ODOT grabs a billion dollars that could be used for bikes, pedestrians and transit, and allocates it to pay highway bills.
Oregon highways are out of compliance with the Americans with Disabilities Act, and the cost of fixing them can–and should–be paid for out of the State Highway Fund. But instead, ODOT plans to take more than a billion dollars in future federal grant money over the next decade or more, and use it to pay off this highway liability.
What this strategy does is to take money that could be used for a wide variety of different transportation needs and use it only to bail out the State Highway Fund.
By taking this liability out of the State Highway Fund, ODOT can then claim it has plenty of funds for highway expansions. This shell game uses the ADA liability as cover to use flexible federal funds, in essence, to build more highway capacity.
Oregon’s constitution contains a retrograde provision that has been interpreted to require that moneys from gas taxes be used only to build roads, based on a fallacious argument that we have a “user pays” transportation system. The state highway departmetn, ODOT, routinely inovkes that constitutional argument when asked by the public to spend more on things like transit, pedestrian improvements or cycling. We can’t because that money can’t be used for anything other than building roads, they say. As a result, the truly innovative and “multi-modal” uses of funds in Oregon have been paid for disproportionately from federal funds, which are much more flexible. Not only does the Oregon constitutional limit not apply to federal funds, but federal law explicitly allows states to transfer funds among a variety of different categories. You’d think that flexible federal funds would be a key way to diversify our transportation portfolio. But ODOT has hit on a new gimmick to grab these federal funds and use them to bail out the struggling State Highway Fund.
It’s a complex story, and it involves changing the “color of money.”
For decades, the Americans with Disabilities Act has required private businesses and public agencies to provide accommodations for persons with disabilities. For nearly all of that time, the Oregon Department of Transportation has largely flouted that requirement, seldom providing sidewalks and ramps on state highways. As a result, disability advocates hauled them into court, and In 2020 reached a billion dollar settlement, in which ODOT agreed to make the necessary investments to bring highways into compliance with this long-established federal law.
Let’s just talk for a moment about what people in transportation finance call “the color of money.” You may think that all money is green, but in the transportation world, there are different kinds of money, with different strings attached. Funds raised by the state, for example, from the gasoline tax, are governed according to the dictates of state law, and importantly, constitutional restrictions.
ODOT loves to tell advocates it would gladly do more to help promote transit, but its hands are tied by the state constitution: It simply has no choice but to spend these dollars in the roadway.
There’s another color of money in the transportation world, though, “federal money.” Federal money is not governed by the state constitutional restrictions on state taxes. Federal money can be used for a wide variety of purposes, and the federal law gives the state wide flexibility to reallocate money among different categories. It doesn’t all have to be spent on highways.
Consequently, that’s why, when it comes to how we should use federal funds, there’s a lot more debate. In 2022, the Oregon Transportation Commission had a lengthy debate about how to allocate more than $400 million in federal funds coming to the state under the IIJA. Transportation advocates around the state came up with an alternate scenario to allocate about $130 million to local transportation projects. The OTC largely rejected this path.
When it comes to getting a different allocation of these highly flexible federal funds, advocates are largely fighting for crumbs—and getting very little.
And ODOT is largely pre-empting any future option to use these funds differently by proposing to use them to repay a huge pile of debt. By pledging to use these federal grants to pay back debt, it will be impossible to use them for other purposes.
So let’s go back to ODOT’s ADA settlement: Under the terms of the deal, ODOT needs to bring its highways into compliance with the Americans With Disabilities Act by spending $1 billion. To be clear, this is a cost of the highway system—these ODOT roads don’t comply with ADA requirements. This spending is plainly a liability and a responsibility of the highway system. There’s no question that it can constitutionally be paid for with state gas tax revenues. But instead of paying for this cost with those monies, ODOT instead is planning to pay these costs by diverting flexible federal funding for the next decade, to the tune of a billion dollars, to pay these costs. It will issue $600 million in “GARVEE” bonds (grant anticipation revenue bonds), and then use future federal funds to pay the debt service.
In essence, this reduces the amount of money potentially available for alternative transportation investments, unfettered by the state constitutional limits, by a billion dollars. It amounts to tying up a big chunk of potential revenue.
And what’s worse, ODOT is planning to bond against these federal revenues, spending the money now, and paying it back, with interest, over the next decade or more. So that means a substantial portion of those federal revenues are spent on interest payments, rather than on transportation projects. At 5 percent interest, $600 million in bonds paid back over 15 years would mean that the state would pay about a quarter of a billion dollars in interest. In the end, the State Highway Fund would be bailed out by more than $1 billion, and there would be that much less flexible federal funding for other projects around the state.
As we’ve said, when it comes to transportation finance, ODOT is the master of three-card monte: It’s ability to move dollars among categories–to change the color of money–systematically advantages its policy priorities (chiefly building more and wider highways) and leaves advocates of other policies fighting over crumbs.
By using flexible federal funds to pay the costs of the state highway system—plus a hefty pile of interest—ODOT is foreclosing the possibility that future decision-makers will have any ability to use these funds for alternatives in the future. It’s literally the priorities of the past dictating the choices of the future. If ODOT paid its ADA liability out of the State Highway Fund, as it legally can, and arguably should, it would have even less money to spend on road expansion projects.