June 2, 2014
By Emily Goff
America is a big country. Its surface transportation priorities vary by state and locality. Yet the system supposed to keep highways, bridges, and urban transit humming is a clunky, top-down operation. Worse, the Highway Trust Fund that pays for the system is going bust.
State and local officials, along with private citizens, certainly know better than remote federal bureaucrats how to prioritize and address traffic congestion, mobility, and safety problems in their communities. Yet funding and spending authority for these projects lies largely with the federal government. The centralized approach brings federal mandates and regulations that restrict the ability of locals to deal with their transportation problems efficiently.
Federal highway spending bills often seem geared more to satisfying special interest groups than to addressing transportation problems faced by those footing the bill: the motorists, bus operators, and truckers who pay the federal gas tax.
Congress and the Obama administration should dodge the typical money- grabbing mess and instead pursue bold reforms that would give states and localities more control over their transportation dollars and decisions. That’s the goal of legislation introduced by Sen. Mike Lee (R-UT) and Rep. Tom Graves (R-GA) as the Transportation Empowerment Act of 2014.
RAIDING THE HIGHWAY TRUST FUND
Anyone fueling up at the pump pays a federal tax—18.4 cents per gallon of gas, 24.4 cents per gallon of diesel. These and related excise taxes, dubbed “highway user fees,” are deposited into the HTF.
The HTF dates back to 1956. Supposedly a temporary fund, it was created to finance construction of a 42,000-mile interstate highway system. Once construction was complete, the highway program and the gas taxes supporting it were to be turned over to the states for them to manage.
By the early 1980s, the interstate system was largely in place. But Congress found it difficult to part with the gas tax revenues, which they had already begun steering to pet transportation projects in their districts. Successive Congresses reauthorized the highway program and gas tax, expanding the list of activities that could receive HTF money. Channeling highway user fees to non-highway projects ranging from light rail to bike trails has shortchanged motorists stuck in traffic or confronted with deteriorating roads and bridges.
Urban transit (subways, streetcars, buses) constitutes the largest diversion today. Congress began tapping the HTF in 1964 to shore up privately-run transit systems struggling to compete with the automobile. Over time, a portion of the gas tax was formally dedicated to a new transit account within the HTF. Today, the transit account claims 15.6 percent of gas tax revenues, even though transit accounts for less than 2 percent of the nation’s surface travel. In fiscal year 2013, $8.5 billion in HTF spending authority was diverted to transit projects.
Transit ridership is concentrated in just six metropolitan areas: Boston, Chicago, New York, Philadelphia, San Francisco, and Washington, D.C. The New York metro area, in fact, accounts for 40 percent of transit trips. The current set-up means that a Montana cattle rancher, for example, pays gas taxes to subsidize a Manhattan stockbroker’s subway commute.
Other federal trust fund diversions also serve purely local interests. Bicycle and nature trails, landscaping and community preservation projects, junkyard removal, archaeology, and other so- called transportation alternatives, were given $809 million in FY 2013. University research projects, and congestion mitigation and air quality programs were funded at $73 million and $2.2 billion, respectively. Ferry boats received another $67 million.
It all adds up. Today, more than a third of HTF dollars paid by motorists, bus operators, and truckers are spent “off road.” No wonder that many motorists fume over their “user fees” being spent on projects of absolutely no use to them. And, now, some members of Congress are telling them they need to pay more.
STATE OF THE TRUST FUND
Congress and the Obama administration are currently stuck trying to figure out how to pay for just next year’s highway and transit spending. They haven’t even started figuring out how to pay for a traditional six-year bill. The nonpartisan Congressional Budget Office reports that, starting this summer, the HTF won’t be able to make payments on projects it’s committed to funding. The Department of Transportation says the money may start drying up as early as July.
Lots of factors are contributing to the funding squeeze. Among them: increased fuel economy in cars, reduced driving due to lingering effects of the recession, and an inflation-induced decrease in the purchasing power of HTF dollars. Also not to be forgotten: Congress beefed up spending levels in the last few highway bills. For all these reasons, HTF spending is outpacing revenues, and the situation is unlikely to change anytime soon. A “standard” six- year bill funded at $54 billion annually would face a cash shortfall of $85 billion, about $15-$16 billion a year.
Ever interested in maintaining or in- creasing current spending, Congress has floated several ideas for raising HTF revenues: more cash transfers from the Treasury, higher fuel taxes, “temporary” tax grabs from corporations, or switching out the gas tax for a wholesale tax. President Obama’s latest idea, a “mode- neutral” transportation fund, would surely lead to greater spending diversions and tax hikes to pay for them.
None of these approaches has gained any political traction, and none would address the root problem: spending. Specifically, wasteful federal spending on local activities that comes at the expense of interstate maintenance and any other truly national priorities.
Washington and state officials do agree on one thing: the Highway Trust Fund is in no condition to pay for large, capital-intensive projects. A new solution is needed, because demand among the states for these kinds of projects will only grow.
Any discussion of highway spending must address congressional earmarks. Until the recent moratorium on earmarks, highway bills were chock full of carve-outs for projects in targeted congressional districts. The 1998 TEA-21 bill, for example, contained 1,850 such carve-outs. Not to be outdone, the 2005 SAFETEA-LU bill housed more than 7,000 earmarks, including the infamous “Bridge to Nowhere.”
As The Heritage Foundation previously noted, these earmarks “represent a federal rebuke of the priorities set by governors and local leaders who are far more familiar with the needs of their states and more closely tied to the wishes of their communities.”
While traditional earmarks are all but shunned today, highway programs that fund purely local activities have much the same effect as earmarks; Washington’s meddling in these local affairs overrides the authority of state and local officials and often winds up channeling sorely needed funds to less important projects.
SPENDING VERSUS TRANSPORTATION GOALS
Including local projects in what should be an exclusively federal program elevates the goals of special interest groups above those of people on the ground dealing with traffic congestion and mobility problems. According to the Texas Transportation Institute, in 2011 (most recent data) the average motorist in the Charlotte metro area wasted 40 hours, or a full work week, in traffic. In Los Angeles the average annual delay reached a whopping 67 hours. Motorists are spending more time in traffic and less time at home or at work.
Yet special interest groups have tremendous sway, reflected by the HTF spending diversions already discussed. Put another way, the diversions amount to spending restrictions imposed on the states and localities, and they distort state and local officials’ decisions.
If told that they must set aside 2 percent of their highway dollars for bicycle and walking paths and related transportation alternatives, states will generally do so, even though they have more pressing road and bridge projects in need of funding. Pennsylvania, for example, must set aside $27.5 million of its FY 2014 highway funds for non-road purposes. That’s money that otherwise could be spent on repairs to its 5,540 structurally deficient bridges.
Transit subsidies also distort local decision-making. Lured by $800,000 in federal and state transit grants, officials in Arlington, Virginia, built a million- dollar bus stop. Literally! Two hundred thousand dollars came from local funds, the rest from federal grants. This “super stop” is decked out with heated concrete and a digital display board. Ironically, it does a poor job of protecting waiting passengers from the elements, but what can you expect for a lousy million? Meanwhile, the average commuter in the Washington, D.C., metro area, which includes Arlington, wasted 67 hours sitting in traffic in 2011. With traffic that bad, a tricked-out bus stop is not the highest priority.
Compounding the problem are the constituencies that coalesce around these diversions, lobbying Congress for higher levels of funding for their pet projects. The clamoring from special interests makes it seemingly impossible for politicians and bureaucrats in Washington to set priorities that align with the real problems on the ground in the states. Congress could avoid a lot of these problems by restricting the federal highway program to projects that serve a clear, national interest, and butting out of state and local transportation issues.
A BETTER WAY
Sen. Lee and Rep. Graves’ Transportation Empowerment Act offers a pragmatic way to do just that: refocusing the federal highway program on national activities and freeing the states and localities to take the driver’s seat in dealing with their problems.
Under the TEA, federal fuel tax rates would be lowered incrementally. Over five years, the gas tax would fall from 18.4 cents per gallon to 3.7 cents. The diesel tax would follow suit. The size and scope of the federal highway program would also decrease. Diversions to urban transit, bicycle paths, walking trails, and landscaping would cease. States, of course, would be free to continue funding these projects on their own.
States would assume the taxing authority and be free to use the highway taxes collected within their borders as they deem appropriate. In all likelihood, states would raise their gas taxes by the same amount the federal tax rate declines. Highway users would suffer no net change at the pump.
States, of course, are not immune to transportation politics and wasteful spending. But state and local decision- makers are more likely to be held accountable than lawmakers and bureaucrats in Washington. This reform also would prevent HTF money from being used to push a Washington agenda.
Handing control back to the states is not a new idea. President Reagan proposed it in the 1980s, and members of Congress have introduced legislation similar to the TEA regularly for the last 15 years.
RESISTANCE TO REFORM
Members of Congress tend to propose either minor reforms to the highway program or dramatic increases in federal control and spending. They trot out the stimulus argument that government spending will spark overall economic growth and create lasting jobs.
More worrisome is the justification of an expansive federal role based on a misunderstanding of powers granted to Congress in the Constitution, namely, the powers to regulate interstate commerce and spend for the general welfare. Widely abused over time, these powers have been invoked to justify all manner of federal spending, regulation, and micromanagement. But in divvying up powers in the Constitution, the founders’ intent was clear: the federal government has authority to address national issues, and all other public matters, which vary due to local conditions, are reserved to state and local governments.
It is important for lawmakers to see the distinction here. They should not buy into either the economic stimulus argument or a misinterpretation of the Constitution.
STATES ARE ASSUMING CONTROL
One can glimpse how a post-TEA system would play out by monitoring what individual states are already doing to take transportation matters in their own hands.
Ken Orski, editor of Innovation Briefs, regularly writes about state efforts to pay for transportation infrastructure. Arkansas, Maryland, Michigan, New Hampshire, Virginia, and Wyoming have increased, or are considering increases in, their state gas tax or sales taxes. Massachusetts is pursuing a $13.7 billion plan financed by bonds. Texas is looking to revenues from statewide tolling.
States have also had success using long-term credit instruments to finance expensive projects. In Virginia, a public- private partnership used state funding and private dollars to pay for high-occupancy toll lanes on I-495. New York’s Tappan Zee Bridge project and San Francisco’s replacement of the eastern span of the Bay Bridge are being financed through similar funding arrangements.
Clearly, there is no shortage of private companies willing to invest in infrastructure. The difference between them and Washington, is that private investors are mindful of a project’s credit-worthiness and the financial risk involved. They’ll back I-495 HOT lanes, but only take a bite on California’s high-speed rail boondoggle because federal subsidies would reduce their risk.
WHAT CONGRESS CAN DO
Washington has become accustomed to pumping out highway user taxes to all kinds of projects. That needs to stop. In working up this year’s highway reauthorization bill, Congress should take the opportunity to embrace much- needed reforms such as:
Excessive federal regulations and man- dates shrink the buying power of states’ gas tax dollars. It could start by repealing the Davis-Bacon requirement that states pay “prevailing wages” for federally- funded transportation projects.
TIME FOR A NEW START
Motorists pay billions in gas taxes. They deserve better than the broken, Washington-centric transportation system in place now. Traffic congestion and a lack of mobility in cities and towns are get- ting worse. It is time for Washington to relinquish its role as an unnecessary middleman in state and local transportation management. Lawmakers should craft a plan that allows the Highway Trust Fund to live within its means, gives the states and localities increased authority, and refocuses the highway program on only national priorities that benefit those paying the gas tax that funds the system.
Free from Washington’s costly man- dates, the states, in partnership with the private sector, when appropriate, could efficiently solve their transportation problems and improve the quality of life in their communities.
- Emily Goff is a Policy Analyst in the Thomas A. Roe Institute for Economic Policy Studies at The Heritage Foundation.
Originally appeared in Townhall Magazine
Policy Analyst, Transportation and Infrastructure
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