Cheap gas, federal action boost MoDOT funds after predicted shortfall

JEFFERSON CITY, Mo. -- The Missouri Department of Transportation said the worst-case scenario of being unable to maintain state infrastructure has been avoided, thanks to federal legislation and an unexpected bump in tax revenue.

After Missouri voters rejected a transportation sales tax in 2014, the department warned its budget would drop too low to maintain much of the state's infrastructure: three-quarters of state roads couldn't be fully maintained starting in 2017, and about one in ten bridges would be in critical condition by 2020.

But the department confirmed Monday its latest financial forecasts show the situation improving -- so much it can afford to maintain all of the state's roads in their current condition and keep the number of critical condition bridges from rising.

Tax revenue from fuel, licenses and vehicles came in $47 million above projections last fiscal year. In December, Congress passed the first highway authorization in more than seven years, which guarantees increased transportation funding for the next five years.

The Missouri Highways and Transportation Commission voted last week to lift a moratorium on adding projects to its five-year plan. Officials had drafted their plan with estimates that federal funds would drop from $869 million in fiscal year 2016 to $491 million in fiscal year 2021.

Instead, a new federal highway law signed by President Barack Obama provides a 5.1 percent increase in road and bridge funding distributed through a formula to states in 2016, with additional annual increases ranging from 2.1 percent to 2.4 percent through 2020. As with previous highway laws, it requires state and local governments to spend at least $1 for every $4 they receive in federal money.

Arkansas transportation officials already have said they won't be able to meet their federal matching requirement without raising local revenues. That state needs an additional $50 million to draw down $200 million in federal highway funds, said Arkansas State Highway and Transportation Department director Scott Bennett. Arkansas Gov. Asa Hutchinson plans to unveil a highway funding proposal Jan. 19.

Missouri transportation officials say they expect to meet their federal matching requirement, but only by tapping into money that has been saved in recent years and using creative accounting methods.

"Having to take extraordinary measures to do this is not really the position we ought to be in," said Patrick McKenna, director of the Missouri Department of Transportation. "We ought to be able to do that as a matter of course."

Missouri is expected to receive an average of about $1 billion annually from the five-year federal highway law. That will require about $250 million of annual state highway spending to draw down the federal money.

The transportation department is unlikely to have enough incoming revenue to meet that threshold. So it plans to begin draining its bank accounts. By the 2021 state fiscal year, the department said its cash balance is expected to drop from its current $800 million to $200 million as it uses some of that money to meet federal matching requirements.

The department also plans to employ creative accounting by seeking federal safety funding for maintenance activities, then converting that into additional federal funding. For example, if Missouri were to receive $800,000 in federal highway safety funds for a $1 million project of re-striping roads, department officials said the state then could use that $800,000 as a state match for an additional $3.2 million in federal highway funding.

The department hopes to save about $40 million a year by funding maintenance through such federal grants.

Although its finances have improved, McKenna said the department will be "treading water" instead of planning new projects until the state finds a long-term solution for transportation funding. Legislators are expected to consider several proposals this year, including an increase of 1.5 cents a gallon to the gasoline tax and 3.5 cents to the diesel tax McKenna described as a "good and healthy first step."