Better Governing Now » Fund Transfer Finally Ends


Fund Transfer Finally Ends

    Publisher's note: This article appeared on John Hood's daily column in the Carolina Journal, which, because of Author / Publisher Hood, is linked to the John Locke Foundation.

John Hood
    RALEIGH     Frustrated by how long it takes for a good idea, or even just a passable one, to gain traction and momentum in today's Washington, D.C.? Plenty of Americans across the political spectrum share your frustration. But the problem isn't limited to Congress or the federal government. One good idea enacted this year by Gov. Pat McCrory and the North Carolina General Assembly took several decades to come to fruition.

    In the new state budget for the 2015-16 biennium, lawmakers ended a transfer of gas-tax dollars from the Highway Fund to the General Fund. Because of this action, more than $200 million a year in revenue collected from motorists will be used to maintain, refurbish, and expand the roads and bridges they traverse across North Carolina rather than being used for other state programs.

    Let me be clear about this. There had been no "raid" of the Highway Fund. There was no deception or breach of trust. I'm not talking about a prior diversion of Highway Trust Fund dollars to the General Fund. Republican lawmakers already got rid of that transfer, which began in 1989 as part of state legislation creating the Highway Trust Fund.

    The Highway Fund transfer that went away this year began long before 1989, and wasn't irrational. At the time, policymakers believed it appropriate for gas tax dollars to help pay for drivers' education as well as the operations of the North Carolina Highway Patrol. Both programs were, after all, related to the highway network.

    Over the years, however, the rationale became less persuasive. The Highway Patrol does much more than enforce traffic-safety laws. And lawmakers began to doubt the wisdom of using Highway Fund dollars to finance drivers-ed programs that didn't seem particularly cost-effective and that provided heavy subsidies to even affluent families.

    By the early 1980s, many members of the General Assembly, then overwhelmingly Democratic, came to agree with then-Gov. Jim Hunt that the Highway Fund transfer ought to be at least curtailed, if not phase out entirely. They met implacable opposition from education groups and others who didn't want the General Fund to lose the revenue. If it came down to a choice between funding roads and funding public employees, they thought the right answer was obvious.

    The problem was that increases in the average fuel efficiency of automobiles was already cutting into the collection of gas-tax revenues per mile traveled. Although Gov. Hunt and the legislature enacted an unpopular gas-tax hike in 1981, it didn't come close to offsetting the effect. Over time, there would be more demands on the road system than the (higher) gas tax rate could finance.

    After Republican Jim Martin was elected in 1984 as the state's new governor, Hunt suggested during transition talks that the new administration try to do something about the Highway Fund transfer. Martin and his team did exactly that in 1986, by proposing a $220 million-per-year "Roads to the Future" plan to be funded in part by transferring funding responsibility for the Highway Patrol and drivers ed to the General Fund. Legislative leaders initially rejected the proposal. "Transfers, as far as I am concerned, are out" to free up Highway Fund dollars for road construction, said Aaron Plyler, the powerful co-chairman of Senate Appropriations. By the end of the 1986 session, however, the General Assembly decided to say yes on drivers ed but no on the Highway Patrol. Some years later, during a state budget crunch, even that concession was reversed.

    At various times during the next three decades, Martin and subsequent governors contemplated or proposed ending the transfer, only to be stymied by interest-group opposition or budget woes. In 2015, the transfer finally went away, thanks to the presence of strong General Fund revenue growth and greater interest among Republicans in finding alternatives to large hikes in gas taxes and motorist fees. (Actually, both will still rise in the future thanks to legislative action this year, albeit not as much as they would have if the Highway Fund transfer had not gone away).

    Better late than never, I suppose.

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