At a glance:
- Highway fund revenue is projected to be $19 million more than what was budgeted last year
- Shifting $11 million of extra highway funds to pay for other priorities is a good idea and still leaves the highway fund with $8 million more than last year’s budget
- Moving revenue from wholesale liquor distribution into the general fund to re-evaluate whether this revenue stream is the best way to close the highway fund’s structural shortfall created by the 2011 fuel tax freeze is also a good idea
On Saturday, Democratic members of Maine’s Appropriations and Financial Affairs Committee (AFA) voted to cut highway funding by $11 million in fiscal year 2025 and reconsider using revenue from the state’s contract for wholesale liquor distribution for highways beginning in fiscal year 2026. Maine Center for Economic Policy supports the proposal to redirect these funds toward other urgent priorities.
Shifting highway funding to meet urgent needs
Maine’s highway fund has a large structural shortfall due to the decision of legislative Republicans to freeze the fuel tax at 30 cents per gallon in 2011. This has led to stagnant revenue despite rising road repair costs.
Since the fuel tax traditionally accounted for just under two thirds of all highway fund revenue, the growing gap between available funds and repair costs is cause for concern. Instead of asking motorists to pick up the tab by reindexing Maine’s stagnant fuel tax or continuing the sound practice of borrowing money for long-term capital investments like roads via bonds, legislators and the Governor made an unprecedented decision to divert ongoing general fund revenues — which are intended for programs like education and health care — to the highway fund. This is not a long-term solution to problems with the highway fund and is important context for the current budget discussions.
The recent proposal to reclaim $11 million from the highway fund for other priorities represents a modest course correction and still leaves the highway fund with $8 million more than was allocated in last year’s budget. That’s because last year’s appropriations bill was estimated to increase highway fund revenues by just under $155 million in fiscal year 2023/4 and just over $157 million in fiscal year 2024/5 — or just under $312 million in total for the budget biennium. However, the source of new highway funding from the general fund – 40% of sales tax revenue for motor vehicle sales and revenue from the sale of the state’s liquor distribution fund – produced more money than expected. The latest revenue forecast (as of March) estimates the total transfers will be just under $167 million in fiscal year 2023/24 and just over $174 million in fiscal year 2024/5. That’s just under $341 million in total over the biennium, or $19 million more than anticipated.
The AFA proposal reclaiming $11 million of the extra funds from the highway fund makes it possible to address important priorities such as maintaining a senior drug affordability program and a new rent relief pilot program. The fact that this can be done and still leave the highway fund with $8 million over what it expected to have this time last year results in a win-win situation.
Re-examining revenue from wholesale liquor distribution
The second part of the Appropriations Committee proposal is to move the entire revenue from the sale of the liquor bond into the general fund beginning in fiscal year 2026. While this would appear to represent an additional ongoing $48 million decline in highway fund revenues, the Democratic AFA members have stated the intent is to re-evaluate whether this revenue stream is the best way to close the highway fund’s shortfall. It is highly likely if they did not use the liquor bond revenue, they would find another source to fill that gap — there are plenty of options to do so. A $50 million bond would be appropriate or the committee could choose to raise the gas tax — an increase of approximately 7 cents per gallon would raise an additional $50 million per year (significantly less than the 12.7 cent increase which would bring the gas tax in line with 2011 levels after adjusting for inflation).
While the AFA’s proposal ultimately affects a small piece of the total highway fund budget, it is the correct approach to evaluating whether road users — including tourists — should ultimately pay for roads, freeing up funding for other statewide priorities.
