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At A Crossroad

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Thursday, January 01, 2009

AT A CROSSROAD

Gov. Kulongoski’s transportation plan could save the economy — but first he must convince Oregonians to pave the way.

BY ABRAHAM HYATT

Transportation1

On a Monday morning in November, Gov. Ted Kulongoski walked onto a hearing room on the first floor of the capitol building and sat down in front of a row of state senators and representatives.

It was a joint meeting of the House and Senate transportation committees and Kulongoski was there to describe to the members, like countless other speakers had over the preceding year, possible ways to repair Oregon’s transportation infrastructure. The governor’s speech was essentially political theater — his office had been working with the legislative committees and his own transportation task force for nearly a year and all sides knew how he wanted to fix the state’s infrastructure.

But in the months leading up to Kulongoski’s remarks, the nation’s economy had taken a drastic downturn and the state’s fiscal health looked increasingly shaky. The emphasis of his plan — now known as the Jobs and Transportation Act 2009 — had shifted from primarily infrastructure to prioritizing both jobs and transportation.

He began his speech not with details of his plan, but instead talked about economic stimulus. He talked about the billions of dollars construction work would inject into the state’s economy. He invoked presidents who had used transportation projects to boost the economy: Roosevelt, Eisenhower, Kennedy, and Reagan. He used the words “invest” and “investment” 17 times in the 10-minute speech.

“Building roads, bridges and public transit is good for the economy and puts our citizens back to work. I’ve always believed that the best social program is a job,” he told the committee. “But just as important, investing in transportation in tough times sets us up for success during good times. That means even as we deal with a painful budget environment — and there is no doubt we are in a recession — we cannot simply focus on the short-term.”
Transportation2
The transportation plan that Kulongoski hopes will double as an economic stimulus plan dovetails with similar efforts being developed by the city of Portland, U.S. Senators Ron Wyden and Jeff Merkley, and President-elect Barack Obama. The Kulongoski plan would spend $1 billion on bridges and rail, existing roads, and mass transit projects every biennium. It would create an estimated 2,100 jobs over the next five years. It’s designed, unlike previous transportation plans such as the Oregon Transportation Investment Act, to create an ongoing source of funding for transportation projects. The money would come from a variety of sources: an increase in the gas tax, tobacco tax, and car title and registration fees; a reallocation of existing lottery funds; $600 million in bonds.

Transportation agencies, politicians, and environmental and industry groups have voiced support, some cautious and some enthusiastic, for the plan. Chris Hagerbaumer, deputy director of the Oregon Environmental Council describes it as one of the greenest transportation proposals in the state’s history, in part because of the priority it places on electric vehicles.

Sandra McDonough, CEO and president of the Portland Business Alliance, praised the governor for his work on developing a transportation proposal but remained neutral on the fate of the funding mechanisms as the plan makes its way through the Legislature, saying simply that the PBA and other business groups planned on particpating in the process.

House Republican spokesman Nick Smith says, “There are a lot of questions about the package,” such as how those taxes and fees would be increased and whether rural counties would end up paying for metro-area projects. But he described the proposal as a “workable framework.” Smith’s Senate counterpart, Michael Gay, was more guarded. “I don’t know if we can have a discussion about [what compromises could be worked out] before we look at spending,” he says. The state should consider its bottom line, he says, before increasing taxes.

Economists have mixed feelings about the plan. Some say that a stimulus plan that only focuses on one sector of the economy, in this case transportation, only boosts the industries that directly intersect with it. There’s also a question how investing billions into existing roads will create a less fossil-fuel-dependent future for the state.

Patrick Emerson, an economics professor at Oregon State University, says taxing one part of the economy and then spending the same amount in another would have a debatable impact. “It’s only stimulus if you think that the money raised in taxes will come more out of taxpayers’ savings, and won’t depress consumption very much,” he says. “In a classic stimulus model money is borrowed so that you’re injecting new money into the economy.”

In an interview with Oregon Business, Kulongoski addressed the criticism of his plan with specific examples: There are tax incentives in the plan that heavily promote electric car usage, as well as plans for a congestion-pricing pilot project; some funding will be used by rural counties for their own projects and so will boost economic development in remote areas of the state; spending on rail, port, light-rail and transit systems will spread the funding beyond traditional transportation projects.

As Kulongoski elaborates on the specifics of his plan, it’s clear that his top concern is how the plan fits into the current economic picture. The governor first took office during Oregon’s last debilitating recession. His hands were on the reins of the state during the slow recovery.

As he approaches his last two years in office, he’s adamant that his current transportation plan will be the essential element that saves Oregon from an equally drawn-out slump.

“What I know is this: You have to make these investments in difficult times so that when it does take off, you’re ready. I learned that in 2003,” he says. “I know now what happens when you don’t make investments strategically and prioritize where you put your resources. When the good times come back it’s a struggle just to get back up to where you started.”
Transportation3
To prepare for the future, Kulongoski must rely on a contentious source of funding: the gas tax. The tax presents a quandary: The state depends on income from gas sales to fund transportation work. To increase the tax would make the state even more dependent on a source of funding that will dry up if it’s successful in meeting its green transportation goals, like reducing the number of fossil-fuel vehicles on the road. On the other hand, if the state doesn’t raise the gas tax, it can’t fund infrastructure projects.

The governor’s transportation task force — which was comprised of 50 members from industry groups, businesses, nonprofit agencies and government agencies — suggested that Kulongoski aim for a 2-cent increase in the gas tax.

He agreed, which was probably politically expedient. The last time the Legislature tried to raise the gas tax — a 4-cent increase in 1999 — opponents were able to force the issue to a referendum where voters rejected it.

As Paul Romain, a transportation task force member and Oregon Petroleum Association executive director, puts it: “You mention gas tax and people go ballistic.”

The battle lines over funding for the plan had yet to be drawn in November when Kulongoski announced his plan but there were hints of the fight — or perhaps agreements in some corners — that is to come. Romain says the proposed gas tax is acceptable, but only if there was legislation that eliminated local government’s ability to independently raise their own gas tax. Six cities in Lane County, for example, have their own gas tax. The Petroleum Association argues that creates an unfair business environment since drivers shun in-town gas stations for stations outside the city limit.

In the past, the Oregon Trucking Association has opposed gas tax increases, but this year is different. “Given the economic climate, tax increases will be a tough sell,” says association president Bob Russell. “However, we’re committed to increasing funding for additional highway capacity to reduce congestion and relieve bottlenecks.”

According to Mike McArthur, executive director of the Association of Oregon Counties, his group doesn’t have an official position on the plan but has been supportive of other proposals that split new revenue, like the Kulongoski plan, and give 50% to the state, 30% to counties and 20% to cities.

That broad base of support can be traced in part to the variety of groups that sat on the task force — the roster exhaustively ranged from the Oregon State Building and Construction Trades Council to the Bicycle Transportation Alliance — and had their say on the question of taxes as the plan was being crafted.

It’s that base of voices, says Marion Haynes, VP of legislative affairs at the Oregon Business Alliance, that should show legislators the support the proposal has around the state. “Frankly,” she says, “those are [funding] mechanisms that are available.”

While he cites the need to raise the gas tax, Kulongoski has also taken a contradictory position that the state needs to wean itself from that type of a tax base: The reliance on a fossil-fuel tax doesn’t mesh with his push for sustainable vehicle technologies, nor is it sustainable if the state meets its goals to reduce carbon emissions from freeways and highways. However, to raise the $600 million in bonds the governor needs for his plan, the 2-cent increase is necessary as backing.

Environmental groups such as the Oregon Environmental Council understand the need to rely on the tax on a short-term basis. “I really do think the plan is working towards weaning us off the gas tax,” says Hagerbaumer. Alternatives, like implementing a mileage fee, are still several years away, she says.

“Ultimately you have to get off it,” Kulongoski says of the gas tax. “Well, I’m not sure you ever can get off the gas tax completely, but you have to find other permanent revenue sources — dedicated sources other than the gas tax if you’re going to have any kind of transportation system.”

The gas tax may generate a lot of debate, but it only makes up about 12% of the $449 million that Kulongoski wants to raise each year. The vast majority of that total figure, approximately $308 million, comes from a 200% increase in vehicle registration fees, which would shoot from $27 per year to $81. Title fees would also increase, from $55 to $110. And the state would institute a new, first-time title fee. It would start at $100 but would be variably lower for vehicles with high fuel economy. Heavy vehicles like semi trucks, which shoulder about 34% of the state’s annual highway revenue, would see similar increases in registration and licensing; truck-specific weigh taxes would also rise.

Should the 2009 Legislature pass the governor’s plan as it currently stands — there are also proposals in it to increase the cigarette tax by 5 cents and to reallocate lottery funds from existing programs to pay for intermodal projects and transportation services for the elderly and disabled — it wouldn’t represent an insurmountable financial burden for most Oregonians. According to the transportation task force’s estimation, the average driver — one who buys a new car every eight years, and who currently spends $180 a year in registration and titles fees and gas tax — would pay about $85 more a year. Those tax dollars might not create the economic stimulus that Kulongoski hopes to achieve.

Transportation4 The popular idea of economic stimulus says that big public projects will stimulate growth in both the private sector and overall economy. That general idea was developed by Depression-era economist John Maynard Keynes. Many economists say an emphasis on large-scale, federally funded projects was one of the driving forces behind the success of the New Deal. As the current economic crisis worsened in late 2008 and a new American president prepared to take the over the White House, pundits on the national and local level began talking about Keynesian-esque stimulus ideas.

That economic concept is the idea behind Kulongoski’s plan: Inject $499 million a year into a wide array of infrastructure projects that will have a ripple effect on the entire economy. But for Oregon it’s not as simple as that may sound. As Bruce Blonigen, an economics professor at the University of Oregon, points out, the state must maintain a balanced budget. That means if it spends money in one project, it must come up with that money somewhere else — which usually means taxes. That results in one sector benefiting while another suffers. On a short-term basis, he says, “it can be a net wash.”

“On the federal level they can run a deficit and borrow money against the future. On the state level you can’t do that,” he says. “The federal government can do effective short-term stimulus but states have a harder time.”

That’s not to say that transportation infrastructure projects like the ones Kulongoski is proposing can’t have a short-term impact. However, the ways to develop that potential are as varied as the economists who offer an opinion: Charles W. Clowdis Jr., an analyst at the Massachusetts-based global transportation research firm IHS Global Insight, argues that in the current economic climate, private-public partnerships are an underutilized way of eliminating the need to pay for projects with taxes. According to John Semmens, an economist and former project manager for the Arizona Department of Transportation Research Center, the biggest risk is if the state doesn’t perform a rigorous return-on-investment analysis of its transportation projects.

“Stimulating the economy is not a simple task of throwing money around. Scarce resources must be efficiently used if we want to promote economic growth,” he says. “It could be that an investment in Oregon’s roads would stimulate the state’s economy, but that would only be because the mobility benefits provided exceed the costs of achieving them.”

Then there’s the possibility that the governor’s plan will do just what he thinks it will. Emerson, from OSU, points out that the New Deal era was actually full of government works programs like Oregon has: no deficit spending; money moving from one sector to another.

“How to interpret this fact is a matter of debate among economists,” he says. “Some say that a huge increase in deficit spending would have been much more effective and made the Depression much less severe and shorter. Others say that it’s evidence that big deficits need not be part of a stimulus package.”


The day after Kulongoski spoke in front of the Senate and House transportation committees, former Vice President Al Gore wrote an op-ed piece in The New York Times. In it he challenged the federal government to look to the renewable energy industries and the infrastructures that surround them — including a new power grid and retrofitting buildings to make them energy efficient — when it came time to develop a stimulus package.

Kulongoski’s plan looks at green from a transportation-only viewpoint: tax incentives for electric cars, vehicle-licensing fees based on mileage ratings, a congestion-pricing pilot program, funding for mass transit and bike projects.

The stimulus plan doesn’t target any of Oregon’s sustainable industries outside of the transportation infrastructure: solar manufacturing, wind energy, clean tech. Kulongoski sees the plan as one of several disparate ideas that will rebuild the economy.

After announcing his transportation proposal, he met in early December with President-elect Obama to push the idea of inducing economic stimulus through rebuilding higher-education infrastructure.

Kulongoski will spend the 2009 session convincing lawmakers to believe in his plan as much as he does. He’ll have to explain to them how the rest of his agenda fits into this economic stimulus plan that’s also a transportation plan. Funding will obviously be a crucial issue: “We question the order of his priorities,” says Senate Republican spokesman Gay when asked in early December about the increased gas tax.

“He can’t expect us to go back to our constituents and say, ‘We want to raise your taxes,’ if the money is only going to be spent on Portland area projects. There needs to be assurances that the regions can participate on an equal level,” House Republican spokesman Smith says. “The plan is not quite there, but maybe it could get there.”

Kulongoski believes that in the end, his plan is very simple. It’s about jobs, he says again and again. “Ultimately,” he says, “I believe that the majority of Republicans and Democrats believe that if you put people to work, that’s how you get re-elected.”

His constituency cares about jobs as well. But in the middle of a recession, increased taxes and fees are presumably just as important. The governor and his staffers say they see the need to take the transportation message out of the statehouse and directly to taxpayers. As of November they had no concrete plan as to how to expand their education efforts; one difficulty is how to get the governor out of Salem during the busy legislative session.

The perception that voters have of the plan could prove vital. John Ledger, vice president of Associated Oregon Industries, points out that because auto fees affect nearly all Oregonians, and because they’re directly implemented by the Legislature, they tend to have a higher profile and more direct political ramifications with voters. “The Legislature will need to have a very clear view of the benefits to the state and especially to its constituents if fee increases are to be supported,” he says.

Kulongoski is in the unenviable position of having his gubernatorial tenure book-ended by recession. His transportation-turned-job-stimulus plan may not have started off as his legacy project. But the 2009 session is the governor’s final full session of the Legislature.

With voters’ minds on the economy, Kulongoski’s ability to compromise with legislators, make deals in Salem and reach out to taxpayers could not only determine the success or failure of a transportation dream, it could also determine how Oregonians remember their 36th governor.


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