Public Infrastructure Funding Goes Down the Drain

If Benjamin Franklin was right, then we can be certain of only two things in life: death & taxes. And yet Washington citizens remain uncertain about our state’s pending budget and the potential tax hikes likely to be requested to pay for the ever-expanding government obligations, including mounting education, homelessness, and mental health needs.

Few things are more frustrating to tax-payers than the bait-and-switch from politicians that occurs when local, state and federal legislators identify a legitimate need, impose a new tax to pay for it, and then turn around and spend that money elsewhere. Our Social Security contributions, which have been spent and replaced with IOU’s, comes to mind. As do the local liquor taxes, which are increasingly swallowed by Olympia instead of returning to cities. And now we’re about to lose 31 years worth of tax contributions paid by local jurisdictions into the state Public Works Trust Fund (PWTF).

The reason that our legislators are doing this is simple. It’s easier to take those funds and spend them on pressing matters of the current election cycle rather than to fulfill the obligations and intent of the taxes imposed in the first place. It’s also not widely understood, either by the average citizen or by the average state legislator, that cities and the state entered a partnership agreement in 1985 to increase taxes on utilities, solid waste, storm water and real estate excise taxes for the expressed purpose of creating a PWTF to be used as a revolving infrastructure loan fund to local jurisdictions. The legislation was signed into law under RCW 43.155 and has been benchmarked by other states across the Nation as a model program.

Those monies entrusted to the state were earmarked and held in the Public Works Assistance Account (PWAA) and administered by the Department of Commerce. A governor-appointed Public Works Board (PWB) of citizens was established to manage and direct the commerce staff, who would underwrite and administer the infrastructure loan program. This wildly successful program has loaned out over $2.8 billion for streets, water, and sewer system design, construction, and maintenance over the 31-year history, to cities large and small all across Washington. There has never been a loan default, demonstrating the substantial underwriting and loan administration that has taken place under the watchful eyes of the all-volunteer PWB. The cost of administration is less than 1%. Typical commercial loan underwriting administrative costs are above 4%, demonstrating that this program is very efficiently staffed.

About eight years ago, long before the McCleary decision, our legislators started taking all of the tax revenues and the loan repayments from the PWAA and began using them to fund other needs. The Governor’s proposed budget this year includes an additional $8 billion in spending, yet eliminates all funding to the PWAA, redirecting all of the loan repayments toward other programs.

The House and Senate have each proposed various bills this session that take 100% of the future tax revenues for these intended infrastructure loans, along with 100% of the current loan repayments coming back into the loan program. While they like the idea of creating a new high-interest bond program (5%-7% at best) to replace current infrastructure funds currently lent at 0.5% - 1.5%, that expensive bond-loan money would be cost prohibitive to all but a few large cities in Washington for the purpose of infrastructure loans. The vast majority of participants in the PWTF loan program since its inception have been small to mid-sized communities, unable to satisfy commercial loan terms.

Waitsburg, for instance, currently needs to spend about $1.5 million on replacing 50-year old water meters, leaky water and sewer lines, and heaving streets. In spite of ever-increasing utility rates and property taxes, the city could never service that debt coming from expensive bond money. And why should they? They and every other community across the state have been paying - and will continue to pay - those taxes into the future, enacted for just that purpose.

KC Kuykendall is a current City Councilman in Waitsburg and serves on the Board of Directors for the Association of Washington Cities, and the Public Works Board. He can be reached at KC@emailSSG.com.