Don't make the highway funding problem worse

COMMENTARY Budget and Spending

Don't make the highway funding problem worse

Oct 5, 2015 3 min read

Former Policy Analyst, Transportation and Infrastructures

Michael Sargent was a Policy Analyst in the Thomas A. Roe Institute for Economic Policy Studies at The Heritage Foundation.

With the threat of a government shutdown largely averted (at least until December), Congress is turning to address other must-pass measures it has skirted this fiscal year. Chief among them is the authorization for highway and transit spending, which is set to expire at the end of October following its latest $8 billion bailout in July.

What's again at stake is deciding how to fund the $50 billion per year Highway Trust Fund, which spends money collected primarily from the 18.3 cent per gallon gas tax levied on motorists. Even though the fund receives a steady stream of revenues, congressional mismanagement has led spending out of the fund to outpace revenues by about $15 billion each year, requiring more than $70 billion in bailouts since 2008.

It's obvious the fund is in dire need of reform. Wild spending policies directed by Congress have resulted in a projected $180 billion spending deficit over the next 10 years. Spending on the actual construction or maintenance of highways has been increasingly marginalized in favor of more fashionable and far less worthwhile endeavors.

Transit projects that are best funded at the local level receive about 20 percent of trust fund spending. That's a grossly disproportionate amount, given that transit serves a paltry 5 percent of commuters and just 2 percent of personal trips nationwide.

With congestion worse than ever before, federal money should be dedicated to highways, not local projects such as bicycle paths, sidewalks, beautification projects and restoring historical buildings. Advocates claiming that these projects are national priorities should be forced to explain to Texans sitting in traffic that their gas money went to build a trolley line in Arizona or restore a 1918 tugboat in Ohio.

Indeed, out of all the money spent out of the highway trust fund, a mere 6 percent funds the construction, reconstruction or rehabilitation of major highway and bridge projects, those with a price tag of $500 million or more. If Congress and federal bureaucrats are still trying to make the case that they, not the states, should be in charge of funding the nation's roads, they are doing an exceptionally poor job.

Though the situation is crying out for reform, some of the proposed "solutions" in Congress would make the problem far worse. Given the crisis-like situation that occurs in the rush between September and the end of the calendar year, Congress would best serve the highway system by authorizing spending through to the spring.

This would not cost anything because the trust fund is projected to have positive balances until summer 2016. Giving Congress time to consider real reform is far more desirable than allowing highway funding to be balled into a huge spending bill or, even worse, exacerbating the fund's problems with a bigger bailout like those being tossed around in Congress.

Among the worse "solutions" being considered is the Senate's ironically named DRIVE Act, which it passed in July. The bill is another massive bailout of the trust fund, but goes the extra step by making the fund's spending problem even worse.

The six-year, $350 billion bill would provide $47 billion in questionably sourced bailout cash for the highway trust fund, even though that would cover only three years' worth of spending. It ignores the fund's projected shortfalls and further increases spending levels across the board, especially favoring transit and other non-highway projects. This works to increase cumulative deficits by a whopping $35 billion over six years, leaving the fund in substantially worse shape after it burns through its bailout cash. That is no "fix" in any meaningful sense of the word, and indeed, goes in the opposite direction.

Another bad idea that has gained traction is using a tax on overseas earnings held by corporations, known as repatriation, to pad the Highway Trust Fund. Using repatriation as a cash cow to fund highways is not a novel idea, but it is still an especially bad one. Transferring any cash gleaned from an unrelated tax increase amounts to nothing more than a tax-and-spend bailout. It would do nothing to reform the Highway Trust Fund, leaving Congress in the same predicament in several years when the fund burns through the transferred cash.

The new leadership in the House may be tempted to try the repatriation-for-highways swindle to gain initial momentum, but they should ditch it and opt for real reform. Pushing the highway problem off into the future would send a clear signal to fiscal conservatives that the new leadership cares more about moving legislation than actually solving the daunting problems facing the nation. Both the tax code and the Highway Trust Fund need extensive overhaul. They should each be considered on their own rather than inadequately in one bad measure.

Because transportation reform, while urgently needed, does not have much of a shot in the current environment, the most fiscally responsible solution is to avoid making the status quo any worse. It is better to extend transportation spending to the spring when serious reform can at least be debated than to rush into a fiscally negligent "solution" that would only compound the Highway Trust Fund's problems.

-Michael Sargent is a research associate in the Thomas A. Roe Institute for Economic Policy Studies at The Heritage Foundation.

This story appeared in the Oct. 5 version of the Washington Examiner magazine.