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State looking for ways to pay for Interstate 90/39 expansion

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Jim Leute
August 16, 2014

JANESVILLE—While local eyes recently watched Washington wrangle over a national transportation budget, the critical decisions that will keep the Interstate 90/39 expansion project on financial track will be made in Madison.

That's because the state often pays for the majority of the costs of its big highway construction projects.

Federal funding—returned each year to states from the Highway Trust Fund—is still important.

For the calendar year that ended June 30, the fund that collects federal gas taxes returned about $700 million to Wisconsin, according to the Federal Highway Administration.

For the current fiscal year, federal funds will pay for about 21 percent of the Major Highway Program work the state has planned, said Joseph Nestler, director of the Wisconsin Department of Transportation's Bureau of State Highway Programs.

That translates into a federal contribution of $78 million toward a total of $360 million the state plans to spend in the Major Highway Program, which focuses on large capacity expansion projects such as the Interstate 90-39 expansion project.

Nestler said it's a mistake to assume that all major highway projects are routinely funded 80 percent by the federal government and 20 percent by state and local matches.

Major projects, including the Interstate 90/39 expansion, are typically eligible for up to 80 percent federal funding with a 20 percent state match.

The operative word is “eligible,” Nestler said.

“The nuance is that the actual amount of federal or state dollars depends on the state budget and what the Legislature gives us to spend,” Nestler said.

Each year, Wisconsin anticipates transportation money from Washington.

The Legislature then determines how to divvy the money among various transportation programs—not specific projects, Nestler said.

It also determines how to allocate state money, whether it comes from gas taxes and vehicle registration fees, account balances, borrowing or other internal sources.

“It's a combination of federal money, state money and state bonding that determines the total, and the real issue is how much money is in the pot,” Nestler said. “It's the size of the pot, not the color of money in it, that determines the number of projects that can be delivered in a given year.”

The resulting federal-state ratio is immaterial, DOT Secretary Mark Gottlieb said.

“So many people don't understand that, and it's become a political issue, even with the I-39/90 project,” Gottlieb told The Gazette.

“Everyone's saying, 'Why don't we get our fair share?' The bottom line is that it's our goal to maximize every dollar we get, and it then comes down to allocations to individual projects.

“The ratio is really irrelevant.”

That's because the number and significance of projects a state has in its pipeline often defines the ratios.

For example, if a state has just one or two major projects ongoing, the federal money the state gets might result in a federal-state ratio of 80-20.

But if a state has many ongoing projects, the state would be required to add more of its own money, and the federal-state ratio could be much smaller or even flipped toward the state providing the majority of funding.

That's the case in Wisconsin, which, according to the Federal Highway Administration, has received $1.08 from the federal fund for every $1 it has contributed since 1956.

INTERSTATE 90/39

The state's Transportation Projects Commission in 2010 recommended the project that proposes to expand the 45-mile segment between Madison and the Illinois state line to three lanes in each direction—four in each direction through Janesville.

Now expected to cost about $990 million by its completion in 2020, the project will reconstruct all of the segment's 11 interchanges and 100 bridges.

The Legislature authorized the project and its financial commitments in its 2011-13 and 2013-2015 state budgets.

Through June, $112 million has been spent on the project.

Just 18.8 percent of that—$21 million—has been federal money, according to the DOT.

Nearly the entire remainder has come from the state, either through its segregated transportation fund ($86.9 million) or from borrowing ($3.3 million).

WHAT'S HAPPENING?

The federal Highway Trust Fund was scheduled to run out of money at the end of August, but Congress recently approved a stopgap measure that will keep it solvent through May.

The $10.9 billion bill awaits President Barack Obama's signature.

Some people—both outside and inside Washington—have said the measure does nothing but kick the problem of national transportation funding farther down the road.

“The Highway Trust Fund is going broke, and Congress needs to fix it,” said Rep. Paul Ryan, R-Wis. “To keep drivers safe and promote economic development, we ultimately need a long-term solution for our transportation programs.”

The extension into May, however, allows state transportation projects to stay on track with their federal contributions.

For states such as Wisconsin, it highlights the need to consider how they fund road projects.

“Many states are starting to feel that Washington doesn't have their back anymore when it comes to funding these projects,” said Dan Cunningham, vice president of Forward Janesville and the man who organized a local coalition in support of the I-90/39 expansion project.

State Sen. Tim Cullen, D-Janesville, agrees.

He said the federal government is shirking its funding responsibilities.

“I don't know how the federal government can ask Wisconsin taxpayers to pay for 70 percent of a federal Interstate project,” Cullen said. “The feds should fund the majority of their own highway system.”

Setting blame aside, Cullen said the problem falls to the states, and in Wisconsin that has often meant diverting money from the state's general fund and public education to transportation projects.

“That creates a pretty difficult fight: Do you spend money on roads or public education?” he said.

THE FINANCES

In April, state DOT Secretary Mark Gottlieb said the state faces a transportation budget shortfall of between $600 million and $700 million for the next biennium, which runs July 1, 2015, to June 30, 2017.

Gottlieb said it's “very plausible” that the expansion of Interstate 90/39 would be delayed if funding isn't shored up in the state's next budget.

The secretary stood by that statement Wednesday.

“If we don't come up with some kind of solution in the next budget, I don't see any alternatives other than delaying or stretching out projects, including majors such as I-39/90,” he said.

Delays would cause significant disruptions, further deterioration of roadways and likely add to project costs, he said.

Cullen believes the project will be delayed, but it won't be announced until after the gubernatorial election in November between Republican Gov. Scott Walker and Democratic challenger Mary Burke.

Walker in April told The Gazette the I-90/39 project is still a top priority. If re-elected, he said he's confidant his next budget would include new ways to pay for road improvements and keep the project on schedule.

Gottlieb and his department have traversed the state, holding town hall meetings to gather information about the future of transportation and its funding in Wisconsin.

Results are still being compiled, and Gottlieb said firm recommendations would likely emerge through the Legislature and governor in the state's next budget.

That budget will cover parts of 2015, 2016 and 2017, a period in which the state now plans to spend $443 million on the I-90/39 project.

THE CHALLENGES

Gottlieb said the state's primary sources of transportation revenue—gas taxes, vehicles registration fees, federal aid and state borrowing—are not likely to grow significantly in the future.

One reason, he said, is that while motorists might be driving slightly more miles each year, they're doing so in more fuel-efficient vehicles that generate less in gas taxes, both at the state and federal levels.

In addition, neither state nor federal gas taxes have been indexed or increased for inflation.

Last year, Walker established a commission to review major highway projects.

In a lengthy report, the commission recommended a variety of ways to raise revenue, including a gas tax hike, charging drivers at registration time based on how much they drove the previous year, increasing registration fees for larger vehicles and boosting driver's license fees.

Initially, the commission's recommendations went nowhere.

But many suspect they'll resurface as soon as the state's next budget approaches.

“There are certainly options out there, but we're not out there proposing options at this point,” Gottlieb said. “The governor has made investing in transportation infrastructure one of his five core themes.

“He wants us in the next budget to get into a system of financing transportation infrastructure that is sustainable over the long term.”

Gottlieb said his department would have input, but the significant decisions rest with the Legislature and governor.

The department, he said, has identified three principles it hopes will guide the discussion.

“The first is adequacy,” he said. “That means having the resources to do what we need to do. The commission suggests $680 million in new revenue, and we're hanging our hat on that.”

The second is sustainability so the department isn't returning every two years with its hand out for money to pay for ongoing projects, he said.

“The last is somewhat subjective, but it deals with equity,” Gottlieb said. “Is it fair to all? … Are all the participants in this in at the right mix?”



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