What Happened in 2002

Surface Transportation. Most of today's surface transportation mobility problems are local or regional in nature, making a centralized, one-size-fits-all federal program that is micromanaged by congressional staff for the benefit of privileged constituencies a poor solution for worsening traffic congestion. Indeed, the current federal highway program contributes to traffic congestion by misallocating billions of dollars to such ineffective programs as mass transit, which carries fewer than 5 percent of commuters but absorbs 20 percent of federal highway funds.1

Higher fuel efficiencies and stagnation in the number of miles driven by motorists combine to diminish the flow of tax revenues to the highway trust fund below what is needed to meet the repair and expansion needs of the crowded and overused highway infrastructure. At the same time, the federal government imposes a number of counterproductive regulations on the system, including prevailing wages, proscriptions on private-sector participation, and prohibition of tolls on many highways, all of which limit the development of creative solutions and partnerships with the private sector.

Aviation. The terrorist attacks on September 11, 2001, confronted federal aviation programs with difficult challenges and struck a severe blow to America's commercial aviation system, substantially raising the cost to operate while reducing the flow of ticket and user fee revenues. The consequence has been widening losses in airline income statements and in the federal aviation trust fund, which finances the air traffic control system, airport construction, and safety oversight. On top of these daunting financial problems has been added the need to pay for a more robust airport security system that may cost as much as $6 billion per year.

Federal aviation operations are funded by 12 separate user fees and taxes (plus four more levied on international flights and passengers), so the decline in passenger traffic since September 2001 has meant reduced revenues.2 With business depressed, any effort to raise or to add user fees could lead to even less revenues, as the higher fees would further discourage passengers and shippers. As a result of these revenue shortfalls and rising costs, the federal government temporarily has had to fund the federal aviation programs out of general revenues from the U.S. Treasury. This in turn has added to the overall budget deficit. The Federal Aviation Administration's (FAA) contribution to greater federal deficits will continue through the foreseeable future, as commercial aviation is expected to be operating at depressed levels for the next several years.

Amtrak. Amtrak, which carries only 0.6 percent of intercity passengers nationwide, is burdened by operating and management deficiencies of such severity that it now claims it needs its annual subsidy doubled to $1.2 billion just to maintain the current level of poor service. Despite a 1997 statutory requirement to operate at a profit by 2003, Amtrak's unqualified management team registered five years of escalating losses, and Amtrak now loses two dollars for every dollar of tickets sold.3 In 2002, its financial condition was so precarious that Congress and the President were coerced into giving it an emergency bailout of several hundred million dollars to prevent it from shutting down before a holiday weekend. And despite its effort to promote itself as a safer alternative to airplanes, Amtrak also experienced a decline in passengers during fiscal year 2002.

What to Do in 2003

With all three federal transportation programs subject to reauthorization in 2003, Congress and the President have an opportunity to implement fundamental reforms that improve service and lower taxpayer costs. Specifically, Washington should:

• "Turn back" the federal highway and transit program to the states. The federal highway program should be decentralized by turning back to the states the responsibility to collect, retain, and spend the 18.4 cents per gallon federal fuel tax on their transportation priorities. Legislation (S. 2861) introduced in 2002 by Senator James Inhofe (R-OK) would do this. The program's decentralization should have no strings attached to it, and states should be permitted to invest in those projects that they deem to be high priorities. No longer should the system be required to provide underutilized transit systems with a fifth of the funds, or to fund hiking and bike paths, or historic preservation. Instead, states should be allowed to allocate funds according to customer usage and mobility needs rather than special interest preferences.
• Deregulate the highway and transit programs. Federal prohibitions on tolls, privatization, and the broad use of infrastructure banks should be eliminated, as should the federal requirements that highway construction and transit operation be operated at union-determined wages and contracts. These union mandates add substantially to program costs.
• Privatize Federal Aviation Administration programs. The FAA should be subject to the same types of privatizations, partnerships, and competitive contracting reforms that are occurring in aviation in dozens of other countries around the world.4 Confronted by a huge security cost increase at a time when user fees are declining and airlines are losing billions of dollars, shifting ownership and operating responsibilities to the private sector would allow the federal government to better focus its attention and limited resources on the higher security requirements.
• Privatize or commercialize FAA's Air Traffic Control system. The adoption of an ambitious Canadian/European-style reform program to privatize the air traffic control system could substantially reduce operating costs, improve technology in use, and free up public resources to meet higher priorities.5 In early 2001, Office of Management and Budget Director Mitch Daniels publicly endorsed such aviation reforms, but officials in the Transportation Department, the airline industry, and Congress opposed his proposals. In 1994, officials in the Clinton Administration endorsed a similar set of reforms that would have improved service and saved money.
• Encourage airports to privatize. Either state governments or municipal authorities own virtually all airports in the United States. Nevertheless, most airports receive or have received federal subsidies, are regulated by the federal government, and are exempt from paying taxes. Since it began in the United Kingdom in the 1980s, airport privatization has become increasingly common around the world.6 By privatizing airports, these countries have turned tax users into taxpayers. By doing the same in the United States, limited federal resources could be focused better on security objectives.
• Privatize Amtrak by creating partnerships with private operators. The President should impose on Amtrak the same degree of market discipline and management efficiency now common in the privatized systems of the United Kingdom, Australia, and Japan. He could do this by requiring Amtrak to contract out to private sector providers all of its operations over a phase-in period of up to five years.7 Two pieces of legislation introduced by Representative John Mica (R-FL) and Senator John McCain (R-AZ)--H.R. 3591 and S. 1958, respectively--seek to create such a process of incremental privatization.
• Raise passenger rail service to the same standards common in other countries. At a recent Heritage panel discussion, the World Bank's rail expert predicted that within a few years the United States and Cuba would be the only two countries in the Western Hemisphere still committed to operating a socialized passenger rail system. Most other countries are solving their costly rail problems through privatization, partnerships, and competitive contracting. The United States can learn from their experience.

Ronald D. Utt, Ph.D., is the Herbert and Joyce Morgan Senior Research Fellow in the Thomas A. Roe Institute for Economic Policy Studies at The Heritage Foundation.

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