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Paving the way for sustainable, long-term highway funding in Texas: Q&A with House Transportation Committee Chairman Joe Pickett on Proposition 7

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State leaders eyeing the Nov. 3 election are vigorously pressing Proposition 7, which would amend the Texas Constitution to provide more stable and sufficient methods of funding transportation costs in a fast-growing state. Among those pushing this critical proposition are the Greater Waco Chamber of Commerce, representing more than 1,500 local businesses, and the Texas Association of Business. State Sen. Robert Nichols, one of the proposition’s architects, says it’s important that funding mechanisms be constitutionally set because highway planners need to know how much money they’re going to have to spend several years off before a massive highway project can even be started.

In an interview with the Trib editorial board, state Rep. Joe Pickett, an El Paso Democrat who heads the Texas House Committee on Transportation, discusses the mechanics behind dedicating state funds to highway construction and maintenance (though none of the money would go toward toll roads) as well as retiring transportation-related debt; why the state gasoline tax of 20 cents no longer suffices in an age of fuel-efficient cars and rising highway construction and repair costs; and why Proposition 7 in certain respects supersedes Proposition 1, which voters passed last year and draws funds for transportation projects from oil and gas tax revenue. Some backers believe strong support in Texas for Proposition 7 will prompt Texas’ congressional delegation to bite the bullet and push for a long-term federal Highway Trust Fund, critically helpful in planning projects. And costs are high. According to the highway advocacy group Move Texas Forward, a typical freeway interchange costs about $250 million; an overpass costs $5.8 million per lane mile; and freeway widening costs $6.1 million per lane mile. And inflation, real estate costs, materials and construction costs only escalate over time.

Q    A lot of folks voted for Proposition 1 last year believing its passage would finally open up funding for widening and improving of Interstate 35 through Waco. Some of the people who conceived these improvements are now in their graves. Why should people have anymore faith that this will happen under Proposition 7 than it did under Proposition 1?

A    Sen. Robert Nichols and I tried to be as clear as we could in putting together Proposition 1. Proposition 1 just kept us from falling off the edge of the cliff (in terms of funding highway construction and improvements). We’d been borrowing money for the last 10 years at about $1.2 billion or $1.3 billion a year and we’d come to the statutory limits on what we could borrow out of two of the three sources and the third one was turned off this session. So Proposition 1 just took over where the borrowed money was going to end. If we hadn’t done Proposition 1, we would have taken a nose dive. All it did was keep us at the status quo. The good thing about Proposition 1 is it’s cash instead of borrowed money, but it didn’t take us very far into the future in terms of our roads and highways. Proposition 7 does.

Q    Because it’s general revenue money coming into state coffers?

A    Right. It’s got two parts. The first part will kick in Sept. 1, 2017, and that’s $2.5 billion. We feel very confident about that. The state has to hit at least $28 billion in general sales tax revenue. Once we hit that $28 billion, up to $2.5 billion above that is dedicated totally to transportation. In that way, appropriators in the House and Senate must elevate transportation as a priority. But here’s where we satisfied the liberals and all those who were concerned it was going to hurt public education and health and human services: Once you get $2.5 billion, anything above that goes back into general revenue. So the maximum you can get on the first phase is $2.5 billion. The second phase is where we have a growth factor built in. And instead of its just being based on the general sales tax, it’s based on the motor-vehicle sales tax. We crafted this after going out and talking about transportation over the last 10 years — a time when we’ve borrowed money and haven’t raised the gasoline tax and haven’t raised registration fees (for transportation funding). This time we’ve put in something that grows as the economy grows and that’s this second part. Once the sales tax collected on vehicles hits $5 billion, 35 percent of anything above that goes to transportation. And that kicks in Sept. 1, 2019, two years later. We believe today that this will be about $400 million to $500 million, so you put the two projections together, we’re talking about $3 billion a year — not in a biennium but in a year. And looking at that growth factor 15 or 25 years down the road, we have something that grows exponentially instead of having a gas tax at 20 cents a gallon that hasn’t changed since 1991. We threw some curve balls in there, too. We said, “What if we take a dip like 2008 and 2009 in the economy, where will we be in 30 years?” Well, that growth factor will outdo the $2.5 billion. [Gary Scharrer of Associated General Contractors of Texas tells the Trib: “Proposition 7 is projected to raise $3 billion by 2020 and continue growing from there. So you can see the scale, if $1.2 billion from Proposition 1 means nearly $45 million more for the Waco district, $3 billion in Proposition 7 money will have a huge impact for Waco.”]

Q    State Comptroller Glenn Hegar this month took stock of the oil glut, falling oil prices and slowing activity in the Texas oil patch and revised downward the amount of revenue from oil and gas on which Proposition 1 funds are based.

A    Right. He has downsized Proposition 1 estimates for next year (fiscal year 2017, beginning Sept. 1, 2016). It drops by $600 million. Comptroller Hegar had initially estimated we would see $1.2 billion each year and he revised to $1.13 billion (for fiscal year 2016, which began on Sept. 1) and $594 million (for 2017), so it’s a reduction of $600 million for that following year. But we’re still ahead of where we guessed. We had guestimated that we’d be around $800 million to $900 million (each year beginning in fiscal year 2015). Well, three times $900 million (for 2015, 2016 and 2017) and you get $2.7 billion — and that’s the number we thought we’d generate in a three-year period. Well, even with the comptroller now reducing his estimate, we’re at $3.4 billion because there was so much on the front end during a period when oil was going through one of its spikes. [Proposition 1 commenced immediately after the November 2014 election and applied to transfers the comptroller made after Sept. 1, 2014.] When we left the special session, all the members who voted for it went home and sang, “Hey, it’s going to be about $900 million!” Well, actually it was $1.74 billion that first year so we got twice as much money as we first thought. So, yes, it will drop because, as you know, oil and gas prices are now down, but if you think gas will stay below $2 a gallon two or three years from now — well, it’ll be back up, so Proposition 1 is still there, still growing. Ironically, the sales tax (which figures into Proposition 7) doesn’t seem to be effected at all by what’s going on out there involving oil prices. So the sales tax is on track to be over not just $28 billion but $30 billion by the time this all kicks in. And sales tax is actually a better way to go. It’s the broadest revenue that the state of Texas collects. Three-quarters of our state budget comes from sales taxes.

Q    So how much does this increase the chance I-35 in Waco will be addressed?

A    It’ll need to be more than Proposition 7. It really has to be a priority of the Texas Transportation Commission. The regions are still going to have to commit a lot of their own dollars (as local leverage to share in construction costs). They need to understand that, “OK, we’re going to get only so many dollars from Proposition 7.”

Q    How difficult was it to craft Proposition 7? Legislators hate dedicating funds to specific purposes. House Speaker Joe Straus in past sessions has spent a lot of time trying to get lawmakers to actually honor the concept of certain dedicated funds.

A    Let’s go back to Proposition 1 for a minute. Proposition 1 was a difficult sell. That was where we split the oil and gas severance tax over a certain amount. It took us a regular session and three special sessions and eight separate attempts to get it passed in the Texas House. The Senate was pretty easy, but it was rough in the House. But once we got it through, the public said to us at the polls that fall, “Now, politicians, infrastructure really is important to us.” I mean, they sent it back to us with 80 percent support, one of the highest percentages ever on a constitutional amendment. So when we got together this past session, a lot of our members said, “OK, Nichols and Pickett, what more do you have for us in transportation funding, because our constituents are converts to this?” So Sen. Nichols and I felt really good that whatever we took to our fellow members this time they were going to accept. Still, it took Robert and I the entire session to get down to a plan between us. And that’s where it settled on the sales tax. On our side, Texas House Appropriations Chairman John Otto and I worked very closely together and I crafted something to where he felt very confident in it, even though it was dedicated. I mean, even right now transportation gets dedicated funds — the motor-vehicle fuel tax (20 cents), registration and some other fees. And the appropriators use the general revenue to fund public education, health and human services. For a long time when it came to general revenue funds, the Texas Department of Transportation was held off for any (additional) funding till the end of the budgeting process, supposedly because they already had a dedicated funding source. And then (at the end of the appropriations process), they’d flick a bone over the fence (out of general revenue funds). In other words, TxDOT’s roughly $11 billion-a-year budget has barely 1 percent from general revenue, so the appropriators haven’t taken it seriously. Now one thing we built in was something very important to Speaker Joe Straus and me. There’s a Sunset (comprehensive review) provision built into each one of the two parts of Proposition 7 — 15 years on the base one, 10 on the other, and after the first 15 years it goes to 10 on the sales tax part of Proposition 7. So now legislators and state leaders will be forced to talk about transportation regularly, even if those of us who created Proposition 7 aren’t there anymore.

Q    Critics of Proposition 7 worry that, because of all this dedicating of funds, there could be little left for discretionary funds — that is, funds that aren’t already committed to some specific expense.

A    Yes, it’s now about 17 percent of our budget. But that’s not so bad. Some people talk about it like it’s so terrible, but what’s so bad about it? Do you really want to leave these guys and gals (legislators) who come up here for 140 days, wined and dined by lobbyists and just looking toward re-election, to make all those decisions about funding? Maybe bureaucrats do have a purpose every now and then! I do think you need to have some flexibility (in the budget) and I still think there’s enough in the budget.[Scharrer of Associated General Contractors of Texas adds that Texas A&M Transportation Institute studies have determined Texas needs to spend an additional $5 billion a year simply to keep traffic congestion at 2010 levels “and that’s a big number — and in this climate you cannot raise taxes and you cannot raise fees, so just how do you get to that $5 billion?”]

Q    How worried should we be about what’s going on with the Highway Trust Fund in Washington, D.C.?

A    I’m not, but it sure makes it hell for planning. We’re about ready to have our 35th (short-term) extension. Your region wants to go to the commission with a plan to fix what’s left on I-35 (through Waco) and that plan includes federal dollars, not just state dollars. So if you go to TxDOT, they have to sit there and go, “OK, we know how to figure out about 60 percent of (the funding on) this but the other part — well, we’ll get back to you on this.”

Q    So what should our U.S. representatives and senators be doing?

A    Pass a freaking six-year bill! Unfortunately, not all politicians are created equal. I have very little faith in the Texas congressional delegation.

Q    Isn’t it time that the federal part of the gasoline tax (18.4 cents), instead of going to Washington, just be kept here in Texas?

A    Some of us sat down and talked the other day with Sen. John Cornyn and one thing he reminded everybody at that meeting was, “I come from the most powerful, successful, most economically stable state in the union, but it still has only two Senate votes — and so does Rhode Island, so does Arizona, so does Florida and so does any other state. So it’s almost impossible right now. Anything of any consequence is going to have to come from the House. And Texas is still a donor state (that is, paying more in federal taxes than it receives in federal spending). When people (in other states) start running the figures and find out how much money they lose by keeping just their portion of the federal gasoline tax — well, the feds need to figure out something just like the state of Texas. I mean, at the Tribfest, a lot of questions came up about the gasoline tax. I threw it out there and I had two tea-party members on the panel. I said, “I know these gentlemen here don’t want to (raise) the gas tax and have signed all these pledges.” I said it’s also the conservative way to go. But I understand the current makeup of the Legislature, the lieutenant governor and governor, and that it’s not going to happen. But we should be doing it — and we should be indexing it. And that’s why Robert and I came up with Proposition 7. We at least put something in there that for once grows with the economy. But (raising and indexing) the gas tax to me should be a no-brainer. I mean, during (the 2014 campaign to pass) Proposition 1, I’d talk at tea-party meetings and afterward they’d sit there and shake their heads and say, “But I can’t support it publicly.” But you’d explain to them the gas tax is 20 cents a gallon and it hasn’t changed since 1991 and 15 cents of the 20 cents goes to the highway fund and five cents goes to public education. And someone would say, “Well, when the price of gas got up to $3.89, what were you guys getting then? Answer: 20 cents. And now that it’s under $2? Twenty cents. That’s all we get. And cars are getting better gas mileage. In 1991 the average Texan paid $10.55 a month in gas taxes. Today it’s $9.51. So I could actually go out there and say, “I’ve reduced the taxes you paid on gas the last 21 years!”

Interview condensed and edited by Bill Whitaker.