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Policy Strategies for U.S. Surface Transportation Funding Reauthorization

Focus on national priorities and restore the user-fees nature of highway taxes

Robert Poole
April 20, 2010

Federal surface transportation policy is at a fateful crossroads. Since the completion of the Interstate system, the federal program has lost focus and a sense of purpose. The user-pays funding mechanism used to build the Interstate system has gradually been transformed into a public works tax for Congress to spend on its own-rather than highway users'-priorities. Most calls to reformulate the federal highway 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 spending much of the proceeds on new kinds of 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 Americans oppose increases in fuel taxes, in part because they view tax increases as unlikely to improve their own transportation situations.

Reason Foundation believes the federal highway program needs to be rethought. Every serious study in recent years has concluded that America is under-investing in highway infrastructure; indeed, the nation is not even investing enough to maintain its current mediocre performance and condition, let alone enough to produce major improvements. But the answer does not lie in pumping larger sums into a seriously flawed process. Rather, the answer lies in rethinking and refocusing the federal role on core federal purposes and less on peripheral concerns. Over the longer term, this will mean removing the disconnect between energy and environmental policies that focus on reduced use of carbon-based fuels (greenhouse reduction) and a transportation funding policy that now depends on their increased use (gas tax increases).

The long delay in enacting new surface transportation legislation, while unfortunate in some respects, offers a welcome window of opportunity for serious debate on changing the federal role and beginning the change in transportation funding. Reason believes this re-grounding of federal transportation policy should be anchored by the following principles:

1. Focus Federal Policy on National Transportation Priorities.
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 interstate 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. On the other hand, although traffic congestion has risen to economically debilitating levels in many major U.S. urban areas, solutions to metropolitan traffic problems are local and regional, not federal. The federal government should enable local and regional solutions to these challenges while resisting attempts to dictate specific tactics and strategies from Washington. Wherever possible, the federal government should remove barriers and decentralize decision-making to ensure the solutions are tailored to the needs of the local area or region-a bottom-up rather than top-down strategy.

2. Restore the User-Fee Nature of Highway 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 1982 Surface Transportation Assistance Act, which created the Transit Account in the Highway Trust Fund, undercutting the user-pays/user-benefits principle. Urban transit, bikeways, scenic trails, "enhancements" and numerous other programs now consume up to one-quarter of current federal highway user tax revenues. Congress could dramatically increase funding to reduce the very large backlog of cost-effective highway projects by shifting non-highway programs either to general revenues or to the states. This would restore the kind of trust in the Highway Trust Fund that was present during the creation of the Interstate system.

3. Leverage Public Funds With Private Revenues.
The nation's transportation needs have outstripped public funding sources as well as the public appetite for funding transportation projects from general taxes. Federal policy needs to recognize this fact and, as a practical matter, acknowledge that an expanded role for private capital and user fees (including tolling) will be essential to funding the upgrades to the country's transportation infrastructure. The federal role should be limited to removing any remaining barriers in federal law, not regulating states' use of public-private partnerships, apart from ensuring the integrity of the Interstate highway system. Highway customers should not be expected to pay tolls for currently mediocre highways, but should expect to pay the costs of rebuilding worn-out highways, eliminating costly bottlenecks, and adding capacity where it is needed and cost-effective.

4. Elevate Commercial Freight Issues to a National Priority.

Goods movement is crucial to the functioning of the national economy. Given the interstate and multimodal nature of most of this traffic-containers are unloaded from planes and ships, loaded onto trucks or trains, and often transferred again before reaching their final destination-federal policy should emphasize the seamless interconnectedness of key freight corridors. Federal policy should facilitate inter-state and multi-state planning and investment in new core infrastructure aimed at goods movement.

5. Give Metro Areas the Tools to Reduce Congestion.
Current federal restrictions on road pricing add to the inherent political difficulties of using pricing for the combined purposes of reducing concentrated driving demand during peak periods and raising new revenues for urban highway improvements. Those federal restrictions should be eliminated. In addition, large metro areas of one million people and above should receive their proportionate share (based on population) of their state's allocation of federal highway user-tax proceeds, to be used for congestion-reduction highway investment. Since transit does not generate user-tax revenue, cities would receive federal transit funds from general revenues for capital investment. For both highway and transit, recipients would be required to demonstrate a benefit/cost ratio greater than 1.5 and to select projects demonstrating the highest reduction in congestion per dollar of investment.

6. Begin Transition to a New Transportation Funding Framework.
Due to more efficient means of vehicle propulsion and ongoing inflation, the cents per gallon fuel tax is losing its ability to fund the nation's (and states') transportation investments. The federal government should aggressively lead a national effort to identify a replacement funding source consistent with the principle of users (and beneficiaries) pay. This likely means a move toward a distance-based fee as a replacement for the gas tax, bolstered in the near term by expanded use of tolling and pricing on major urban and inter-city roadways. The near-term need is for increased technology research and development, and a number of realistic demonstration projects.

7. Address Energy and Climate Change Objectives via Economy-Wide Policies.
Congress is working on federal policies to make more efficient use of energy and to reduce the emission of greenhouse gases (GHGs). Rather than micromanaging individual sectors, Congress should increase the price of using carbon-based energy sources, across the board. This would avoid attempting to micro-manage transportation policy in the name of energy or GHG-reduction goals. In particular, Congress should not seek to impose federal land-use controls on urban regions or to make reductions in personal mobility (e.g., in vehicle miles of travel-VMT) or the use of trucks, per se, goals of transportation policy. The goal should be to reduce greenhouse gas emissions, not travel.

Robert Poole is director of transportation studies at Reason Foundation.

Robert Poole is Searle Freedom Trust Transportation Fellow and Director of Transportation Policy

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