Among the many flaws in the federal highway and transit program
are the pervasive regional inequities in the way that federal
highway spending is distributed among the 50 states, the District
of Columbia, and five territories. Under current law, motorists
and truck owners pay a federal fuel tax--18.3 cents per gallon on
gasoline and 21 cents per gallon on diesel fuel--into the highway
trust fund, which returns these fuel tax revenues to the
states for their highway and transit projects.
In fiscal year (FY) 2005, $32.9 billion in user fees and taxes
was collected for the highway component of the trust fund, and a
total of $37.6 billion was returned to the states and
territories according to a statutory formula that determines how
much each state receives. However, as annual U.S. Department of
Transportation (USDOT) data reveal, many states were shortchanged,
while others--notably Alaska and the District of Columbia--received
far more in return than they put into the trust fund.
As Congress and the President begin to develop legislative
proposals to reauthorize the federal highway program, which
will expire in 2009, ending these regional inequities should be a
More Losers Than Winners
While trust fund revenues reflect actual tax payments made
by motorists in each state, spending allocations to the states
from the trust fund are determined by a mathematical formula that
attempts to measure "need" based on several quantitative measures
(e.g., miles of road and number of licensed drivers). In fact, the
system embodies a number of inexplicable inequities that transfer
billions of dollars from states in the South and the Midwest
to the Northeast, the Mountain West, and Alaska.
Table 1 presents USDOT data on the extent to which each of the
50 states and the District of Columbia has gained or lost from the
federal program by comparing their share of the tax revenues
paid into the trust fund to the share they receive of trust fund
spending. The first three columns provide equity
information for FY 2005, the most recent year available, while the
second set of three columns provides equity information for all
program spending since the program's inception in 1956.
Specifically, the first column in each set is the share of the
tax revenues that the motorists in each state paid into the trust
fund in 2005, while the second column is the share each state
received in trust fund spending that year. Column three provides a
ratio of the two (return divided by payments). Any state scoring
less than 1.0 is a loser (paying in more than it gets back), while
any state scoring over 1.0 is a "winner" because motorists in other
states are subsidizing its road building.
For example, South Carolina was one of the biggest losers in
2005 because its motorists provided the trust fund with 1.836
percent of its revenues while receiving only 1.535 percent of
spending in return. In effect, South Carolina received only an
83.6 percent payback on its investment share. South Carolina is
also one of the biggest losers over the 50-year history of the
program. Only Texas and Oklahoma have done worse since the
Table 2 ranks the seven biggest all-time losers in the federal
highway program. With the exception of Oklahoma, the poor
performance of loser states continued into 2005. (See Table 1.) For
every loser providing a subsidy to other states, there are almost
as many winners receiving these subsidies.
Table 3 lists the top seven winners in the federal highway trust
fund misallocations. Over the past 50 years, the motorists in
Alaska have received six times as much from the federal highway
trust fund as they have paid into it. Table 1 also shows that these
highway trust fund misallocations are exceptionally
regressive. For example, the less wealthy Southern states are
subsidizing the much more prosperous Northern states. Emblematic of
this peculiar federal policy is the fact that motorists in
Mississippi (0.893 trust fund return ratio), the poorest state in
the union, are subsidizing motorists in Connecticut (1.451 return
ratio), the richest state.
In dollars and cents, the inequity can be quite costly to the
states on the losing end of the flawed allocation system. Table 4
offers a few examples drawn from the 30 donor states in 2005 to
illustrate how much less these states received in federal
highway spending because of the flaws in the federal highway
allocation formula. The return share deficiency is the
difference between the payment percentage and the return
percentage in Table 1.
Against these examples of losers--except for Minnesota, all of
them have been losers since the program's inception in 1956--are 21
winners in 2005. Table 5 provides examples of several states that
received the extra money in 2005 because of the inequities in the
Not surprisingly, given all of the publicity about the infamous
"Bridges to Nowhere," Alaska is in a class by itself in terms of
receiving excess benefits from the highway trust fund. In FY 2005,
its motorists paid only $66.3 million in fuel taxes into the trust
fund but received a staggering $490.4 million in trust fund
spending, thereby earning the distinction of achieving the most
egregious inequity in the system.
One other troubling observation from Table 4 and Table 5 is that
the current system effectively transferred $559 million from
motorists in Texas (median income of $41,645 in 2004) to motorists
in Connecticut (median income of $56,617) and Alaska (median income
Another perverse consequence of the donor- donee misallocation
is that most states on the losing end are experiencing
above-average population growth rates and thus have a greater need
to build new roads because of the increasing numbers of motorists.
By contrast, winner states are generally experiencing below-average
population growth and thus need fewer new roads.
Between 2000 and 2006, the U.S. population grew 6.3 percent,
while among donor states, Texas's population increased by 12.9
percent, South Carolina experienced a 7.7 percent increase, and
Georgia's population increased by 14.4 percent.
Among the winning donee states, Connecticut's population
increased by just 2.9 percent between 2000 and 2006, New York
experienced a 2.1 percent increase, Pennsylvania's population
increased by 1.3 percent, and West Virginia's population increased
by only 0.5 percent.
In Alaska--the biggest winner of all--the population
increased by 7.0 percent--just slightly higher than the national
rate--but its extremely small population (670,053 in 2006) meant
that its FY 2005 windfall of $412 million helped to accommodate the
road needs of just 43,121 new Alaskans.
In contrast, the 2.6 million new Texans had to make due with a
$559 million deficiency in their share of the highway trust
The Dos and Don'ts of Fixing These
As the last three columns of Table 1 illustrate, the
state-by-state inequities have been a long-standing problem.
A Pattern of Failure. Periodically, the donor states have
attempted to organize in an effort to correct the problem.
Perhaps the most notable effort was in 1996-1998, when Congress
developed and ultimately enacted the 1998 highway
reauthorization bill, known as the Transportation Equity Act
for the 21st Century (TEA-21).
In advance of the 1998 reauthorization, more than 20
states--many in the South and West-- organized themselves into a
coalition called STEP 21 and lobbied for a fairer system. In
response, Congress made what can best be described as "important
cosmetic changes" in the bill. As the FY 2005 data in Tables 1, 2,
and 4 reveal, these changes largely failed to impose any semblance
of equity. Most donor states remained donors and to much the same
In the years preceding enactment of the 2005 reauthorization
bill--the Safe, Accountable, Flexible, Efficient
Transportation Equity Act: A Legacy for Users (SAFETEA-LU)--a
similar though less well-organized coalition was formed, but it
accomplished little, and the final bill did not reduce the
inequities among the states.
Efforts to work within the system by modifying the existing
program have accomplished little despite well-organized campaigns
to change the law. In large part this is due to resistance from
Members of Congress representing "winner" states, which are
predictably reluctant to surrender their advantage. To date, these
states have been quite successful in maintaining the status
quo and their benefits from it.
Turnback. As an alternative to the failed
work-within-the-system approach, some Members have proposed ending
the federal highway program and "turning back" to the states the
responsibility and right to collect the 18.3 cents per gallon
federal fuel tax.
The interstate highway system was completed in the early 1980s,
fulfilling the original goals of the highway program. Since then,
the program has become a vast spoils system, of which Alaska's
Bridges to Nowhere are only one of more than 7,000 earmarks enacted
in 2005. Indeed, as a result of the poorly conceived 2005
reauthorization, only about 60 percent of the federal fuel taxes
paid by hapless motorists will go to roads.
Legislation to turn back the federal highway program to the
states was first introduced by Senator Connie Mack (R-FL) and
Representative John Kasich (R-OH) in 1996 during the
congressional debate leading up to TEA-21. In the years since
then, several other members of the House and Senate have introduced
variations of this bill. Yet none of them went very far because the
shortchanged states' congressional delegations and state
government officials have been reluctant to push the
Opting Out. Given that Congress might be reluctant
to abandon a federal program that provides so many earmarking
opportunities, an alternative might be to keep the program in its
current form but allow individual states to opt out of it and
replace the federal fuel tax with their own levies. In
return, opt-out states would agree to meet certain performance
standards, including maintaining and enhancing segments of
interstate highway in their states. Beyond that, opt-out states
would be free to pursue transportation objectives in the best
interest of their citizens, while states that chose to stay in the
program would continue to benefit from the guidance of the
USDOT and Congress.
Although SAFETEA-LU does not expire until September 2009,
interested trade associations and lobbyists representing tax-using
enterprises and institutions are pushing Members of Congress to
adopt new schemes to raise taxes and tolls on motorists to fund
their privileged and influential constituencies. In these
circumstances, there is an opportunity for some Members of Congress
to step forward on behalf of beleaguered tax-paying motorists
and introduce legislation that will redirect the motorists' taxes
to projects that enhance mobility and promote economic
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
American Samoa, Guam, the Northern Marianas,
Puerto Rico, and the Virgin Islands.
Although the highway program attempts to match
spending with anticipated revenues, the 2005 $4.7 billion gap
between trust fund revenues and spending was a consequence of
revenues falling short of earlier projections and higher spending
plans. The 2005 reauthorization of the highway program deliberately
set spending levels higher than expected revenues with the
expectation of drawing down the balances in the trust fund. Some
projections suggest that the trust fund will be depleted by FY
2008. These revenue and spending data exclude transactions with the
mass transit account within the highway trust fund and some other
information on the extent to which federal fuel tax funds are
diverted to other purposes, see Wendell Cox, Alan Pisarski, and
Ronald D. Utt, 21st Century Highways: Innovative Solutions to
America's Transportation Needs (Washington, D.C.: The Heritage
Foundation, 2005), p. 170.
Transportation Empowerment Act, H.R. 3840 and
S. 1971, 104th Cong., 2nd Sess.
Pisarski, and Utt, 21st Century Highways, pp. 163-182.