Texas Road Subsidies Take Toll on General Fund

In November 2015, Texans overwhelmingly voted to amend the state constitution to provide more funds for transportation by diverting sales tax revenues that normally would have gone to the general fund. Proposition 7, which passed with 83 percent of the vote, was not the first measure voters approved to divert tax revenue to the Texas Department of Transportation. A year earlier, voter approved Proposition 1 by 80 percent, diverting half the revenue derived from energy taxes that would have gone to the state's Rainy Day Fund to the state transportation budget.

Brandon Formby and Jim Malewitz report for The Texas Tribune that some lawmakers are questioning whether the first payment of $5 billion required by Proposition 7 "should move forward as planned....to free up money for other state programs."

In a report last week, Moody’s argued that the new TxDOT funding approved by voters in recent years leaves the Legislature with less money to work with than it had in the previous session.

“Simultaneously, economic and population growth is expected to increase faster than the nation,” the report said. “Balancing the government service demands of growth against a smaller general fund budget now is a greater challenge.”

Per Senate Joint Resolution 5, the legislation that sent Proposition 7 to voters in 2015, "[l]awmakers could reduce the $5 billion transfer by up to 50 percent through a two-thirds vote in both the House and Senate," report Formby and Malewitz. However, those funds have already been programmed into TxDOT's long range planning, according to the Texas Transportation Commission.

Last month, Gov. Greg Abbott released his proposed budget to lawmakers that included sending the full Proposition 7 funding amount to TxDOT in the next biennium.

While it will be difficult to reduce the Proposition 7 transportation funding in order to bolster the general fund, legislators may be more averse to future tax diversions to fund transportation programs, which may mean rethinking increasing the 20-cents [pdf] per gallon state gas tax, which hasn't increased since 1991. Last October, New Jersey became "the 19th state since 2013 to raised or reform its gasoline tax," according to CBS News, when it increased its gas tax by 23 cents per gallon.