Say No to Highway and Student Loan Bills

"Liberty is an opportunity for doing good, but this is only so when it is also an opportunity for doing wrong" — F.A. Hayek

While everyone was waiting breathlessly to see whether the Supreme Court would strike down Obama’s egregious power grab in the healthcare sector, a bipartisan group of congressmen and senators are working to grow government in several other sectors of the economy. We must not be complacent.

In our battle to shrink the size of the federal government, there have been a number of issues on the agenda over the past few months. Two of those issues are the extension of subsidized Stafford student loans and the Senate surface transportation leviathan. Now, thanks to a deal cut between Harry Reid and Mitch McConnell, they will converge as one package to be voted on before the end of the week. Both items are set to expire June 30, and will be extended without any serious reforms unless House Republicans act. And no, despite promises to the contrary, the Keystone pipeline is not part of the deal.

All too often, Congress focuses exclusively on the cost of a bill to the government instead of the cost to the free market. Ultimately, they fail to deal with either problem in a prudent manner. This is quite evident in the case of the student loan deal.

In 2007, the Pelosi-Congress reduced interest rates on government-subsidized Stafford loans from 6.8% to 3.4%. Like every stimulus measure during that era, it was supposed to be temporary. Now there is a bipartisan deal to ostensibly make it permanent (they say it’s only for 1 year, but we’ve seen that rodeo before). They only care about the $6 billion annual cost to the government, but fail to focus on the more fundamental problem – the fact that government subsidies will continue to fuel the education bubble, engendering a further need for larger subsidies. Hence, the circuitous cycle of government intervention and inflation will continue unabated.

Instead of debating how to pay for more subsidized loans, Republicans should articulate the case for phasing out this unlimited subsidization of higher education. Since the Department of Education was created, the cost of college tuition has increased over 439% adjusted for inflation! The rate of increase is almost exactly commensurate with the rate of growth of DOE subsidization.

Moreover, there are serious concerns about the source of the offsetting revenue that will be used to pay for the loans. One provision allows corporations to put less money into company pensions that are backed by the taxpayer-funded Pension Benefit Guaranty Corporation (PBGC). This would increase net profits for corporations, and by extension, generate $9.5 billion more in taxes to Uncle Sam. This measure could expose taxpayers to future bailouts of the PBGC when it becomes clear that the pension plans are underfunded. [Read more on this at the Heritage Foundation].

What is even more cynical about this extension is that, despite the deceitful rhetoric to the contrary, the impending increase in loan rates would not affect any current borrower. It would only apply to those taking out new loans this year. Furthermore, it would only save borrowers $7 a month, even though the macroeconomic cost (taxpayers and free market) would be enormous. Conservatives cannot support continued government intervention in higher education to benefit Big Education cronies at the expense of the rest of us.

The next red flag is the 1,500-page 2-year Senate Highway Bill (MAP 21, S. 1813) that will be combined with the student loan extension. Based on the details of the tentative agreement, the offsetting revenues from the pension provision will be used to fund the $14 billion deficit in the highway trust fund as well. As we’ve noted on numerous occasions, there is no reason why the federal government should be diverting 20% of the gas tax revenue to mass transit and other wasteful projects. And, of course, the 2-year deficit will be offset over 10 years. In fact, that’s just one reason why we should devolve transportation spending back to the states, especially since the completion of the interstate highway system.

Here are some other problems with the Senate highway bill that will possibly apply to the final conference deal. We must ensure that these provisions are not in the final product:

· General Fund Transfer: Just hours before the Senate bill was brought to a floor vote on March 14, Barbara Boxer slipped in a manager’s amendment that contained a provision (section 40313) authorizing a $5 billion general fund transfer to the highway trust fund.

· Nanny-State Enhancement Mandates: James Inhofe, the Republican architect of Boxer’s transportation bill, promised Republicans that the bill offered flexibility to the states for spending their infrastructure dollars, exempting them from the 10% “enhancement” mandates. Well, the manager’s amendment appears to have vitiated that agreement.

· Other Top-Down Mandates and Anti-Free-Market Policies: There are sundry provisions that impose eco-fascism, establish anti-growth “made in America” mandates, discourage private sector investments in infrastructure, and offer giveaways to Big Labor.

· Truck Mandates: The bill would require the installation of electronic on-board recorders (EOBRs) on every single commercial motor vehicles in the country, including short-haul trucks. This will be very costly to the trucking industry and will, in turn, raise the cost of transporting vital goods.

Now it appears that the Keystone Pipeline – the one aspect of the bill that Republican negotiators promised to keep – will not be included in the final conference report, H.R. 4348. They agreed to jettison the Keystone provision in favor of an option for states to opt out of the mandatory funding for bike lanes and beautification projects. They are also buying into the Obama/Keynesian notion that the highway bill is a jobs bill, which as I have stated on numerous occasion is pure poppycock.

Bipartisan negotiators are boasting that their deal will kill two birds with one stone. Well, for conservatives, we indeed have an opportunity to kill two big-government birds with one vote. Vote no on the Senate highway bill and student loan extension! Transportation spending should go back to the states, while student loan bubble spending should go back to Mars.

Federal surface transportation policy is at a fateful crossroads. Since the completion of the Interstate System, the federal program has lost its focus and its sense of purpose. And the users pay/users-benefit funding mechanism which built that system (dedicated fuel taxes) has gradually been transformed into a public works tax for Congress to spend on its own—rather than highway users’—priorities. Most proposals to reformulate the federal transportation program would further break faith with highway customers. While appearing to advocate simplification and program consolidation, they would add costly new non-highway programs, increasing highway use taxes but diverting much of the proceeds to still more non-highway programs, from passenger trains to energy subsidies to federalized land-use planning. Yet it is thanks to these very trends that American taxpayers no longer have trust in the Highway Trust Fund. Instead of welcoming an expanded federal program, most oppose increases in fuel taxes as unlikely to improve their own transportation situations.

The federal program needs to be rethought. The federal transportation program is notoriously politicized, failing to make the best use of existing funds and failing to focus on the most important national transportation goals. Every serious study in recent years has concluded that America is under-investing in highway infrastructure; indeed, we are not even investing enough to maintain its current mediocre performance and condition, let alone enough to produce major improvements. But rather than simply putting larger sums of money into a seriously flawed process, the better course is to rethink and refocus the federal role, in order to spend more on core federal purposes and less on peripheral concerns. Some reauthorizations have brought big changes to the federal transportation program. This one should as well, not by moving further away from a user-fee funded system designed to improve mobility, but by moving back toward it.

While the federal government may have an interest in a wide range of transportation issues and concerns, direct federal involvement is both unwise and inappropriate in many of these areas. The facilitation of inter-state travel and commerce and international trade are clearly federal responsibilities, so a larger emphasis on inter-state and international transportation should be at the core of a rethought federal role. The Interstate Highway System was laid out more than 60 years ago, and begun 50 years ago. Increasing portions of it are reaching the end of their design life and need complete reconstruction. Most urban Interstates need major additions to eliminate bottlenecks and reduce congestion, and as the lifeblood of goods movement, many inter-city Interstates need more lanes to handle projected growth in truck traffic. A major federal effort to rebuild and modernize the Interstate system for the 21st century (Interstate 2.0) would give new focus to the federal highway program. It offers the opportunity to restore the original user-fee nature of highway user taxes. Ever since the ISTEA legislation of 1991, each federal reauthorization has expanded the eligible uses of federal highway user taxes to an ever larger array of non-highway programs. Indeed, this diversion ultimately goes back to the 1970 PL 91-605, which first permitted Highway Trust Fund monies to be used for transit facilities, undercutting the users-pay/users-benefit principle. Subsequent reauthorizations steadily increased non-highway uses, such that today urban transit, bikeways, scenic trails, “enhancements,” and numerous other programs consume about one-quarter of all current federal highway user tax revenues. PL 91-605 started the original concept of the 1956 Interstate Highway Act down the slippery slope towards mass transit, buses, and high-speed rail where the user does not pay.

Congress could dramatically increase funding to reduce the very large backlog of cost-effective highway projects via two changes: (1) shifting non-highway programs either to general revenues or to the states, and (2) narrowing the federal Highway Trust Fund’s focus to rebuilding and modernizing the Interstate System, both urban and inter-city. This Interstate 2.0 approach would increase federal investment in the nation’s most important arteries by nearly $10 billion per year. Refocusing the federal gas tax on rebuilding and modernizing these vital roadways would restore the kind of trust in the Highway Trust Fund that was present during its early years. Making this change is also probably the best hope we have for gaining political support, not for all-purpose transportation tax increases, but for significantly improving the performance of the nation’s most critically important highway infrastructure.

This proposal should be attractive to the traditional highway community, which in recent decades has accepted diversions of highway-user taxes to non-highway purposes in exchange for a larger total program. That trade-off appears to be coming to an end, thanks to strong public opposition to increasing the gas tax. This proposal would lead to genuine increases in needed highway investment, targeted to the most urgent national needs.

Friends of mass transit should understand that in today’s political climate, it is not necessary to tap into the gradually shrinking pool of petroleum-based highway taxes in order to have high-quality transit systems. State and local jurisdictions, where the benefits from transit occur, have been more willing to invest in transit in recent years. We don’t think there is any national interest or benefit from local transit systems or reason for the federal government to help fund them. For now though, Congress seems keen to continue funding transit and is increasingly willing to spend general fund monies on transportation. Since transit is unable to generate significant user revenues the way highways can, it is a far more appropriate candidate than highways for general-fund support.

I would point out that when local Municipal Planning Organizations (MPOs) have control over the planning, design, and construction of transportation arteries and light rail transit systems they usually identify each project they want to build, assign a budget, and put the measure to a vote. Every time they have done this the measure passes with a good majority allowing the MPO to impose a 1 or 2 cent sales tax increase. The public will support defined projects, not pigs in a poke.

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 gain new freedom to manage their non-Interstate highways, freed from costly federal requirements and priorities, and instead could focus on their own transportation needs and goals. On the funding side, although they would no longer receive federal funding for non-Interstates, they would gain new freedom to use tolling and public-private partnerships to shore up their programs. If they decided to replace some former federal revenue, states could find savings by aggressive efforts to improve efficiency, prioritizing projects that will produce the largest benefits, and embracing tolling to pay for new roads and improvements to existing ones, preferably via public-private partnerships that shift financing and risk away from taxpayers and onto the private sector. This has been very successful in Orange County, California even though it was a long, hard fight with the California Department of Transportation to get it done.

The urgent need to rebuild and modernize vital Interstate highway infrastructure is bogged down

By a system that prioritizes politics and ribbon-cutting. The federal gas tax has become a general purpose public works tax instead of a true highway user fee. Refocusing the federal program on Interstate 2.0, and restoring the true user fee nature of the federal fuel tax, offers a way to cut the Gordian knot of complex and misused highway trust funds.

As this is a subject very near and dear to me I will have more to say in this issue in a future blog.