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.
(Download
as PDF for printing)
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.