March 7, 2005

March 7, 2005 | WebMemo on Smart Growth

Congress Gets Another Chance to Improve America's Transportation: Should It Be Its Last?

As the 109th Congress convenes, high on the agenda for action early in the new session is the completion and enactment of legislation to reauthorize the federal highway program. Created in 1956 and subject to formal renewal every six years, the current law expired in September 2003, but Congress and the President have been unable to agree either on the contents of the new law or on how much to spend on roads and transit over the next six years. As a consequence, the current law has been extended for a series of short intervals, with the current extension scheduled to expire in May 2005.


Having been given a second chance to write a better bill than last year's many failed versions, Congress should look beyond the "tax users" in the industries, unions, environmentalists, rail hobbyists, state departments of transportation (DOTs), and trade associations that have been spending millions of dollars to lobby and influence the bill and instead craft something that benefits the motorists and truckers who pay the federal fuel tax that fills the trust fund and finances the system. To accomplish this, the new bill should:

  1. Be limited to those programs that enhance mobility and safety,
  2. Add capacity where needed on modes people want to use,
  3. Relieve congestion,
  4. Upgrade existing infrastructure, and
  5. Devolve the resources and decision making to the states, which know their priorities better than Washington does.

One way to accomplish these goals could be to turn back the highway program to the states or to allow states to voluntarily opt out of the program in return for agreeing to meet a series of quantitative performance criteria.


Sources of Conflict

Among the many differences that prevented the House, the Senate, and the President from agreeing on a reauthorization bill in 2003 and 2004, the chief disagreement concerned the total amount of money to spend on the program over the next six years. The chairman of the House Committee on Transportation and Infrastructure wanted to spend $370 billion, the Senate wanted to spend $318 billion, and the President wanted to spend $256 billion. With the President effectively threatening to veto any bill that exceeded his total unless it had spending cut offsets in other programs, no agreement could be reached before the 108th Congress came to an end in December 2004. While there were many more disagreements among the three parties on transportation policy issues other than the amount of total spending, House and Senate negotiators did finally agree to limit six-year highway/transit spending (obligation authority) to $283.9 billion late last year, and it was reported at the time that the White House would accept the total.


As the House and Senate begin again the process of trying to reauthorize the highway program, there is some agreement among all parties, including the White House, that spending will be limited to the six-year equivalent of $283.9 billion. If that is ultimately settled, both chambers intend to introduce bills similar to those they passed last year, move quickly to passage some time early this year, settle any differences in conference, and send the final result to the President for his signature.


That plan, however, may be wishful thinking because there are still a number of unsettled important issues, both within and between both chambers, about the contents of the bill, chief among them being the pervasive regional spending inequities that are embodied in the program and maintained in both bills. And while optimistic reports suggest that donor states are prepared to accept a return rate yielding no more than 92 percent of what they pay in, it is hard to imagine an elected official from a southern state bragging to his constituents that he left money on the table so that New York and Connecticut could maintain an unfair advantage.


Under current law, most southern states and those that ring the Great Lakes send more money to the trust fund than they get back, while most Middle Atlantic and New England states get back more than they pay. Congress failed to resolve this issue last year and has not yet produced a solution in 2005. Indeed, the equity section of H.R. 3, or TEA-LU, introduced by House Transportation and Infrastructure Committee Chairman Don Young (R-AK), remains blank as of early March 2005. Other deficiencies in the draft legislation now under consideration include billions of dollars of trust fund money diverted to non-transportation purposes, high spending on costly but underutilized programs, and the preservation of a Washington-based command and control system at a time when transportation problems are increasingly local in nature.


Worsening Congestion

As a result of these wasted diversions of highway money to ineffective programs, low-priority spending, and pork-barrel projects, road congestion has worsened during the period in which the federal highway program followed the dictates contained in the poorly conceived reauthorization bills passed in the 1980s and 1990s. Table 1 provides the recent trends on the Annual Hours of Delay Per Traveler for select cities, as reported by the Texas Transportation Institute. Table 2 provides trends in the TTI Travel Time Index, another measure of congestion for the same select cities. Both measures reveal a dramatic worsening of traffic congestion over the past few decades.




Unless the bills being developed in Congress address these many deficiencies, their enactment will do little to relieve the worsening congestion and deteriorating infrastructure that truckers and motorists face each day. Indeed, by squandering valuable resources that could otherwise be devoted to adding capacity, the current legislative proposals will contribute to a further deterioration of highway mobility.


With the legislative process on track to spend hundreds of billions of dollars in ways that will provide no meaningful benefits to road users, Members of Congress should insist on something better, and if they fail to get it, the President should be prepared to veto the bill and send it back for improvement. With federal budget deficits now approaching $500 billion, America cannot afford another highway bill as wasteful and useless as the last two.




The Unresolved Inequity Issue

Under current law, federal trust fund spending on highways and transit is distributed among the states according to a complicated mathematical formula that attempts to relate resources to 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 New England and the Middle Atlantic, while the donor states are mostly in the South and the Great Lakes region.


Table 3 quantifies how states have fared, both in recent years and since the program's inception, relative to the taxes their motorists have paid into the trust fund. Each of the table's cells presents a state's "return ratio," or the ratio of the share of the trust fund spending the state receives compared to the share of the revenues it pays in. For example, because Texas receives 7.6 percent of the trust fund spending but accounts for 8.9 percent of money paid into it, its return ratio is 0.857.


Table 3's second column lists the states' return ratios for 2003 (the most recent year for which data are available), and the third column lists the same measure on a cumulative basis for the years since the program was created in 1956.[1] 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. Had Texas received the same share coming out as it paid in, it 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.


As the table's third column reveals, inequality among states has characterized the federal highway program ever since its creation 50 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 later, the losses add up: $2.9 billion for Indiana, $9.7 billion for Texas, and $5 billion for Florida.[2]


The fifth column lists each state's rank by income and demonstrates another aspect of the highway program's regional inequities: Lower-income states ship money off to the richer ones. Mississippi, ranked 50th by income, is a donor state, shipping money off to Connecticut, a donee state ranked number one in the nation by personal income.




As inequitable as highway spending is, however, the allocation of federal transit spending-which comes out of the "transit account" in the highway trust fund-is even worse, 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 is deposited into the transit account of the highway trust fund and then allocated around the country to finance transit projects, such as buses, light rail, subways, and trolley cars. Note that many highway donor states are also transit donor states, receiving less for transit projects than they paid into the transit account: Georgia (with a transit funding ratio of 0.637), Florida (0.598), Oklahoma (0.237), Texas (0.573), and Ohio (0.553) are just a few of the many donor states that get shortchanged twice.


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 a 24.9 percent greater share in 2003 than it paid into the transit fund, while Connecticut received 61 percent more and New York received a staggering 233 percent more.


In response to growing complaints from donor states about the program's pervasive unfairness, Congress has proposed a number of deceptive measures that pretend to accommodate the donor states with an "equity bonus." By adding money back from a special reserve account to every state's allocation (regardless of whether the state is a donor or donee), Congress attempts to achieve the mathematically impossible result of providing all states with an above-average return from the trust fund. 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. 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. One way to do this is to change the flawed formulas that govern the program, but an even better way (described in more detail later in this paper) would be to begin the process of "turning back" federal highway funding to the states and allowing each state to retain the federal fuel tax receipts collected within its borders.[3] Moreover, while the existing system of subsidies for those mountain and plains states with low population densities should be maintained, 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.[4]


Whatever way is chosen, donor states should insist that the improvements go beyond the cosmetic changes of previous legislation and address the program's inequities in a meaningful and permanent way.


Leaks and Diversions from the Trust Fund

For the first several decades of the federal highway program's existence, virtually all of its energy and resources were devoted to the task it was created to fulfill: to build a 42,000 mile high-speed, limited-access interstate highway system from coast to coast and border to border, connecting all of the cities in between. That task was largely completed by the early 1980s, and with no similarly compelling and clear objective to guide it, successive Congresses began the process of diverting the trust fund's resources to other purposes. While the diversions initially focused on non-road, transportation-related investments such as transit, over time non-transportation projects such as nature trails, museums, flower plantings, and historic renovation became eligible for trust fund spending.


As a consequence of the growing number of diversions, legislative proposals now before Congress would divert as much as 42 percent of federal fuel tax revenues paid by the motorist to projects that are unrelated to general-purpose roads. Table 4 lists the main diversions that the legislative proposal would continue and some of the new ones that it would create.




Transit. Until 1982, federal spending for transit was limited and funded largely from general revenues. But as transit costs rose and ridership fell during the early decades of the postwar era, most private systems confronted financial insolvency and were taken over by local government and subsidized to maintain service. As subsidy costs increased, state and local governments turned to the federal government for additional relief. In response, Congress created a transit account in the highway trust fund and financed it with a portion of the federal fuel tax (now 2.86 cents per gallon) paid by motorists.


Although it is used by less than 2 percent of overall passengers and less than 5 percent of commuters , transit has been receiving a little more than 20 percent of federal surface transportation spending, mostly from the trust fund. Under proposals now before Congress, transit's spending share will rise to almost 22 percent of federal transportation spending, despite continued loss in market share. As noted in Table 3, the allocation of federal transit spending is even more inequitable than that for highways. In part, this reflects the concentration of transit riders in only a few parts of the country. In 2000, 75 percent of transit ridership took place in just seven metropolitan areas.[5]


Bikes and Hikes. Until very recently, bicycle paths and related spending were funded through the federal Congestion Mitigation and Air Quality program, Recreational Trails, the Enhancement program, and "High Priority Projects" (earmarks), all of which are financed by the trust fund. With the new legislation, Congress proposes to create three new biking and hiking programs, including a related initiative to combat adolescent obesity.


In addition to what would continue to be spent through the existing bike-supporting programs, Congress would create the Safe Routes to Schools, a Non-motorized Pilot Project, and a Bicycle and Pedestrian Clearinghouse; when combined with the existing Recreational Trails program, these would account for a total of $290 million in spending per year over and above the bike-and-hike spending from the existing three programs. The six-year spending total would amount to just over $1.5 billion, all courtesy of taxes paid by motorists.


High-Priority Projects/Earmarks. Earmarks, or pork-barrel projects, refer to the thousands of locationally specific spending items that are listed in the reauthorization bill. Typical is the "$4,000,000 to extend and improve Mission Trails Project, San Antonio [Texas]," or "$600,000 for Streetscape (pedestrian safety enhancements, sidewalk, curb replacement, restoration, landscaping, ADA compliance) for Bainbridge [Georgia]."


The reauthorization bill passed by the House (TEA-LU) last year (but not ultimately enacted) contained about 3,000 such earmarks, and the final bill could have included as many as 5,000 once the Senate added its earmarks in conference. Referred to in the bill as "High Priority Projects," they are anything but that. Indeed, they are explicitly listed in the bill as must-do projects because few state DOTs would do them if allowed to determine their own transportation spending priorities.


The propensity to earmark has become an increasingly severe problem in federal budgeting, and virtually all discretionary spending programs have experienced an escalation in the number of earmarks included. The 1987 highway bill contained 152 earmarks, 538 were added to the 1991 bill, and 1,850 were included in 1998's TEA-21. Trends underway in current deliberations suggest that the final 2005 version will have as many as 5,000 to 6,000.


To facilitate the growth of earmarks, the new House proposal (H.R. 3) creates a new spending category, "Projects of National/Regional Significance," to supplement the existing "High Priority" projects. H.R. 3 proposes to spend $3.3 billion on these combined earmark programs in FY 2006. Significantly, earmarks in H.R. 3 will amount to 8 percent of all trust fund spending in comparison to 4.4 percent of all spending in 1998's TEA-21.


Congestion Mitigation and Air Quality. The Congestion Mitigation and Air Quality (CMAQ) program was created in 1991 with the enactment of that year's reauthorization bill (ISTEA) for the purpose of helping states to comply with air quality standards. In recent years, half of CMAQ spending has gone to transit projects, while another 15 percent funds projects related to bicycles, walking, car pools, and other forms of ride sharing.


Under 1998's TEA-21, CMAQ received 3.5 percent of funding, but TEA-LU proposes that this be increased to a 3.8 percent share. In effect, CMAQ raises transit's overall share in the bill to approximately 25 percent of all surface transportation funding.


Appalachian Regional Commission. The Appalachian Regional Commission (ARC) was created in 1965 to promote revitalization of the economically depressed counties that comprise the Appalachian region of 12 eastern states. Prior to 1998, the road-building portion of the program was separate from the federal highway program and received its own appropriation. In 1998, Congress rolled it into the federal highway program and allowed it to tap into trust fund revenues.


Because ARC road spending is over and above what these 12 states receive through their normal allocation formulas, this program has the consequence of transferring money from motorists in one set of states to those in the few states that are eligible for ARC spending. At $470 million per year in H.R. 3, ARC would be getting $20 million more per year than it did under TEA-21.


Federal Lands. Like the ARC, federal spending on roads in federal lands was once included in the appropriation accounts for the National Park Service, National Forest Service, Bureau of Indian Affairs, and Bureau of Land Management. As with CMAQ, it was through the enactment of 1991's ISTEA that the responsibility for funding these programs was shifted from general revenues to the highway trust fund, thereby reducing the amount of money available for general-purpose roads and understating the budgetary resources available each year to the Departments of Agriculture and Interior. H.R. 3 proposes to provide both programs with a slightly higher share than they received in 1998's bill.


Enhancements. The enhancement program does not receive a separate budgetary line item in the bill, but federal statutes mandate that states allocate 10 percent of the money they receive through the federal Surface Transportation Program (STP) to eligible "enhancement" projects. These typically include landscaping, flower plantings, historic preservation, hiking trails, river walks, museums, and vintage transportation vehicles, including the design and construction of historic sailing vessels.


Under H.R. 3, six-year enhancement spending would total $3.9 billion. The frivolous nature of these projects can be observed on the Web site for the Virginia Department of Transportation, which lists each and every enhancement product recently approved for the state.[6]


Other Diversions from Roads. Other mandated diversions include roads designated as Scenic Byways and permanent funding of university-based transportation research centers that reflect the earlier influence of a state's congressional delegation-for example, the Mineta Transportation Institute at San Jose State University in California. States are also required to establish metropolitan planning organizations throughout the state and to finance their administrative operations with 1 percent of the money they receive through the STP.


Finally, although the federal transportation program is still largely operated by the states, the extra layer of federal oversight and bureaucracy costs motorists $395 million per year in salaries, rent, travel, paper, utilities, paper clips, etc.


The Consequences of Diversions. As is apparent from the above discussion of diversions, a substantial portion-more than 40 percent-of the money that motorists will pay into the trust fund in the form of user taxes is diverted to uses that have little to do with general-purpose highway improvements or additions. For the many donor states that each year export to other states a sizable portion of the fuel tax revenues collected from their motorists, these diversions are particularly costly, coming on top of an already shrunken base of funding.


As a consequence, despite the tens of billions of dollars spent each year on purported transportation projects, little new capacity has been added, and traffic congestion worsens in the nation's major metropolitan areas. If H.R. 3 is enacted in its current form, this pattern of deterioration will accelerate because the proposal expands on the worst aspects of its predecessors.

Options for Reform

Recognizing that the federal highway program has become burdened with a growing number of deficiencies over the past few decades, many transportation analysts and elected officials have proposed a number of reforms to improve the program's ability to meet the mobility challenges stemming from an environment in which the number of highway users has increased much faster than has the capacity of the roads to serve them.


For analytical convenience, advocates of these reform proposals can be divided into two schools of thought: incrementalists and fundamentalists. Incrementalists, for the most part, assume that the federal highway program is basically sound (or at least politically unchangeable) but could use an update here and a reform there. Fundamentalists assume that the program is fundamentally flawed and needs wholesale replacement to better accommodate the world as it is 50 years after the program was created.


The Incrementalists. In large part, incrementalists believe that continuance of a major federal highway program of some sort is essential for coordinating the nation's transportation investments and that the federal fuel tax is an efficient and cost-effective way to raise the financial resources needed to fund such a program. They also recognize that the fuel tax is not providing the resources needed to maintain and expand the highway system, but acknowledge that there is little political support to raise the fuel tax to the rate necessary to generate the funds.


The incrementalists' response to this problem is to recommend that existing federal law be amended so that it can better accommodate alternative sources of fee and investment revenues and, in addition, that these new revenue-raising mechanisms:

  • Better target the new revenues to where the need is greatest, and
  • Serve as a market pricing mechanism (also called "congestion pricing") to allocate the limited infrastructure among prospective users more efficiently.

To achieve these goals, incrementalists advocate a greater use of tolls to raise additional revenues and propose that, in some cases, these tolls be allowed to vary by time of day and day of week to ease congestion by deterring road use during crowded commute times. Related to this approach are a number of variants that would limit the application of tolls only to new-capacity, premium-service toll express lanes, truck-only lanes, and/or the conversion of HOV lanes to HOT lanes where car pools still ride free but single occupant cars must pay a fee.


Many incrementalists also favor greater private-sector participation in road investment and operations, often in partnership with the public sector. In the typical case now being implemented in Virginia, Georgia, and Texas, the public sector provides the right of way and perhaps some money, while the private sector designs the project, both financially and structurally; arranges for the borrowed funds; builds the road; and works with the public sector to design a toll collection system to service the debt and pay the road's maintenance. To facilitate greater private-sector involvement, some advocate the availability of tax-exempt private activity bonds to private-sector highway developers in order to level the financial playing field between government and business.


During the past year, versions of many of these initiatives were introduced as legislation, and some were incorporated into the reauthorization bills proposed by the House, the Senate, and the President. President Bush's bill proposed an expansive version of variable-priced tolling that could be implemented at the discretion of a state, while the Senate bill, in addition to variable-priced tolling, also would have allowed for a limited amount of private-activity bonds for private-public partnerships. The House bill included a tolling proposal that limited such fees only to new capacity, in comparison to the Senate's unlimited applicability.


In the end, the failure to reenact a reauthorization bill meant that none of these proposal became law, but it is expected that many will be embodied in legislation now being introduced.


The Fundamentalists. By contrast, fundamentalists believe that the flaws in the federal highway program are fundamental, deeply entrenched, and beyond meaningful remedy either through changes in existing law or through additions to it, such as those described above. While most fundamentalists also support the types of reforms advocated by incrementalists, they believe that these reforms by themselves would merely compensate for and offset the existing deficiencies that would largely be left intact by the incrementalists. Worse, many believe that these deficiencies would be likely to infect the new improvements, such as diverting toll revenues to transit, or other non-road uses, as is now occurring in New York City and will soon be imposed in Northern Virginia on the Dulles Toll Road.[7]


In addition, fundamentalists question the wisdom of leaving much of the existing system intact, arguing that this perpetuates the existing waste and misallocation of the $40 billion in fuel tax revenues that would still flow into the system each year under the incrementalists' plan. With fundamental reform, these now-wasted resources can be redirected to meaningful congestion relief and road improvements, thereby obviating the need for some of the additional resources raised by the tolls and other new revenue sources advocated by the incrementalists.


Chief among the reforms advocated by the fundamentalists is the "turnback" of some or all of the federal highway program to the states. Arguing that the program was created to build the interstate highway system-a goal that was met in the early 1980s-fundamentalists believe it is time to declare victory and shift the resources back to the states in recognition that today's surface transportation problems are largely local or regional in nature and that a Washington-based, centrally planned, command and control program has little to offer by way of solutions. Moreover, the politicization of the program has contributed to many of the diversions and regional inequities as elected officials pander to influential constituencies at the expense of the motorists who fund the system with their taxes and suffer the consequence of program waste and misallocation.


Under turnback proposals that have been introduced in Congress over the past 10 years, the federal government would incrementally shift both the highway responsibilities and the financial resources to fulfill them to the states. Most proposals would accomplish this by reducing the federal fuel tax by annual increments-say 4 cents per gallon per year-and adding that amount to the gasoline tax that the state collects on its own.


In this way, the total tax paid by the motorist would stay the same, but the allocation of that revenue would shift to the states year by year until the collection of all 18.3 cents of the federal fuel tax is shifted to the states and all federal collections cease. States would still be responsible for interstate maintenance and improvement, as they are today, but would now be free to do it in a way that best suits their interests, whether through tolls, partnerships, privatization, competitive contracting, or some combination.


Now free of the federal one-size-fits-all program, states would be better able to tailor their spending and investment to their particular needs, not those of a Washington bureaucracy or the privileged constituencies that have appended themselves to it like barnacles on an aging ship. As a consequence of these improvements and the more efficient use of resources that turnback would yield, transportation service for the traveling public would improve at a much lower cost than the attainment of that same measure of improvement would have required under the old system. At the same time, donor states that consistently lose money under the current system would be made whole.


Legislation to turn the federal highway program back to the states was first introduced in Congress in 1997 by Representative John Kasich (R-OH) and Senator Connie Mack (R-FL) during the reauthorization debate that led to the enactment of TEA-21. Senator James Inhofe (R-OK) introduced similar legislation in the 107th Congress, while Representative Jeff Flake (R-AZ) introduced his own version of turnback in the 108th Congress.


None of these proposals came close to being enacted, but they all helped to focus the debate on the regional equity issue, which in turn contributed to the inclusion of partial remedies in TEA-21 and in most of the reauthorization proposals now under consideration. As Congress begins the debate on the second attempt in as many years to reauthorize the program, new versions of a turnback plan have been developed separately by Representative Flake and by Representative Scott Garrett (R-NJ) and will be introduced in the House during the debate.


However attractive the various turnback plans are to state DOTs that would gain more money and influence, or to the elected officials from donor states that would have equity restored, most see the plan as much too radical for a Congress not known for innovative thought. The biggest obstacle of all, however, is that any turnback plan would deny Congress the opportunity to spend $40 billion on friends and favorites.


The second important obstacle is the donee states, which would see this proposal as an end to the regional inequities that have provided them with billions of dollars of unjustified benefits. As a consequence, and short of a revolt by governors threatening secession, it is unlikely that Congress would ever willingly agree to pass legislation that would so diminish their power and influence.


A Turnback Hybrid. Recognizing the significant political obstacles that a comprehensive turnback plan would have to overcome, an attractive alternative would be the maintenance of a dual system that allowed states either to remain in the program as it exists today or to opt out at their discretion. Those states that believe the existing program offers a valuable source of support and guidance in meeting their surface transportation needs would be able to remain within the program ("opt in") as it exists today and would be served by the existing state-by-state funding allocation formula. Fuel tax revenues collected from all of the opt-in states would then be redistributed among them in accordance with existing, and unchanged, formulas.


Opt-in states would also be exempt from having to make complicated allocation decisions between project types, modes, and investments because the federal government would tell them how much they had to spend on transit and how much for bridge repair, interstate maintenance, bicycle paths, research into magnetic levitation, and other uses of trust fund money. Congress would also select the earmarks for them and help them with their bookkeeping requirements by pre-deducting the earmarks' cost from the other discretionary accounts. Significantly, private contractors working on roads in opt-in states would be relieved of the need to figure out how much to pay their employees, as the continued application of the Davis-Bacon provisions would provide that valuable service.


Motorists in the states that "opt out" of the federal highway program would be relieved of the federal fuel tax but would likely see their state fuel tax rise by a similar amount in the event that the opt-out state chooses to maintain a similar level of fuel tax-related revenues (as opposed to shifting to tolls or another revenue source). With these resources, opt-out states would be free to pursue the transportation investments that they believe to be in the best interests of their citizens. States with significant urbanized populations could continue to invest in transit, although with more flexibility now that the cumbersome regulations that deter competition and limit private-sector involvement would no longer be in force. For states with dispersed populations and small urbanized areas, more could be spent on roads or used to reduce taxes.


As Table 3 reveals, many rural states receive very little from the Federal Transit Administration while having to subsidize the much wealthier citizens of New York, Boston, and Chicago through the redistribution of their excessive federal fuel taxes. Representative Scott Garrett (R-NJ) has introduced the Surface Transportation and Taxation Equity (STATE) Act (H.R. 1097), which would allow individual states to opt out of the federal highway program voluntarily and take over the collection of most of the federal fuel taxes collected within their borders.


Under an opt-out approach, states would also be freed from many of the regulations that discourage tolls, HOT lanes, dedicated truck express lanes, privatization, competitive contracting, and cost-effective partnerships with the private sector. To this end, opt-out states could freely experiment with a number of different approaches, and from their successes and failures would come important lessons for all of the states, as well as for the federal officials still making decisions for the opt-in states.


In return for gaining more freedom to allocate their resources, opt-out states could also have to agree to fulfill certain responsibilities related to maintaining the quality of their transportation systems. Some critics of turnback argue that, because the interstate system is a vital national asset and important to our economic well-being, devolution might jeopardize that benefit and hurt others if some states chose to exercise their new-found freedom by, for example, neglecting the segments of the interstate that run within their borders to fund a costly high-speed rail system.


To prevent this from happening while at the same time limiting the harm that could follow from the addition of more federal regulations, opt-out states could be required to meet a series of quantitative performance-based measures related to their surface transportation systems. For example, opt-out states could be required to maintain their segments of the interstate system up to a certain technical engineering standard and be free to fulfill that obligation in whatever way they deem appropriate-through their own staff, contractors, or public-private partners.


Because so many interstate segments go through crowded urban environments, opt-out states could also be required to meet quantitative congestion-relief standards to ensure that interstate commerce flows freely and in a timely manner.[8] To enforce these performance measures, failure to meet the agreed-upon standards could lead to federal fines or could jeopardize a state's privilege of continuing to opt out of the federal program.


For the same reasons that Congress, federal bureaucrats, and the many businesses and organizations that benefit from the status quo might oppose a complete turnback, those same beneficiaries may also oppose an open opt-out scheme for fear that the majority of the states might choose it, including many donee states that might believe that gains from the greater flexibility would outweigh the loss of excess federal money. If so, Congress and the federal bureaucracies would be left with only a handful of states to guide, manage, hector, and earmark.


A fallback solution to this dilemma might be to establish a pilot project that allowed five to 10 states to opt out for, say, a period of 10 years under the same reward/responsibility conditions as described above for the full opt-out program. In this way, Congress would still have control over most spending for the vast majority of states while allowing enough opt-out privileges to a sufficiently large number of states to determine how such a program would work and whether transportation outcomes are improved.



While the exact shape and scope of the next reauthorization bill are still uncertain, first drafts of legislation from influential committee chairmen reveal that current proposals would continue and strengthen the counterproductive aspects of the federal highway program unleashed in ISTEA and TEA-21. Whether Congress chooses to accept and endorse this setback, or whether the Bush Administration intervenes on the grounds that Americans did not create the federal government for the purpose of spending tens of billions of dollars to foster counterproductive mobility programs, is not yet known.


What is certain is that if a piece of legislation similar to H.R. 3 is enacted, congestion will worsen and roads will deteriorate at a faster pace than they have under the last several reauthorization bills, as Tables 1 and 2 reveal.


The White House has been silent about its views on the latest congressional highway proposals that are moving toward a vote. The only exception has been a threatened veto if the legislation includes a re-opening clause designed to raise fuel taxes and increase spending. As these legislative proposals become increasingly wasteful, the President should end his silence and establish firm, qualitative standards that the legislation must meet if he is to support it.


The President should begin by insisting that the legislation benefit the motorists whose taxes finance the trust fund, not the vast commercial and environmental lobby to which many in Congress now pander. Such standards could include, at a minimum, the requirement that future diversions from core highway spending be no greater that those embodied in the flawed TEA-21 and that earmarks should total no more than 2 percent of spending in any one year.


After years of neglect, it is time for elected officials to champion the cause of the ordinary motorist. Perhaps the President will join with Representatives Flake, Garrett, and Kennedy in the coming contest to bring the program back to where it belongs.

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.

[1]These ratios are calculated from Table FE-221 of U.S. Federal Highway Administration, Highway Statistics: 2004, available at

[2]These cumulative loses are not adjusted for inflation. If they were the measured, loss from each state would be substantially higher.

[3]See Ronald D. Utt, "Proposal to Turn the Federal Highway Program Back to the States Would Relieve Traffic Congestion," Heritage Foundation Backgrounder No. 1709, November 29, 2003.

[4]The rationale for a continuing subsidy for the low-density mountain and plains states is that their populations are too small to provide sufficient revenues to build or maintain the segments of the interstate system within their borders.

[5]New York; Boston; Philadelphia; Baltimore; Washington, D.C.; Chicago; and San Francisco.

[6]Virginia's enhancement list is available at

[7]During last year's reauthorization process, Representative Mark Kennedy (R-MN) succeeded in attaching and amendment to the bill that would have greatly limited the extent to which tolls could be diverted to other purposes.

[8]The Texas Transportation Institute at Texas A & M University provides several technical measures of congestion for most major metropolitan areas, and these measures could be adopted by states to measure their own congestion in metropolitan areas or on specific highways in certain regions.

About the Author

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