Hendersonville Lightning: Legislature begins a shift in how state pays for roadwork

From John Hood at the John Locke Foundation, as published in the Hendersonville Lightning:

When the North Carolina General Assembly enacted its budget revision for the 2022-23 fiscal year, it contained a major change in how the state funds roads. . .

Change is coming. Under the budget revision Gov. Roy Cooper just signed into law, the state will transfer $193 million in sales-tax revenue from the state’s General Fund to its Highway Fund. That amounts to 2 percent of sales taxes collected. By 2025, that ratio will rise to 6 percent, adding about $600 million a year to the Highway Fund.

Traditionally, North Carolina properly placed transportation in a different fiscal bucket than the General Fund bucket containing schools and law enforcement. The latter programs are entitlements enshrined in the state constitution. Young North Carolinians are entitled to enrollment in public schools if that’s what their parents desire. And all North Carolinians are entitled to protection of life, liberty and property by the state, which requires the provision of sworn officers, courts and corrections. . .

Not all government activities meet this definition, however. Services such as roads, water, and sewer are best thought of as enterprises, not entitlements. They are essentially business operations with which government is involved for technical reasons (such as the existence of huge economies of scale or the difficulty of excluding nonpayers from using the service).

For enterprises, it’s more appropriate to charge people according to how much they use the system. This works even for indirect beneficiaries — embedded in the prices you pay at the grocery store are the cost of its water hookup as well as the fuel taxes paid by the truckers who deliver groceries to it.

Over time, the user-pay principle has become harder to sustain for North Carolina’s roads. Increased fuel efficiency, although a wonderful thing on balance, has reduced gas-tax collections per mile driven. In the past, lawmakers have raised the tax rate to compensate. That’s always been unpopular, and under present conditions would be politically suicidal.

I’ve long been in favor of replacing gas taxes with per-mile charges based on GPS data, but that has its own technical and political challenges. So, in a column I wrote last year, I endorsed precisely what the legislature has just done: transferring to the Highway Fund sales taxes collected on driving-related purchases such as auto parts and vehicle repairs. They total about 6 percent of all retail sales.

This isn’t a perfect solution, and I wish the General Assembly had discussed it more in public before including it in the 2022-23 budget. But this transfer comes closer to meeting our highway needs while respecting the user-pay principle than does any other solution that can be practically adopted at the moment.