Taxes aren't all bad: Sales tax funding 101
Nothing in life is free, so why would funding for transportation projects be any different? Many Americans have felt the impact of our aging transportation system. You can hardly pick up a newspaper or turn on the local news without hearing of our deteriorating infrastructure system. With little choice, state Departments of Transportation are struggling to manage the decline of their infrastructure system. Today’s funding sources are not sufficient to bring our roads and bridges up to a satisfactory condition. Not superb or superior conditions, just satisfactory.
I’d like to share with you a hidden funding option that may be the solution.
To understand why we are at this pivotal junction, let’s take a look at the National Highway Trust Fund, which has long been the lifeline for many state DOTs depending heavily on federal aid for funding. The federal gas tax is the mechanism that creates the HTF. This fund is facing insolvency by July of this year largely due to the fact that congress has failed to raise the federal gas tax since the early 90s. We are paying for transportation upgrades with uninflated dollars of the past – the cents aren’t adding up. To meet the needs of a growing population, foster economic growth and provide safe and effective transportation, many DOTs and municipalities are turning to local option sales tax funding.
Local option sales tax programs are one remedy to the funding gap. Many states offer legislation allowing counties to increase sales tax for transposition projects. These sales tax programs provide a sunset provision stating the timeframe revenue may be collected and lists projects eligible to receive funds. These provisions are indicated in a referendum that is placed on the ballot for voters to decide the best path forward. This promotes inclusion of high value projects with voters’ support and also keeps citizens informed of the intended use of funds.
Mead & Hunt has witnessed how local option sales tax has become a successful alternative to HTF revenue, enabling local governments to improve their infrastructure while maintaining local control. Counties throughout South Carolina have taken matters in their own hands by building transportation infrastructure projects locally. Several billion dollars have been spent on improving the state infrastructure system through local option sales tax programs over the past two decades. These programs have been using creative financing to pay for improvements, such as a soft match to leverage funds through the State Infrastructure Bank. The future is looking bright for this funding revenue source.
To learn more about this special funding or how to create and support a sales tax program for your community, please contact us.
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