One of the most important transportation policy reports I’ve read is the “Last Exit: Options for Fixing the Highway Trust Fund While Solvency Is Still Solvable,” by Jeff Davis and Rebecca Higgins, highly respected transportation analysts at the Eno Center for Transportation.
As the authors document, the current Highway Trust Fund model is far from sustainable. Due to Congress’s long-term failure to increase federal highway user-tax revenues and ever-increasing “bailouts” that add to the national debt, this system is heading for financial disaster when the current funding model collides with the projected insolvency of Social Security in 2032.
Davis and Higgins walk readers through an array of potential alternatives to fix the ailing Highway Trust Fund. These include reducing spending to the level supportable by projected federal user-tax revenues (mostly gasoline and diesel taxes), increasing user-tax revenues to match Congress’s desired spending levels, or continuing annual borrowed bailouts, which will be impossible when Social Security reaches insolvency six years from now.
In considerable detail, Davis and Higgins assess each alternative, pointing out its problems and shortcomings. They also discuss problems and concerns with potential new revenue options.
Increasing and indexing current federal fuel taxes (whose rates have not changed since 1993) is politically dicey.
Adding a new federal registration fee presents a number of legal and administrative challenges.
And their assessment of a new fee on electric and hybrid vehicles is that it would not generate much revenue unless that segment increased massively. They estimate that a $200 annual fee on all electric vehicles and hybrids would be twice as much as the average motorist pays in fuel taxes, but would generate only $3 billion per year with today’s small EV/hybrid market share.
After reaching rather pessimistic assessments of a range of revenue and spending options for the Highway Trust Fund (HTF), Davis and Higgins discuss a more drastic alternative: devolution.
Part 6 of the study is a thoughtful discussion of “state revenues and devolution.” They remind us that in the 1980s, the Advisory Commission on Intergovernmental Relations (ACIR) recommended devolution of federal highway and transit programs. This would mean not only devolving highway and transit responsibilities to states and localities but also relinquishing the federal revenue base. This change would also free states and localities from numerous costly federal regulations, enabling cost reductions for highways and transit.
The authors also remind us of the 1996 Transportation Empowerment Act sponsored by then-Rep. John Kasich (R-OH) and Sen. Connie Mack (R-FL), which would have phased out federal highway and transit funding.
Davis and Higgins note that, “Serious consideration of devolution would require Congress to determine which functions require a federal role, whether there is a continued need for federal standards, and how to fund NHTSA and FMSCA, which both receive funding from the HTF.”
They also suggest that “there may be real benefits of a new conversation on devolution as a means of improving the relationship between transportation improvements and the communities they serve.”
Their examples include:
- Many community projects may be more appropriately funded at the state or local level;
- Design standards in federal law or regulations can lead to more costly state/local roads than is warranted;
- Costs are also increased due to laws such as Davis-Bacon, the Brooks Act, Buy America, and others; and,
- Some states may choose to spend somewhat less on highways and transit.
This Eno report is very timely, given the upcoming five-year reauthorization of the federal highway and transit program in the surface transportation bill.
While almost every transportation organization is calling for federal spending at levels at least equivalent to what was provided by the Infrastructure Investment and Jobs Act (IIJA), (much of it funded by increasing the national debt), a five-year surface transportation bill enacted in 2026 would expire in 2032, the currently projected date of Social Security insolvency (when nearly all congressional attention will be on that crisis, not transportation).
Rather than making the highway-transit funding future even more dire, it would be far more responsible for the 2026 reauthorization to begin the transition to devolution.
Many people may not remember how large and serious the devolution effort of the mid-1990s was. Intellectual support came from scholars and public policy experts. Alice Rivlin’s 1992 book, Restoring the American Dream, called for the federal government to get out of not only highways but several other concerns of state and local governments.
David Luberoff of Harvard’s Kennedy School wrote, “Why not eliminate federal gasoline taxes and turn that taxing power over to the states?”
Ralph Stanley argued for reducing the federal role in highways in a 1989 Heritage Foundation report.
AASHTO, the American Association of State Highway and Transportation Officials, released a survey in 1995 that reported state concerns about costly federal regulations such as Davis-Bacon.
Also in 1995, the Republican Governors Association adopted the Williamsburg Resolve, supporting devolution of many functions from the federal government to the states, including highways.
The Mack-Kasich bill in Congress proposed to use the balance in the Highway Trust Fund to create a $2 billion transition fund to assist states in making the transition from federal highway spending.
With all of this going on in the 1990s, I researched and wrote a 1996 Reason Foundation policy study, “Defederalizing Transportation Funding.” I recall speaking at several conferences on devolution, and I served for a year on then-California Gov. Pete Wilson’s special Commission on Transportation Investment (1995-96), which recommended devolution of the federal highway program to the states.
Despite serious interest and support, the devolution movement of the 1990s failed. But given the dire straits of medium-term federal transportation funding, the Davis-Higgins report is very timely.
The Eno report concludes:
The good news is that Congress has feasible paths to return the HTF to solvency. Congress can implement spending cuts to bring contract authority back in balance with HTF revenues (and could even make the programs whole outside of the HTF, through supplemental annual or advance appropriations). Alternatively, there are options for reasonable new fees on roadway users that would not only restore funding but also help to address the underpricing of roadways and transportation.
Any decision will require political courage, but deferring this decision to a future generation will make it all the more difficult to address when the bill finally comes due
Instead of continuing the bankrupt status quo in federal transportation funding, Congress should seriously debate devolution as a wiser path forward for America’s highways and transit systems.
A version of this column appeared in Public Works Financing.