Update from the Montana Infrastructure Coalition

Montana Chamber Annual Meeting

Butte, Montana

October 26, 2018

Overview

•What is the Montana Infrastructure Coalition?

• How do we define infrastructure?

•What is the current state of our infrastructure?

•Why is it important to invest in infrastructure?

•What tools are available?

Background of the Coalition

• The Montana Infrastructure Coalition was born out of necessity.

Current Coalition Membership

• Over 100 public and private sector associations and individual entities representing engineering, design, construction, finance, operation and maintenance of public infrastructure.

Understanding and Call to Action

• Sound infrastructure provides the foundation for healthy communities and a robust state-wide and regional economy. Yet, Montana’s aging infrastructure is approaching a critical state of disrepair.

• It is time for a systemic change in how we fund critical infrastructure to avoid saddling future generations with the mounting infrastructure funding deficit we see today.

Mission

• The Montana Infrastructure Coalition has been established to provide an inclusive, non-partisan forum for the objective research and development of sustainable funding solutions for Montana's most pressing infrastructure needs.

What is “infrastructure”?

• Simply defined – Infrastructure includes the tangible facilities and assets that provide the foundation of a healthy community and a vibrant economy.

Coalition-Derived List

From June 2016 Billings Workshop

Airports

Schools

Parks and recreation

Fire hall / police

Transit

Hospitals

Rail

Detention/city hall/ libraries

Bike/pedestrian facilities

Senior living

Inland waterways

Domestic drinking water

Sanitary Sewer

Roads (city and county)

Highways (state and federal)

Bridges

Storm sewer

Power

Communication

Irrigation

Solid waste

Dams and levies

Oil & Gas

Two basic kinds of Infrastructure:

• Economic – basic facilities that help drive economic development like transportation, clean water, power and communications

• Social – basic facilities and services necessary for human development like schools, hospitals and housing

How do we identify “critical” infrastructure?

Where do we start?

• What are the most basic community needs that must be addressed?

• How should Montana prioritize investments?

The deficit is too large to attempt to address with one solution or in one legislative cycle.

How do we define “critical” infrastructure?

Maslow’s Hierarchy of Needs:

• Realizing one’s full potential

• Attributes or activities that give a sense of contribution or value – prestige or attention

• Connectivity, friendship, family, intimacy

• Personal security, health and well-being

• Air, water, food, shelter, clothing

How do we identify “critical” infrastructure?

• Clean water, Sewer, Roads and Bridges

• Power, Communications, Solid Waste

• Police, Fire, and Medical Care

• Schools, Libraries, City Hall, Detention Facilities

• Airports, Rail facilities

• Parks, Transit, Senior Living

• Dams, Irrigation, and Inland Waterways

• Recreational Trails

• Fiber Optic

Defining the Problem

The deficit can be defined in terms of both physical and financial needs.

We have a documented deficit in infrastructure investment.

How do we articulate the “Need”?

Physical

The physical need for infrastructure investment comes from:

• age of the facilities (routine maintenance),

• capacity issues in growth areas, and

• new health and safety standards (new regulatory requirements).

How do we articulate the “Need”?

Financial

• Federal, state and local governments have constructed assets that have continuing financial obligations.

• Revenues are not keeping up with expenses.

• Shortfalls are projected across the board.

Contributing Factors

Federal dollars are not flowing down to state and local governments like they used to

Are we investing enough?

Our public investment in infrastructure on a national basis is declining relative to GDP

When is the right time to invest?

Cost of materials and labor continues to increase both in terms of real dollars and in relation to GDP

In sum . . . Why invest?

• Health and safety

• Connectivity to markets

• Short and long-term employment

• The need doesn’t go away, and the cost only increases over time

What are the possible approaches?

• Reduce consumption

• Find efficiencies

• Generate new revenue

Criticisms:

• Investment is misallocated – politics

• Infrastructure is utilized inefficiently – not balanced with demand

• Investment is mismanaged – little incentive for efficiencies

• Mistakes are replicated – broad federal policies/funding for inappropriate locations

• Burdensome regulations – constantly increasing

Not all infrastructure investment is created equal. The following are common criticisms:

Coalition Focus

• The Coalition recognizes the policy and implementation challenges and will participate in those discussions

The Coalition will focus on proactive financial tools for long-term, sustainable solutions.

What investment tools are available?

From June 2016 Billings Workshop

Statewide sales tax

Local Option sales tax

Fuel tax

Ending fund balance

General Obligation Bonds

Vehicle Miles Traveled

Coal Severance Tied to TSEP

TSEP increase

Leveraging local dollars

Leverage state match

Income tax

Cap coal trust

Toll roads

Vehicle registration fees

Public-Private

Partnerships (P3)

One Time Infusion

Bed Tax

Local Government Tools:

Local government services and infrastructure are heavily reliant upon property tax receipts

Concepts for Further Consideration

• Local Option Infrastructure Tax

• Statewide Sales Tax

• Fuel Tax / User Fee

• Bonds

• Vehicle Registration Fees

• Cap the Trust

• P3’s

• Audits

Overriding Theme:

• User fees as opposed to broad taxes

• Tap the “Tourism Economy”

• Provide assistance to areas with declining tax base

• Give local authority tools to growth areas

• Understand regulatory burdens

• DEFEND what’s working!

Membership appetite for connecting the cost to the cost causer

2017 Success Story – Fuel Tax

HB 473 – Bridge and Road Safety and Accountability Act (BRSA)

• $0.045 increase in gas tax in 2017

• Increase incrementally to $0.06 by 2023

• Approx. $21 million to MDT, remainder to Cities and Counties

Fuel Tax: A Case Study

Cost to the consumer:

The fuel tax is a direct user fee

Prices at the pump fluctuate regularly

Fuel tax update went into effect July 1, 2017

Price trend follows neighbors and US Average

Fuel Tax: A Case Study

Fuel tax increaseHarvey

Fuel tax increase

Hurricane

Harvey

Fuel Tax: A case study

2017 Partial-Year Revenues :

$11.3 million deposited in BaRSAA

$6.2 million allocated to local governments

2018 Revenues through June:

$13 million deposited in BaRSAA

$3.3 million allocated to local governments

Estimated $24.4 million by 2023

Go to the

“ROAD & BRIDGE $”

tab on MDT’s website for more information.

Roads and Bridges – still a gap?

• Beyond HB 473, is there still a funding gap?

• Do we consider VMT in the future?

• What about other licensing or user fees?

• Need to defend the fuel tax from raids.

What is the future of the fuel tax?

Local Option Infrastructure Tax

Specific Elements

• A maximum of 4% tax on narrowly defined luxury items to capture impacts from tourism

• An automatic sunset / reauthorization schedule

• Property tax relief for Class 4 property owners, by rebating a minimum of 25% of the revenue generated from the tax

• Revenue to be expended only on water, wastewater, stormwater, road and bridge projects within the taxing jurisdiction

Intent: Provide local citizens the opportunity to decide for themselves whether to adopt essential new tools to address critical infrastructure needs and provide property tax relief.

Local Option Implications . . .

• Local option should consider impacts to outlying rural areas within market area (revenue sharing?)

• Should consider taxing disparity between online and brick-and-mortar (consumer use tax?)

• Regressive tax impacts?

• How do we define “luxury”?

• Should we be considering a statewide sales tax?

versus

Public Private Partnerships (P3s)

• Public-Private Partnerships (P3s) are contractual arrangements between public agencies and the private sector to provide infrastructure for the public

• 32 states have some form of public-private partnerships in place. In most every case, the private sector is responsible for the project design and construction while the public sector maintains its traditional role of identifying the infrastructure need, arranging the financing terms, and owning, operating and maintaining the final asset after construction is complete.

The Basics:

Cap the Coal Trust

• Trust currently exceeds $1 billion

• Constitutionally established for future generations

• Only tapping interest today

• Proposal to divert new severance tax revenues to back bonds

• Potential to create a $300 million bonding capacity beyond existing

• (Also need to protect/enhance TSEP funding)

Bonding

• Bonding bills have failed to pass the Legislature or the Governor’s office for the past three cycles (six years)

• Hopefully moved beyond the cash versus bond debate and recognize that bonding is a legitimate tool

• Still need to distinguish between “critical infrastructure” and lower-priority/higher-cost projects

• Need to spur broader discussion about how to fund other infrastructure needs

Next Steps:

• Renew your membership or join the Coalition

• Participate in upcoming all-member meeting to identify 2019 legislative priorities

• Help advance the discussion around responsible infrastructure investment

Tell your story . . .

• Share your local project needs with the Infrastructure Coalition

• Share your success stories (newly funded projects, creative approaches)

• Share your funding and regulatory challenges

• The Coalition will coordinate and push those stories on social media

Contact Info:

•darryl@jamesconsult.com

•406.441.9100

•mtinfrastructure.org