# The Heritage Foundation

WebMemo #645 on Smart Growth

February 1, 2005

February 1, 2005 | WebMemo on Smart Growth

# Time for Congress to End the Regional Inequities in the Federal Highway Program

Among the many reasons Congress was unable to reauthorize the federal highway program last year was its inability to ensure an equitable regional distribution of federal highway money among the fifty states. Largely funded by the federal fuel tax that motorists and truckers pay when they fill their tanks, federal highway spending is distributed to the states according to a complicated mathematical formula that attempts to measure need. The formula has changed little since it was developed decades ago and today contains pervasive inequities that consistently reward some states with more money than they pay in ("donee" states) while shortchanging others ("donors"). The donee states are clustered mostly in the Northeast, while the donor states are mostly in the South and Great Lakes region.

The table below quantifies how states have fared in highway spending relative to the taxes their citizens have paid into the highway trust fund-in other words, states' return ratios. The table's second column lists the states' return ratios for 2003 (the most recent year for which data is available), and the third column lists the same measure on a cumulative basis since the program was created in 1956. These ratios are calculated from Table FE-221 of Highway Statistics: 2004, published by the U.S. Federal Highway Administration. States with a ratio of less than 1.0, such as Texas with its 0.857 ratio in 2003, are donor states, paying in more than they receive back. Others with ratios above 1.0, such as New York with its 1.274 ratio, are donee states. Expressed another way, Texas motorists accounted for 8.9 percent of the tax revenues flowing into the trust fund in 2003 but received only 7.6 percent of the fund's disbursements in return. Had Texas received the same share coming out as it paid in, the state would have received an additional \$379 million in federal highway dollars in 2003. New York motorists, by contrast, accounted for 4.2 percent of the money going into the fund in 2003, but got back 5.4 percent of the money coming out.

As the table's third column reveals, inequality among states has characterized the federal highway program since it was created fifty years ago. Since 1956, Oklahoma, another big loser, has accounted for 1.7 percent of the money going into the trust but only 1.4 percent of the money coming out. While this difference is only a few tenths of a percent, when applied over 50 years and billions of dollars the losses add up: \$2.9 billion for Indiana, \$9.7 billion for Texas, and \$5 billion for Florida. The fifth column lists each state's rank by income and demonstrates another aspect of highway program's regional inequities: lower income states ship money off to the richer ones.

But it gets worse. The regional inequities in transit spending are greater than those in spending on highways, as the table's fourth column reveals. Under current law, 2.86 cents of the 18.3 cents in federal fuel taxes collected on each gallon of gasoline sold is deposited into a transit account and then allocated to fund transit projects, such as buses, light rail, subways, and so on, around the country. Note that many highway donor states are also transit donor states, receiving less for transit projects than they paid into the transit account. In this way, Georgia (with a transit funding ratio of 0.637), Florida (0.598), Oklahoma (0.237), Texas (0.573), Ohio (0.553) and many states get shortchanged a second time.

Just as many of the highway donor states are also transit donors, many of the highway donee states are also transit donees. For example, Pennsylvania, a highway donee, got back 24.9 percent more in 2003 than it put into the transit account, Connecticut 61 percent more, and New York a staggering 233 percent more.

In response to growing complaints from donor states about the pervasive unfairness of the program, Congress has proposed a number of deceptive measures that pretend to accommodate the donor states with an "equity bonus" to achieve the mathematically impossible result of giving all states an above average return share. While some states were fooled by this exercise in 1998, many donor state senators and representatives objected to it during last year's failed effort to reauthorize the program, and they should do so again.

With donors comprising about half of the states in the nation, their elected officials account for a substantial bipartisan voting bloc in Congress, and this year they should use their power to insist that a permanent and meaningful remedy to these pervasive regional equities be a part of any highway reauthorization bill. While one way to do this is to change the flawed formulas that govern the program, an even better way would be to begin the process of "turning back" highway funding to the states and allowing each state to retain the federal taxes receipts collected within its borders. Given the congestion reduction needs of the faster growing states, there is no reason why motorists in Texas, Georgia, and other donor states should be subsidizing the wealthier citizens of Connecticut, New York, and Pennsylvania.