By Terry Baugh, CFO of D&J Construction, Inc.
March 25th, 2021
The buzz word for the upcoming 2021 session of the Louisiana legislature is REFORM. Comprehensive tax reform is a topic receiving much attention, primarily because the full buffet of tax reform issues can only be addressed in a fiscal session, held during odd numbered years. The other reform topic you may be hearing addressed in most presentations is infrastructure reform.
Early conversations have been centered around a proposal by Representative Jack McFarland (R – Jonesboro), called the GRiT Act. GRiT appropriately stands for Government Reform in Transportation, and Representative McFarland’s bill is heavy on reforms designed to limit the expenditure of funds to the delivery of projects, and to increase information and accountability for the citizens of Louisiana. It is no coincidence that the sort of reforms aimed to be accomplished by this bill will not only take a good bit of grit by lawmakers to pass, but once in statue, it will add a lot of good grit to the Department of Transportation.
McFarland and others supporting the bill have been quick to acknowledge that the Louisiana Department of Transportation and Development (LADOTD) under Secretary Shawn Wilson has been focused on improving efficiency and effectiveness, as well as improving public and legislative perception of the Department. The GRiT Act is designed to build upon the efforts of Secretary Wilson by adding objective, transparent, and publicly trackable measures that will allow LADOTD to demonstrate to the public the magnitude and impact of the work they perform.
The reforms included in the GRiT Act include both operational and accountability reforms. It also reforms the funding of highway and bridge construction by segregating revenue into a limited-expenditure fund enacted by the voters of the state in 2018 and increasing the excise tax on motor fuels. This fund is known as the Construction Subfund within the Transportation Trust Fund (TTF). The Construction Subfund restricts the expenditure of all dollars deposited into it to the delivery of highway and bridge construction. It specifically prohibits any of that money being spent on operational and overhead expenses of the Department. One might call the Subfund a “lockbox” fund safeguarding taxpayer investments.
Purchasers of fuel in Louisiana currently pay a sixteen cent per gallon general fuels tax on either gasoline or diesel. They also pay an additional four cents that is dedicated to retiring debt incurred to complete projects that were built as a part of the Transportation Investment Model for Economic Development (TIMED) Program. McFarland’s bill will initially reduce the general sixteen cents currently going into the TTF down to thirteen cents and deposit the remaining three-cents into the Construction Subfund – the lockbox – ensuring its expenditure is on highways and bridges.
An additional key reform in the McFarland effort will include the requirement for a publicly accessible website maintained by LADOTD highlighting planned projects on a state map. The site will not only include the mapped location of the projects, but their planned bid and construction dates, the construction budget, and the ultimate cost. This added layer of transparency is much like the Louisiana Checkbook site that has been promoted in recent years by business and good government groups. In the 21st Century, it should be expected that governments at all levels would make information that is a part of the public domain easily accessible.
A reform item designed to instill greater public trust in Louisiana’s expenditure of public tax dollars will include an enhanced audit of LADOTD and the submission of that audit report to a committee created within the legislation. This audit should not be construed as a concern there may be irregularities within the Department. Ideally, it would accomplish just the opposite. It would show that the voluntary reforms undertaken in recent years have been effective and would ensure LADOTD is able to perform its required functions within the money being retained in the TTF.
The committee referred to in the preceding paragraph would also have the responsibility to review the operational parameters provided in the audit report and to suggest revisions that may go further toward improving the efficiency and effectiveness of the Department. They would provide these suggestions in a report to the Louisiana Legislature by September 30, 2024. It will be up to the legislature and LADOTD to determine which suggestions, if any, shall be adopted. McFarland believes there is value in the third-party perspective possessed by the committee members that cannot be attained by those in the throes of fulfilling the mandates of the Department on a daily basis.
Relating to funding reforms, the GRiT Act goes beyond dedicating the initial three-cent reduction from the TTF to the Construction Subfund. It calls for an immediate increase in the current excise tax on both gasoline and diesel by ten cents per gallon and follows that with a two-cent increase every odd numbered year through 2033. One hundred percent of the increased funds will be deposited into the Construction Subfund, mandating that these funds be used for highway and bridge construction and ensuring they will not be used to fund administrative costs of LADOTD
It comprehensively addresses the needs within the state transportation system by dividing the money in the Construction Subfund between preserving, maintaining, and improving our existing system, and increasing capacity in the areas where congestion is the primary problem. It commits 60% of the available funds to the current system, and the remaining 40% to capacity increase – prioritizing eight regional projects within that allocation, including the need for an additional bridge in Baton Rouge and the desperately needed repairs and improvement for of the I-10 bridge in Lake Charles.
Finally, the GRiT Act begins to address the issue of transitioning to alternative fuel vehicles by assessing an annual fee on both hybrids and fully electric vehicles.
Representative McFarland’s GRiT Act will not be the only proposed solution to funding reform this year. Other approaches are already being proposed in some pre-filed bills, and more are expected. The answer may be a combination approach; many states have “stacked revenue” and a diversified approach to funding their construction programs. However, McFarland’s proposal is the only one to-date which partners an increased revenue stream with the comprehensive reforms outlined above.
You are unlikely to find anyone who will argue about the need for addressing Louisiana’s dilapidated roads and bridges. The infrastructure needs of our state are apparent in all 64 parishes. Multiple national groups who measure the quality of state systems give Louisiana a failing grade and have for years. Further, nearly all folks who have studied the system agree that additional revenue will be required, well beyond what is now being collected. The literal billion-dollar question is how to fund it.
To effectively address the problem, it will take aggressive action led by necessary reforms. Many of the freshmen in this legislature ran on promises to reform our state. They are committed to finding solutions to Louisiana’s problems…to stop simply applying band-aids to wounds that need critical and continuing wound care. They certainly have a bold agenda for this session as it relates to tax reform. Hopefully, they will also have the courage, stamina, and grit to bring some degree of healing to the wound literally plaguing their every drive to and from the Capitol.