Refocusing the Federal Role and Program on Transportation

"It is hard to imagine a more stupid or more dangerous way of making decisions than by putting those decisions in the hands of people who pay no price for being wrong." — Thomas Sowell

In my previous blogs on our transportation infrastructure and the Highway Trust Fund I have covered the history of the Fund, the proper role for the federal government in transportation funding, and some possible changes that should be made. This blog will continue the discussion with how we can refocus the role of the federal government and the political feasibility of doing so.

As stated in my previous blogs on this issue I have liberally used comments from a report from The Reason Foundation’s Restoring Trust in the Highway Trust Fund. This is 2010 report authored by Robert Poole and Adrian Moore and expresses many of the thoughts I have expressed for the past 20 years. I give a tip of the hat to the Reason Foundation for publishing such a comprehensive and intelligent report. You can read the entire report by clicking here.

When I found this report I wanted to share it with others and I thought that by breaking it down into several blogs and adding my personal knowledge and experience as a professional engaged in transportation engineering, in both the public and private sectors, I could make the report more readable and understandable.

For the past 20 years I have seen our magnificent Interstate Highway System fall in disrepair and neglect due to the politics of allocating funds at both the federal and state DOT levels. I have seen time after time politicians, Democrat and Republican; raid the Highway Trust Fund to placate special interest groups wanting something not highway related for their towns or states.

Hopefully by reading these blogs you will come to a better understanding of how your user fees have been stolen for non-highway related projects.

Refocusing the Federal Role and Program on Transportation

What would it mean to refocus the federal program along the lines set forth in the previous section? One key provision would be to redefine federal highway user taxes as user fees for high-priority federal highway purposes only. The second key provision would be a credible commitment to rebuild and modernize the Interstate System to (1) facilitate interstate commerce and travel, and (2) reduce congestion, especially on urban Interstates, working with state and local governments. The only other uses of federal highway user-tax monies would be to:

• Operate the refocused Federal Highway Administration;

• Fund highway safety programs, and

• Fund highway transportation research.

Based on that prescription, this section seeks to estimate the amount of annual spending that would be shifted from non-highway to highway purposes under this new approach. To do this, we must identify all the non-highway activities currently being funded out of the Highway Trust Fund. Our starting point is a 2009 Government Accountability Office report analyzing highway and non-highway expenditures from the Highway Trust Fund during the five-year period 2004-2008.32 The task is to go through the various categories identified in this report, separating them into those that relate directly to the refocused FHWA and those that do not.

Enhancements and Miscellaneous

GAO’s Table 2 identifies $3.75 billion worth of “transportation enhancement” projects funded by highway users during the five-year period. Just over $2 billion of this is for pedestrian and bicycle projects, with other monies going for scenic beautification, historic preservation, transportation museums, rehabilitation of historic transportation buildings and facilities, etc. None of these activities fit the refocused federal highway program definition. In addition, the GAO’s Table 3 identifies a mixture of highway-related (though not strictly construction or maintenance) and non-highway-related projects, totaling $24.2 billion over five years. To avoid confusion over how these items are treated, we reproduce here all the categories from GAO’s Table 3 and indicate which ones would remain as part of the refocused FHWA.

Table 1: Miscellaneous Highway Trust Fund Programs Retained and Not Retained (5-Year Totals)
Category	HTF Amount ($M)	Retained?
Safety	$8,111	Yes
Planning	$3,089	Yes
Traffic Engineering	$1,814	Yes
Utilities (ROW, etc.)	$1,586	Yes
Research	$1,321	Yes
Debt Service	$1,241	Yes
Rail/Highway Crossings	$1,100	Yes
Environmental/Highway	$449	Yes
Vehicle Weight Enforcement	$107	Yes
Other (trails, etc.)	$4,388	No
Administration (trails, etc.)	$ 355	No
Transit	$318	No
Training (non-FHWA)	$164	No
Ferryboats and Facilities	$121	No
Youth Conservation Service	$13	No

Source: GAO-09-729R

To summarize, of the $24.2 billion (over five years) for these miscellaneous expenditures, FHWA would retain $9.2 billion for various safety programs, $8.3 billion for the highway-related project activities, and $1.3 billion for research. Some $5.4 billion would become newly available for highway purposes.

Urban Mass Transit

During the five-year period analyzed by the GAO, the Federal Transit Administration received $34.6 billion from the HTF’s Mass Transit Account. But in addition, highway monies were “flexed” by state DOTs (as permitted by law) under three FHWA programs, as follows:

Congestion Mitigation and Air Quality (CMAQ)	$3.20 billion
Surface Transportation Program (STP)	1.83 billion
Other	0.06 billion
5-Year Total:	$5.09 billion

And another $0.32 billion was identified as transit spending in the GAO’s Table 3. Thus, over the five-year period, just over $40 billion of highway user tax revenue was shifted to transit.

Federal Highway Safety Regulation

In addition to providing funding for a variety of highway safety programs, the Highway Trust Fund (HTF) was the source of funding for the two federal highway safety agencies: the National Highway Traffic Safety Administration and the Federal Motor Carrier Safety Administration, accounting for $5.6 billion over five years. In general, federal safety agencies are paid for out of general fund monies, not user taxes. This is true of the Consumer Product Safety Commission, the safety regulatory functions of the Federal Aviation Administration, the Federal Railroad Administration, the Nuclear Regulatory Commission, and most of the budget of the Food and Drug Administration. Consistency argues for shifting NHTSA and FMCSA to general-fund support, as well. Based on the above paragraphs, the amounts the Highway Trust Fund would no longer fund are summarized in Table 2.

Table 2: Summary of Deletions from Highway Trust Fund
Category	5-Year Total	Annual Average
Transit (Mass Transit Account/flexed/other)	$40.01B	$8.00B
Safety Regulation (NHTSA, FMCSA)	$5.60B	$1.12B
Enhancements	$3.75B	$0.75B
Miscellaneous	$5.36B	$1.00B
Totals:	$54.72B	$10.87B

During the five-year period analyzed by the GAO, the FHWA spent $234.7 billion (after subtracting $8.4 billion of general fund money that covered a portion of the FTA’s budget). Thus, the average annual amount drawn from the Highway Trust Fund was $46.9 billion per year. Consequently, having $10.9 billion more to spend on highways would represent a 30.3% increase, with no change in current federal fuel tax rates.

However, during the SAFETEA-LU period, Congress directed that FHWA spending rely on both using current highway user tax receipts and drawing down the entire unspent balance in the HTF. Since that balance is now gone, during the next five years the only monies available to the FHWA are the projected receipts from highway user taxes. In August 2009 both the Congressional Budget Office and the Office of Management and Budget produced forecasts of HTF receipts and potential outlays for fiscal years 2010 through 2014. The figures on receipts from both sources were very similar, averaging $38.3 billion per year over that time period. In this new environment, shifting $10.9 billion per year from non-highway to highway purposes would mean an increase in federal highway spending from $27.4 billion ($38.3B minus $10.9B) to $38.3 billion, an increase of 39.8%.

How much additional Interstate investment would this permit? In FY 2006, the nation spent $16.75 billion on Interstate capital expenditures, and $2.28 billion on Interstate maintenance, for a total of $19.03 billion. Total gross federal highway spending that year was $32.3 billion. If we subtract the annual amounts of “retained” headquarters spending given in Table 1 (safety, planning, etc.) totaling $3.76 billion per year, the net available for spending on highway projects would be $28.5 billion per year. Thus, if all of that were devoted to Interstates, the net increase in Interstate investment would be $9.5 billion per year. That would be a 50% increase in Interstate spending.

The intent of this policy change is to increase total highway investment, especially on the Interstate system. Whether this $9.5 billion annual increase would be enough to rebuild and modernize the Interstate system over the next several decades must await a more rigorous assessment of what such a program would cost. Over 20 years, that annual increase would produce $190 billion. And this increase could be done without an increase in federal fuel tax rates.

Political Feasibility

How politically feasible is the refocusing of the federal highway program outlined in previous sections? Whether such a major shift could come about would depend principally on three considerations. First, would this approach cut the Gordian Knot that has prevented much-needed investment in America’s highway infrastructure in a way that could build support from those groups that care the most about that issue? Second, could supporters of transit and other transportation choices be assured of funding to replace what they now receive from the Highway Trust Fund? And what would be the impact on state DOTs from this shift? This section addresses these issues.

Gaining the Highway Community’s Support

Since enactment of the federal ISTEA reauthorization in 1991 (which increased the federal fuel tax rate by 5 cents/gallon), there have been no further increases in the federal fuel tax rate. And despite increased efforts on the part of public officials, only 21 of the 50 states have enacted any increases in state fuel taxes in that nearly two-decade period. Taxpayer groups at both federal and state levels increasingly point to non-highway uses of fuel taxes, which lead fuel taxes to be seen as “just another tax”—and this message appears to resonate with taxpayers. The proliferation of earmarks in recent transportation reauthorization measures has added to this public disaffection.

This point is borne out by a growing volume of public opinion survey data. A 2006 survey of California voters, by researchers from Portland State University and San Jose State University, offered voters 13 options (various tax and toll possibilities) to raise money for new transportation facilities in that state. The top-ranked choices, with support in the 50-60% range, were all toll options. Only 40% favored increasing the gas tax, and just 27% supported indexing it to inflation. And although transportation-only sales taxes are widely used in California’s urban counties, only 40% favored increased use of that option. Also in 2006, the American Automobile Association did a national survey of transportation funding options. Only 21% favored increasing the gas tax to pay for new highways, while 52% favored tolling for new capacity. In 2008, the National Cooperative Highway Research Program released a national synthesis report on voter/taxpayer response to tolling and road pricing. The study analyzed and summarized the results of numerous public opinion polls on aspects of this topic—a survey of surveys.40 One of the study findings was that “the public favors tolls if the alternative is taxes.”

One likely explanation for all of these results is as follows. The typical voter, who is a motorist, knows that if she supports a tax increase (fuel tax, sales tax, etc.) dedicated to transportation, she will definitely pay more—but she doubts that her own transportation problems will be eased. On the other hand, by supporting toll funding, she has reasonable confidence that she will only pay more if a toll project built in her region is both convenient for her to use and a good value for the amount of toll charged. She is free to use that toll road or not. Members of the traditional highway community continue to advocate fuel tax increases as if they were what they used to be. For example, here is the former editor of Better Roads magazine in a recent editorial: “The fuel tax is a user fee. You pay for what you get, and you get what you pay for. And if we don’t start paying more for our roads, we are going to get a lot less.” Landers is talking about the fuel taxes of the 1950s and ‘60s, not the general-purpose public works taxes of today that voters have lost faith in.

The two national commissions, in 2008 and in 2009, ably documented the huge highway investment shortfall and the need to do something about it. But the Policy and Revenue Commission, instead of proposing a narrower focus for the federal program, proposed greatly expanding its scope to encompass much greater federal transit assistance, new high-speed rail initiatives, waterways improvements, freight-rail projects, and as well as new energy and environmental programs—all to be funded out of greatly increased federal and state gasoline taxes. Not only was their call for potentially tripling the federal gas tax dead on arrival, but their proposal would also have obliterated any remaining vestiges of the users-pay/users-benefit principle. It would have completed the job of converting what once was a true user fee into a general-purpose transportation/energy/environment tax, but with the burden of paying for everything falling solely on motorists and truckers.

The members of the traditional highway coalition—including the American Highway Users Alliance, the American Automobile Association, the American Trucking Associations and the American Road & Transportation Builders Association—all continue to use and support the “fuel tax = highway user fee” language. But historically, to varying degrees, these groups have been willing to support diversions of fuel taxes to other purposes in exchange for a larger total program (and hence more total highway funding). But while that approach succeeded in ISTEA and subsequent reauthorizations, what is currently on the table in the House reauthorization bill—STAA—would change that trade-off. As currently written, it would dramatically expand the ability of states to “flex” what used to be highway funding, to the point where at least one analyst has estimated that out of the proposed (but unfunded) six-year $450 billion total, “only $100 billion of this is dedicated to highways.”43 That is the combined total of the to-be-consolidated Interstate Maintenance and National Highway System programs. Most of the rest of the nominal highway spending is flexible, and the program also elevates and expands programs for sidewalks, bike paths and trails to a higher level by creating an Office of Livability within the FHWA to institutionalize and oversee them.

By contrast, the proposed refocusing called for in this report would actually provide for a 50% increase in much-needed federal highway investment, focused on the truly federal priority of rebuilding and modernizing the Interstate system. No reliable cost estimate has been made on what it would take to rebuild and modernize the Interstates over the next, say, 20 years. One national study of urban freeway interchange bottlenecks estimated benefits (but not costs) from reconstructing both the 24 most seriously congested major interchanges and 209 other congested ones. Assuming that each of the 24 major interchanges averaged $1 billion to rebuild and the other 209 averaged $500 million, the total cost would be $128 billion. But the benefits would greatly outweigh these costs. Cambridge Systematics estimated the 20-year savings in vehicle hours of delay at 48 billion and the gallons of saved fuel at 40 billion. At $26.50 per hour of vehicle delay45 and $3/gallon, the 20-year benefits would total $1.394 trillion, for a benefit/cost ratio of 10.9.

A 2005 study for the Institute of Defense Analysis estimated that adding networks of HOT lanes for congestion relief to the (mostly Interstate) urban freeway systems of the nation’s 19 most congested metro areas would cost $98 billion. As noted previously, AASHTO has called for a study of what it would cost to reconstruct all major Interstates as they reach the end of their original design life. And the U.S. DOT’s 2008 Conditions & Performance Report estimated the average annual investment needed to “improve” the conditions and performance of the Interstate System. Using a benefit/cost ratio threshold of 1.5, this report estimates the annual need at between $24 billion (with maximum use of congestion pricing) and $39 billion (with no pricing)—compared with the current annual Interstate capital investment of $16.5 billion. Thus, the annual increase would be somewhere between $7.5 billion and $22.5 billion, depending on the extent to which congestion pricing was implemented. Our proposed $9.5 billion per year increase in annual Interstate investment falls within that range.

Even with our proposal to use the bulk of federal highway user tax revenues for Interstate modernization, the system might need additional revenue and financing. If that’s the case, officials can increase the use of public-private partnerships, tolling, and congestion pricing. But there is currently little appetite among taxpayers and road users to increase what they pay into the system. There is a profound lack of trust in the current system, where the “Bridge to Nowhere” is the poster child for how decisions get made—politically, not sensibly. Beyond public opinion, there are sound reasons for highway users to be unwilling to pay more. The current system does not do well prioritizing the use of current user fees, with too many projects driven by politics, and too much spending of highway user fees on projects that don’t benefit those who pay the fees. The current system does not efficiently use current funds (e.g., by visibly seeking PPPs and other means to keep project costs low). Instead we see escalating project costs, repeated delays and excuses. Until transportation agencies rebuild user fee payers’ trust that current funds are being used in the best way possible, it is not reasonable to ask for more funds.

The question for highway supporters is whether to (a) continue supporting a federal program that is abandoning the users-pay/users-benefit principle, in hopes of eking out a net increase in highway funding, or (b) support the restoration of users-pay/users-benefit in a refocused program that has a reasonable chance of winning motorist and taxpayer support for increasing investment substantially in Interstate 2.0.

Funding Non-Highway Transportation

Would advocates of transit and “livability” support the proposed refocusing of the federal highway program? The default assumption must be “no,” simply because the transit community fought for years to get federal support at all, and fought many more years to gain access to a portion of highway user tax revenue. Why give up an assured status quo for a speculative future? Nevertheless, a strong case exists that transit and related programs for non-motorized urban transportation can continue to be well-funded, even without access to a portion of federal highway user tax revenue.

The reauthorization debate takes place amid considerable political and popular support for measures to reduce petroleum use and greenhouse gas emissions. That means Congress will be motivated to fund federal programs such as urban transit and other “livability” measures, in the mistaken belief that such measures are cost-effective ways to achieve those goals. There is not significant national benefit from or appropriate national goals served by such measures. At best, “livability” measures may be appropriate local goals. Should the federal government pursue such goals anyway, highway user taxes are not the only possible sources of federal funding. Such social goals, if pursued at all, should be transparently pursued with social funding sources such as general fund dollars and perhaps revenues from a cap-and-trade program if one is implemented.

General Fund Monies

During the 2008-2010 economic crisis, Congress has used general-fund monies three times to bail out the Trust Fund, supporting both its highway and transit components. The first bailout was $8 billion in September 2008, followed by $7 billion in July 2009 and $19.5 billion in March 2010. Congress authorized an additional $48 billion in general fund monies for surface transportation in the stimulus measure (American Recovery & Reinvestment Act) in February 2009. And all $13 billion of the stimulus money currently planned for federal high-speed rail support is general fund money. In effect, Congress has been expressing considerable willingness to spend general fund money on transportation infrastructure since 2008, and in a climate of popular support for reducing petroleum use and reducing greenhouse gases, that support seems likely to continue.

That doesn’t make it a good idea. A recent article in The New Republic made this point explicitly about transportation, criticizing the recent uses of general fund monies to bail out the Highway Trust Fund. It would make a lot of sense to leave the Highway Trust Fund a user pays/user benefits system. If broader social goals are sought from some non-highway transportation projects, it would make better sense to use general fund monies. Such programs reflect the nature of public goods—programs that provide general benefits to the public but for which it is not feasible to charge anything like what it costs to build, operate and maintain them. That is the case supporters make for such “social infrastructure” as trolleys, light rail, buses, sidewalks, bikeways, recreational trails, etc. Highways, on the other hand, can and should be self-supporting from user charges, which can be a combination of true user taxes and tolls. To ask highway users alone to support social infrastructure that they do not use because that social infrastructure produces general public benefits is unfair. If there are broad public benefits from transit, it should be paid for by general taxpayers. That is the principle under which general taxpayers pay for national defense, safety regulation, courts and welfare programs.

Cap and Trade Revenues

Some will argue that at a time of record federal budget deficits, it is not appropriate to add to the number of programs funded by general federal revenues. The benefits of a U.S. cap and trade system to try to limit greenhouse gases are controversial at best. But if such revenues existed, they might make more sense than general funds as a way to pay for social transportation projects.

Several proposed measures have called for doing that. The 2009 Kerry-Boxer Senate bill would devote a fixed portion (not yet specified) to “green” transportation, presumably mostly mass transit. The Carper-Specter CLEAN-TEA bill would allocate 10% of the revenues from any cap and trade measure to non-highway transportation projects such as urban transit and inter-city rail. And the 2010 Kerry-Lieberman American Power Act would allocate about $6 billion per year for transportation: one-third for the TIGER grant program, one-third for state/local transportation projects to reduce oil use and greenhouse gas emissions, and one-third for the Highway Trust Fund.

Noted transportation budget expert Jeff Davis has laid out a rationale for shifting transit funding from fuel taxes to non-highway revenue.48 Here is the argument, condensed and paraphrased:

A. All the taxes that flow into the Highway Trust Fund (including its Mass Transit Account) are paid for by motorists, truck owners and bus operators.

B. Those who don’t drive, such as regular transit users, don’t pay any fuel taxes.

C. The intent of increased federal transit spending is to shift trips from cars to transit, thereby reducing the amount of fuel sold and used.

D. Thus, increased transit spending from the Trust Fund uses Trust Fund dollars in order to reduce the revenues going into the Trust Fund.

E. Every serious transportation person agrees that there aren’t enough fuel tax revenues flowing into the Trust Fund to sustain current federal funding commitments.

F. If inadequate Trust Fund revenues are the big problem, “then in what universe can it possibly be a good idea to spend a greater percentage of the Trust Fund’s inadequate revenues on expanding transit systems in order to get more people to stop paying the taxes that suggest the Trust Fund, thus driving revenues down even further?”

Davis goes on from there to support using cap and trade revenues to fund transit, freeing up gas-tax dollars to more adequately support the Highway Trust Fund’s original purposes.

Federal vs. State and Local Support for Transit

It is also worth considering the same kinds of federalism issues addressed in Part 4 when it comes to transit and non-motorized transportation. Are these truly federal concerns? If federal funding were reduced, would metro areas be out of luck? How much of a difference does federal support make? An analysis of funding sources for all transit agencies listed in the National Transit Database for 2002, found that for those transit agencies with 2002 budgets of $10 million or more, the largest group received between 5 and 10% of their funding from the federal fuel tax; the next largest group received 10 to 15%. A small number received less than 5% (with some getting none at all), but some received upwards of 25%, with two outliers receiving 34.3% and 59.1%, respectively.

More recently, a National Cooperative Highway Research Program report analyzed trends and patterns in federal and state government support for urban transit systems.50 Using 2004 data, it identified seven states as having very large transit systems (CA, IL, MA, MD, NJ, NY and PA). Of the total in that year of $9.3 billion in state government support for transit, $7.6 billion was provided by those seven states, with all others accounting for the remaining $1.7 billion of state transit assistance. Of $7 billion in federal transit assistance that year, $4 billion went to the seven largest states and the remaining $3 billion went to all the others.

From these two sources, we can conclude that most transit agencies do not rely on the federal government for more than 20% of their total budgets, with many getting far less than that. In fact, data from the 2002 National Transit Database show that most of the very large transit agencies in the seven largest states received only 5 to 15% of their budgets from the federal government.

Transit is well-supported by state governments in states with large urban centers where there is significant demand for transit. While federal assistance is highly likely to continue in any case, concern about transit agencies’ funding should be based on an accurate understanding of the fact that most of the dollars supporting transit in the United States today are state and local, not federal.

Conclusion

He Reason Foundation’s study has suggested an alternative to most of the recent prescriptions for reshaping the federal surface transportation program. Recommendations from reports such as that of the Policy and Revenue Study Commission would greatly expand the size and scope of the federal program. They would require a large increase in existing federal highway fuel taxes. And by spending those fuel taxes on a much wider array of non-highway purposes, they would essentially eliminate the original users-pay/users-benefit rationale that was the basis for creating the federal Highway Trust Fund in 1956 as the key means to pay for the Interstate highway system.

Their study accepts the case for large-scale increases in highway investment, to eliminate the backlog of cost-effective highway and bridge repair and modernization projects to rebuild the aging Interstate System as it begins reaching the end of its original design life, and to improve mobility for people and goods where needed. But it argues that increasing federal investment is unlikely and unwise without major changes in focus and practices. To re-create public support for a revised federal program, that program must offer direct improvements in service to those asked to pay the bills. Interstate 2.0, rebuilding and modernizing the federal Interstate system, both urban and rural, could gain the support of motorists and truckers, since they would directly benefit from the reduced congestion and improved service quality that would result.

On the other hand, asking federal highway users to pay substantially more in order to fund expanded programs for sidewalks, bikeways, recreational trails and more transit is unlikely to succeed, since the large majority of highway users do not use, and would not benefit from, these mostly localized urban projects. Principles of federalism suggest that these kinds of projects are more appropriately funded at state or local levels of government. But if Congress sees fit to continue them at the federal level, they should be supported by all taxpayers, as the kind of social infrastructure funded by federal agencies concerned with urban amenities (HUD) and outdoor recreation (Interior).

Most states would be better off with the proposal presented in this paper. All would benefit from the major reconstruction and modernization of their most important highways, the Interstates. They would be freed from numerous cost-increasing federal requirements, and would have new incentives to refocus their state programs on cost-effective projects.

As funding alternatives, they would have new freedom to make use of tolling and public-private partnerships. The urgent need to rebuild and modernize vital Interstate highway infrastructure is bogged down by politics and the current system’s failure to prioritize projects that deliver the most benefits. Refocusing the federal program on Interstate highways and restoring the true user fee nature of the federal fuel tax offers a way to cut the Gordian knot.

President Obama provided a rationale for considering proposals such as this:

“If we are going to rebuild our economy on a solid foundation, we need to change the way we do business in Washington. We need to restore the American people’s confidence in their government—that it is on their side, spending their money wisely, to meet their families’ needs. That starts with the painstaking work of examining every program, every entitlement, every dollar of government spending and asking ourselves: Is this program really essential? Are taxpayers getting their money’s worth? Can we accomplish our goals more efficiently or effectively some other way.”