Highway Funding
Recommendation
Dedicate the Highway Fund and Highway Trust Fund to cost-effective road projects, instead of the General Fund, public transportation, and road projects with low returns.
Background
State funding process
• North Carolina ranks second in the nation in miles of state-owned roads with 78,871.
• State funds maintain 77 percent of roads in North Carolina.
• Seventy-six percent of North Carolina Department of Transportation spending uses Highway Fund and Highway Trust Fund money. The other 24 percent is from driver-paid federal funds.
State funding problems
• The General Assembly created the Highway Trust Fund in 1989 to pay for construction of a four-lane intrastate system and urban loop highways. All projects were to be completed by 2003.
• Each year, $170 million would transfer to the General Fund from the Highway Trust Fund to make up for lost revenue from sales taxes on new vehicle sales.
• Beginning in FY 2001-02, the transfer from the Highway Trust Fund climbed to $250 million per year. An additional $125 million taken in FY 2002-03 was to be repaid with interest.
• Transfers to the General Fund accounted for nine percent of Highway Fund and Highway Trust Fund revenues. Another five percent paid for ferries, railroads, public transportation, and other items unrelated to roads. Only 68 percent of the Highway Fund and Highway Trust Fund expenditures went to road construction and maintenance.
• Just two-thirds of construction related to the Highway Trust Fund is complete, and progress on the remaining mileage is slow.
Why Highway Funding Needs Reform
• Money should not be diverted to the General Fund. Transferring money to the General Fund to make up for revenue lost due to elimination of the sales tax on motor vehicles may have been reasonable for a time, but has lost its rationale since 2003, when the projects were originally supposed to be completed.
• There is a major shortfall. The North Carolina Department of Transportation estimates a $920 million shortfall to build and maintain roads over the next three years. The projected shortfall over the next 25 years is $65 billion.
• Road conditions are some of the worst in the country. North Carolina once ranked 23rd on road conditions, but now ranks 47th.
• Poor spending choices can have safety implications. Much of the spending on roads is distributed away from the areas with greatest need for road construction and maintenance. Diverting money from needed road maintenance and construction projects is unsafe and potentially fatal. For example, guardrails throughout the state are in disrepair.
• State government is too involved in local projects. Ferries, public transportation, and other non-road spending should be the responsibility of local governments or private operators.
• Transit is critical to the economy. Reliable — and reliably prompt — transit is a key infrastructure need for continued economic growth in the state.
Analyst: Joseph Coletti
Fiscal and Health Care Policy Analyst
919/828.3876 • jcoletti-at-johnlocke.org
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