The North Carolina Highway Trust Fund was established in 1989 to fund select road construction for economic development purposes. Funds were to be spent on expanding more than 1,800 miles of specified roads and highways to four lanes, building more than 200 miles of urban loops in seven metropolitan areas, paving secondary roads, and supplementing municipalities’ funds for city streets.
Although the General Assembly anticipated that Trust Fund projects would be fully funded by 2003, most of the projects are still partially funded and completion of the Trust Fund’s mission is decades away. Internal and external factors have delayed projects, construction costs have risen, new projects have been added, and money has been diverted from the Trust Fund for other purposes.
Who Pays for the Trust Fund?
The Highway Trust Fund is made up of revenues from 25 percent of motor fuel and related taxes, the highway use tax, and the certificate of title fee and other fees. The largest source of revenue is the 3 percent highway use tax. In 1989, this tax replaced a 2 percent sales tax on motor vehicles, which went to the General Fund. The Trust Fund also earns interest and income and has annual revenues in the range of $1 billion.
In 1996, North Carolina voters approved the issuance of $950 million in general obligation bonds to accelerate Highway Trust Fund projects. The state issued $250 million in bonds soon afterwards, and the remaining $700 million in 2003 and 2004. That $700 million, however, was issued to conduct smaller maintenance, improvement, bridge replacement, and public transportation projects across the state through the North Carolina Moving Ahead! program.
How Was the Money Supposed to Be Spent?
The original distribution of funds was as follows:
• 61.95 percent for Intrastate Projects and related debt service.
• 25.05 percent for Urban Loops and related debt service.
• 6.50 percent for municipal street aid.
• 6.50 percent + $15 of each certificate of title fee for Secondary Road Construction and related debt service.
For intrastate projects, the state is divided into seven regions, and funds are distributed based on population, Intrastate road miles, and an equal base amount. Urban loops are excluded from this distribution formula, but the Department of Transportation’s (DOT) practice has been to spread funds throughout the state each year rather than focus the urban loop revenue on one project at a time. For secondary road construction, funds are allocated using a formula based on each county’s percentage of the state’s unpaved roads.
How Has the Money Been Spent?
As of July 2005, a total of $8.0 billion had been authorized for intrastate and urban loop projects. The funds appropriated to secondary road projects and municipal aid have followed the allocation formula laid out in statute. However, in the 1990s, projects did not proceed as quickly as expected and money built up in the Trust Fund. This built up cash became a focus of legislative attention beginning in 2001, and money was spent more rapidly by DOT, the governor and General Assembly.
Legislative changes in the last few years have allowed DOT more flexibility in how it constructs Highway Trust Fund projects, added new projects to the list, and permitted Trust Fund monies to be used to match federal highway funds. In addition, more money has been transferred to the General Fund, and $1.4 billion has been authorized for two new groups of smaller transportation projects – 2001 Budget Bill and N.C. Moving Ahead! – that focus on road preservation, improvements and public transportation.
Examples of Moving Ahead projects include widening and resurfacing roads, installing turn lanes, and upgrading turn signals. The bulk of the $630 million was allotted to preserving and modernizing highways and replacing bridges. Common projects include widening and resurfacing roads, installing turn lanes, and upgrading turn signals. The remaining $70 million was allocated to public transportation projects.
Where Are We Now?
The original legislation (S.C. 1989-692) defined completion of the Trust Fund as full funding for all projects. This was expected to occur in 2003, with a total of approximately $8.2 billion. However, many projects have not been fully funded, and new projects were added to the list in 2003 and 2004. Three new loops — Fayetteville, Gastonia and Greenville — were added, and the estimated mileage for the Durham Northern Loop has increased from 16.4 miles to 50.5 miles. Other projects have had smaller adjustments in mileage.
As of July 2005, approximately 50 percent of the original intrastate and urban loop mileage, and 45 percent of the overall intrastate and urban loop mileage, had been fully funded. A total of $8.0 billion has been authorized and DOT estimates it will require another $11.3 billion to complete all projects except the Durham Northern Loop (cost of that project is unknown). As of 2006, approximately 898 miles of intrastate highways and 131 miles of urban loops were open to traffic.
Some Trust Fund projects have not been started, and many are in multiple pieces and stages. The Raleigh Outer Loop (I-540). As of July 2005, only 39 percent of the project had been funded. The northern segment is completed or under construction; the western segment is in design phase; and the southern and southeastern segments, which were added by legislation in 2004, are still in the planning phase.
Why Aren’t We Finished?
The use of the Trust Fund cash balance for other purposes has required DOT to manage its cash and project schedules more carefully. The addition of new Trust Fund projects has also increased the total funds required to complete its mission. In addition, increased construction costs, project complexity, environmental and local obstacles, and internal issues inside DOT have contributed to delays.
Out of concern over the pace of Trust Fund and other DOT projects, the Joint Legislative Committee on Transportation Oversight commissioned a study in 2003 of DOT’s project delivery schedule. The study found that the delivery of construction projects had become more difficult and complex over the years. One reason is because the Highway Trust Fund law, which required DOT to pursue the construction of specific projects, did not take into account whether these projects could be permitted and approved by environmental agencies, and whether these projects were still regional or local priorities at the time of construction.
When the Trust Fund was initiated, the secretary of transportation instituted measures for advanced planning and streamlined environmental reviews. However, the 2003 Transportation Oversight study found that over the past few years environmental sensitivity had increased, as had the vigilance of the many environmental and other regulators. There was also more public involvement and litigation. The study also found that DOT was lacking in strong project and program management systems, and hampered in developing processes and systems because of difficulties in recruiting and retaining personnel.
What is Being Done to Speed Things Up?
Recent sessions of the General Assembly have attempted to address some of these issues. The Legislature has made changes to the scope of the Trust Fund, attempted to streamline the environmental permitting process, and initiated organizational changes in DOT.
What are the limitations now?Recent legislation should help the DOT deliver projects more promptly, but obstacles to some projects will remain, and the Trust Fund schedule will still be driven by the availability of funds. In the past, the large cash balance and available bonding authority gave DOT ample funds on which to draw. Now, DOT has already encumbered much of the revenue that will come into the Trust Fund over the next two years. The cash has been spent, and bonds have been issued. Trust Fund projects will continue, but only at the pace of the revenue stream.