TACIR draft: Tennessee faces long-term transportation funding gap; staff outlines mixed revenue and borrowing scenarios

TACIR staff on July 1 presented a draft report that maps alternatives to close Tennessee’s long‑term transportation funding gap and illustrates how different combinations of revenue changes, general‑fund transfers, and strategic debt could alter project delivery timelines.

Senior Research Manager Bob Morio told commissioners Tennessee faces growing pressures—population growth, tourism, and freight congestion—that push long‑term needs into the billions. The draft projects that maintaining pavement, bridges, and department operations will require recurring resources that grow from roughly $1.6 billion in FY2028 toward $3.5 billion by 2055, and that total long‑term investment needs could approach $7.8 billion by 2055.

Morio reviewed existing revenue sources—federal aid (roughly 40% of TDOT’s annual budget), state fuel taxes (27¢/gal gasoline; 28¢/gal diesel after 2020 Improve Act increases) and registration fees—and explained why those sources are not keeping pace with rising costs. Staff noted the federal Infrastructure Investment and Jobs Act provided a temporary boost but is time limited; federal reauthorization remains uncertain.

To close the gap, staff modeled revenue alternatives and three example scenarios: (1) a broad package that indexes fuel and registration fees and adopts some new fees (rental car, ride‑share, retail delivery) but limits general‑fund reliance, which still leaves a late‑period shortfall of roughly $1.5 billion; (2) a package that uses more general‑fund transfers to reduce new taxes and covers projected needs but would require nearly $1 billion in transfers in a later fiscal year; and (3) scenario two plus $10 billion in phased strategic borrowing between FY2028 and FY2037 to accelerate delivery of large projects, trading earlier completion benefits for long‑term debt‑service obligations.

Staff emphasized there is no single revenue source sufficient to close recurring gaps and recommended that any increase in shared revenues preserve local shares and earmark portions of new revenue to local governments for local projects.

Members pressed staff on project delivery timelines and construction cost drivers, arguing delays from planning, right‑of‑way and procurement can magnify inflationary cost growth. Senator Campbell and others urged additional analysis of why project pre‑construction phases take many years and whether streamlining or federal coordination could reduce costs. Several members also asked for recommended guardrails for any state borrowing (debt ratios, timing, dedicated revenue for debt service) and more analysis of public‑private partnerships and which project types may be suitable for P3s.

Staff said those items would be expanded in the final report and that they are coordinating with the University of Tennessee on congestion and economic effects analyses. The draft remains for review and comment; no formal policy action or vote was taken on the draft at the meeting.

Next steps include refining projections, adding further analysis of delivery timing and construction cost drivers, and developing clearer parameters for any recommended use of state debt or revenue changes.