Follow the Money: New Hampshire’s Transportation Infrastructure in Decline

Timothy W. Fortier and Paul Sanderson

Whatever transportation infrastructure a municipality may own, the challenges are generally the same. A growing population and increasing demand put mounting stress on publicly maintained assets. The infrastructure that exists is aging and has not been consistently maintained. This reduces its useful life and its ability to handle the increased demands. Although the need for capital investment is clear, state and federal funding sources that municipalities have historically depended upon to finance these capital improvements are flat funded or shrinking.

Our transportation infrastructure is important for the safe travel of people, goods and services, whether they are New Hampshire residents or visitors. Highways meet multiple community needs. In the simplest sense, highways allow drivers to get from one destination to another within towns, cities and states. They provide routes and linkages to and from homes, businesses, hospitals, schools and other critical destinations.

Good roads are essential for economic development. Nearly 63 percent of all goods shipped each year in New Hampshire are moved by commercial trucking, and 416,570 full-time jobs are generated in industries such as tourism, retail sales, agriculture and manufacturing, all of them dependent on New Hampshire's transportation system.

New Hampshire has nearly 17,000 miles of state and town roads, turnpikes and interstate highways. Of these, municipalities own and maintain nearly 70 percent, or 11,865 miles of roadways. There are more than 3,795 bridges in New Hampshire, of which municipalities own and maintain 1,685 bridges, or 44 percent. The DOT has "red listed" 353, or 21 percent, of these municipal bridges as in need of replacement or significant repair. "Red listed" does not mean that the structure is unsafe for all vehicles to use; it does mean that the bridge is either structurally deficient or that some vehicles may be restricted.

History of State and Federal Roles in Highway Maintenance

The state Legislature passed two bills in 1903 that defined the role state and municipal governments would play in highway construction and maintenance in New Hampshire. These early laws called for the appointment of the state's first highway engineer, the creation of the first statewide highway survey, and detailed the methods by which the state would construct these roads in partnership with towns.

In 1905, New Hampshire's first state aid highway law was passed requiring towns to make annual appropriations for permanent highway improvements based on their assessed valuation authorizing towns to raise additional highway funds that could be used as a "match" for state funding (and authorized the state to appropriate funds to match these town appropriations); designating certain roads as "state highways," and including the provision of "consulting services" to be provided by the state highway engineer and staff to any town requesting these services.

In 1911, the Legislature appropriated the net income from motor vehicle fees to pay for highway improvements. Two-thirds of these revenues were allocated for state highway improvements and maintenance and the remainder were designated to towns to maintain and support state aid roads.

In 1925, the state Legislature divided responsibility for maintaining the state's highway system into seven classes. Class I, II and III highways are classified as state highways, controlled and maintained by the state Department of Transportation, except for the "unimproved" sections of Class II highways, which are still maintained by towns. Class IV, V, and VI highways are classified as municipal and/or local highways.

In 1938, the voters added Part 2, Article 6-a, to the State Constitution, which restricts all revenue raised from registration fees, operator's licenses, gasoline road tolls, or other special charges or taxes to the construction and maintenance of public highways. As recently as 2004, the New Hampshire Supreme Court held that this meant the support of roads for motor vehicles, and not other modes of transportation, such as rail.

This summer President Obama signed into law the Moving Ahead for Progress in the 21st Century Act (MAP-21) which reauthorized the federal aid highway program at over $105 billion for fiscal years 2013 and 2014. New Hampshire's estimated federal apportionment under MAP-21 is $160,040,568 for FY 2013 and $161,412,133 for FY 2014. The Highway Trust Fund (HTF) is the source of funding for most of the programs in the Act and federal motor fuel taxes are the major source of income into the HTF. Obligation limitations have reduced the annual authorization to New Hampshire in recent years to an average of $144.8 million.

Federal surface transportation programs such as MAP-21 play a vital role in helping New Hampshire meet its transportation needs each year. "New Hampshire's roads, bridges and airports are the lifeline of our state and critical to our economy," said U.S. Senator Jeanne Shaheen. "Infrastructure investment helps make sure that our workers get to work each morning, and it creates strong, local jobs for people in our state."

The state's Highway Fund and federal funds are the exclusive sources for funding the maintenance of New Hampshire's highway infrastructure, as well as the highway and bridge construction projects as contained in the state's Ten-Year plan. The state's highway fund is composed of turnpike tolls, state gas tax, and motor vehicle registration fees.

The state gas tax of 19.625 cents was set in 1992, and each penny raises about $7.3 million for the state and about $1 million for cities and towns per year. The federal gas tax rate of 18.4 cents was last set in 1993 and each penny generates about $1.8 billion in new revenues per year.

The combined federal and state gas tax in New Hampshire is $38.025 cents per gallon and is the lowest rate in the northeast region. The combined rate has remained static in New Hampshire since 1993 when the average price of unleaded gas was $1.42. Since the gas tax is not indexed with inflation, it has lost much of its purchasing power since it was last increased over two decades ago.

Further, both federal and state gas tax revenues are fast declining due to today's more fuel-efficient vehicles and people driving fewer miles. Less revenue from this source means that state and local governments need to find or create other revenue sources to fund highway improvements.

Motor Vehicle Registration Fees Yield Short-Term Solution

New Hampshire's motor vehicle registration fees were raised in 2010 and 2011 as a short-term solution to the budget shortfall of $124 million in the state's Highway Fund. The $30 surcharge increased average registration fees, depending on vehicle class and weight, from $30 to $42 per vehicle per year and up to $57 for SUVs and trucks, and raised nearly $86 million over the biennium. Although all surcharge revenues went into the state's Highway Fund, cities and towns benefitted by an overall municipal distribution of $5 million by the 12 percent share of these total funds.

"Last year's repeal of the $30 surcharge resulted in less highway block grant aid for our cities and towns," said State Representative Candace Bouchard, member and former chair of the House Public Works Committee. "This places more of a burden on local property taxpayers for local road and bridge maintenance," added Bouchard. Bouchard served as chair of the Legislative Commission to Study Future Sustainable Revenue Sources for Funding Improvements to State and Municipal Highways and Bridges which concluded there are only two sustainable and constitutionally-allowed revenue sources available for funding transportation improvements - motor vehicle fees/surcharges, and the road toll/gas tax. For each one dollar increase in motor vehicle fees it generates $1.5 million in new revenue whereas the average driver would pay an additional $36 each year with an eight cent increase in the road toll/gas tax. While the Commission studied other sources such as vehicle miles traveled and public-private partnerships, they found that they are impractical to implement in New Hampshire. Moreover, the Commission concluded bonding was not a sustainable revenue source, because the borrowing increases the deficit over time and the debt service diverts Highway Fund money away from other important transportation projects.

Cities and towns have only two significant sources of revenue to maintain and improve road infrastructure - state aid from the highway fund and local property taxes. While RSA 261:153 allows municipalities to adopt a local additional registration fee of up to five dollars per vehicle, the potential amount to be raised in most municipalities is often less than $5,000 per year.

Both the state Legislature and DOT participate in supporting local governments in their responsibilities for transportation infrastructure through the Highway Block Grant Aid program.

State aid from the highway fund is a major source of state funding for the construction and maintenance of municipal highways. These grants are distributed to cities, towns and unincorporated places based on a three-part apportionment formula. Utilization of block grant aid helps keep local property taxes down. In general, the allocation of these funds represents a disbursement of approximately $1,200 for each mile of Class IV and V highway inventoried by each municipality and nearly $11 for each person residing in a municipality based on the state planning estimate of population.

In FY 2012, the total amount budgeted for Highway Block Grants was $34.5 million. These funds are set to decrease to $29.8 million in FY 2013. Each year, on or before January 1, DOT notifies all cities and towns of the amount of highway block grant aid they will receive. The block grant aid payments are spread over the year as follows: 30 percent in July; 30 percent in October; 20 percent in January, and 20 percent in April. Unused balances may be carried over to the following municipal fiscal year. (A copy of DOT's Highway Block Grant disbursements to towns and cities may be found on the Local Government Center website.)

Due to declining federal and state support, municipalities are forced to rely more and more on the local property tax to address local transportation needs. Such reliance is likely to continue in at least some form for the immediate future.

A relatively weak economy, continual usage of our transportation networks, and deferred maintenance mean that overall road conditions will continue to deteriorate to unacceptable levels. State transportation officials report the majority (81 percent) of the state's pavement is either in fair or poor condition. The state continues to see 42 miles per year fall to poor condition and estimates it needs $12 million of additional funding per year to stop further pavement decline. In total, it would cost $615 million to bring all "poor condition" pavements to good condition, and that does not include the cost to repair or upgrade deficient drainage, guard rails, and bridges. As the pavement conditions decline, the cost to repair these roads increases exponentially. According to Rep. Bouchard, "Deferring maintenance due to lack of funds only increases the cost to taxpayers by as much as five times the original project cost."

Hard Choices Are Necessary

With fewer state resources, DOT officials have had to make some hard choices, and the consequences and impacts of these DOT decisions are being felt by cities and towns across New Hampshire in many ways. "Because of reductions of funding at the state level, difficult decisions had to be made. We (NHDOT) didn't like these decisions either," said DOT Commissioner Chris Clement. "We continue to fall further behind in basic road and bridge maintenance at greater expense to taxpayers down the road." One town feeling the pain of the DOT budget cuts is the town of Meredith. Meredith officials continue to press state transportation officials over two unnumbered state routes which are not being properly maintained due to a lack of funding - Barnard Ridge Road and Meredith Neck Road. "With very few exceptions, we don't have an arterial road in town that we would have let deteriorate to the current conditions on these roads," said town manager, Phil Warren, referring to Barnard Ridge and Meredith Neck roads. According to Warren, the roads feed into an affluent neighborhood that represents nearly 50 percent of the town's total residential tax base, including two marinas and the town's docking facility, and provides the only access to seasonal and year round homeowners of Bear Island and Pine Island. The town has responsibility for winter maintenance, and the state for summer maintenance, for these roads.

Because the state has not adequately maintained these roads, DOT estimates the cost to rebuild these roads now is approximately $1 million per mile, or about $7.5 million in total project costs. Unfortunately unnumbered state roads are at the low end of DOT's priority list according to state officials. In fact, this program is only funded at $1.7 million a year for all cities and towns in New Hampshire. Now, here's the catch: for projects involving improvements to pavement structure of unnumbered state routes, the state contributes two-thirds and the municipality one-third toward the cost of reconstruction, but the town must take complete ownership of the road following project completion. Not surprisingly, Meredith officials do not want to take ownership of the state unnumbered road if improvements are made. Warren said "there isn't any local appetite to take the road over." Recently, Meredith officials requested some pavement treatment, actually "grader shim," in time for the upcoming winter season but that request was denied by DOT due to lack of budgetary resources. Frustrated by a lack of state action, the town is now considering filing legislation that would direct the DOT to reconstruct these roads.

"A growing concern is funding for DOT operations as we look at the 2014-2015 biennium," said Clement. "Without adequate funding, the department is facing an expanding deficit that could reach over $1 billion by 2022 in operating and capital funding, not counting the $365 million needed to complete the rebuilding and widening of I-93."

Recent elections have shifted the way state political leaders will look at many issues, such as gaming and road tolls. But passing these initiatives will remain politically challenging. Governor-elect Maggie Hassan is already on record in support of a well-regulated, high-end casino that is selected by competitive bid. Also in support of expanded gaming is Senator James Rausch, chairman of the state Senate's Transportation Committee, but only if certain revenues are dedicated solely to infrastructure improvements. Rausch stated, "I am a strong proponent of infrastructure improvements because I believe it is critical for the well-being of our state. I also feel it is very important that we fund our Betterment Account and our State Aid Bridge Account because these funds go to our local communities to repair local roads and bridges and help reduce the tax burden on our local taxpayer."

Increasing the gas tax or indexing it to inflation will also be politically challenging. A bill to increase road tolls has been introduced, despite the fact that any effort to increase the state's gas tax has been a relative non-starter at the Statehouse in recent years. Advocates will argue that increasing the gas tax is easier than implementing a new funding mechanism.

Municipalities have a statutory duty to ensure that the roads and bridges in their towns and cities are in adequate and safe condition. Municipalities share 12 percent of the amount of annual revenues raised through the state Highway Fund, which include revenues generated by the gas tax and motor vehicle registration fees. Currently, the only way for municipalities to obtain increased state aid is to receive more state aid from the Highway Fund. The only options available to increase the revenues in the Highway Fund are to raise the state gas tax and/or increase state-levied motor vehicle fees. Otherwise, municipalities are left to rely on the local property tax to support highway construction and maintenance.

Chart 1 - Classification of State and Municipal Highways

Chart 2 - Impacts of State Budget Reductions on Municipalities

Chart 3 - Transfer/Direct Expenditures for Municipalities

Timothy W. Fortier is Government Affairs Advocate for the New Hampshire Municipal Association. He can be reached at 603.230.1305 or by email. Paul Sanderson is Staff Attorney for the New Hampshire Municipal Association. He can be reached at 800.852.3358, ext. 3408 or by email.