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Yankee Institute Policy Position: Transportation Funding

Gov. Ned Lamont’s now-defunct transportation bill aimed to install truck-only tolls on Connecticut highways in order to raise an estimated $172 million per year to fund federal infrastructure loans. Tolls supporters have repeatedly insisted that Connecticut has serious transportation issues that must be urgently addressed. Accordingly, Yankee Institute is presenting the following proposals – which will both increase funding for transportation and save taxpayer dollars on future projects – without adding additional burdens on state taxpayers. 

  1. Eliminate the First Five Plus and Film Subsidy Programs. The governor and other pro-tolls lawmakers have asserted that Connecticut’s infrastructure is the most crucial element in attracting, retaining and growing business in Connecticut. Therefore, we propose eliminating the First Five Plus program, which awards state loans, grants and tax credits to major corporations. To date, Connecticut has awarded $478 million in assistance to companies through the First Five Program, yet the state has lagged the rest of the nation economically (1). Clearly, the business incentives are ineffective. According to DECD’s 2019 report, $102 million in First Five program assistance was pending. Connecticut pays $26 million per year in debt service for this program. Ending First Five would free up bonds and reduce tax credits, which are already offered to corporations through other programs. We also propose eliminating the film subsidy program, which even the Department of Economic and Community Development has found to be a poor use of funds. Likewise, the film tax credit accounted for $128.8 million in tax credits in 2018. Studies – including the state’s own report – have found there is little return for this investment and the money can be put to better use funding transportation. 
  2. Remove fringe benefit payments from the Special Transportation Fund Throughout state government, employees’ compensation, including benefits, are funded from the General Fund. DOT and DMV employees are unusual, insofar as their fringe benefit payments come through the Special Transportation Fund, where — because of unfunded pension liabilities – these payments continue to increase significantly year over year. They will total $185 million by fiscal year 2024, according to the Office of Fiscal Analysis. At the very least, the unfunded liability payments (totaling $166.8 million per year) should be removed from the STF, leaving only the normal cost to be paid by transportation funds, roughly $17 million per year. It is reasonable for the STF to pay the wages and benefits of DOT workers but using the dedicated fund to pay for past deals made between governors and the state employee unions to underfund the pension system is not particularly if transportation funding is so important to Connecticut’s economic future. Those costs should be dealt with using the General Fund and lawmakers should be forced to account for them accordingly.   
  3. Reduce Rail Subsidies, Using Savings to Leverage Federal Rail Grants. Much of the governor’s transportation plan is focused on improving Connecticut’s rail lines, particularly Metro-North and the Hartford Line. Connecticut heavily subsidizes its rail system. The subsidy for the New Haven Line alone is $177 million, according to CT DOT. Previous studies show that trainriders are, by and large, earning over six figures. A fare increase of $4.40 on the New Haven Line would eliminate the state subsidy entirely for that rail line, but an increase this significant could reduce train usage. Therefore, we propose a $1 increase on the New Haven Line; New Canaan Line; Shoreline East Line; and the Waterbury, Danbury and Hartford Lines, which would raise $44.4 million per year. Rather than taking transportation and infrastructure funding as a whole to leverage federal grants, the state should separate rail projects and use the savings generated by fare increases to leverage federal Railroad Rehabilitation & Improvement Financing loans. The state should focus on projects that can be funded through these savings accordingly.  
  4. Eliminate Project Labor Agreements and Temporarily Suspend Prevailing Wage Law for State Transportation Projects. According to the governor and legislative leaders, Connecticut’s transportation funding is in crisis.” Therefore, addressing the crisis as cost-effectively as possible should be government’s paramount objective. Accordingly, we propose a temporary and immediate suspension of Connecticut’s prevailing wage law for state transportation projects and the elimination of project labor agreements as a requirement for those projects. The savings generated through lower construction costs could be significant. When Ohio suspended its prevailing wage laws for school construction (2), costs were reduced by 10 percent and construction worker wages actually increased due to increased productivity. Likewise, studies have found that project labor agreements in Connecticut increased school construction costs by 19 percent. Eliminating project labor agreement requirements (3) for transportation work will ensure each taxpayer dollar goes a lot further. The governor has proposed nearly $20 billion in infrastructure projects. Reducing costs by suspending prevailing wage alone could save $2 billion. Eliminating project labor agreement requirements could open the projects to more bidders and ensure competitive prices. Tolls would not have produced revenue until 2023 at the earliest. If prevailing wage were suspended immediately, the cost savings by 2023 could be put to good use in dedicating funds to future projects. 

 Taken together, these proposals would free significant sums to be directed toward infrastructure – a development that should be particularly welcomed by lawmakers who have claimed that infrastructure upgrades are the most indispensable component to improving Connecticut’s business climate. In fact, one straightforward measure — eliminating unfunded pension liability payments from the STF and increasing rail fares by one dollarwould produce immediate savings to the STF of $211.2 million per year. This exceeds the $172 million per year that trucks-only tolls were projected to generate. 

 Savings realized as a result of suspending prevailing wage and eliminating project labor agreement requirements have not been factored in because they will accrue in the future, but based on studies, they are likely to result in billions in savings and reduce Connecticut’s overall transportation costs dramatically. 

 Likewise, savings realized by elimination of the First Five Program and the Film Tax Credit has not been factored in because much of this funding is done through bonding or is based on future tax payments. On average, however, the state has offered $47.8 million in assistance per year through First Five Plus and $68.8 million in tax credits per year through the Film Tax Credit. Eliminating these programs would increase tax revenue and decrease bonding or allow bonding to be redirected to transportation. 

 Proponents of tolls have tried to convince Connecticut’s residents that upgrades to Connecticut’s transportation and infrastructure can only be achieved if they can reach, once again, into the people’s pockets. But state leaders have plenty of alternatives available to free up the funds for the improvements that, we’ve been told, are so urgently needed. Above, we’ve outlined the ways. Now, we’ll see if there’s the will.

 

Footnotes

(1) Connecticut ranked 50th of 50 in the 2019 Alec-Laffer State Economic Competitiveness Index and 47th of 50 in the Tax Foundation’s 2019 State Business Tax Climate Index.

(2) Prevailing wage laws require that workers on government-funded construction projects be paid specified minimum wage rates. This often results in artificially inflated costs for taxpayer-funded projects, as there is decreased competition among bidders for each project given the artificially high wage rates.

(3) Project labor agreements increase the cost of taxpayer-funded government construction projects by essentially restricting bidding for public construction projects only to unionized firms.

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