Public Works Financing

Are You Ready for Devolution?

It's time to take a hard look at the current federal role in transportation

On March 13th, ARTBA's daily update included a paragraph announcing that the House Republican Study Committee had released a new federal budget proposal that includes a plan to phase out the federal surface transportation program when SAFETEA-LU expires in FY2009. My first reaction was "deja-vu all over again," as I recalled the abortive (but fairly high-powered) efforts during the TEA-21 reauthorization to devolve the federal program. That effort was led by Sen. Connie Mack (R, FL) and Rep. John Kasich (R, OH), and was supported by the governors and DOTs of a number of donor states.

Devolution fever seemed to have died out during the long battle over what became SAFETEA-LU. This was due, in part, to changes in the allocation formulas that reduced the disparity between donor and donee states, and in part to large increases in federal transportation funding over the past decade. But the record-setting level of earmarks in the latest reauthorization, the projected shortfall in funding toward the end of this reauthorization period, and the political need for conservative Republicans to restore support from their less-government base�combine to make me think we should take this new proposal seriously.

First, this may well turn into a serious movement. The RSC represents over 100 House members, and chairman Mike Spence (R, IN) has been willing to take on the GOP leadership for causes he believes in. The RSC devolution plan is part of a "Renewed Contract with America," an alternative budget modeled on a comparable budget by Rep. Kasich that passed the House in 1996. Its sweeping cuts�eliminating 150 federal programs and scaling back many others--are aimed at eliminating the federal deficit by 2011. It's not fanciful that some portions of it could be adopted over the next few years.

Second, it's long overdue for the transportation community to take a hard look at the current federal role, as we embark on the post-Interstate era. Back in 1996, during the initial devolution debate, I crunched some numbers to provide an alternative look at which states win and lose from the federal program. After adjusting what each state gets back to account for (1) higher costs for those projects done with federal funds, (2) state and federal overhead associated with the grants programs, and (3) the distortions in project selection introduced by "free federal money," I concluded that over the years 1956-1994, only 18 states plus the District of Columbia were actually net gainers. All the others got back less, in real terms, than they paid in and arguably would have been better off if they'd never sent the money to Washington in the first place.

A similar analysis done today, especially one looking only at current rather than historical spending, would be less dramatic due to recent donor-state guarantees�but might still show that a majority of states would be better off without the program. And since that group would include many fast-growing states with large House delegations (California, Florida, Texas, Virginia), the political math might actually work out.

We should also look more honestly at how investment decisions are skewed by the availability of "federal" money that locally elected representatives don't have to raise. These distortions are especially pronounced in the urban transit field. Current incentives line up powerfully in favor of rail projects that generally deliver far less bang for the buck than bus projects, but are politically irresistible when "the feds" are picking up the majority of the capital costs. An insightful discussion of how this works is Randal O'Toole's recent Cato Institute paper, "A Desire Named Streetcar: How Federal Subsidies Encourage Wasteful Local Transit Systems." (www.cato.org/pub_display.php?pub_id=5345)

The natural reaction of those committed to continued transportation investment (AASHTO, ARTBA, APTA, etc.) is to support the status quo. Better the devil you know than the devil you don't. After all, who knows what those crazy state legislatures might do if the federal fuel tax went away and they had to decide whether or not to replace it with an equivalent source of state funding. Actually, since it's been the states that have led the way with innovative tolling and privatization efforts, I have much less worry on that score than many others seem to.

Instead of either wishing away the threat of devolution, or gearing up to fight it all-out, it would be far more constructive for everyone in surface transportation to use the next few years for a serious rethink of what the federal role should be in the 21st century. This is far too big a subject for this brief column, but let me close by pointing out one of the bizarre results of the current federal role, as it has evolved.

One might assume that in our three-layer system of government, the feds would handle truly national, interstate commerce issues; the states would handle inter-city issues; and cities/regions would handle urban transportation issues. Yet today we have huge federal involvement in urban transit (a truly local/regional issue) and almost complete federal abdication of a serious role in ports-to-inland freight infrastructure (to the point where the nation's largest ports, in Los Angeles, are swamping the local freeway system with container-trucks that serve mostly interstate commerce). This is truly upside-down.

A serious rethinking of the federal role should address and fix these kinds of disparities. That does not mean abandoning urban transit; it means figuring out robust mechanisms whereby urban areas can fund the types and amounts of transit that make sense to them and they are willing to pay for (and I'm confident that when they have to spend their own dollars, they will make more cost-effective choices like value-priced lanes that facilitate express bus service).

And it definitely does not mean abdicating a federal role in ensuring a viable national network of super-highways to support America's amazingly productive and largely truck-based logistics system. How that network is managed, expanded, and paid for is another question, but its customers (truckers and shippers) are right to be concerned the impact of poorly thought-out devolution on interstate commerce.

Fortunately, we have a few years to dig deeply into these issues before SAFETEA-LU expires. Let's make the most of the opportunity.

Robert W. Poole Jr. is director of transportation studies and founder of the Reason Foundation.

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





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