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The wave is coming: Trade and debt will overwhelm Texas absent new funding
By Terri Hall
Examiner.com
February 18, 2013
The eighth annual Texas Transportation Forum hosted by the Texas Transportation Institute and the Texas Department of Transportation (TxDOT) kicked off yesterday in Austin with all eyes on the future - the future of international trade in light of the Panama Canal expansion, the future of road funding, and even the future of driving (like driverless cars).
The big question the Panama Canal discussion tried to answer was whether or not Texas is ready for the coming tidal wave of trade and super-barges (and cargo that will be off-loaded onto super-trucks). The answer is ‘yes’ and ‘no.’
Speakers at 8th Annual Texas Transportation Forum
Colonel Christopher Sallese, Commander of the Galveston District of the U.S. Army Corps of Engineers, noted all ports that want to go deeper to accommodate the bigger ships have completed a study, but the actual dredging has not happened yet. The Gulf Intercoastal Waterway (GIW) maintains a 9 foot deep channel, but it needs to be 12 feet deep.
Director of Port of Corpus Christi John LaRue opined that the majority of the Harbor Maintenance Fund, a federal tax on imports, has been notoriously raided by Congress for things like deficit reduction and isn’t getting to our ports for proper dredging. Of the $1.4 billion collected per year, only $850 million actually goes to ports. So the raid of funds contributes to Texas’ struggle to be ready with deeper ports to accommodate the bigger, heavier ships headed our way, primarily from Asia.
But Railroad Commissioner Christi Craddick pointed out that pipelines are being laid to go to Corpus Christi and Port of Houston. “We’re well positioned to take advantage of the Panama Canal expansion,” Craddick concludes.
While pipeline transport from ports may be in the works, truck transport from ports is not. Road capacity is way behind due to persistent underfunding of TxDOT. The motor fuels tax, both state and federal, is the primary source of funds for roads and neither has been raised nor adjusted for inflation for twenty years.
Sallese divulged that the cargo on one of these super-barges requires 324 trucks to transport those goods to market. Texas is the number one maritime state for trade commerce and captures twenty-percent of our nation’s maritime commerce with 570 tonnes of cargo entering our state in 2012. However, that number is expected to explode to 750 million tonnes of cargo by 2030 according to a study cited by panelist Herman Deutsch, TxDOT’s Maritime Division Director.
That’s a significant trade tsunami that hastens road damage and shifts a mighty tax burden onto Texans in road maintenance and construction costs that wouldn’t otherwise be there if it weren’t for the push toward globalization.
Silvia Marucci with the Panama Canal Authority revealed that the Panama Canal is the largest Free Trade Zone in the Western Hemisphere. Sixty-percent of the total cargo tonnage that traverses the Panama Canal has a U.S. port as its origin or destination. Texas boasts 25 Free Trade Zones within its own borders as well. Texas Transportation Commissioner Bill Meadows repeatedly called the Panama Canal expansion a great ‘opportunity’ for Texas, but taxpayers may have a different opinion when they weigh the true costs against the benefits.
Another twist on the global trade picture as it pertains to the Panama Canal is the shale oil and gas boom in Texas. Texas once was the chief importer of energy, but as the Panama Canal Working Group discovered, Texas is now a net exporter of energy, particularly liquified natural gas. So the Panama Canal is key to Texas’ success as an energy exporter. This shale boom isn’t helping drive down energy costs domestically, as the focus turns to exporting energy and taking advantage of high energy prices to boost profits, as Chesapeake Energy Executive Adam Haynes noted in a later panel. Meanwhile, that same shale oil boom is causing billions in damage to Texas rural roads that aren’t built to handle the loads of heavy trucks transporting oil, gas, and waste water.
Deutsch spoke of Texas’ need to capture the trade from Mexico to Canada, and even east-west trade. When asked how I-69 fits into the equation, he grinned and acknowledged that his formal remarks didn’t mention I-69, but that this NAFTA trade corridor is crucial to attracting international trade to Texas. He said companies want to know that an interstate is in place that can handle the traffic or they’ll divert to other ports, not just in Long Beach but Vera Cruz and elsewhere. Considering the majority of that cargo is just passing through Texas, it’s hard to envision a benefit to Texas when weighed against the tremendous cost to taxpayers to facilitate what amounts to out-of-state trade.
Focus on road funding
Then the focus turned to TxDOT’s funding crisis and the need for good roads to facilitate the movement of goods and people. William Thompson, Jr., former Comptroller for the city of New York, now an executive with a municipal investment bank and Democrat New York mayoral candidate, managed to demonstrate how transportation crosses party lines and is a universal concern of all Americans, “Roads are channels of commerce between all our states.”
Thompson indicated Super Storm Sandy serves as a reminder that “a healthy economy is based on healthy transportation networks.” Sandy crippled New York’s transportation system and hence its economy.
“Everything came to a screeching halt. People need to be able to get where they need to go.”
While he mentioned the need to keep all options on the table, including controversial innovative financing techniques like shadow tolls and a national infrastructure bank (both of which mean more debt), he eschewed the overuse of debt and the reliance on it to “push off today’s issues for tomorrow.”
He said, “Debt is not a recipe for long-term fiscal health.”
Thompson was Comptroller after 9-11 and the cost of capital projects escalated, but the city met those challenges in a way that secured their highest bond rating since 1930. Thompson noted he prepared New York for a rainy day and returned to pay-as-you-go to prevent incurring future debt, and even pre-paid city expenses two years ahead of time.
“We made sure our debt was issued in a cost-effective way,” Thompson emphasized.
Texas lawmakers ears ought to be burning as they’ve sunk Texas deep into road debt, $31 billion (in principle and interest). Texas now leads the nation in road debt, which busts the fairy tale fantasy touted by Texas politicians that Texas is doing everything right.
In a panel discussion with four state lawmakers moderated by Rodger Jones of the Dallas Morning News, Jones opened with the question, “Why the sudden focus on transportation funding?” which to those following transportation, has been a problem for a long time. Senator Kevin Eltife aptly declared, “Because we can’t sell anymore bonds. We’ve maxed out the credit cards.”
All the lawmakers were surprisingly candid and even addressed the ‘t’ word -- taxes. Eltife said that as gas tax revenues grew stagnant, the legislature funded TxDOT with debt instead of cash and that sometimes the conservative thing to do is to raise taxes. He called for a ten cent per gallon gas tax hike and indexing it to inflation, an increase in sales tax to pay down road debt (and have it sunset when debt paid off early, which will save the state money), and expand the sales tax to include things like auto repairs. Senator Juan Hinojosa called for ending diversions, and increase in the vehicle registration fee, more public private partnerships, and possibly dedicating some other funds to roads.
But the two House members, Transportation Committee Chair Larry Phillips and Rep. Larry Gonzales weren’t going to go over the tax hike cliff as readily.
“A gas tax hike is a tough sell in the House. With half the members new or only in their second term, it’s going to take some time to educate members about the transportation funding picture,” cautioned Phillips.
When Jones asked the legislators about dedicating existing vehicle sales tax to roads, only Phillips got excited about it. He’s filed a bill to do just that. Hinojosa doesn’t want to touch general revenue, where vehicle sales tax currently gets parked, and end up “funding Paul (transportation) but underfunding Peter (public education).”
Eltife followed-up on his senate colleague’s thoughts by emphasizing getting vehicle sales tax over to roads is “not new revenue.”
There was a brief discussion about toll roads, and while Phillips said the public’s tolerance in the Dallas-Ft. Worth Metroplex hasn’t reached a boiling point yet (though thousands of tea party members would disagree), Hinojosa acknowledged the push back on tolls. The way toll roads are being done in Texas are taxes. They’re heavily subsidized with taxpayer money and hence charge Texans a double tax and explode the cost of transportation -- tolls add 17 cents - 75 cents a mile which is like adding $3.00-$15.00 to every gallon of gas you buy.
Some expressed a preference to kick the can down the road by dipping into the State’s Rainy Day Fund to capitalize the State Infrastructure Bank with $1.7 billion for loans and loan guarantees for local toll projects. But that pushes the debt to the local level and means more public subsidies for toll roads that aren’t viable and can’t pay for themselves. In other words, taxpayers would be guaranteeing and subsidizing toxic toll road debt, which also means taxpayers will have to pay back their own money with interest through tolls. You can’t solve a debt problem by issuing more debt -- nor by pushing that debt off the state’s books and onto local taxpayers.
Eltife was adamantly opposed to that idea, “That’s another short-term band aid. It’s not new money and doesn’t solve our $4 billion shortfall.”
Jones pressed each panelist to answer his last question which was: “Senate Finance Chairman Tommy Williams wants to find some new robust funding mechanism for roads this session, will he get it?” Their answers were just as all over the board as their previous ones, but overall, they answered ‘no.’
“It’s going to be hard in the House,” ventured Gonzales. But that’s if they’re seeking tax hikes. Dedicating existing taxes related to vehicles may not be a hard sell, but that runs afoul of budget writers, who in the end, are outnumbered by the anti-tax freshmen and sophomores.
Eltife didn’t mince words: “We’ll find about $1 billion - $1.5 billion from diversions and such, but not a ‘robust’ funding stream, not enough to prevent damage to the (road) industry.”
Futurist predictions of travel
Attendees were also treated to a Jetson’s-style peek into the future of driving and travel, including a driverless Google car displayed in the hotel lobby. Glen Hiemstra, Founder and Owner of Futurist.com, formerly with the Federal Highway Administration, explained how shifts in demographics, technology acceleration, and social impacts have fundamentally changed attitudes about driving.
In Georgia. twenty-five percent of those over 65 have already stopped driving. When asked how they’ll get around, they think their kids will help. But with families more spread out, he noted how that wasn’t a realistic expectation, and it poses a challenge for central planners about how communities will get our aging population where they need to go.
Among youth, Heimstra noted how kids born between 1980 and 2000 would rather have a Smartphone than a car if given a choice between the two, and they had to choose only one. The auto market among youth is disappearing, which he predicts will prompt demand for communities designed with less need for driving. Since 2004, we’ve been driving fewer miles annually. Though Heimstra said that was due to the economic downturn, it was due to the gas price spike which has not come down appreciably ever since.
Perhaps Heimstra’s most mind-boggling futuristic look at travel is the idea of ‘solar’ or ‘electric’ roads. Some entrepreneurs are already exploring how to overlay roads with solar panels to generate energy. It could double the power generation of the world. Roads already store heat, which prompted them to seek a way to capture that energy in a way that can be useful. It would require building roads out of glass, of course, accounting for weight of trucks and vehicles, glare, and other challenges.
Now that’s a future that looks bright, certainly more bright than the road funding picture in Texas and around the country. Roads a basic core function of government. They’re the life-blood of daily living, and most all other areas of local, state, and federal government depend upon good roads -- whether its schools, hospitals, or the jobs that generate the tax base. It’s going to take a massive push by grassroots taxpayers to insist road funding become a priority for our lawmakers. Doing nothing or kicking the can down the road with more debt and tolls is NOT an option.