PLAN Z:   Funds for Alabama’s Infrastructure Needs

By Jim Zeigler, State Auditor  334-242-7010

Last update: Jan. 25, 2019

1. Stop Diversion of $63.5 million a year from highway funds
2. Use the $63.5 million a year to pay for a 20-year bond issue for infrastructure, est. $900 million

1. Stop Diversion of $63.5 million a year from highway fund

Each year, $63.5 million is diverted from highway funds and spent for other purposes.  This is a clear diversion of gas tax revenues intended for highway construction needs to a different use. The money was taken from highway funds and used to balance the general fund.   This diversion has been going on about ten years.

In addition to this diversion being a re-purposing of gas tax funds from their intended purpose, this practice may also be a violation of Amendments 93, 354, et. al. of the Constitution of Alabama:

Amendment 93. Expenditure of Fees or Taxes Relating to Use, etc., of Vehicles and to Fuels Used for Vehicles.

No moneys derived from any fees, excises, or license taxes, levied by the state, relating to registration, operation, or use of vehicles upon the public highways except a vehicle-use tax imposed in lieu of a sales tax, and no moneys derived from any fee, excises, or license taxes, levied by the state, relating to fuels used for propelling such vehicles except pump taxes, shall be expended for other than cost of administering such laws, statutory refunds and adjustments allowed therein, cost of construction, reconstruction, maintenance and repair of public highways and bridges, costs of highway rights-of-way, payment of highway obligations, the cost of traffic regulation, and the expense of enforcing state traffic and motor vehicle laws

1. Use the $63.5 million a year to pay for a 20-year bond issue for infrastructure

By stopping the diversion and applying the $63.5 million a year to amortize a bond issue, the state can generate approx. $900 million for infrastructure.  It can be used standing alone or as matching state share of federal funds, providing leverage.

1. Direct the entire bond issue proceeds to actual road work, not current expenses, salaries, personnel or other overhead.

Steps should be taken to direct the bond proceeds to maintenance, improvements, replacement and construction.

1. Conduct a full management audit of ALDOT.

ALDOT is a large agency.  If the public is to be asked to pay a higher tax rate for gasoline or is to be liable for a 20-year bond issue, the public expects to be confident that the funds are being wisely and prudently spent by ALDOT. 

1. Take steps to make up to the general fund the $63.5 million from stopping the diversion

(a)    Revenue growth. The state’s economy is growing and is expected to continue growing.  As a result, state revenues have grown and are expected to continue to grow.  These additional revenues can partially offset the $63.5 million loss by blocking the diversion.

(b)    Unclaimed gift and cash cards and “breakage” of cards

Tens of millions of dollars each year are going to issuers of gift cards and similar cash purchase cards from unused cards. When the cardholder does not redeem the card, the issuer receives an unearned windfall. The largest of the issuers are out-of-state corporations such as Wal-Mart and Target.

Also, when the cardholder uses the card, it is almost always for a different and slightly lower amount than the full value. For instance, the holder can pay for an $18.23 purchase with a $20 gift card. The remaining amount is often never used. This is called “breakage.” Issuers make millions each year by simply profiting by a windfall from the breakage.

The legislature can pass a bill making the balance on unused cash cards and breakage go to the state general fund. This costs consumers nothing, as they have already allowed the amounts to go unused. A consumer who does not want his card balance to go to the state can remedy this by fully using his card. The unused amounts could “escheat” to the state general fund after the expiration date of the card, when the customer would have lost out anyway. If there is no expiration date, the amount escheats to the state general fund after an established time, example, two years from issuance.

This concept is similar to existing state law for unclaimed property, including forgotten bank accounts.

As the use of gift cards and cash cards increases and as Internet sales increase, the amount that consumers forego by their own inaction will continue growing.

This additional revenue could make up for a substantial amount of the $63.5 million lost to the general fund by stopping the diversion of highway funds.

1. If administrative costs of most state agencies were cut an average of about 1.5% (not across the board, but average), it would generate the remainder of the $63.5 million.  Certain agencies would be protected from this cut, such as Medicaid and others that receive substantial federal matching dollars.               

An example of how this small level of funding cuts could be made while still maintaining the functions of the agency is the State Auditor’s office.  Under the final two Bentley administration budgets, the State Auditor was cut 28.5% from an already lean budget  Yet, by squeezing every dollar, the office stayed current on all audits.  A mere 1.5% cut would have been easy for the State Auditor’s office.