The Big Bad Wolf of Transportation

In our previous blog posts on the budget situation, we used the story of Little Red Riding Hood to illustrate the budget situation. Because Maryland has managed its finances responsibly through the Great Recession and its aftermath, and because the nation and the state are experiencing an economic recovery (albeit a slow, fitful, and uneven recovery), this year’s budget situation is much less challenging than the previous five or six budgets.

It’s like Little Red Riding Hood delivering her basket of goodies to Grandmother’s house. It ought to be an easy, straightforward task. However, there are Big Bad Wolves in the woods, and if Little Red happens to encounter one of them, the trip will suddenly become dangerous.

On January 16, Governor O’Malley delivered his budget and it was indeed less difficult and complicated than previous budgets. There is a comfortable ending balance, an increase in the State Reserve Fund, no large, highly visible cuts, and no significant tax increases.



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However, we cautioned about three “Big Bad Wolves” lurking in the woods. The first wolf was the federal fiscal cliff.

Today, we meet the second Big Bad Wolf: Transportation Finance.



Maryland has a system for funding transportation that relies on dedicated revenue. The revenue sources include transportation-related revenues like gas taxes and vehicle titling and registration fees, as well as a share of the corporation income tax. The gas tax is the largest of these sources. It has not increased since it was set at 23-1/2 cents per gallon in 1992. William Donald Schaefer was the governor.

Since the tax is a flat number of cents per gallon, the amount or revenue does not adjust for inflation. The price of gas in 1992 was $1.09 per gallon.

Soon, the revenue will be insufficient to cover any new highway or transit projects at all. It will only cover operating costs and routine maintenance.

Increasing the gas tax would be the most straightforward way to finance the state’s transportation needs. However, legislative leaders are wary of supporting a gas tax increase. It is perceived as being wildly unpopular with voters.

So … here is where the Big Bad Wolf of Transportation comes in. One way to increase transportation funds without raising gas taxes would be to use general fund revenue sources to finance transportation. And this could endanger adequate funding for education, healthcare, public safety functions, and the other important services that rely on those sources. Governor O’Malley keeps talking about a sales tax increase to solve the transportation problem. Virginia Governor Robert MacDonald has proposed a transportation finance package in that state that involves both increasing the sales tax and diverting a share of existing sales tax revenues for transportation needs.

• To avoid being attacked by this Big Bad Wolf, Maryland should fund its transportation needs with a gradual, phased-in gas tax increase.
• To reduce the economic effect as well as the "regressive" effect on low-income Maryland workers, the gas tax increase should be accompanied by a small increase in Maryland’s Earned Income Tax Credit.
• Finally, the revenue should be used to a balanced transportation program, including significant transit, pedestrian and bicycle improvements.