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Texas Prop 7: Cutting Through the Congestion with no New Taxes, Tolls or Debt

23 Oct 2015

Prop 7 will provide an additional $2.5 Billion in funding to support the influx of population growth in Texas, and to bolster the infrastructure that supports the state’s business, construction and agricultural communities.

By Brian Weisbaum, project manager – Dire States, CASE Construction Equipment   

In November 2014, Texas passed Prop 1, an amendment that, at the time, was expected to pump $1.7 Billion into Texas’ transportation system. It passed with a resounding 80 percent of the vote – a mandate that many transportation advocates across the U.S. have held up as proof that states can make progress on infrastructure funding shortfalls on their own.

But that only told part of the story.

The blessings that have allowed Texas to add these revenues without raising taxes are some of the same factors that are driving the need for more funding:

  • More than 650 people move to the state each day – that’s net migration, taking into account births, deaths and people who leave the state. If you count new births each day, that number well exceeds 1,000. On average, each new citizen brings a car with him or her. That brings added congestion, and wear and tear to the highway system.
  • The oil and gas industry in Texas, while bringing jobs and wealth, has been rough on rural roads and highways throughout the state, and…
  • … oil and gas revenues that were planned to fund the 2014 Prop 1 success have dropped with the price of oil. The Prop 1 funds are now estimated to be $1.1 Billion for fiscal year 2016, and only $600 Million for fiscal year 2017 [2].

Add to these factors freight traffic that is expected to grow significantly (possibly double by 2040) as more Panamax ship traffic ports in Texas, and the state transportation budget can’t support the weight of all this progress. Varied estimates still suggest Texas needs between $4 and $5 Billion in additional annual revenue just to keep up with maintenance and congestion. That doesn’t begin to address the need for new construction.

Prop 7 – on the ballot on November 3 – will address some of that shortfall. All with no new taxes, no new tolls and no new debt.

The proposition will add an estimated $2.5 Billion to the transportation fund beginning in 2017 from the sales and use tax, and additional funds from the state motor vehicle sales and rental tax [3] beginning in 2019.

“Prop 7 can only go towards two things,” says Jack Ladd, president of Move Texas Forward. “Building and maintaining roads, which is essential, and paying off debt. $300-$400 Million of the Prop 7 money each year will go towards paying off the debt.”

 Congestion Affects Citizens, Businesses Alike

How bad is the congestion in Texas? In its 2015 Urban Mobility Scorecard[4], The Texas A&M Transportation Institute estimates that the average peak hour commuter in Austin wasted 52 hours in 2014 in congestion. That same commuter consumed an extra 22 gallons of fuel due to congestion. For your average commuter, the cost of delays was estimated at $17.67/hour. For commercial vehicles, that hourly cost skyrocketed to $94.04/hour.

Vic Boyer, president of the San Antonio Mobility Coalition, sees it as an issue of volume and scale.

“We’re looking at about 1.5 million more residents here locally over the next 20 years. That’s like two cities of Austin getting interposed in San Antonio. We already have severe congestion in a number of quarters, and that will only make it many, many times worse. Without the additional funding, you’re not going to be able to address congestion, your economy will suffer and people’s quality of life will suffer.”

For commuters, it’s a headache and an intrusion on their personal life and finances. For businesses (and the jobs that come with them), it can make the difference between whether a company expands to a region or not.

“If we as governmental entities don’t concentrate on our basic infrastructure, and our roadways are part of that, then it makes it impossible for our businesses to grow,” says Kevin Wolff, county commissioner – district 3, Bexar County. “It makes it very difficult for us to attract new business here. If they can’t get to and from work, they’re not going to be doing business here.”

“Texas is expected to double [in population] by 2050,” says Chris Wallace, president, Texas Association of Business. “It’s very important that we have infrastructure in place to handle our future workforce that comes into the state.”

Wallace notes that the state is popular for business development for a number of reasons – central time zone, low regulatory climate, no state income tax and a great educational system – but standing idly by is not enough.

“We’ve got to protect it, and how we protect and sustain it is by investing money into it. Just like we do in our own private businesses or our own homes, you have to spend money to make money.”

At face value, a company may look at a region and see a high population – a seemingly good indicator for workforce availability. But if those companies can’t get their goods to market, and if potential workers can’t get to the location in a reasonable commute, cities may lose business to other regions.

“The first thing a Fortune 500 company looks at when they come to an area is the labor pool,” says Ladd. “The second is congestion. You could have a four million person [city], but the labor pool could be shrunk to 100,000 people by the level of congestion. Basically, if I can’t get to your plant in an hour or less, [why would I want to work there]?”

The passing of Prop 1 in 2014 has already helped accelerate planning on projects that otherwise would have been shelved for years. The passing of Prop 7 would only further accelerate those schedules and help improve economic growth in the region.

A Heavy Toll on Ag Producers

According to the U.S. Department of Agriculture’s Economic Research Service, Texas is the country’s third leading ag producer in terms of cash receipts (trailing only California and Iowa)[5]. That gets lost in all the talk of urban growth and oil and gas riches – but make no doubt about it: Texas is an agricultural state.

“Inputs come in by truck to nearly every farming ranch in the state of Texas, and outputs go out by truck. The highway system is vitally important to us,” says Russell Boening, dairy farmer and president of the Texas Farm Bureau.

Just like any other business or manufacturer, a farmer’s operating costs and the costs of their products to the consumer are driven in large part by the ability to easily get those goods to market.

“Whether we’re sending grain to a terminal, whether we’re sending milk to a processing plant, you have transportation costs,” says Boening. “If that truck can come to your farm and pick up your product, and go to the processing plant or the terminal easily, they will charge you less than if they have to sit in traffic for an hour or two. That will affect our price, what the user can pay us, what the processer can pay us. It will also probably affect the price the consumer is going to pay because it’s going to cause the product to cost more in the end. I think it has a big effect.”

“It’s the same thing as far as inputs,” adds Boening. “If my inputs can come here fairly uninhibited, where the traffic flows, the roads are good, the guy bringing me my fuel, fertilizer and those types of things can charge less for that product because he can get it here in a more economical way.”

The challenge in Texas as it relates to rural agricultural regions is twofold: maintenance and repair of some of these roads has been delayed in favor of more urban highway development, and the expansion of the oil and gas industry has accelerated wear on the roads.

Boening is old enough to remember when his family farm near Floresville didn’t have a farm-to-market road in front of it. An old tractor pulled the milk truck three miles through ruts and mud to the nearest pavement. Things have progressed since then, but the momentum is starting to swing back the other way.

“There’s been places where we’ve actually heard that farm-to-market roads have been basically turned back to gravel,” says Boening. “The farm-to-market road system is very important to agriculture, and when we start going back to gravel roads, that is the opposite of progress.”

Boening supports the passing of Prop 7 through both the Texas Farm Bureau, and as an active dairy farmer.

“It’s important to rural Texas and it’s especially important to agriculture,” says Boening. “It puts a dedicated amount of money so TxDOT can do a better job of planning what they have to do for years to come. Because you don’t fix thousands and thousands of miles of roads overnight.”

Adding Jobs, Stability to Construction Industry

Another industry that stands to benefit from the passing of Prop 7 is construction. Despite the new lowered projections of Prop 1, that legislation has already provided the state’s construction industry a shot in the arm.

“A good highway infrastructure is the backbone of a growing and stable economy,” says Dean Word III, partner at The Dean Word Company. “Without stability of funding for that construction, it’s extremely difficult to keep the roads maintained or to plan and execute the needed projects that actually grow the infrastructure or keep up with the traffic demand as the world moves forward.”

“We have seen a tremendous increase in the amount of work that we have bid [since the passing of Prop 1], both in our market and statewide,” says Word III. “The contractors bidding for work are not having to bid like it’s the last job they may ever have. It improves our ability to cash flow our work and plan for capital expenditures on equipment. But it’s not enough and we’re counting on Prop 7 to really come in and fill the needs we have for Texas.”

Enhanced infrastructure funding benefits the construction industry in three ways: contractors can improve hiring and workforce development; they can make more confident capital expenditures on equipment and assets needed to do work and grow their business; and like any other business, an improved infrastructure improves their mobility and ability to do work.

“Strong infrastructure is extremely important to be able to move equipment and materials from job to job, from warehouse to project site,” says Kurt Knebel, vice president of operations, McCarthy Building Companies. “We need to be able to count on when we can get deliveries, and the reliability of the delivery of materials and the equipment that we’re receiving, and moving within our job site. Materials and equipment sitting on the road is impacting our production, which is obviously costing money for all of us.”

With the added stability of long-term funding, many contractors take the time and effort to better train their employees. This helps improve employee retention in an industry where finding good, skilled labor can be difficult.

Word III notes that, since the passing of Prop 1, lettings have increased and that his company has increased its employee base by about 15 percent.

“The Prop 1 passage and the hopeful passage of Prop 7 have paid dividends in allowing us to invest in our employee workforce,” says Word III. “We are able to put together consistent training programs for our employees to help them develop into better workmen and allow them upward mobility in the company.”

“What makes us confident in investing in the training is knowing there is going to be an opportunity to continue to have these craftsmen working for us as we go from project to project because we’re confident in the funding of these projects” says Knebel.

“Prop 7 is the key to the future of Texas,” he adds, “We need to invest in infrastructure. Texas continues to grow. The economy continues to grow. More jobs are created.”