Road to Nowhere
Oil money’s nice, but actually funding our infrastructure needs is even better.
The awkwardly named Economic Stabilization Fund, more commonly called the Rainy Day Fund, is our piggy bank, and we owe its existence to our mineral wealth. It was created in the late eighties, as rising oil prices were pulling Texas out of a prolonged economic downturn. The idea was simple: a state fortunate enough to be visited every so often by an oil boom ought to be able to set aside a little something during the good times to help out during the bad. It’s a way of spreading out our booms. The money in the fund comes primarily from oil and gas taxes, according to a precise formula: 75 cents of every dollar the state collects above what it collected in 1987 (not a boom year) gets socked away. This means that at present, thanks to the shale boom’s extremely high levels of production, our piggy bank is stuffed. With the Eagle Ford Shale, in South Texas, cranking out record numbers and the sleeping giant of the Permian Basin beginning to rise again, the Rainy Day Fund is expected to have around $12 billion in it by the time the next legislative session rolls around.
Since the recession began, in 2008, the fund has been a hot topic, with some lawmakers, mostly Democrats, demanding that it be used as originally intended—to soften the budget crunch—and others, mostly Republicans, demanding that it be saved for when things get even worse. You can guess who’s been winning that debate. This past session, however, the Legislature authorized two initiatives that would draw from the fund (doing so requires a ballot proposal). This month voters will head to the polls to decide on a one-time withdrawal of $2 billion to pay for a small portion of the much-needed water projects identified in the $53 billion state water plan; one year from now, a similar vote will be held to determine whether the state will draw another $1.2 billion to boost the budget of the impecunious Texas Department of Transportation. Both expenditures fall under the heading of infrastructure spending. What is infrastructure? Well, it’s what makes the economy hum: pipelines, reservoirs, water treatment plants, bridges, ports, airports, railways, power plants, and, above all, roads.
A century ago our infrastructure was almost nonexistent. In the early 1900’s the state’s roadways were barely drivable in inclement weather. A slide show that the Texas Transportation Institute (TTI) at Texas A&M University uses to illustrate the challenges facing travelers in those years includes an ironic evaluation of Texas roads by a Bell County farmer of that era: “Come to Texas if you want to see good roads—good and sandy, good and rough, good and muddy.” But as oil money began to flow in the twenties, that all changed, and by the sixties Texas’s thoroughfares were the envy of the country.
Alas, the perennial short-shrifting of transportation by our current governor has returned some corners of the state to conditions that would seem familiar to that Bell County farmer. TxDOT, one of our most important state agencies, is now so impoverished that in July it announced that in some parts of South and West Texas, where heavy oil-field trucks are doing serious damage to road surfaces, it would be converting 83 miles of asphalt roads to gravel.
The idea that one of the wealthiest states in the richest country in the history of the world would be reverting to unpaved roads caused an uproar, but as the agency’s director, Phil Wilson,** told lawmakers at a September hearing, “Repair is simply not cost-effective, and safety risks continue to rise.”
Unfortunately, this is only one of TxDOT’s many troubles. Terrible congestion plagues roadways all over Texas. The state’s top five most-congested roadways are Interstate 35 between Texas Highway 71 and U.S. 183, in Travis County; U.S. 59 from I-10 to Highway 288, in Harris County; U.S. 59 from Highway 288 to I-610 W, in Harris County; I-35 W from I-30 to Highway 183, in Tarrant County; and I-635 from I-35 E to U.S. 75, in Dallas County. What do all these bottlenecks have in common? They’re in and around our major cities, all of which are experiencing booming population growth. The question concerning transportation is not whether the state can afford to build more roads. It’s whether we can afford not to. According to TxDOT, a thousand people a day are now moving to Texas, and, as they like to say at the agency, “they don’t bring their roads with them.”
As a result, congestion on major highways is growing by 8 percent per year and is only going to get worse. But in legislative session after legislative session, lawmakers have shown themselves to be unable to summon the courage to do much about it. Our inaction is baffling, in part because infrastructure is an economic issue—something Texas is supposed to know how to handle. In 2011 the TTI estimated the annual cost of congestion—the time wasted when vehicles sit in traffic, burning fuel—at more than $9 billion. In the past such a statistic would have caused sufficient alarm within the business community to mobilize support for a prudent spending plan that would fix the problem. Today the business community has lost that clout within the Republican party, and big problems routinely go unfixed.
There’s no mystery about why this is so. During Rick Perry’s long governorship, a virulent anti-tax, anti-spending ideology has ossified state government and undermined the political will to tackle complicated policy challenges that might involve new spending. The main source of revenue for TxDOT is the state’s gasoline tax, but it has remained stuck at 20 cents per gallon since 1991. This year’s receipts totaled $2.4 billion. That is a lot of money, but TxDOT estimates that it needs $4 billion a year just to keep up with the current rate of congestion and another $1 billion to keep up with the damage being done to roads in areas of the state hit hard by the shale boom. Part of the issue here is that automobile engines have become increasingly fuel-efficient over the past two decades, meaning the gas tax’s effectiveness as a funding mechanism has been slowly decreasing. Faced with this conundrum, other states have been aggressive in finding creative solutions: Virginia, for example, has replaced its gasoline tax with a sales tax on gasoline. That idea would be stillborn in Texas. Another solution would be to double the gasoline tax, but I can already hear the howls of laughter that would greet that proposal.
Well aware that taxes are a no-no under a Perry administration, various lawmakers have come up with other initiatives over the years to provide money for transportation projects. These too have come to naught. A popular idea has been to increase the driver’s license fee, which does not seem unreasonable, considering that Texas ranks forty-fourth among the states in taxes and fees paid by car owners. But this has fallen on deaf ears. This past session, Tommy Williams, a Republican from The Woodlands who can hardly be described as a big spender, tried to make the case for raising vehicle registration fees. That went over so well that when the session was finally done, Williams quit politics altogether.
Another promising idea that never bore fruit was a proposal put forward in 2009 by Dallas state senator John Carona, another Republican. His bill would have allowed the residents of Dallas and Tarrant counties to vote to impose a 10-cent gasoline tax on themselves, to be used for road building and rail transit in the Metroplex counties. This proposal did involve the t-word (though “user fee” would be a more accurate description), but it would have given voters themselves the final say—they could have voted no, after all. Alas, ideology got in the way once again. The Texas Public Policy Foundation, a conservative think tank, led the fight against allowing a vote on the “tax,” and another opportunity went down the drain.
Meanwhile, TxDOT has effectively been forced to live on credit, borrowing $17 billion for road-building programs in three separate bond elections. This did result in some new roads being built at minimal cost to taxpayers, but using bonds to fund transportation is a risky business. Sooner or later, interest rates will go back up, and the debt service could become a serious fiscal burden that pinches the state budget.
Which brings us back to the Rainy Day Fund. The pattern that has emerged among our lawmakers is to do nothing at all for years, then take a baby step and call it a big deal. Much was made of that $1.2 billion from the fund that the Legislature authorized for transportation spending over the summer. Afterward Perry patted lawmakers on the back for “increasing funding for transportation without raising taxes.” There were just two catches: one, lawmakers had agreed only to put a constitutional amendment on the November 2014 ballot, passing the buck (or the responsibility for spending bucks) on to the voter, and two, the amount authorized on the ballot is a ridiculous pittance. That $1.2 billion won’t come close to addressing the state’s infrastructure needs. Speaker of the House Joe Straus accurately described the ballot proposition as “using a Band-Aid on a pothole.”
So should we just take more money from the bulging Rainy Day Fund? It’s tempting, but relying on our oil and gas bounty to partially fund overdue investments in infrastructure is no way to run one of the world’s largest economies. The point is that roads aren’t free. They cost money—big money. One freeway interchange carries a price tag of about $250 million. If the public wants to be able to drive around the state on safe, uncongested roads, it should pay for the privilege. If businesses want to use those freeways to transport their goods, they should pay for the privilege as well. And no, I’m not advocating toll roads. TxDOT’s experience with the Trans-Texas Corridor almost destroyed public confidence in the agency. Furious landowners warred for years with the agency over its effort to condemn farmland and ranchland through eminent domain in order to make way for the widely hated project. I am advocating a more effective, permanent funding stream for TxDOT. This is the only solution. Oil booms are nice, and thanks to the Rainy Day Fund we have a mechanism for distributing their benefits for years to come. But they shouldn’t be counted on to save us from our inability to plan for the future. If we can’t figure out how to do that, before too long it’ll be the state that’s going bust.
**Correction: The original version of this story mistakenly identified Phil Wilson as Phil Watson. We regret the error.