C. Brian Cassidy and Brian O’reilly 2016-06-28 15:56:55
Examining transportation infrastructure funding. Texas’s strong economic growth has contributed to a significant strain on the state’s infrastructure. Nowhere is this more apparent than in our increasingly congested highway system. Growth brings jobs, jobs bring people, and people bring cars. At the same time, there has been no increase in the state gas tax—some of which funds the state highway system—since 1991, and cars have become far more fuel-efficient during those two-plus decades. The cost of construction materials and labor has increased, so gas tax revenues do not buy as much as they used to. Add to that an aging interstate system, whose upkeep is more and more costly, and you have a serious challenge in generating the funds needed to maintain and expand the state’s highway system. During the past two sessions, the Texas Legislature has authorized two constitutional amendments to increase transportation funding and has taken other measures as well.1 Meanwhile, some regions of the state have turned to tolling to fund major projects, although not without controversy over whether the user-fee aspect is appropriate or amounts to a form of double taxation. Recent Transportation Funding Initiatives Proposition 1 (2014). On August 5, 2013, the 83rd Legislature adopted a constitutional amendment sponsored by Sen. Robert Nichols and Rep. Joe Pickett, which was the end-result of three special sessions.2 The measure directed 50 percent of oil and gas severance taxes above a 1987 baseline level to the State Highway Fund but only after a “sufficient balance” is accrued in the Economic Stabilization Fund (the “Rainy Day Fund”). The proceeds are restricted to use for construction, maintenance, and right-of-way acquisition for public roadways (i.e., not for rail or transit projects), and the funds cannot be used for toll roads.3 The Legislature decided to put the amendment before the voters. Proposition 1 was placed on the November 4, 2014, general election ballot and passed with 79.86 percent of voters supporting the measure. As a result, $1.74 billion was deposited to the highway fund in fiscal year 2015, and $1.13 billion was deposited in FY 2016. While these amounts are consistent with initial projections at the time Proposition 1 was adopted, it is expected that the deposit could be as low as $594 million in FY 2017 and $740 million in FY 2018 due to the significant reduction in oil and gas production in the state.4 This demonstrates that while significant, Proposition 1 represents a potentially unpredictable funding source given its reliance on a volatile energy industry. Proposition 7 (2015). The major transportation funding measure of the 84th Legislature was similar in many respects to Proposition 1. The initiative was again passed in the form of a constitutional amendment to be presented to voters (“Proposition 7” as it was designated on the November 2015 ballot) and was again sponsored by Nichols and Pickett.5 Proposition 7 was adopted on November 3, 2015, with 83.24 percent voter support. It provides for $2.5 billion in general sales tax proceeds in excess of $28 billion to be deposited to the State Highway Fund beginning in FY 2018, along with 35 percent of motor vehicle sales tax proceeds in excess of $5 billion beginning in FY 2020. The Legislative Budget Board estimated that the impact would be $2.5 billion deposited to the highway fund in 2018 and 2019, and close to $3 billion in 2020.6 The revenue from Proposition 7 carries a similar restriction to that of Proposition 1 in that it can be used only to repay the principal of and interest on certain general obligation bonds and to construct, maintain, or acquire rights-of-way for public roadways other than toll roads .7 The restriction on use for only non-tolled projects is reflective of the growing sensitivity to the expanded use of toll roads throughout the state. Tolling in Texas While toll roads have long been a part of the transportation network in the Dallas-Fort Worth Metroplex and Houston area, in the past decade the state has seen development of toll roads in Austin, El Paso, Brownsville, Tyler, and Fort Bend County. Although the Texas Department of Transportation has undertaken some toll projects, metropolitan planning organizations and local or regional tolling entities have established and implemented most. Tolling has generally been viewed as a means to fund projects that address congestion and promote economic development for which traditional funding may be unavailable for many years. User Fee v. Tax. A common criticism of toll roads is that they represent a form of taxation. Various court opinions around the country have considered that assertion and have found that tolls are user fees, not taxes. This is a critical distinction, as labeling anything a “tax” suggests it is a payment compelled by the government and invites significant political resistance. User fees, on the other hand, are voluntary payments for access to facilities or services, which are generally viewed as more equitable given their noncompulsory nature. Judicial decisions have focused on a three-factor test to determine whether a fee charged for use of a governmental entity’s property or services (not just roads) is a user fee or a tax. If the answer to each of the following questions is yes, then the charge is a user fee and not a tax. 1) Is the particular government service for which the fee is collected something that benefits the party paying the fee in a manner that is not shared by other members of society? Motorists who choose to pay tolls to use facilities are receiving services that benefit them but not other members of society. Those services are access to specific roads or specific lanes within roadway corridors. Users of toll roads benefit from decreased travel times, decreased congestion, and often a more direct route to their destination. In addition, by paying tolls, those users are benefiting from the maintenance and improvements to the tolled facilities in ways that do not benefit those who do not use them. In other words, toll road users receive unique benefits in contrast to those who choose not to use them, satisfying the first factor of the test.8 2) Is the fee paid by choice? When both tolled and non-tolled alternatives are available, motorists have a clear choice of whether or not to pay to use a toll road and receive its benefits. Motorists may avoid paying tolls by taking alternative routes or lanes. Further, those who choose not to pay a toll are not “compelled” to accept the benefits of a fee they are not paying. The choice to pay a toll is distinct from a tax that an individual either cannot reasonably avoid paying or must receive the benefits from regardless of payment. For example, a person paying income tax is compelled to pay the tax or suffer consequences. A person paying sales tax on a purchase might be able to avoid the tax by declining to make the purchase, but he or she still has no choice as to whether to receive the benefits of the government services that the sales tax supports. Even though the purchase may be voluntary, the receipt of the services supported by the taxes is available to the general public. Users of toll roads, on the other hand, make a deliberate choice to do so. It is a fee paid by choice in order to receive specific benefits. The availability of the choice not to use the service (i.e., a toll road) and avoid the charges associated with that service satisfies the second factor of the test.9 3) Is the purpose of the fee to compensate the governmental entity providing the services for its expenses (and not simply to raise revenue for general purposes)? Toll revenues are typically used to pay for expenses associated with a transportation project, such as construction costs; principal and interest on bonds issued to pay for the upfront capital, operating, and maintenance costs of the facilities; and reserves and other project-related expenses. When tolls are used in this manner, they compensate the government for its expenses in providing the facility and related services. TxDOT and other tolling entities in Texas are subject to statutory constraints that prevent surplus toll revenues from being used for anything other than functionally related transportation projects or purposes.10 As a result, the third element of the three-factor test is satisfied. Future of Transportation Funding While the Texas Legislature has made significant strides in generating additional funding for transportation infrastructure, the demand for new roadways continues to far exceed available resources. Absent a significant increase in the gas tax (which seems unlikely), user-fee project financing will continue to play a role in delivering new projects. When the Texas Legislature convenes in January 2017, there will likely be additional discussions about transportation funding, the costs and other impacts of congested roadway systems, and the continued or expanded use of tolling as a tool to address the need for transportation infrastructure. Notes See Act of June 1, 2015, 84th Leg., R.S., H.B. 20 (Removed the statutory authority for State Highway Fund revenues (approximately $600 million per year) to be used by the Department of Public Safety to police the state highway system and to administer state laws relating to traffic and safety on public roads). Tex. S.J. Res. 1, 83d Leg., 3d C.S. (2013). See Tex. Const. art. III, § 49-g(c). House Transportation Subcommittee on Long Term Infrastructure Planning Hearing (May 25, 2016) (testimony of Texas Comptroller Glenn Hegar). Tex. S.J. Res. 5, 84th Leg., R.S. (2015). See Fiscal Note, Conf. Comm. Report, Tex. S.J. Res. 5, 84th Leg., R.S. (2015). See Tex. Const. art. VIII, § 7-c(c)(1). See Elizabeth River Crossings OpCo, LLC v. Meeks, 286 Va. 286, 749 S.E.2d 176, 184 (Va. 2013). See Murphy v. Mass. Tpk. Auth., 462 Mass. 701, 971 N.E.2d 231, 236 (Mass. 2012). See Tex. Transp. Code §§ 228.006, 284.0031, 366.175, 370.174. C. BRIAN CASSIDY is the managing partner of the Austin office of Locke Lord. His practice involves the development of transportation and other major infrastructure projects by public and private entities, and he leads the firm’s representation of regional mobility authorities throughout Texas. He is certified in administrative law by the Texas Board of Legal Specialization. BRIAN O’REILLY is an associate with Locke Lord in Austin practicing in the area of administrative and public law. His practice focuses on the development of major infrastructure projects by public and private entities.
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