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Falling short

Montana leaders predict debates over bonding, new revenue

From the The cost of failure: Montana's unfunded infrastructure series
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Traffic circle

A massive traffic circle is under construction on the North Dakota side of the border near Fairview in this Oct. 18 aerial view. While Montana state leaders have repeatedly failed to fund infrastructure projects, neighboring states have passed major funding bills or raised gas taxes to clear backlogged projects.

The bill to repair and expand Montana’s infrastructure — from crumbling roads and aging bridges to century-old water mains and overloaded sewer plants — increases every year as construction costs rise and environmental regulations tighten.

Yet many critical projects have gone unfunded for three legislative sessions or more. And legislators have not authorized new state debt since 2005, a primary way governments nationwide pay for public infrastructure. Even as it becomes more expensive to catch up, elected officials expect to face familiar political and financial challenges in 2017.

Thirteen months before the start of the next session, both sides are analyzing the key debates they expect to resurface and mulling ways to fund crucial projects — with existing tools and maybe even new revenue.

“I fully expect there will be another fight,” said Rep. Austin Knudsen, R-Culbertson.

Montana is not alone in the challenge.

Between 2012 and 2020, the American Society of Civil Engineers estimates the country will fall 40 percent short of funding $2.7 trillion in current infrastructure needs to bring roads, water systems and other public utilities up to code and keep them working.

A 2014 report card on Montana’s infrastructure tallied $13 billion in repairs and capacity upgrades for drinking and wastewater systems alone. Yet, four state programs will provide only $90 to $130 million for such projects over the next two years, mostly loans that also require many communities to increase local rates to qualify. At that rate, it would take Montana more than a century to catch up.

The gap in funding is exacerbated by rising construction costs.

The price for materials such as asphalt and cement have grown twice as fast as other goods since 2003, according to a March report by the U.S. Congressional Budget Office. Nationwide, public expenditures on infrastructure rose 44 percent since 2003, but that increased spending bought taxpayers 9 percent less than was constructed a decade ago with less money.

“While nearly all Montanans agree that both long- and short-term strategies above and beyond current programs are necessary, we have not all agreed on what, when and how,” said Shoots Veis, a former member of the Billings City Council and project engineer who collaborated on Montana’s report card.

Legislators say the first step toward consensus on a funding bill next session will be to agree on the definition of infrastructure.

A compromise bill that failed the House by one vote in the final days of the legislature this year was killed, in part, because of which projects were slated for funding.

“It would have done more for Bozeman and Helena for putting up buildings, which, to me, are not even infrastructure,” said Rep. Scott Staffanson, R-Sidney, who voted against the bill despite his community for years seeking state help with Bakken-related growth. “It seems like nobody’s willing to limit or define what infrastructure is. Maybe those buildings need to get done, but there’s another (long-range building) program for that.”

After deciding what to fund, legislators likely will spend the most time debating how to pay.

“There’s a lot of special interests that want to see the state borrow a bunch of money and put shovels in the dirt,” Knudsen said. “Bonding is debt. We have cash on hand. We have surplus cash in the state. We don’t need to borrow money.”

Williston sewer treatment plant tour

Officials tour the high-tech $105 million Water Resource Recovery Facility on Oct. 30 in Williston, N.D.

The last two sessions, Republicans have sought to spend cash that Gov. Steve Bullock said was needed to keep the state’s reserves at $300 million, a target he said helps the state’s bond rating and is sound fiscal management. Along with a constitutional requirement for a balanced budget, that’s why Bullock vetoed a 2013 infrastructure proposal to send $35 million to Eastern Montana even though it received near unanimous support from legislators.

Bullock and Democrats support some bonding for projects rather than raiding reserves and, in the last session, were largely unwilling to consider cash-only bills because they saw the immediate needs as too great.

Senate minority leader Jon Sesso of Butte argued that interest rates are so low it is cheaper for the state to go into debt than let construction costs increase while waiting for cash to accrue.

“I don’t know what we can do to make that more clear, but we’ll keep trying,” he said, noting the challenge of securing the two-thirds majority to authorize new state debt. “The Senate vote was 47-3. We were one vote shy in the House. Most legislators get this. They’re there. You’ve got to fill the seats with people that are looking to advance Montana, not stand by ideology.”

Rep. Nancy Ballance, R-Hamilton, said a preference for cash is not an arbitrary political stance.

“When you walk in the door with $450 million sitting in the bank, bonding makes no sense,” she said. “Why would you borrow money when you have cash in hand to pay and no demands on that cash you can easily see?”

Williston construction site tour

Officials tour the new $105 million Water Resource Recovery Facility on Oct. 30 in Williston, N.D.

Nationwide, state leaders have been hesitant to bond in recent years, in part because of “a new conservative attitude toward debt,” according to Moody’s Investor Services.

Median net tax-supported debt declined in 2014 for the first time in 28 years, while per-capita state debt fell for the third straight year, according to a June Moody’s report. In 2014, the median state debt per-capita was $1,012 compared with $254 in Montana, which ranked 46th. Massachusetts, which has the same bond rating as Montana, ranked second with $4,887.

“Most states will continue to avoid major new debt service commitments in the face of moderate revenue growth and continuing pressure for increased education and health care spending,” according to the report. “Over the longer term, we expect debt levels to rise again as states seek to address a backlog of deferred infrastructure needs.”

Sen. John Brenden, R-Scobey, said that unless the 2016 elections bring a Republican governor to the state Capitol, legislators will have to compromise to pass an infrastructure bill, suggesting Republicans would agree to a limited amount of bonding to catch up on the growing list of needs.

“You could do more things faster,” he said. “If we don’t, inflation will eat us up. The further along we postpone dealing with infrastructure, the higher the costs of all these roads and bridges and waste and water systems will get.”

Sesso said that while the state could have afforded the compromise bill that included both bonding and cash spending, that might not be the case in future years as the list of needs grows longer and if interest rates increase.

“I don’t think a conversation about real infrastructure improvements in the state is complete unless we talk about revenue,” he said, acknowledging that any increase would be difficult to sell to Republicans.

Nonetheless, legislators have discussed a number of possibilities in the interim, including to join other Rocky Mountain states in raising its gas tax, to divert bed tax revenues or to amend the constitution to cap the coal trust to free more for spending.

With some programs funded by interest from the coal trust set to sunset soon, legislators also could have an opportunity to set new priorities for programs like the Treasure State Endowment, which provides grants for certain kinds of local infrastructure projects.

Williston mayor Howard Klug

Mayor Howard Klug tours the new $105 million Water Resource Recovery Facility on Oct. 30 in Williston, N.D.

Engineer David Tuan

City engineer David Tuan talks about the new $105 million Water Resource Recovery Facility on Oct. 30 in Williston, N.D.

Sidney Public Works Director Jeff Hintz said Montana already has lost out on new revenue from development stalled by the pending infrastructure projects, noting the wave of business development experienced around Williston, N.D., where oil workers and longtime Sidney residents now go for shopping, entertainment and restaurants.

“Montana was so focused on collecting taxes off the oil and hoarding it that they weren’t looking down the road at the gold mine they could’ve had,” he said. “Even if we brought in a fraction of the businesses, they’d still have the production taxes and have new property taxes.”

Regardless of the funding source, Democrats and Republicans agree projects must be prioritized, and strategies to spread the funding fairly across the state are also likely to return.

Brenden’s bill varied funding on a community’s millage, an idea both Ballance and Sesso would like to see again in 2017.

“I think that was the best part,” Ballance said. “It’s unfair if you are a community that is taxing its own people so they’re able to pay for more of what they need, and another community taxes its people very low and then expects the state to come in and pay for their needs.”

Beyond being a logical way to apportion limited revenue, Sesso said it preempts the typical legislative negotiations over which specific projects to fund and the inevitable rivalries — east versus west, urban versus rural — that can divide votes.

“Unless we have an equalization factor, we’re never going to get agreement on a big bonding bill,” Sesso said.

Some hold out hope for a bill with as little bonding as possible.

“I’ll be very honest. If you’ve got a Republican governor and you had Republicans controlling the Legislature, I think it would be easy to get votes for cash to be spent if we had a decent cash balance,” Brenden said. “As long as we have a split government you’re going to have to compromise to get things done. But there’s certain principles I won’t compromise on.”