Posted in: Annual Report

Burning Bridges

By | September 17, 2010

In Stutsman County, North Dakota, local authorities are quite literally unpaving their roads.  Unable to pay for repaving of deteriorated rural roads, counties across the country have resorted to replacing asphalt with gravel or other rough surfaces as a way to save money.

Click to See Full Graphic

This does not bode well for the federal interstate highway system, which faces a drastic revenue shortfall.  In 1956, the National Interstate and Defense Highways Act committed the federal government to establish and maintain a national transportation network. While the projects of the early ’50s and ’60s—roads, highways, bridges, freight rails, and mass transit systems—consolidated American economic dominance in their time, a steady increase in use has stretched infrastructure to the breaking point, while political constraints threaten its fiscal sustainability. To ensure long-term stability, Congress must reform the way transportation dollars are collected and spent.

Funding Transportation

Allocations for transportation comprised about three percent of the federal budget in fiscal year 2010, amounting to $72.5 billion plus an additional $48.1 billion from the 2009 Recovery Act. Funds are spent in a variety of ways, from improving airports and providing air traffic control to repairing seaports and operating Amtrak, the government-owned corporation that provides subsidized intercity passenger rail service. States contribute approximately 55 percent of total government transportation funding, and administer a large portion of federal transportation dollars.

By far the federal government’s biggest transportation priority is the interstate highway system, which receives the bulk of federal surface transportation dollars. Spending on highways outpaces public transit by four to one, capturing nearly $42 billion in fiscal year 2010. Half of these funds are used to expand existing highways and build new ones, a quarter goes toward maintenance and repair, and the rest supports administrative and miscellaneous costs.

Surface transportation funding is derived primarily from the Highway Trust Fund, which raises its own revenue through user fees, most prominently the 18.4 cents per gallon federal excise tax on gasoline. The user fee system both ensures that those who benefit from transportation spending pay its cost, and, as Joung Lee of the American Association of State Highway and Transportation Officials told the HPR, allows the government to incur spending commitments in advance of appropriations. Because long-term infrastructure projects require stable funding, he explained, transit dollars are appropriated in massive, six-year authorization bills rather than during the annual budget cycle. The most recent of these, the Safe, Accountable, Flexible, Efficient Transportation Equity Act: A Legacy for Users, or “SAFETEA-LU,” expired last September.

Running on Empty

Despite the importance of federal transportation spending to the economy’s health, Congress has yet to hash out a reauthorization bill. The torturous legislative process it involves—SAFETEA-LU included more than 5,600 earmarks composing only a tenth of the bill’s cost—and the higher-profile nature of issues like health care, energy, and financial regulation have put infrastructure on the backburner.

Compounding the usual political gridlock is the Highway Trust Fund’s drastic funding shortfall. Its reliance on user fees makes it almost wholly dependent on the gas tax, which isn’t indexed to inflation and hasn’t changed since 1993, despite innovations in fuel efficiency that have allowed vehicle-miles traveled to increase faster than gas tax receipts. In 2008 and again in 2009, for the first two times in its fifty-year history, the Fund needed emergency infusions from the general budget totaling close to $20 billion to stay afloat. Lee estimates the Department of Transportation will need an additional $38 billion in 2011 “just to sustain current program funding levels,” while Rep. James Oberstar’s (D-Minn.) modestly expansive reauthorization proposal, currently in committee in the House, would require another $100 billion in new revenue.

Legally, the Highway Trust Fund cannot go into the red. Without reauthorization (to restructure the DoT) or new sources of revenue, its only option is drastic spending cuts, which would mean already crowded highways would face further congestion, tens of thousands of structurally deficient bridges and transit systems would fall into dangerous disrepair, and hundreds of thousands of construction jobs would disappear—Joung Lee estimates one million such jobs could be lost without action by 2012.

Building New Bridges

While a higher gas tax might be the most elegant solution to the funding shortfall, it remains politically radioactive, identified by presidential advisor David Axelrod as a non-starter until at least 2013. The same holds true for a vehicle-miles traveled tax, which would use GPS units to levy user taxes on drivers based on the number of miles they drive, and a federal peak-load pricing scheme that would increase tolls during the most congested periods to raise revenue while generating a more efficient pattern of commuting.

Given the political climate, thinking outside the box is essential. Jan Mueller of the Environmental and Energy Study Institute suggests funding transportation with general revenues rather than exclusively with user fees. A system in which spending levels are dictated by the amount of revenue from an inadequate, politically determined gas tax, he says, might cause the federal government to “under-invest in transit.” Policymakers should first determine the amount of money needed to build the most efficient transportation network possible, and then raise the necessary revenue. While some would argue that those who use government-funded transportation services should be required to pay for them, a more energy efficient infrastructure that reduces American oil dependence and the threat of climate change would benefit all citizens. This kind of public investment mentality, which Mueller identifies as the “original idea” behind a federally funded transportation network, would allow the government to leverage economies of scale and ultimately gearshift America toward more sustainable transit.

In addition to finding new ways to fund transportation, policymakers could enhance competition, efficiency, and transparency in the regulatory regime. The Independent Institute’s Gabriel Roth, who has worked as a World Bank transportation economist on five continents, explained that a central flaw in American transportation policy is that “the cheap and efficient solutions are prohibited.” Shared taxis and minibuses, for example, offer low-cost transit independent of government intervention in places as diverse as Iran, Israel, Venezuela, and Jordan, but have trouble operating in the United States due to regulations that favor established bus-based systems. Loosening such restrictions on private sector activity could both create jobs and allow the DoT to get more for its money.

Efficiency would also be improved by a more competitive grant process, which will require overcoming inefficient and politicized formula-based funding schemes. The current regime prioritizes large, state-planned infrastructure projects with strict eligibility criteria and conditions (hence, “formula”) that allocate funding according to congressional representation rather than transit need or cost-effectiveness. This wasteful system persists because massive, job-creating public works projects are an excellent way for politicians to garner constituent support. As former assistant transportation secretary Emil Frankel notes, “if Congress could, they’d be earmarking, with the [resulting funding] gap breached by borrowing.”

Frankel thinks the funding crisis “creates a necessity for total transformation” of the formula-based regime, which he advises replacing with discretionary programs that evaluate infrastructure projects on a need-based, case-by-case basis. The government could expand on the success of initiatives like the Transportation Investment Generating Economic Recovery grants in the stimulus, which fulfill infrastructure needs by allowing firms to not only bid on contracts, but to propose any mode of transportation—rail, port, highway, bridge, intermodal, etc.—to provide the most efficient transportation. The grants were so popular that the DoT received close to $57 billion worth of project applications for only $1.5 billion of stimulus funds. For Mueller and many others, this program is “a microcosm of what we want the authorization bill to do in general.”

The best reauthorization bill would incorporate all of these strategies, but how infrastructure funding will be reformed remains unclear. The Oberstar proposal includes greater investment in public transit à la Mueller and a shift toward a discretionary framework along the lines of Frankel’s recommendations, but it has languished in committee for over a year. “Unfortunately,” Mueller opines, “things have to get pretty bad before we’re willing to think about new strategies that work better.”

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