Lake County, OH – Laketran General Manager Ray Jurkowski is calling on the Ohio General Assembly to pass legislation to collect “uncollected sales tax on e-commerce transactions by out-of-state retailers” and to use the new revenue source to establish a state Surface Transportation Infrastructure Fund to finance public transit, highway and bridge improvements. A 2014 Ohio Department of Transportation (ODOT) study, “Access Ohio 2040,” identified a $14 billion funding gap between projected highway, bridge and public transit funding needs and available revenue between 2014 and 2040. A 2015 study commissioned by ODOT focused in more detail on transit funding needs over the next 10 years and identified a $1.1 billion gap during that period to preserve existing levels of service for transit agencies.

“There have been so many studies done at the federal and state level documenting the substantial infrastructure investment required to rebuild our infrastructure that describing the current state of affairs as a ‘crisis’ has lost all shock value,” Jurkowski said. “Given Congress’ inability to pass a long term, well-funded transportation bill and no state proposal on the table, the time has come for a creative and innovative solution to the funding crisis.”

Jurkowski believes that the infrastructure funding crisis requires a three-way partnership between federal, state and local governments and that no one level of government can resolve the problem alone.  “Here in Lake County, the taxpayers have supported dedicating a 0.25% sales tax to support public transit. Now we need our federal and state partners to step up to the plate,” Jurkowski said.

While Congress continues to debate how best to fund their part in improving the nation’s crumbling infrastructure, Laketran retained the services of Public Financial Management, Inc. (PFM) to independently assess the potential revenue in the state of Ohio from the proposed legislation designed to increase collection of currently assessed but uncollected taxes on retail e-commerce as a new dedicated revenue source to address Ohio’s projected infrastructure funding gaps.

PFM is a leader in public finance and has been ranked as the top municipal advisory firm in the nation for the past seventeen consecutive years by Thomas Reuters, advising on nearly $750 billion in total debt issuance in almost 15,000 separate transactions during that period.

In a white paper prepared for Laketran entitled, “E-Commerce Sales Tax as a Solution for Ohio Transit Funding,” PFM estimated the potential incremental tax revenue from currently uncollected sales and use tax on E-Commerce to be approximately $230 million for 2014.

“Based on available historical e-commerce sales data, PFM  analyzed Laketran’s plan to use this proposed dedicated revenue source to fund a Surface Transportation Infrastructure Fund (STIF) to see if the concept was viable,” said Bethany Pugh, a Managing Director and head of PFM’s Ohio practice.

Often-cited public sources like the study done by the University of Tennessee and estimates made by the Ohio Department of Taxation project much higher revenue estimates ranging from approximately $300 to $350 million annually.

Under the Laketran proposal, Ohio’s portion of the incremental revenue (derived from the state 5.75% sales tax) would be deposited into a “Surface Transportation Infrastructure Fund” created by the state to be allocated 50% to roads and bridges and 50% to public transit. The balance would continue to flow to all 88 urban and rural counties that now collect a sales tax as well as eight transit authorities in the state that have a dedicated sales tax.

To illustrate the potential benefit of the state’s dedicated incremental revenue on public transit, PFM cited the Ohio Department of Transportation’s recent “Ohio’s Transit Needs Study” published in early 2015. According to the study, transit across Ohio will require at least $1.9 billion in capital investment over the next ten years.  Existing funding sources provide only $833 million of capital investment, resulting in a roughly $1.1 billion gap. In addition to the $1.1 billion shortfall for required investments to maintain Ohio’s transit infrastructure in its existing condition, the ODOT study identifies a $3.7 billion gap in capital and operating funding that would be required to expand the state’s transit service to reach a greater portion of Ohioans over the next 10 years.

PFM’s white paper analysis indicates the proposed funding stream could bridge the 10-year shortfall in capital funding for system preservation identified in the ODOT study, assuming a 6% annual growth in e-commerce sales.  Furthermore, Laketran contends that excess revenues could be applied to provide operating or capital assistance for both urban and rural transit agencies for restoration, preservation and expansion of service.

Besides the direct benefits to public transit, the white paper analysis indicates that:

• State roadways and bridges could benefit under a 50% allocation of STIF revenues and bond proceeds, providing a source for an additional $1.6 billion in funding over the next 10 years to complement state fuel tax revenues;
• All 88 urban and rural counties could also see an increase in funds via the impact of increased collections under their existing sales tax authorities;
• Laketran’s proposed legislation could help level the playing field between out-of-state internet retailers and Ohio’s local merchants who contribute to their communities in the form of property taxes, employment and investment; and
• The proposed legislation could achieve the identified revenue increases through expanding enforcement of existing tax requirements rather than any increase in tax rates.

While many states continue to wait for Congress to pass legislation regarding the uncollected e-commerce sales tax, 15 others have passed legislation and are reaping the benefits of hundreds of millions of dollars of new revenue every year, Mr. Jurkowski asserts. 

“Without any alternative proposals on the table to address the infrastructure crisis, I hope the General Assembly sees Laketran’s proposal as a viable solution and can garner the necessary bi-partisan support to pass the appropriate legislation like other states and turn an 80 year old ‘negligent compliant’ tax into an effective revenue source to help the funding gap for highway, bridge, and public transit infrastructure,” Jurkowski added.

“Soon Ohio will realize the sales tax revenue from Amazon’s voluntary internet sales tax collections. I can only hope that Laketran’s proposal will receive fair consideration before plans are made to spend that revenue and the opportunity to invest internet sales tax revenue in infrastructure is lost,” Jurkowski concluded.

Once finalized, the report, “E-Commerce Sales Tax as a Solution for Ohio Transit Funding,” prepared by PFM for Laketran will be available on Laketran’s here on the Laketran website.