The Oregon Department of Transportation (ODOT) and AOC staff made a presentation to OACES and the AOC Transportation and Community Development steering committee their plan and forecasts regarding the agency’s impending budget deficit beginning in FY 2021. Based on conservative revenue forecasts from April, the agency is expecting to reach insolvency by 2024 with a $720 million deficit by 2027–specific to the State Highway Fund resources that are available to cover the costs of operating the agency.
Many wonder how ODOT can face a shortfall of operating funding after the recent passage of the largest transportation investment package in the state’s history. For the agency, the reality is virtually all of the funding from HB 2017 and other recent transportation investment packages were directed by law to transportation system projects rather than to cover the agency’s operating costs and maintenance. See the pie chart below for a breakdown of the agency’s allocation from HB 2017 revenue.
With a limited State Highway Fund to exchange, the agency is looking to local governments to help identify programmatic changes that will lessen the burden on agency operations. Through an interagency workgroup, AOC, LOC, and ODOT discussed possible changes to the Surface Transportation Program (STP) Fund Exchange and State Funded Local Projects (SFLP) programs to identify priorities, minimize the impact on local governments, and ensure sustainable funding.
The workgroup started with a proposal given to the Oregon Transportation Commission in May but worked to identify alternative funding sources to free up obligated State Highway Funds, maintaining a majority of the projects eligible for the Local Agency Bridge Program, the All Roads Transportation Safety (ARTS) program, and other safety and bike/ped projects.
The latest proposal would cut the STP fund exchange rate from $.94 on the dollar to $.90, a total annual reduction of $645,151 for counties starting in fiscal year 2022. Many counties bank their STP Fund Exchange allocations for multiple years to save for large construction projects. Any banked funds, of which counties currently have $13.3 million, would not be impacted by the changes.
The updated proposal is a significant change from the original proposal that would have excluded counties receiving over $500,000 from the Fund Exchange program, and set the rate at $.85 starting in 2021, further decreasing to $.80 in 2025.
The State’s impending operations and maintenance deficit is part of a larger structural transportation funding deficit that counties are experiencing first hand and impacts the entirety of the statewide road system. In the short term, COVID-19 has wreaked havoc on the State Highway Fund as there are fewer vehicles on the road while people stay home and social distance. Counties saw an $8.3 million reduction in State Highway Fund revenue at the end of FY 2020, and are expected to lose an additional $25.3 million in FY 2021. Some of this revenue may be recaptured once DMV is fully operational, but much of it is expected to be lost.
With two more $.02 gas tax increases scheduled for 2022 and 2024, counties are expected to receive additional revenues for operations but are barely keeping pace with inflation. The sustainability of both the federal and state highway funds are threatened by increasing vehicle fuel efficiency and electric vehicles that pay less for using the road than their older counterparts.
Oregon is a pioneer in developing a Road Usage Charge program that started as a pilot and has evolved into a statewide voluntary program that has been replicated by other states. The program charges drivers per mile rather than per gallon, which is more sustainable as vehicle innovation moves away from traditional fuel sources. ODOT is expected to introduce legislation in the 2021 Oregon Legislative Session to expand the program and require participation for high efficiency vehicles after 2027. For more information on Oregon’s Road Usage Charge program see the OReGO website.
Contact Brian Worley, AOC County Road Program Director, or Jocelyn Blake, County Road Program Policy Analyst, for more information.