Texas Passes Ballot Proposition Providing $2.5 Billion in Additional Funding for Transportation Each Year

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Yesterday, Texas voters passed Proposition 7 with 83% of the vote. Prop 7, the Texas Sales and Use Tax Revenue for Transportation Amendment, is a constitutional amendment designed to provide up to $2.5 billion per year for transportation infrastructure. The funds can be used to repair existing roads, build new ones or pay down debt for transportation projects. Similar to Arizona, Texas has not raised its gas tax since the early 1990’s, which means it has lost significant purchasing power due to inflation. The mechanism used in Prop 7 is less straight forward than the gas tax, but manages to avoid a tax increase by reallocating existing revenues.

Here’s how it works: Starting in 2017, any year the state collects more than $28 billion in general sales tax, the next $2.5 billion will be directed to the State Highway Fund. This portion of the measure lasts for 15 years. After $5 billion is raised, 35% of remaining revenue from the motor vehicle sales and rental tax will be allocated to State Highway Fund. This portion of the measure starts in 2019 and lasts for 10 years. Both sources of revenue can be renewed when they expire with a simple majority vote of the legislature.

Last year, Texas voters overwhelmingly (> 80%) approved a similar proposition that shifted a portion of oil and natural gas tax revenues from the rainy day fund to road projects. However, this proved insufficient to meet the full needs of a state that is adding approximately 1,000 new residents every day. The Texas Department of Transportation (TxDOT) and Metropolitan Planning Organizations (MPOs) throughout the state estimated a $5 billion gap in funding needs prior to passage of Prop 7. Supporters argued that Prop 7 would provide a consistent and reliable source of funding for transportation projects and would bolster economic development efforts. They also argued that dedicating a portion of general sales tax and vehicle taxes would alleviate pressure to build more toll roads.

Prop 7 faced no organized opposition although opponents did express concern that the measure would tie the hands of the legislature and potentially take money away from other government priorities. However, supporters successfully made the case that transportation is a core function of government upon which many other functions rely. Texas Governor Abbot prioritized transportation funding when he took office last year. The legislature responded by referring Prop 7 to the ballot. The measure benefitted from broad business supporting, including endorsements from literally dozens of local chambers of commerce.

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