Less than a year after an audit of the N.C. Department of Transportation found massive overspending, a blue-ribbon panel is recommending the department get a 40% budget hike.

The N.C. First Commission, created by former Transportation Secretary Jim Trogdon to assess the state’s transportation priorities, recently suggested that state transportation should get an additional $2 billion annually to deal with crumbling infrastructure brought on by time and a growing population. North Carolina transportation spending is now more than $5 billion annually, combining state and federal funds.

Panel suggests funding mechanisms both traditional and novel

The panel said the best way to find the additional money is through raising taxes and fees at the state and local levels. The report suggests that a boost of the Highway Use Tax from 3% to 5% would add $6 billion to state coffers over a decade. It also proposed increasing the state sales tax by one-half or three-quarters of a cent, putting the extra money toward transportation. 

Suggestions also include implementing “road impact fees” on online retailers such as Amazon that have boomed during the pandemic, taxing ride-sharing services such as Uber and Lyft, building more toll roads, and increasing registration fees for electric vehicles.

The committee indicated it was thinking outside the box on standard transportation funding because of the paradigm shift in travel. Electric and hybrid vehicle use is increasing and standard automobile engines are becoming more fuel efficient. 

“Our transportation investments rely on just a few revenue sources, each of which is tied to long-standing assumptions about how many of us drive, how much we drive, what kinds of vehicles we drive, and how we purchase goods and services,” the committee wrote in the report. “Those historic assumptions are now quickly becoming obsolete.”

A House committee received the report as the next two-year session begins. Republican lawmakers will have to support the recommendations, but GOP members have been leery of raising taxes.

Audit found massive overspending by DOT in 2019

The suggestion to increase funding for DOT comes eight months after an audit found that the department overspent its budget by $742 million in 2019.  

State Auditor Beth Wood’s office found that DOT intended to spend $5.94 billion in 2019, but overshot that number by 12%. The report blamed DOT officials for not basing their spending plan on actual cost estimates for projects. The department also didn’t monitor how the spending plan was enforced in its 14 highway divisions, the audit said. 

Wood said then that the DOT managed billions of dollars without external controls and lacked legislative oversight on its spending plan. She said department officials knew they had money issues in 2018, but didn’t slow down spending to compensate. 

The audit spurred lawmakers to act last summer. A funding bill for the department added more oversight, including requiring more transparency in spending and restructuring its governance board.

Wood told Carolina Journal this week she’s optimistic DOT funds will be better spent based on the controls put in place by the legislature. For example, the lack of divisional oversight resulted in much of the overspending. DOT divisions will start receiving their money quarterly rather than all at once and must report spending each quarter.

The bill also requires Wood to conduct a comprehensive annual audit of DOT to ensure the department doesn’t repeat its spending missteps.

“If there are holes in what the General Assembly required them to do, I will find those sooner rather than later,” she said.

A report by John Locke Foundation Senior Vice President for Research Brian Balfour said the General Assembly needs to tighten oversight of DOT spending before giving the department more money.

Rewarding [DOT] with yet another form of a taxpayer bailout would serve to enable their irresponsible behavior,” Balfour said.

Joe Coletti, a JLF senior fellow, said since the DOT needs to learn to live within its means before receiving more money. It no longer can simply create a spending plan.

“It seems premature, to say the least, to say we need to spend another $20 billion over 10 years on transportation,” he said.

Legislators cut half a billion from the DOT budget in the wake of the COVID-19 pandemic. Coletti said the long-term effects of the pandemic should be studied before increasing transportation funding. He pointed out that even after the health emergency subsides, more people will likely work from home, which means less commuting, but online commerce will likely continue to boom, which means more deliveries.

“What does that mean for roads? What does that mean for congestion? We don’t know,” he said.