Still dusting themselves off from last year’s budget scrap, Gov. Dannel Malloy and Connecticut lawmakers reconvened amid a crisis facing the state’s special transportation fund.
Democrat Malloy, beginning his eighth and final year as governor, wants lawmakers to approve tolling and other measures in a revenue package that he said would fund critical investments in Connecticut’s transportation system.
Several dynamics envelop the tolling discussion.
They include a wave of rating downgrades the past two years; political friction at the capitol; three major tax increases since 2009; and even how Connecticut brands itself regionally. National debate over infrastructure funding provides another backdrop.
Revenue woes leave Connecticut with no option, according to Rep. Tony Guerrera, D-Rocky Hill, a principal supporter of tolling.
“People are going to be scared. I get that. But where’s the alternative?” he said.
Malloy, in one of several mid-cycle adjustments to the biennial budget, called for statewide electronic tolling beginning in fiscal 2023; a 7-cent increase in the gasoline tax implemented over four years; acceleration of the transfer of the car sales tax by two years; and a new $3 per tire fee on tire purchases. Separately, a referendum is scheduled for November to establish a lockbox for transportation funds.
The federal government would have to approve tolling on Interstate highways.
Neighboring states have toll roads. Connecticut removed them from the western portion of I-95 after a 1983 Stratford tollgate crash killed seven people. Proponents say electronic tolling would diffuse safety objections.
The $1.5 billion special transportation fund accounts for roughly 7% of the state budget. In January, Malloy and state transportation Commissioner James Redeker indefinitely suspended $4.3 billion in projects statewide, including the $5 billion Interstate 84 viaduct fix in Hartford and the $12 billion Waterbury Mixmaster project, a redesign of east-west I-84 and north-south state Route 8.
Speaking in Hartford before the General Assembly's Commission on Fiscal Stability and Economic Growth, Redeker cited an urgency for the latter two projects.
“They’re going to come down,” said Redeker. “They’re not going to stay up if we don’t do something about this.”
Although Connecticut is the nation’s third-smallest state by square miles, it ranks 10th highest by lane miles it must maintain. “The assets we own are enormous,” said Redeker. “We have no county government, a lot of roads and we’re a through state. And, we own a railroad.”
Connecticut owns the in-state portion of the Metro-North Railroad's New Haven Line under an agreement with the Metropolitan Transportation Authority, which operates mass transit in the New York City region.
Some of Connecticut’s bridges along the New Haven line are more than 120 years old.
“We’re at the breaking point,” said Redeker. “We have decay curves that show we will be in desperate shape in a very short period of time.”
Reason Foundation cited seven states, including Connecticut, reporting more than one-third of their bridges as deficient.
Its report on Thursday ranked Connecticut 46th among the states – in a category it labeled “very bad” -- in highway performance and cost-effectiveness. The Los Angeles think tank rated each state in 11 categories, including highway spending, pavement and bridge conditions, traffic congestion and fatality rates.
Last year’s state budget was four months late. Three Senate Democrats at one point broke ranks and voted for a Republican budget that Malloy vetoed anyway. Underperforming tax receipts triggered a midyear deficit while estimates for a two-year gap soared to roughly $5 billion.
The Senate is split 18-18 between Democrats and Republicans while Democrats hold a 79-72 advantage in the House of Representatives.
Bond rating agencies have downgraded and scolded Connecticut for two years over its budgetary problems. The most recent rating action came Oct. 13, when S&P Global Ratings lowered its outlook on the state's general obligation bonds to negative from stable while affirming its A-plus rating.
Fitch Ratings also rates Connecticut’s general obligation bonds A-plus, while Moody’s Investors Service and Kroll Bond Rating Agency rate them A1 and AA-minus, respectively.
"Investors are not wary of Connecticut simply based on its budget process. Investors are more concerned with the final outcomes of approved budgets and the economic health of the state versus the political process," said Ajay Thomas, executive vice president and head of public finance at FTN Financial.
"The state’s biggest strengths typically discussed are [its] offering of attractive retail customer bond structures and the value of tax-exemption continuing to hold interest to the state’s high net-worth population," said Thomas. "The demand for Connecticut bonds remains relatively robust and driven by retail demand, which allows for the State to serialize more bonds, benefit from more favorable couponing, and structure bonds all across the yield curve."
Congestion pricing, a hot-button issue in New York, has surfaced in Connecticut. Redeker said studies of I-95 along southwest Connecticut and I-84 in Hartford show the state could generate roughly $750 million per year.
Still, that would involve “tolling every interstate and limited access [highway] and some other state roads,” he told the state commission, noting interstates 95, 91 and 94, and state routes 9, 8 and 2, plus the Merritt Parkway.
“It would take four or five years to implement,” said Redeker.
Senate Republican leader Len Fasano, R-North Haven, sees too many unanswered questions about tolling.
“If Connecticut has to toll every major route in our state to stop people from dodging tolls, how will the state afford to pay for the installation of such broad infrastructure so quickly?” he said. “And how much will residents have to pay at the tolls in order for the state to generate a profit?”
According to Fasano, a Republican transportation plan would guarantee at least $1 billion annually over 30 years without tax hikes or tolls. It would reserve a set amount of GO bonds for transportation priorities and preserve current special tax obligation bonds dedicated to transportation.
With federal funding an open question, Connecticut and other states await details of a $1.5 trillion infrastructure plan from President Trump.
“The United States is the only country in the world where the national government does not take the responsibility of funding the capital needs of its transportation,” said Richard Ravitch, former New York lieutenant governor, former chairman of the MTA and architect of its first capital plan in the early 1980s.
“Japan, China, Hong Kong, England, Italy … those governments pay the capital costs,” Ravitch said in an interview. “In the U.S., the federal government pays a fraction.”
Connecticut’s gas tax dropped to 25 cents per gallon from 39 cents in 1997 and has not increased since. Over that period, said Malloy, rail fares have risen 54%, bus fares 75%. Eight states in the past year raised their gas taxes, including Republican-dominated South Carolina and Tennessee, and in New Jersey under then- Gov. Chris Christie, a Republican.
"The infrastructure challenges faced by Connecticut are no different than the national debate or what many of the individual states are facing," said Thomas, who cited aging infrastructure, demands on limited budgeted dollars for ongoing operations and maintenance, "with little, or frankly no, room for new infrastructure spending without new sources of taxes or fees revenue to support new projects."
He added: "The state’s policymakers will need to think broadly about a myriad of solutions and options. "
Connecticut's sluggish economy underpins much of the debate.
“Tension between the costs of the past and the needs of the present has intensified as a result,” said Stephen Eide, a senior fellow at the Manhattan Institute for Policy Research.
Connecticut’s major cities – including capital Hartford, which is working to avoid Chapter 9 bankruptcy – are struggling. The business climate is iffy. General Electric Co. moved from Fairfield, Conn., to Boston and only an 11th-hour move by new Aetna parent CVS Health prevented the iconic Hartford-based insurer from moving to New York.
According to Eide, Connecticut and its cities must recraft themselves more sensibly, using examples such as Erie, Pa. and Lowell and Worcester, Mass.
“Fiscally stable, well-managed cities, none with any hope of landing an Aetna or a General Electric,” he said. “New York and Boston are not useful models for Bridgeport, New Haven, Hartford and Waterbury. If Connecticut’s future really depends on its cities gaining millennial market share from New York and Boston, grim days lie ahead.”