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Wisconsin has a long-accumulating transportation finance problem that, if not soon addressed, could impact economic growth and the state of public finance now and for years to come. Lack of growth in state transportation fund revenues is well documented.

Over the past five years, the annual growth of gas taxes and vehicle registration fees was minimal, averaging just 0.3%. Changing driving patterns and rising fuel efficiency makes future prospects even more dim. If nothing is done, state transportation funding could be short between $2 billion and $6 billion over the next 10 years.

A Transportation-Dependent Economy. Wisconsin’s economy relies heavily on transportation: Manufacturing, farming, and trucking claim a larger share of employment and wages here than in any other state, save Indiana. In addition, good roads boost Wisconsin’s $11 billion tourist industry. This is particularly important in the north, where tourism spending accounts for more than 5% of income in 12 counties.

A Local Problem. Transportation funding is a local challenge even more than a state one. Wisconsin has 11,800 miles of state and Interstate highways, but 103,000 miles of county highways and municipal roads and streets to maintain. State budget troubles have adversely affected local transportation finances. As transportation taxes and fees stagnated or were

raided to cure general fund deficits, transportation aids to local governments suffered. In 1999-2001, 40% of state transportation fund spending was local assistance, compared to only 32% now. Local finance problems were exacerbated by other state aid cuts and state-imposed property tax limits. The result of this squeeze was an inflation-adjusted decline in municipal transportation spending from $275 per capita in 2000 to $227 in 2012. In only two states did local transportation spending decrease more than in Wisconsin during 2000-11.

Costs of Poor Roads. In 2012, pavement on less than half of state highways was rated “good.” In fact, thirty-five states had highways in better condition. The situation was worse in the state’s 15 urbanized areas where only 15% of the ighway system was rated “good” and just over half was “acceptable.”  Poor roads impact family finances. For example, a 2013 study found nearly half of the roads in the Milwaukee area were in poor condition, costing area drivers an average of about $700 per year in additional car repairs. But the economic impact is much broader. “States that have invested more in infrastructure tend to have greater output, more private investment, and more employment growth,” according to the Federal Reserve Bank of Boston.

Solutions. Fixing the state transportation fund can be straightforward. Options include raising and/or indexing the gas tax, imposing the current 5% sales tax on gasoline purchases, increasing vehicle registration fees and/or basing them on vehicle value, and some type of vehicle miles travelled charge.  The local funding problem is more difficult. A healthy state transportation fund could mean more local transportation aids. However, declining shared revenues, local levy limits, and rising costs (asphalt prices rose an average of 11% per year during 2005-13) will continue to dampen local transportation expenditures.

The solution might be a regional approach with dedicated transportation revenues. A transportation network does not respect civil boundaries - there are economies of scale of investment as well as economic and social impacts regardless of jurisdiction. A regional approach to transportation funding can maximize positive impacts and minimize negative externalities, save tax dollars, and possibly reduce property tax disparities. Dedicated transportation revenues can make the solution sustainable.  Local governments already have access to a wheel tax, which could be expanded to a value-based fee. The state could authorize other transportation-related taxes available to local governments if they create transportation cooperatives in exchange for concomitant property tax reduction. Possible revenues include a personal property tax imposed on vehicles, a local gas tax, or a local sales tax. Cooperatives would be created only with voter approval and would be governed by a board of elected officials from member communities.

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