Cash crunch takes toll on roads

07/04/2006

The state relied on borrowed and federal funds to do the work. Now finances are tight and budgets cut.

Conrad Defiebre and Laurie Blake
Star Tribune Staff Writers
Last update: July 03, 2006 – 10:29 PM

Since Gov. Tim Pawlenty took office promising a highway construction boom, Minnesota drivers are rolling on wider interchanges, new thoroughfares and shiny bridges.

But the state’s decision to build with borrowed money and expected federal funding has had other consequences.

Existing roads have deteriorated and are now in their worst condition in decades, according to the state Department of Transportation. The agency’s cash balance dwindled from a $155 million surplus in 2002 to a deficit of $60 million before officials were legally required to get back in the black.

Tight finances are starting to delay highway construction, even on projects already underway.

The cash crunch at MnDOT became more evident last month when the state’s unusual $250 million contract proposal for work on the Crosstown Hwy. 62/Interstate Hwy. 35W interchange attracted no bids—largely because of a requirement that contractors front about $90 million to the state.

The failure to begin reconstructing the metro area’s biggest bottleneck renewed bipartisan calls to raise revenue for transportation.

“The basic problem is that they need more real money,” said House Transportation Policy Committee Chairman Ron Erhardt, R-Edina, sponsor of a gasoline tax increase proposal that Pawlenty vetoed last year. “Not borrowing, because that just paves the way for spending without any way of paying it back.”

In an interview Friday, Pawlenty said he doesn’t regret his veto of the 10-cent-per-gallon tax increase. Critics of his transportation policy should look at the 18 projects that his plan has delivered, he said.

“Yes, there have been some hiccups, but we have done more for transportation than any administration in modern history, a 20- to 40-percent-a-year increase in construction on my watch,” he said.

Pawlenty said he does not know when the Crosstown construction will get started. The November ballot will feature a constitutional amendment, supported by Pawlenty, that is designed to send more money to transportation. Backers don’t know whether it will pass.

Neither Pawlenty nor the DFL Party’s endorsee for governor, Mike Hatch, favors raising gas taxes.

Without a significant new source of funding, the delay of the Crosstown project should not come as a surprise, transportation experts say. “With the huge needs that the state has and no additional funding, sooner or later something was going to happen,” said Frank Van de Steeg, a retired planning chief for MnDOT. “And it has.”

Nationwide problem

Minnesota is not alone in facing daunting transportation funding challenges. The National Conference of State Legislatures estimates a $1 trillion deficit in transportation funding nationwide by 2015.

Minnesota’s share of the shortfall is $700 million to $1.8 billion a year. Pawlenty’s answer when he took office in 2003 was a four-year infusion of $900 million, derived mostly from borrowing and early receipt of federal funds.

But as Congress took two extra years to pass a transportation bill, the cash didn’t arrive from Washington as fast as Pawlenty hoped. Meanwhile, paying off the loans cut into highway maintenance, making roads bumpier than they’ve been in decades.

With the four-year plan running out, Pawlenty this year proposed $2.5 billion in new highway bonding, but the Legislature turned a cold shoulder.

Where does that leave MnDOT?

“Flat broke,” said Senate Transportation Committee Chairman Steve Murphy, DFL-Red Wing. “Their numbers don’t add up. You think it’s bad now? If they continue to starve this animal, it’s going to die.”

Still, drivers can look forward to more lanes on I-494 through Minnetonka, a new interchange at I-694 and I-35E in Little Canada (a year later than originally scheduled) and a new Hwy. 212 through the southwest suburbs.

But the agency cannot come up with $6.5 million to finish the Hwy. 12 bypass around Long Lake and recently delayed a $2.5 million widening of Hwy. 19 in Marshall.

The depletion of MnDOT’s cash reserves illustrates how the agency reached its current straits. Drawing on MnDOT’s surplus to compensate for inflation and unrealized federal funding drove the agency’s fund balance $60 million in the red in 2004. That reversed a long Minnesota tradition of keeping a cash cushion to ensure money was available whenever contracts were signed, said Ed Cohoon, chief financial officer for MnDOT from 1991 until 2000.

To restore its cash balance in 2005, MnDOT slashed operating budgets and construction spending. A new interchange at I-494 and Hwy. 169 in Edina and Bloomington was canceled.

Then new problems arose this year. Double-digit spikes in the costs of fuel, steel and concrete sent MnDOT’s major metro projects $300 million over budget for 2006. In response, the agency used all $100 million from the new federal bill for metro projects only—shorting outstate—and borrowed $50 million from the Metropolitan Council to keep the Crosstown work on schedule.

It didn’t work. Tim Worke, a longtime MnDOT executive now with the road-builders trade group Associated General Contractors, said prospective bidders shunned the Crosstown job not only because of potential legal problems with the financing but also because the project couldn’t be done at MnDOT’s price. “The department’s estimates were off significantly,” Worke said. “It’s really more like $300 million now.”

In November, voters will get a chance to approve a constitutional amendment to phase in a full dedication of motor vehicle sales taxes to roads and transit. Proponents tout the initiative as another way to increase transportation funding without raising taxes. But critics say it would shift hundreds of millions of dollars from education, health care and criminal justice.

House Transportation Finance Committee Chairwoman Mary Liz Holberg, R-Lakeville, said Pawlenty made serious efforts to reverse years of inaction on transportation, partly by using all available funds in an aggressive building program.

“Hindsight is 20/20,” she added. “In some ways, almost everything that could go wrong has gone wrong, most of it beyond the administration’s control. We’re in a very frustrating position right now.”