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Public Works Financing

Second National Commission Gets It Mostly Right

Commission offers a series of valuable policy proposals

Robert Poole
February 28, 2009

Last winter I critiqued the very ambitious report of the National Surface Transportation Policy & Revenue Commission. While that body's report underscored the need for greater investment in vital infrastructure, I faulted it for over-reaching by proposing a major expansion of the federal role and for undermining the user-pays principle by converting highway fuel taxes into an all-purpose transportation slush fund.

I'm happy to report that the other commission—the National Surface Transportation Infrastructure Finance Commission—has done a much better job. Its February 26th report confines itself to highways and transit. And it focuses on shoring up the federal role in funding this infrastructure, with a near-term fix to restore the purchasing power of federal fuel taxes and a medium-term transition from fuel taxes to vehicle-miles-traveled (VMT) fees. I think the case the Finance Commission makes is better-argued and more internally consistent than that of the Policy & Revenue Commission. And despite a knee-jerk White House reaction against VMT fees, I think what the Finance Commission proposes is far more likely to shape the upcoming reauthorization bill than the grandiose agenda of the Policy & Revenue Commission.

Those of us who favor expanded use of tolling and public-private partnerships should be cheered by what the Finance Commission is proposing, at both a macro and a micro level. At a macro level, the whole thrust of the report reflects one of their six guiding principles: "The funding and finance framework should cause users and direct beneficiaries to bear the full cost of using the transportation system to the greatest extent possible." That's a powerful endorsement of continuing and strengthening the user-pays principle even as the country transitions away from petroleum-based fuels and hence to highway funding sources other than fuel taxes.

Federal policy based on that principle is a good thing in general. But the Finance Commission goes on from there to make a series of valuable policy proposals to enable this country to make greater use of tolling and PPPs to supplement fuel taxes during the transition to a post-petroleum funding system, and to make a future VMT fee system compatible with toll facilities. They recommend that Congress remove restrictions on tolling urban interstates, to permit MPOs and DOTs to make greater use of congestion pricing. And they propose expansions of the two current pilot programs that permit toll financing of (a) new Interstates and (b) reconstruction of existing Interstates. And they also propose very important expansion and liberalization of both the TIFIA and private activity bond (PAB) programs.

When it comes to possible federal regulation of PPP toll roads, the Commission's report calls for the federal government to ensure that states adequately protect the public interest. Given that we are talking largely about the Interstate system (and some other federal-aid highways), I think some kind of federal oversight role is justified. But since all of these highways are actually owned and operated by the states, it's appropriate that "primary oversight responsibility should reside with the states." The feds should ensure that states make PPP decisions based on a "value for money" analysis (as the GAO also recommended last year) and can provide useful technical assistance on best practices for PPP oversight. The report also calls for reinvesting any proceeds from toll concessions (whether for brownfields or greenfields) into highways and transit, as defined in Titles 23 and 49 of the federal code. Thus, states would continue to be free to lease existing toll roads via long-term concessions, but the proceeds would have to be reinvested in surface transportation infrastructure (as occurred in Indiana but not with the Chicago Skyway).

With all that said, my assessment would not be complete without noting some important shortcomings in the report, presumably necessary to the attainment unanimity by all Commission members. One key challenge the Commission did not address was rethinking the federal role, as had been suggested last summer by Transportation Secretary Mary Peters in DOT's impressive Refocus, Reform, Renew report. The Commission accepted as given the 45% federal share of capital spending on highways and transit and went on from there. If the federal role were more narrowly defined, a given level of federal investment would go a lot farther toward meeting unfunded needs in those areas.

Second, the report here and there mixes the infrastructure funding purpose of user fees with broader social concerns such as fuel economy and greenhouse gas reduction. I have elsewhere argued that true externalities (i.e., bad things that government policy seeks to reduce) should be dealt with via taxes proportional to the bad things (e.g., CO2 emissions) and not built into fees paid to infrastructure providers for the provision, operation, maintenance, and expansion of that infrastructure. The Finance Commission never made this distinction between a user fee and an externality tax, which I think wise policy would clearly keep separate.

Third, in contravention of its user-pays guiding principle, the Commission guardedly endorsed the pernicious idea of tax-credit bonds, which is a sneaky way of getting general-fund taxpayers (rather than users) to pay for infrastructure.

Those are minor flaws, however, in what ought to become the guiding document for the 2009 reauthorization. The Finance Commission's important report was well worth waiting for.

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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