November 1, 2010

1. Final Report Commission to Study Future Sustainable Revenue Sources for Funding Improvements to State and Municipal Highways and BridgesHB 2, Chapter 144:291, I, Laws of 2009 November 1, 2010

2. Commission Charge • HB 2, Chapter 144:291, I, Laws of 2009 established a commission to study future sustainable revenue sources for funding improvements to state and municipal highways and bridges. • The Commission met 18 times.

3. Membership The Commission was made up of members appointed by the Governor, Senate President, House Speaker, representatives of the Department of Transportation and Department of Safety, and the chairperson of the Governor’s Advisory Commission on Intermodal Transportation.

4. Membership (continued)

5. Past Legislative Efforts The Commission is the latest in a long line of recent highway funding study committees/commissions.

6. Information Gathered • The Commission collected information and consulted with a variety of sources, including the New Hampshire Department of Transportation, New Hampshire Department of Safety, State Treasurer, Legislative Budget Assistant, Federal Highway Administration, TRIP (A Washington, DC based national transportation organization), JP Morgan, the Council of State Governments, American Association of State Highway and Transportation Officials (AASHTO), U.S. Energy Information Administration, New Hampshire Motor Transport Association, Brookings Institute, Associated General Contractors of New Hampshire and AGC of America. • Best case scenarios and detailed financial projections, other states’ experiences, and federal highway funding prospects were all analyzed at length.

7. Focus on Sustainable The Commission attempted to limit its work on sustainable and equitable sources of funding while recognizing the reality of what options are truly viable. Sustainable sources include the traditional forms of funding infrastructure needs, such as bonding, tolling, gas tax (motor vehicle road tolls) and motor vehicle registration fees. Unless long-term sustainable revenues match defined infrastructure needs at levels that are recognized as necessary these infrastructure needs will go unmet and be deferred to more costly improvements. As a small piece of the overall puzzle, the current decline in gas consumption will continue to create a gap that is not sustainable for funding projected needs.

8. Highway Fund: Sources of Funding FY10-11 Estimated revenue projected to be available to NHDOT & NHDOS and Betterment Fund for operating and capital construction costs for FY11 is $376M $127M from gas tax (15 cents of 18 cent total) $ 99M from vehicle registration fees $ 45M from registration surcharge $ 9M from vehicle violation fines (to NHDOT) $ 22M from federal aid indirect costs $ 20M of Turnpike funds for the I-95 sale $ 12M from federal aid retroactive Turnpike toll credits $ 2M from the sale of surplus property $ 25M from gas tax for Betterment Fund (3 cents of 18 cent total) $ 15M from registration surcharge for Betterment Fund Footnote: Revenue made available in 2010 was $365M Toll revenues are not part of the Highway Fund

9. Stimulus Funds • In 2009 the DOT received approximately $129.4M in federal stimulus funds (ARRA), which was a one-time payment of additional funds.  The Department used the funds for paving, a section of the I-93 widening project, the Manchester Airport Access Road, and work on several bridges and transportation enhancement projects.  The funds enabled the Department to catch up on its paving schedule, which had been reduced due to a lack of funds.  • It is important to maintain an adequate paving schedule in order to prevent more costly repairs over time.  While the Department should pave at least 500 miles per year, the paving program had been reduced to an average of 250 miles per year due to a lack of revenue.  In 2009, the Department was able to pave 750 miles of roads per year.  Without additional revenues in the next biennium, the paving schedule will return to 250 miles per year.

10. Commission’s Task: Analyze Funding Problem and Shortfalls for New Hampshire Highways & Bridges • Revenues are needed for the DOT and DOS to carry out their missions. The Highway Fund is lacking $124M in the next biennium and will have a $1.2B operating and capital shortfall by 2020. • Additional revenues are needed to fund the combined operational and capital deficit of the State’s highway and bridge system. • The 2011-2020 Ten Year Transportation Plan is under funded by $1.2 billion. The economic vitality and growth of our state along with the safety of our citizens will be in jeopardy if the funding shortfall is not reversed.

11. Highway Trust Fund • The Highway Trust Fund revenue is critical to both the Department of Transportation and The Department of Safety’s budget. Part II, Article 6-A of the New Hampshire Constitution requires all New Hampshire Highway Trust Fund revenue to be used for roads, with the exception being for traffic supervision and the cost of collection of registration fees and operators license fees, all responsibilities of the Department of Safety. • The revenue includes the Road Toll (gas tax), registration fees, and operators’ license fees. By law, RSA 9:9-b currently restricts the Department of Safety to not more than 30% of the total Highway Fund.

12. State Highway System • New Hampshire’s highway and bridge system contains over 4,000 miles of State maintained highway, and 2,129 state bridges. • Included in the state bridge total are 142 red listed bridges, meaning bridges in need of repair and/or replacement. • There are another 250 bridges, which are referred to as pink listed bridges, that will soon be red listed bridges if maintenance and/or repair problems are not addressed soon. • Nearly 15% of the state bridges are in need of maintenance and/or repair based on their being on the red list (state and local).

13. Standard Budgeting and Reporting Because both the Department of Safety and the Department of Transportation budgets rely on the Highway Trust Fund, the Commission established a sub- committee that created a single standard for budget reporting and forecasting revenue for both departments. This created transparency and fairness between the two department budgets.

14. Highway Fund:State Road Toll (Gas Tax) • Currently at 18 cents per gallon for gasoline and diesel fuel. New Hampshire has the lowest rate in the northeast region. • The State gas tax was last raised in 1992, when the price of unleaded regular gas nationally was $1.13, less than half the current level. • Each penny of the road toll provides the Highway Fund approximately $8.3M, of which $7.3M is used by the State and 12% or approximately $1M is used by municipalities.

15. Highway Fund: State Road Toll (Gas Tax)(continued) Proceeds are deposited to the Highway Fund, but must be used first to pay debt service on bonds or notes on General Obligation bonds. The State allocates the Road Toll (18 cent gas tax) in the following programs: • 12% is allocated as Block Grant Aid to cities and towns. • 3 cents (less 12%) is allocated to the State Betterment Fund. • 15 cents (less 12%) is for the Highway Trust Fund. • From the Highway Trust Fund, $8.5M per year is made available to cities and towns through two programs: • State Aid Bridge (SAB) $6.8M State with $1.7M (20%) local match. • State Aid Highway (SAH) $1.7M state with $0.85M (1/3) local match.

16. Pros: Fairness. Infrastructure in place for low-cost collection. Paid by residents and non-residents. Revenue shared with municipalities. Not a new tax or fee. Current tax lower than neighboring states. Revenue dedicated to highways and safety. Could be done incrementally. Cons: Moderately regressive impact. Does not address long term challenge from higher MPG and alternative fuel vehicles. Highway Fund: State Road Toll (Gas Tax)(continued)

17. Pros: Indexing is based on inflation and or fuel consumption and adjusted at regular intervals. Indexing allows revenues to more closely align with costs. Rate changes can be automatic without legislative approval within a predetermined cap. Cons No direct correlation between funding available and needs to be addressed. Highway Fund:State Road Toll (Gas Tax)-Option OPTION: INDEXING THE GASOLINE TAX TO PRICE

18. EXHIBIT 5

19. EXHIBIT 6 NH is 9.4% below the MA gas tax and 8.2% below the MA diesel tax.

20. Highway Fund:Motor Vehicle Registration Fees An increase of $1.00 raises an additional $1.5 million dollars. Vehicle Registration Surcharge raises $41M in FY10 and $45M in FY11. The surcharge sunsets June 30, 2011, leaving an $86M shortfall in the next biennium.

21. Pros: All registered vehicles pay. Captures non-gasoline fueled vehicles to pay for their use of roads. Collection infrastructure in place. There is no additional collection cost associated with the surcharge. NH only collects registration fees on vehicles. Other New England states collect registration fees plus high sales tax fees when vehicles are purchased. Cons: Only paid by NH residents. Not based on vehicle miles traveled or use of (damage to) highways; it is assessed per vehicle. Weight-related fees are diminishing with the trend toward smaller, lighter vehicles. Highway Fund: Motor Vehicle Registration Fees (continued)

22. Highway Fund: Motor Vehicle Registration Fee Surcharge The motor vehicle registration fee increase established in HB 2, Chapter 144, Laws of 2009, was a temporary, two year measure, which sunsets on June 30, 2011. The temporary fee surcharge will raise approximately $86 million dollars in total, and significantly, about $10 million dollars in increased municipal Block Grant Aid (this is the only area where overall aid to cities and towns actually increased).

23. What the Loss of the Fee Surcharge Means to the Transportation System The surcharge allows the capital construction program to move forward, and covers operating costs for servicing the highway system. The State’s Betterment Program realizes a $15M increase to expand the paving program and accomplish more bridge work. Without some replacement revenue after June 30, 2011, DOT will be forced to drastically change its mission and the State will fall behind again in basic road, bridge and winter maintenance.

24. What the Loss of the Fee Surcharge Means to DOS The Department of Safety’s portion of the registration surcharge loss that will need to be made up by budget cuts would be approximately $6,480,000. Cuts of this magnitude could cripple both citizen service and the safety of our citizens.

25. Pros: Project can be done sooner. Minimizes construction inflation increases. No fees, taxes or tolls are directly raised. Cons: Debt service burden ultimately reduces capital for future projects. The State’s AA rating would be negatively impacted by issuance of a significant number of additional bonds without additional revenue. Highway Fund:General Obligation Bonds

26. Highway Fund: GARVEE Bonds GARVEE Bonds (Grant Anticipation Revenue Vehicles) support the FHWA program by which states can borrow (bond) revenue, which in turn is paid off with a priority claim against future federal highway revenue. • Cons: • GARVEE bonds limit the amount of federal funding available for future projects. • Not sustainable. • Pros: • Project can be done sooner. • Minimizes inflation increases. • No fees, taxes or tolls are directly raised. • No pledge of any other state funds besides federal highway funds received by the State.

27. Highway Fund: GARVEE Bonds Legislation • The NH Legislature (RSA 228-A:2) approved the use of GARVEE bonds for the I-93 widening ($195M total). • In November 2010, the Treasurer will issue $80 million in GARVEE Bonds for I-93 and another $115 million planned to be issued in Fall of 2011. • Bonds have a 15-year maturity limit. • While GARVEE bonds are a claim against future federal funds, it is important to note the legislative intent as stated in the 2004 Majority Report findings: “ Lastly, the Commission finds that the associated costs of bonding the incremental dollars for an accelerated time frame can be offset by the sale of surplus real estate purchased within communities along Interstate 93 from Salem to Manchester.” (Final Report, SB 413, Chapter 220:1, Laws of 2004, page 2)

28. Highway Fund: GARVEE Bonds Legislation (continued) The State Legislature also authorized an additional $45 million in GARVEE bonds to finance replacement and or repairs to the Memorial and the Sarah Mildred Long Bridges in Portsmouth. Match to be paid from the State Aid Bridge Fund or Betterment Fund. (RSA 240, The Ten Year Transportation Plan, HB 2010, Chapter 231:5, Laws of 2010)

29. Highway Fund: GARVEE Bonds - Limits • The maximum amount of GARVEE Bonds a state issues in any one year should result in debt service (principal and interest) being less than 33% of the state’s yearly allotment of federal funds, or in New Hampshire’s case, less than $50M ($155 x 33%). • The Department has set an upper limit for itself of $24M/year for the I-93 project.

30. Pros Uses either a fee, such as a dedicated gas tax increase or State credit, to offset the interest allowing for reasonable debt service rates. Annual available federal funds can support more debt. Project can be completed at an earlier date. Minimizes construction inflation increases. Cons Requires an increase in state revenue or pledging other state security. Highway Fund: GARVEE Bonds-Option OPTION: INDIRECT GARVEE

31. The Turnpike System • The Turnpike System consists of 89 miles of highway and 164 bridges. • The Turnpike System is funded from the tolls paid by the users and not the Highway Fund Road Toll (gas tax) and registration fees. • The authority for increasing tolls is with the Executive Council while the authority for setting toll discount rates is with the Legislature.

32. Turnpike: Tolls • Tolls are utilized to fund the NH Turnpike System. • In 2010 tolls raised approximately $116M. Pros: • User-fee. • Imports out-of-state revenue. • New technology/convenience Open Road Tolling. • Increases linked to needs. • Increasing rates do not require additional collection expenses. Cons: • Results in some traffic being diverted onto other roads. • Residents near tolls feel they pay more for roads due to paying gas tax and tolls. • Unlike gas tax, no revenue sharing with municipalities. • Collection and administrative costs are relatively high.

33. Turnpike: Tolls-Option OPTION: I-93 TOLL DEMONSTRATION Federal Interstate Tolling Pilot Program for I-93: • Participation in the federal Interstate System Reconstruction & Rehabilitation Pilot Program would authorize New Hampshire to toll I-93 in order to finance completion of the I-93 widening project and enable the Department to complete the project at an earlier date. • The NHDOT financial plan for FHWA proposes the project be completed by 2020, but without additional funding the completion date is likely extended to 2030 or later.

34. Turnpike: Tolls-Option (continued) OPTION: I-93 TOLL DEMONSTRATION Pros • Revenue will fill the gap needed to fund expanding I-93 to 4 lanes. • Revenue will fund maintaining the Salem-Manchester I-93 corridor. • Tolls appear to be more popular with the public than gas taxes for now, but that popularity may be tested with continued and/or frequent increases and/or expansion in the coming years. • True user fee. • Frees up revenue for the rest of the Ten Year Plan. • Tolls to be removed when project is completed. Cons: • Federal regulation only allows funds to be used on I-93 in the southern corridor. • Toll collecting infrastructure not in place. • No cash transactions. • Politically unpopular. • Residents near tolls feel they pay more for roads due to paying gas tax and tolls. • Unlike gas tax, no revenue sharing with municipalities. • Enabling legislation needed • New fee. • Tolls to be removed when project is completed.

35. Turnpike: Toll Credits • Turnpike Toll Credits are a mechanism by which the State’s match for Federal Highway Administration (FHWA) funds can be reduced in recognition of the State’s capital investment into its highway system using non-federal (toll) revenue. • Non-federal capital dollars invested into portions of the state highway system that supports interstate commerce can become in effect a credit that reduces the amount of hard match monies the State needs to provide in order to obtain federal highway funding. • As a result, New Hampshire Highway Fund dollars that would otherwise be needed for matching federal funds can be used to address other expenses incurred by the NHDOT. • On the flip side, the amount of funding available to support federal aid projects is reduced by the value of the credit, and in essence the amount of federal aid construction work for that year is reduced.

36. Turnpike: Revenue from Sale of 1.6 miles of I-95 to Turnpikes • The Highway Fund received $30M in FY2010 and $20M in FY2011 as part of the agreed transfer of 1.6 miles of I-95 to the Bureau of Turnpikes for a total of $120M. • Subsequent payments are scheduled at $5.9M per year, until July 2029, or $12M in the next biennium.

37. Other OPTIONSConsolidation • Consolidation of portions of the interstate system with the Turnpike System is not an asset transfer, but rather combines the systems, which will enable the Department to treat portions of the interstates and limited access facilities as related facilities, eligible for surplus Turnpike funds. Interstate maintenance and operation work would not be performed by Turnpike staff, but the cost of maintenance and operation for the related facilities would be paid from the Turnpike surplus after all other Turnpike needs are met. • Consolidation differs from an actual asset transfer, which could negatively impact the bond debt service coverage ratios. Utilizing the transfer from Turnpike surplus funds to the Highway Fund, instead of an obligation under Turnpike operating expenses, maintains those ratios to the benefit of the Turnpike System. • Consolidation may or may not require a toll increase. • Unlike aggregation of the entire Interstate System into the Turnpike System, consolidation would look at closely related interstate sections, such as the section of I-93 South from the state line to 293 in Hooksett or NH Route 101 from Hampton to Manchester.

38. Cons: Diverts previous Highway Fund cost to the turnpike system and turnpike users. Politically unpopular. Requires enabling legislation. Other OPTIONSConsolidation (continued) Pros: • Diverts previous Highway Fund cost to the turnpike system and turnpike users.

39. Pros Provides cash from the long-term lease of an asset. Example leasing I-95. Enables new projects to be constructed that can’t go forward due to lack of funding. Cons Financing tool with cost and risk Trading future revenue for immediate revenue. Frequent toll increases may occur under private management. Enabling legislation needed. Other OPTIONSPublic Private Partnerships (P 3’s) A variation of privatization in which elements of a service previously run solely by the public sector are provided through a partnership between the government and one or more private sector companies. Unlike a full privatization, P3’s are a risk sharing relationship between the public and the private sector. The spectrum of contractual arrangements between the Department and a private partner can vary from operation and management contracts to leases, to the outright sale of an asset.

40. Other OPTIONSVehicle Miles Traveled (VMT) • Pay as you drive already in place for car insurance and leasing charges. • Self-reporting odometer or official odometer inspections; MPG-rating based mileage systems; RFID tags with filling station quarterly remittances; current OBDII systems for on-board mileage monitoring combined with cellular technology are all possibilities with a host of challenges. • States are waiting for the federal government to determine a system for collecting the federal highway trust fund revenues so they can piggy-back onto it. No sooner than 2015 and probably beyond.

41. Pros: Equity - Users pay for actual road usage. Provides long term solution to depleting gas tax revenues due to fuel efficient vehicles and the increasing number of alternative fuel vehicles. Cons: Technology not yet available for assessing. Infrastructure not in place for assessing and/or collecting. Privacy concerns. New fee. Collection costs are high compared to gas tax. Needs national solution. Other OPTIONSVehicle Miles Traveled (VMT)(continued) This is a fee assessed on miles traveled.

42. Federal Sources of Funding and Future Prospects Federal Transportation Authorizations Federal Transportation Legislation identifies levels of funding that could be made available to states based upon expected federal revenues. These funding levels, or authorizations, set the benchmark for future funding and spending levels. These authorizations are made or modified through Federal Surface Transportation Acts or other special federal legislation.

43. Federal Transportation Authorizations The Intermodal Surface Transportation Efficiency Act (ISTEA) of 1991 established requirements for extensive planning and flexibility of federal funds for projects, including Transportation Enhancement, Surface Transportation Program, Bridge, and Congestion Mitigation and Air Quality projects.

44. Federal Transportation Authorizations (continued) The NHS Designation Act of 1995 defined the National Highway System for the United States. This highway network was identified as being important for the nation’s economy, defense and mobility. The Act also made adjustments to funding authorizations that exceeded those that were set up in ISTEA.

45. Federal Transportation Authorizations (continued) The Transportation Equity Act for the 21st Century (TEA - 21) was signed into law in 1998. This Act re-affirmed the goals of ISTEA and provided increased funding and flexibility to the states to provide safer and more efficient transportation facilities and networks.

46. Federal Transportation Authorizations (continued) The Safe, Accountable, Flexible, Efficient Transportation Equity Act: A Legacy for Users(SAFETEA-LU) was signed into law on August 10, 2005 and expired as of September 30, 2009. The current authorization has been extended 5 times to now end in December 2010. If current Authorization is not reauthorized or extended, the Federal Aid Transportation funding shuts down (there was a brief shut down in March 2010).

47. Federal Apportionments • Apportionments are made annuallyby the Congress for the Federal Fiscal year (from October 1 – September 30 of the following year). These apportionments break down the general categories of funding identified in the authorizing legislation. They identify the amount of money available to specific funding categories on a national and state level in Formula and Non-Formula funding categories. • These apportionments are made through two major sources, Federal Highway Administration (FHWA) and Federal Transit Administration (FTA). Typically, FHWA funds are used for highway related projects and FTA funds are used for transit related projects.

48. Formula Apportionments vs. Non-Formula Allocations • Formula funding categories are those that are typically defined through legislation and remain constant over the life of that legislation. Categories include Interstate Maintenance, National Highway System, Surface Transportation Program, Bridge Program, Congestion Mitigation and Air Quality, and Transportation Enhancement. • Non-Formula or allocations are made for special funding categories. These categories include Scenic Byways and Forest Highway Programs, where funding levels can change substantially from year to year, and specific congressionally designated projects such as the Newington Dover Little Bay Bridge Project and Nashua River Bridge, with a defined amount of money allotted to them.

49. Obligational Authority • The amount of federal money received from the Federal Highway Administration that can be spent in a given Federal Fiscal year (October 1 through September 30 of the following year) is called the obligational authority/limitation. The actual amount to be received each year by the States is determined by annual Appropriations Bills passed by Congress. The amount in the Appropriations Bill usually does not match the amount shown in the Transportation Act, and in most years, the amount is less than in the Transportation Act. As a result, states will end up with unobligated (leftover) balances in certain funding categories at the end of each fiscal year

50. Hard Match and Soft Match Most of the Federal Funds come with a matching requirement – i.e. part of the total cost requires a state or local contribution, commonly called the match. FHWA Funds typically require a 10% or 20% match amount. This match amount can be a cash match, also known as hard match, or operating budgets pledge, known as soft match. For example, the Congestion Mitigation and Air Quality (CMAQ) projects require a 20% match. A public service announcement project selected for CMAQ funding may pledge broadcast time as a soft match.