States' Covid-era Budget Surpluses Could Pay For Infrastructure

This story was originally posted by Stateline, an initiative of the Pew Charitable Trusts.

Smith’s Bridge, spanning 447 feet across Smith Bayou, connects residents in the small city of Ferrysburg, Michigan. But the two-lane structure is in such shoddy condition it was closed for months in 2019 to car traffic. It would cost millions to replace.

Now there may be help coming from the state. Michigan Democratic Gov. Gretchen Whitmer has proposed allocating hundreds of millions of dollars to replace or repair it and more than 119 other local bridges in serious or critical condition, using one-time money coming from a state surplus.

She and leaders in other states who have wound up with unexpected budget surpluses despite the COVID-19 pandemic are planning to use a chunk of the money to tackle long infrastructure to-do lists.

Congress, at the behest of President Joe Biden, is hashing out its own major infrastructure plan, but some governors and legislatures figure they can go ahead and make critical one-time investments in road construction, broadband or other infrastructure projects. Some also are looking to target long-term funding for bigger-ticket items.

“Our needs are so great. We have been underfunding infrastructure for so many years,” Colorado Senate Majority Leader Steve Fenberg, a Democrat, said in an interview with Stateline. “We have no choice now but to fund it.”

While many states have made some progress with their infrastructure needs by raising gas taxes to pay for transportation investments over the past decade, they still have a long way to go, according to the American Society of Civil Engineers.

State officials know that.

A recent report from the National Association of State Budget Officers found that many governors highlighted infrastructure investments in their 2021 State of the State speeches. Governors called for more investments in projects such as road maintenance, bridge repairs and water systems.

They also proposed using state and federal money to expand broadband and help rural areas. The pandemic exposed how the lack of broadband connectivity among tens of millions of Americans has hurt schoolchildren and workers.

In Colorado, which is projecting at least $1 billion in unexpected tax revenue, Democratic Gov. Jared Polis and bipartisan leaders from the state House and Senate announced the Colorado Recovery Plan earlier this month. The one-time spending package would put $700 million into an economic stimulus plan.

A big chunk—$170 million—would go to shovel-ready infrastructure projects, such as repairs to tunnels and bridges. Another $50 million to $75 million would be used for broadband expansion, $30 million would be allocated to revitalizing community main streets, $20 million would go toward improving infrastructure at state parks and $10 million to $20 million would be earmarked for water plan projects.

“Infrastructure is incredibly important. It touches every corner of our state,” Fenberg said. “It’s the lifeblood of our economy.”

While Colorado has lots of other funding needs, such as K-12 education and higher education, Fenberg added, putting one-time dollars into those isn’t sustainable.

“Transportation and infrastructure are the perfect investment,” he said. “There are dollars that can move immediately and be put into local communities. It’s good for jobs and it spurs economic growth.”

In the early months of the pandemic, many states trimmed spending, froze hiring and sharply reduced their revenue forecasts, figuring the economic crisis foreshadowed a grim future.

Some tourism-dependent states, such as Hawaii and Nevada, or energy-dependent ones, such as Louisiana and Alaska, got hit hard, said Brian Sigritz, director of state fiscal studies at the state budget officers association.

But many states were surprised to find their revenues come in higher than projected. The spending cuts and hiring freezes helped. So did the state income taxes that high-income earners continued to pay during the pandemic. And federal stimulus funding pumped lots of money into state economies.

Those unexpected windfalls left states with extra cash to use this year. And infrastructure is a popular place to spend it, no matter which party runs the legislature.

“It hasn’t been a red, blue issue,” Sigritz said. “We’ve seen the importance of infrastructure and expanding broadband in both.”

In Colorado, while Democrats control the governor’s office and the legislature, Fenberg pointed out that the one-time spending infrastructure package under consideration was crafted by both parties.

“We’re living in challenging times right now, but we don’t see this as a partisan issue,” he said. “We think it is a one-time investment that’s prudent financially and that will get the state on a better footing as soon as possible.”

Susan Howard, a program director for the American Association of State Highway and Transportation Officials, said the infrastructure issue generally gets bipartisan support at the state level—and the national one.

“You have this sense of …. there are no Democratic roads, there are no Republican roads,” she said.

'Fix the Damn Roads'

America’s infrastructure is in rough shape. An American Society of Civil Engineers’ report card recently gave it a C- grade, noting that there is a water main break every two minutes and that 43% of public roadways are in poor or mediocre condition.

“America's infrastructure bill is overdue, and we have been ignoring it for years. The COVID-19 pandemic only exacerbates the funding challenge because state and local governments have had to prioritize public health over everything else for the past year,” Jean-Louis Briaud, the group’s president, said in a March news release.

“If we take action now, we can generate job growth and build infrastructure that is more reliable, more secure and more resilient while increasing the quality of life for everyone.”

In Idaho, which is sitting on an $800 million surplus, Republican Gov. Brad Little has proposed a $126 million transportation infrastructure spending package. Most of it would be used to maintain state and local roads and bridges.

Little also wants to spend an additional $1 billion on road construction, such as new bridges and interchanges, which would be paid for with bonds over a period of years. And he has proposed spending $50 million on water infrastructure projects.

“Idaho is a growing state. There is growing demand on our water infrastructure, our roads, our bridges,” said Alex Adams, administrator of the state division of financial management. “The governor thought these investments will have a long-lasting effect on our kids and grandkids.”

Like a number of other governors, Little also wants to spend more on new investments in broadband for underserved areas—$35 million.

“In our rural state, broadband is an absolute key to commerce, to remote work, to telehealth and distance education,” Adams said. “The governor wanted to fill in some gaps.”

The legislature already has passed both the one-time transportation and water infrastructure appropriations. The ongoing transportation funding and broadband expansion remain under discussion.

In South Dakota, which has a budget surplus, Republican Gov. Kristi Noem asked lawmakers to approve $75 million in one-time funds for broadband investment. The legislature passed the measure earlier this month and Noem signed it into law last week.

In Michigan, which expects to have a $2.5 billion surplus in its general fund, Whitmer wants to pull $300 million to fix or replace the more than 120 local crumbling bridges across the state.

That’s in addition to a $3.5 billion bond plan already underway to rebuild state highways and bridges. Under the plan, Michigan would add or expand 122 major new road projects.

“Our roads are dangerous, and the longer we wait, the more expensive it will be to fix them,” Whitmer said in a news release. “That’s why I’m taking action now to fix the damn roads and keep Michiganders safe.”

The State Transportation Committee already has signed off on the bond plan, which didn’t need to go to the legislature. The $300 million bridge proposal requires the legislature’s approval.

Heightened Interest

Biden is putting together a massive infrastructure proposal that reportedly will be unveiled this week. It will include upgrades to roads, bridges and rail. And Democrats in Congress already have proposed their own infrastructure bills.

At the state level, the wave of proposals to spend one-time surplus money on transportation infrastructure comes at a time of heightened interest among legislatures and governors, said Howard, of the state transportation officials’ association. It’s something tangible they can point to that directly affects the economy and residents’ lives, she added.

“We all interface with transportation, during normal times. We intersect with it in our daily life,” Howard said. “And there’s a big safety component to this as well. So many of our bridges fall into the category of disrepair that really needs attention.”

But Howard noted that the rosy budget outlook isn’t uniform in all the states, so not all of them can pump extra money into infrastructure. And even for those that can, she said, it’s just part of a much bigger picture, in terms of how states collect revenue for transportation, such as gas taxes, vehicle registration fees and federal highway money.

“These one-time budget infusions are not typical,” she said. “But they can certainly help, particularly if there’s a goal of advancing certain projects.”

She pointed to Utah, which estimates it has a $1.5 billion surplus. Legislators there unanimously approved a $1.1 billion infrastructure bill. About $850 million of it will be a one-time cash appropriation for state highway projects. The other $250 million, which will be paid for through bonds, will go to transit, including double-tracking parts of a commuter rail system.

Republican Gov. Spencer Cox signed the measure into law March 22.

“You can’t use one-time money for teachers’ salaries because it’s not there next year. One-time money fits in one-time projects,” Utah Republican Senate President Stuart Adams said in an interview with Stateline. “When the economy turns down we can stop building infrastructure and spend that money to backfill our budget.”

Jonathan Ball, Utah’s legislative fiscal analyst, said the infusion of money into highway projects is badly needed.

“We have these chokepoints,” he said. “In our north-south corridor, the northern part needs a lot of attention. And access to some of the national parks, especially during the pandemic, needs it, too.”

Infrastructure is especially important in Utah because it is one of the fastest growing states in the nation, Adams said.

“That is a great thing for our economy, but it’s a tough thing for our infrastructure,” Adams said. “If we want to maintain that quality of life we love in Utah, we’ve got to maintain that mobility. If we want to do that, we have to spend money.”

In Utah, 24% of all sales tax revenue goes to transportation projects, such as building new roads and adding lanes to highways. Federal transportation funds and gas tax revenue generally pay for maintenance.

The state wouldn’t turn down new transportation infrastructure money from the federal government if it were offered, Adams said.

“But we’d be in total gridlock if we waited for our federal government,” he added.

In Colorado, Democratic legislators, in collaboration with the governor’s office, want to take transportation infrastructure investment to an even higher level. In addition to the one-time $700 million stimulus plan, they recently unveiled a massive $4 billion long-term transportation funding proposal.

The money would be used to improve highways, expand transit options, increase electric vehicle charging stations and electrify public transit.

It would be funded by a series of fee hikes over time, including a 2-cent-a-gallon gas tax increase every two years to 8 cents, higher electric vehicle registration fees and fees for online retail deliveries and ride-hailing services such as Uber and Lyft.

Under the plan, Colorado would spend a total of $1.2 billion from the general fund and federal stimulus money over the next 11 years on upgrading its transportation system. Democrats estimate it would cost each consumer $28 a year.

An assortment of small fees would replace the erosion of the gas tax, which primarily funds the transportation system now, said Senate Majority Leader Fenberg. “This overall package is about modernizing how we pay for it.”

But the state still needs the federal government to step up because there are some big projects it can’t fund on its own, he added.

“We can tread water and make improvements and solve some of the most important problems, such as congestion on I-70 near ski resorts,” he said. “But we are not going to fundamentally change transportation in our state. Hopefully, that will come from a federal package.”