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Miller proposes local gas tax, leasing ICC

Transportation plan also includes 3% fuel sales tax

By Michael Dresser and Erin Cox, The Baltimore Sun

7:59 PM EST, January 24, 2013

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Baltimore and Maryland's counties could impose their own 5-cents-a-gallon tax on gas to pay for local roads and buses under a proposal by Senate President Thomas V. Mike Miller.

Miller also proposed Thursday leasing a state toll highway to a private operator to raise money for mass-transit projects in Baltimore and the Washington suburbs.

His proposal comes as lawmakers in Annapolis are struggling to find ways to raise money for transportation projects they say are long overdue. While the ideas will face tough scrutiny in the General Assembly, other leading Democrats are praising Miller for offering new ideas and say bold new thinking is needed to fix Maryland's transportation system.

Among Miller's ideas is a two-tiered increase in taxes on gasoline. In addition to the optional increase the state's counties and Baltimore could adopt, he is suggesting a 3 percent sales tax on gasoline that would apply statewide.

"It's a tough sell," Miller told reporters. "I'm up to it."

Under Miller's plan, the gasoline sales tax would be paid by wholesalers and passed on to motorists indirectly. Local elected officials could add to the state's existing 23.5-cents-a-gallon gas tax by charging up to 5 cents a gallon, raising revenue for local road and transit projects.

Miller, a Calvert County Democrat, also suggested leasing the Intercounty Connector in suburban Washington to an "international giant" that would pay up front for the right to collect the tolls. He suggested that the state could use the lease money to pay for the state's share of such proposed transit projects as the Red Line in Baltimore, the Purple Line in Prince George's and Montgomery counties and the Corridor Cities Transitway along Interstate 270 northwest of Washington.

Miller has taken the lead on crafting a plan that tackles a backlog of road, infrastructure and transit projects that would cost billions of dollars. While Gov. Martin O'Malley, House Speaker Michael E. Busch and Miller have all publicly agreed the needs are so great that they must be addressed, the three Democrats have not reached a consensus on the best way to come up with money.

O'Malley and Busch have both said they welcome Miller's plan as a starting point for discussion, but have not commented on specifics.

"Any gas tax increase is a hard sell," Miller said. "We're going to work hard, the speaker, the governor and I, to find out what we can make happen and commit ourselves to accomplishing it by getting the votes in the House and the Senate."

This year O'Malley floated a possible penny increase in the state sales tax — to be dedicated to transportation — though he has not made it a formal proposal. Last year, he publicly backed a plan to apply the state's full 6 percent sales tax to sales of gasoline.

Miller's suggested 3 percent sales tax would raise roughly $300 million a year of the roughly $700 million the governor has said the state needs to replenish the Transportation Trust Fund, which now can pay for little more than maintenance and operations.

Miller also floated the idea of setting up regional authorities in Maryland's urban areas to fund transit systems. According to a Miller aide, the proposal could involve a surcharge on the state's property tax within the boundaries of those authorities, presumably putting a heavier burden on transit-dependent urban regions than on rural areas.

The Senate president said such a system would allay the concerns of rural senators that their tax dollars are disproportionately going toward mass transit. Republicans say Miller has been talking with them about crafting a bipartisan plan that would raise revenue while meeting their concerns.

Busch, an Annapolis Democrat, has expressed concern about higher taxes for people in urban areas, pointing out that residents of populous Montgomery County pay a disproportionate share of taxes but receive a smaller percentage of school construction expenses than many rural counties.

An aide to Miller said the Senate president's plan is being drafted and should be introduced next week.

If selling a gas tax is hard, persuading lawmakers to back a long-term lease of a giant state asset such as the ICC could be even more of a challenge. The mostly completed, 19-mile toll road from U.S. 1 to Interstate 270 cost $2.6 billion, much of it financed with long-term debt.

Such lease arrangements, a form of public-private partnership, are common in other countries but still rare in the United States. The best-known such arrangement is the 75-year lease of the Indiana Toll Road to a consortium of the Spanish firm Cintra and the Australian bank Macquarie, a deal struck by former Gov. Mitch Daniels in 2006. More recently, a proposal by former Pennsylvania Gov. Edward Rendell to offer the Pennsylvania Turnpike for a long-term lease stalled in the face of political opposition.

Warren Deschenaux, the legislature's chief analyst, said a typical lease deal runs from 30 to 99 years. He said that what Miller is suggesting is possible.

"Where there's a revenue, there's an opportunity to monetize it, and tolls are our revenue," he said,

Deschenaux said that, as part of any deal, the state would have to pay, or arrange with its contractor to pay, the remaining loans used to build the project. That could free up some of the state's debt capacity for other projects, possibly including transit lines, he said.

Typically, as part of such deals, the government negotiates with the contractor to set minimum maintenance requirements and limits on how much tolls can rise over the term of the lease, Deschenaux said.

Whether the market would be receptive to such a deal is uncertain, however. For one thing, the Indiana contractor has seen a disappointing return on its investment, and future deals may be less lucrative for the governments involved.

John Gilmour, a government professor at the College of William & Mary in Virginia who has studied such deals, said Indiana in effect collected $3.8 billion, representing 75 years of tolls, up front and poured the money into local road projects. The problem, Gilmour said, is that roads have an average life of 30 years while Indiana is giving up toll revenue for three-quarters of a century.

"The benefit is mostly in the first half or two-thirds of the lease period," he said. Thus, he said, the current generation and perhaps the next derive the benefits while the grandchildren of today's lawmakers bear the costs.

"There's a clear conflict of interest between the current and future generations," he said.

Busch said he doesn't have enough information now to make a judgment on the ICC proposal.

"The question is, at the end of the day, is this just a temporary fix that's going to cause greater problems down the road," he said. "Usually when things seem too good to be true, they're too good to be true."

michael.dresser@baltsun.com

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