The Heritage Foundation

Executive Summary #1643 on Smart Growth

April 7, 2003

April 7, 2003 | Executive Summary on Smart Growth

Executive Summary: Reauthorization of TEA-21: A Primer on Reforming the Federal Highway and Transit Programs

Congress and the President should allow the troubled federal highway program to die a quiet death when the Transportation Equity Act for the 21st Century (TEA-21) expires on September 30, 2003. Since the completion of the interstate highway system more than 20 years ago, and with the increased urbanization of the population, America's transportation problems have become increasingly local and regional in nature. As a result, Washington officials have little to offer in the way of effective solutions to distant problems.

An Opportunity to Improve the System
Among the current law's many problems are the regional inequities between who pays and who receives, diversion of as much as 40 percent of fuel tax revenues to non-general-purpose highway projects that benefit small but influential fractions of the population, and increasing congressional meddling that circumvents state and local priorities by mandating construction of thousands of pork-barrel projects.

In place of the current system, Congress should transfer to the states all surface transportation responsibilities and the financial resources needed to fulfill them. Several legislative initiatives to accomplish this goal were introduced in 1997 during the debate on the last reauthorization of the surface transportation programs. However, they were not adopted. Instead, Congress enacted TEA-21 in 1998. Last year, Senator James Inhofe (R-OK) introduced a revised version of the Transportation Empowerment Act (S. 2861), which would allow states to keep most of the fuel tax revenues raised within their borders and spend them on locally determined mobility objectives.

With TEA-21 expiring later this year, Members of Congress and the hundreds of industries and special-interest groups involved in building the highways and transit systems are now supporting replacement legislation that will keep Washington officials and influential
special interests at the center of the system. If they succeed, the resulting legislation will continue to divert significant portions of fuel tax revenues to initiatives that do nothing to improve travel and mobility on America's highways and roads.

Counterproductive Diversions
Among the many counterproductive diversions from the highway trust fund, the largest is the 2.86 cents of the 18.4-cent federal fuel tax that is applied to the Mass Transit Account of the Highway Trust Fund. In turn, these revenues are spent on a variety of transit projects throughout the country, including buses, light rail systems, ferries, and commuter rail. Currently, federal spending on transit is authorized at about $7.2 billion per year and is expected to account for a little more than 20 percent of federal highway trust fund revenues in 2003.

Because transit moves only a small fraction of American travelers and none of its freight, this mandated diversion of one-fifth of all trust fund money hinders mobility, destroys jobs, and diminishes the productivity of the U.S. transportation system. These negative consequences occur because the federal transit mandate shifts a large portion of the budget to a costly, inefficient, and underutilized mode of transportation (transit) at the expense of a mode (roads) that is used substantially more and is more cost-effective. As a result, the system provides large subsidies to a few riders who are disproportionately concentrated in a small number of major metropolitan areas.

Distortion in Funding
According to the U.S. Bureau of the Census, transit's share of work trips nationwide was only 4.5 percent in 2000, down from 5.2 percent in 1990. For all trips, including work trips, transit's share of the urban markets is just 1.9 percent when measured on a per-passenger-mile basis. For all regions, transit's share is closer to 1 percent. In effect, under the existing federal transportation program, 1 percent of passengers receive 20 percent of all federal transportation subsidies. This distortion in funding is one reason that roads in major metropolitan areas are so congested, in contrast to the largely empty transit buses that use them.

Pervasive Inequity
Another source of unresolved conflict is the pervasive inequity that exists between "donor" states (whose motorists pay more in fuel taxes than they receive back from the program) and "recipient" states (which receive more than they pay). Over the past several decades, many of the southern and western states have found themselves donors, while states in the northeast and central regions of the country are most often recipients. In the year leading up to the reauthorization of the Intermodal Surface Transportation Efficiency Act, many donor states organized themselves as STEP 21, an advocacy group that sought to ameliorate the inequity by guaranteeing each state at least a 90.5 percent return on fuel tax revenues. While such a provision was included in TEA-21, many argued that it would be ineffective, and this seems to have been the case as many traditional donor states still receive returns below 90 percent.

Having completed construction of a 41,000-mile interstate highway system from coast to coast and border to border, the federal government has found it difficult to resolve surface transportation problems that are increasingly local and beyond the skill of a Washington bureaucracy and congressional committees. Despite record levels of highway spending, congestion is worsening and roads are deteriorating. Yet many in Congress and the Administration appear to have little interest in doing much more than reauthorizing the status quo, albeit at higher levels of taxpayer funding. If this is all it achieves, Congress will have done little more than perpetuate a defective system for another six years of worsening congestion and deteriorating roads.

Alternatively, if the federal role in surface transportation can be diminished, states will have an opportunity to rectify the four key problems with the current system: (1) The motorists and truckers who fund the system will get a more equitable return on their taxes, and overall mobility will improve; (2) the inequitable geographic allocations in the current system will be eliminated; (3) transportation priorities will be set by state officials, not by Washington officials trying to satisfy politically influential constituencies; and (4) reform-minded state officials, no longer hobbled by federal prohibitions and costly mandates, can introduce promising reforms that have succeeded elsewhere.

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

About the Author

Ronald D. Utt, Ph.D. Herbert and Joyce Morgan Senior Research Fellow