Changing Forecasts for Transportation Revenues and Other Impacts of I-976

Cities and counties are in the final days of budget adoption and/or mid-biennium reviews, and while this blog post may seem a bit late to address revenues in your road and street funds, I feel that the subject of transportation revenue forecasts and the impacts of I-976 are significant enough to warrant further discussion.

On November 20, the Office of Financial Management (OFM) — through the Transportation Revenue Forecast Council (TRFC) — released the November 2019 Transportation Revenue Forecast and then released a revised forecast for Volume II: Detailed Forecast Tables on November 27. The release and revision to the transportation revenue forecasts, within the span of just a week, is a good indication of OFM's concerns regarding the impacts of I-976.

Transportation Revenue Forecasts

The volatility of transportation revenues became apparent during the 2019 budget period when impacts such as the February snowstorms in the Puget Sound area resulted in a significant reduction in fuel consumption that subsequently lowered fuel tax collections and distributions to counties, cities, and towns. Our 2020 Budget Suggestions publication took a deeper look at this shortfall in transportation revenues for 2019, and we encouraged our readers to review OFM’s quarterly updates as a way to monitor and adjust transportation budgets if the 2020 winter season is equally as bad.

The takeaway from this November TRFC Transportation Revenue forecast is that revenues are down from the previous forecasts, as illustrated in the following figure from the November TRFC report:

This TRFC chart demonstrates the overall impacts to the Transportation Revenue forecasts, which include both the motor vehicle fuel tax (MVFT) as well as licensing fees, permits, tolls, and other transportation revenues. The orange bars denote the lower November forecasts while the gray bars represent the estimated loss of revenue due to I-976. When you isolate the November MVFT forecast, there is a slight uptick in the fuel tax forecast of 0.11% for the 2020 budget period for cities and counties. The distribution of fuel tax revenue to counties is provided by CRAB. For cities and towns, the MVFT forecast increase equates to an adjustment in the city per capita fuel tax rate of $0.03, for a revised per capita rate of $20.09. However, this revision does not take into consideration potential yet unforeseen challenges, such as last year’s snowstorms.

Licensing fees, permits, and other state transportation revenues will see significant impacts as a result of the passage of I-976. The November forecast indicates a 23% reduction in these revenues, which will have a broader reach beyond just the initial MVFT and multimodal distributions.

I-976 Impacts on Transportation Revenues

Transportation Benefit Districts with license fees

At first glance, I-976 raised concerns for the state's Department of Transportation, transit agencies, and those entities with Transportation Benefit Districts (TBD). It should be noted that all of the TBD’s established within the state have been formed by cities and towns, with the majority (60%) imposing a license fee to fund the district and the remaining 40%  passing a TBD sales tax ballot measure (RCW 82.14.0455). The sales tax revenues will not be impacted, but for those 64 cities with TBDs funded by license fees they will potentially lose their authority to impose the fee as a result of the passage of I-976. For these cities, the Washington State Supreme Court (Supreme Court) will decide on the validity of the initiative in the forthcoming months.

Multimodal funds

Since 2016, cities and counties have been receiving state-shared revenues from the state’s ‘multimodal’ account (RCW 47.66.070) through appropriations in the state biennial budget. The revenues transferred into the multimodal fund are from vehicle license fees and other state transportation revenues. As a result of I-976, it is anticipated that the legislature will reevaluate its state-shared revenue allocation to cities and counties. This expectation is further supported by an article in Route Fifty, a national news source for federal, state, and local government entities. This article quotes Rep. Jake Fey, chair of the legislature’s House Transportation Committee, on how he intends to mitigate the impacts of I-976 on the state’s multimodal account:

“My focus is going to be about doing the best job of spreading the pain.”

What’s Next

The legal challenges over I-976 have begun with a broad coalition of local government entities and state organizations filing a suit and requesting an injunction until the case has been heard by the courts. King County Superior Court granted the injunction on November 27 and, subsequently, the State Attorney General’s office (AG) has filed an emergency motion with the Supreme Court to stay the lower court’s order by December 5, 2019 (the effective date of I-976). Yesterday, the Supreme Court denied the AG’s request for a stay and the issue will be heard by the court in the months ahead.

Now that the injunction has been upheld, those TBD cities and towns will need to decide how to manage the ongoing receipt of license fee revenues that could potentially have to be returned to vehicle owners. Depending upon the timeline of the court ruling the accumulation of these revenues could be substantial, and it will be important to evaluate the consequences of spending any of these fees.

With regards to other impacts of I-976, many transportation projects that had been approved but not yet started have now been postponed. On November 26 the State Department of Transportation released this list of postponed projects that are in stasis until the legislature has an opportunity to reconvene and evaluate. These were projects that, in many areas of the state, had been ongoing and/or waiting (sometimes for a lengthy period) to receive funding. For example, the City of Spokane and the Greater Spokane area has been waiting for the completion of a north/south freeway that will tie into Interstate 90. This project has been in the works for several decades but the last portion of it is now listed as one of those postponed projects, as profiled in this recent Spokesman-Review article.

All cities, towns, and counties have been impacted by the passing of I-976. Both the Supreme Court and the state legislature will have work to do and local governments will have some decisions to make on the best way to adjust 2020 transportation (street and road fund) budgets.