used to pay the 20% match the federal government requires from states to pay for federal projects (like I-69). He said in December 2015, it was realized that the calculations had been off and the $650 million remaining was no longer available.

He said because the Louisville bridges were tolling, the federal government allocated credits in anticipation of expected revenue on the bridge. Those credits are expected to end in 2019. After that, real dollars would pay for the federal money sitting on the table. On this, Swan said that would essentially mean no state program.