North Carolina needs to spend an additional $20 billion over the next 10 years on transportation infrastructure to boost the state’s rating to "good" from "mediocre."
The NC FIRST Commission released an in-depth analysis on infrastructure last month that offers a wide range of possible actions for legislators to consider, including raising the debt capacity for the state Department of Transportation by increasing the allowable debt-to-revenue ratio to compare with other states that have top quality municipal bond ratings.
North Carolina’s general obligation bonds are rated triple-A by Moody’s Investors Service, S&P Global Ratings and Fitch Ratings.
North Carolina isn’t the only state facing falling fuel tax revenues and coping with the rise of electric and hybrid vehicles.
But in North Carolina, transportation bond proceeds have been used since 1921 to improve roads. The latest debt plan, the $3 billion Build NC Bond Act of 2018, uses existing revenues to repay the bonds rather create new funding sources.
“The Build NC Bond is the largest bond in NCDOT’s history,” the report noted. "The bill authorized an annual issuance of up to $300 million of special indebtedness for the next 10 years [2028] to finance Build NC Projects. The bond’s net proceeds must be used as evenly as possible to finance Division Needs Projects and Regional Impact Projects, in accordance with current Strategic Transportation Investments law.”
Because of the state’s conservative bonding practices, including what is considered to be a low 6% debt-to-revenue ceiling, the staggered Build NC bond issuances are going to exceed debt capacity by 2027.
“Unless the legislature chooses to increase transportation revenues to add new debt capacity, the Debt Affordability Advisory Committee raises the debt ceiling, or the legislature opts to change or exceed the DAAC recommendation with additional bonding authorizations, future bonding will be prohibited for over a decade,” the report said.
The commission was formed in 2019 to advise the secretary of Transportation on creating a sustainable long-range transportation investment strategy. The
The Institute of Transportation Research and Education at NC State University recently issued its own report that concluded NCDOT’s infrastructure condition is only "mediocre" and not "good."
Currently, the state’s annual transportation investment is estimated at $50 billion over the next decade, or around $5 billion annually. The commission’s recommendation is to increase the investment over the 10 years by at least $20 billion.
For the state to reach this higher level of investment, government will have to use new strategies and taxes to raise revenue to offset falling gas taxes and to realign investments.
“Today, North Carolina relies too heavily on just a few revenue sources to pay for transportation investments, with state and federal motor fuels taxes accounting for about 61% of all transportation funding,” the report said. It added that motor fuel tax revenues will drop as higher fuel efficiency, rising sales of electric and hybrid vehicles and changes in travel will cause declining gas and diesel sales.
North Carolina's current gas tax is 36.35 cents a gallon, making it number 13 in the U.S., according to the Tax Foundation.
Other options besides issuing municipal bonds include increasing the state’s sales tax; authorizing additional local sales taxes for transportation; increasing the use of public-private partnerships; increasing the highway use tax and alternative highway use tax by 2%; adopting a permanent fee to replace the motor fuels tax by 2030; increasing highway tolls; authorizing a local road impact fee for e-commerce deliveries; authorizing value capture techniques for transport, such as monetizing air rights and rights-of-way; adopting a pilot mileage-based user fee program for electric and hybrid vehicles; and recapitalizing the state-funded State Infrastructure Bank to offer low-interest loans for the construction.
According to municipal bond analyst Joseph Krist, other U.S. states are also dealing with these issues and taking them on in a variety of ways.
Mississippi lawmakers are looking to pass a bill which would put a referendum on the ballot in June to increase the state’s 18.4 cent a gallon gas tax.
“The bill proposes a statewide election on whether to increase the gasoline tax by 10 cents a gallon and the diesel fuel tax by 14 cents a gallon,” Krist said in a
In New Mexico, lawmakers are debating a bill to increase the gas tax to 22 cents from 17 cents a gallon.
“The legislature estimates that the increase would raise over $63 million annually once fully phased in by 2025, mostly for the state road fund. Only Mississippi, Missouri and Alaska have lower gas taxes,” Krist said.
In North Dakota, House lawmakers passed a bill adding three cents a gallon to the state’s 23 cent a gallon gas tax.
“The proposal also raises the annual fee on electric vehicles from $120 to $200, on hybrid vehicles from $50 to $100 and on electric motorcycles from $20 to $50,” he said.
Meanwhile in Utah, lawmakers killed a plan that would have hiked registration fees for owners of electric vehicles and plug-in hybrids.
“The defeat was based in concerns that punitive fees would discourage their purchase,” Krist said.
