With a transportation program leaving big dollars unspent year after year, Gov. Ned Lamont had hoped to silence critics with an ongoing program to retire construction debt early.
But while legislators agreed to forfeit half of a nearly $1 billion reserve to slash debt once, Lamont couldn’t convince them to cap future surpluses and make these extra debt payments an ongoing endeavor.
Meanwhile, critics fear the state’s pile of unspent fuel, sales and mileage tax receipts will keep growing and are renewing their call for gasoline and other tax cuts.
The administration insists big unused resources won’t be a problem again because a long-anticipated surge in the rebuilding of Connecticut’s aging infrastructure is taking off.
“Gov. Lamont and the legislature have provided Connecticut [Department of Transportation] with all the resources we need to fulfill our mission to improve our state’s infrastructure and make our transportation system more convenient and safer for all users,” Commissioner Garrett Eucalitto said last week.
CT has not hit transportation construction targets
But for the past three years, the administration has not hit its self-imposed targets for transportation borrowing — one of the chief mechanisms Connecticut uses to finance upgrades to its congested network of highways, bridges and rail lines. That borrowing, which is repaid out of the state’s Special Transportation Fund, is used to leverage more than $1 billion annually in federal construction grants.
But the $875 million Connecticut borrowed this fiscal year by selling bonds on Wall Street is up less than 14% from the $750 million issued in 2018-19, the last budget launched by Lamont’s predecessor, Gov. Dannel P. Malloy.
Over the same period, revenues into the transportation fund, which also covers operating costs for the DOT and DMV, are up nearly 40%.
Projecting one fiscal year prior, the administration anticipated borrowing $875 million in 2021-22 but bonded just $500 million, according to records from Lamont’s budget staff and from the treasurer’s office. A $1.2 billion benchmark for 2022-23 yielded just $830 million in actual financing. And a more modest $1 billion target this year also won’t be met, with just $875 million in borrowing.
As less is borrowed, debt costs don’t rise as fast, and the transportation fund generates black ink.
The fund finished with a $157 million or 9% surplus two years ago, according to reports from the comptroller’s office. That’s despite a gasoline tax holiday that put hundreds of millions of dollars back in motorists’ pockets.
Last fiscal year saw a $284 million surplus equal to 15.5% of the transportation fund. And the administration projects the fund will close this fiscal year on June 30 up $283 million or 13%.
The transportation fund’s reserve account, which holds these surpluses, is expected to top $960 million and is equal to 45% of the STF.
Pressure grows for fuel tax cuts
State officials heard calls last fall for permanent fuel tax cuts from gasoline station owners, fuel distributors and from the anti-toll forces that battled Lamont’s unsuccessful efforts in 2019 and 2020 to put tolls on Connecticut highways.
And minority Republicans want to repeal the highway mileage tax on most large commercial trucks Lamont pitched and legislators approved in 2021.
The governor and Treasurer Erick Russell proposed in February taking roughly $500 million from the STF reserve and using it to retire transportation bonds early.
Most of that debt was borrowed at 5%, though some of the notes are marked at 3% to 4%, according to Russell. The plan ultimately would save the state about $70 million annually in debt service costs and still would leave a healthy reserve equal to about 18% of the transportation fund.
But while Lamont and Russell pitched this as an ongoing effort with a permanent 18% cap on transportation reserves, their fellow Democrats in the legislature’s majority only approved a one-time debt pay-down.
Rep. Maria Horn, D-Salisbury, co-chairwoman of the Finance, Revenue and Bonding Committee, said Democrats weren’t necessarily opposed to the plan. But because lawmakers didn’t formally adjust the $26 billion budget adopted for 2024-25, they focused on policies that were “short-term in focus” rather than ongoing.
“I’m very interested in looking at that issue next year,” she said.
But in the meantime, critics said, the transportation fund likely will continue to over-tax residents.
“I want to stop this cycle of slush funds,” said Michael Fox, executive director of the Connecticut-based Gasoline & Automotive Service Dealers of America, commonly known as GASDA.
Motorists in Connecticut face two state taxes and one federal levy that impact the price of gasoline. The state imposes a 25-cents-per-gallon tax on retail transactions. It also collects 8.81% of wholesale transactions, a cost that station owners ultimately pass on to motorists. And there also is an 18.4-cents-per-gallon federal retail tax.
Fox’s coalition of about 500 stations supports a repeal of that wholesale tax, which has added as much as 25 cents per gallon to fuel prices during peak markets in recent decades.
Fox, whose organization represents about 500 stations, said the state budget’s Special Transportation Fund certainly can spare the revenue. It generates an estimated $387 million this year for the STF.
State House Republicans renewed their call earlier this spring to repeal the highway use tax. And Rep. Holly Cheeseman of East Lyme, ranking House Republican on the finance committee, said the tax is fiscally unnecessary — generating just $60 million this year — and only exacerbates inflationary price hikes on groceries, department store items and any other goods shipped to Connecticut by truck.
“Any tax we pass onto the truckers, that’s a tax they will pass onto our residents,” Cheeseman said. “And our residents deserve relief.”
Administration: Tax cuts will weaken transportation rebuild
But the Lamont administration says any transportation-related tax cuts will create problems just a few years down the line.
If the DOT can launch more construction projects — thereby triggering the need for more transportation borrowing — the surplus next fiscal year would be just 4%, according to the governor’s budget office. And by 2025-26, the STF would run a very modest, $8 million deficit equal to roughly 1/3rd of 1%.
But critics say governors have been promising a major bump in transportation construction for years without delivering.
Eucalitto, who inherited that challenge when Lamont tapped him to run the DOT a little more than a year ago, told The Connecticut Mirror back in March that he’s aggressively trying to recruit more engineers and other professionals to bolster the agency.
Labor unions say the department is woefully understaffed and has been for decades. They also have charged Lamont with failing to prioritize hiring across all agencies and departments.
Chris Collibee, the governor’s budget spokesman, said the administration shares Eucalitto’s confidence that the department is expanding its work capacity and has the resources to continue doing so — even if legislators cap STF reserves permanently at some point in the future.
“Otherwise, we would not have recommended this policy change,” Collibee said. “The administration is carefully monitoring the STF balance and will listen to reasonable ideas from both parties regarding how best to ensure the state has the funds to invest in its transportation networks.”