Don’t Abolish the Highway Trust Fund

Commentary

Don’t Abolish the Highway Trust Fund

Strengthen the users-pay/users-benefit principle instead

As the endless drama of congressional gridlock over highway and transit funding drones on, two different camps are thinking the formerly unthinkable: abolish the Highway Trust Fund (HTF).

On the populist right, the argument is that a large federal government role in surface transportation has outlived its usefulness, with several bills in Congress calling for the federal fuel taxes to be phased out and the HTF wound down.

The moderate left’s thinking-since there is no longer political will to increase fuel taxes, and since the HTF mostly transfers money back to states to spend on their priorities, not national priorities-is to abolish the whole program and let Congress fund highways and transit out of the general fund.

I don’t see either idea catching on any time soon, apart from the de-facto devolution that’s increasing as Congress can barely keep federal funding constant while states increasingly step increase their own funding to compensate. But there are signs that the “use general funds rather than dedicated gas taxes” idea may be picking up intellectual support. That should worry all supporters of sound investment in transportation infrastructure.

Last fall the Eno Center for Transportation released a 52-page report, “The Life and Death of the Highway Trust Fund.” Given ongoing gridlock over fuel tax increases, it said, there are only three alternatives:

  1. Reduce spending to match revenues;
  2. Make permanent today’s hybrid approach of dedicated fuel tax money plus general funds;
  3. Abolish the HTF and pay for surface transportation out of the general fund.

The authors dismissed #1 as unthinkable, and found #2 unappealing, so the report focused on making a case for #3. It criticized the HTF for doling out most of the money by formula rather than based on federal priorities and benefit/cost analysis. And it provided mini case studies of Australia, Canada, Germany, Japan, and the U.K., all of which pay for national transportation spending out of general revenues.

I criticized the study in my Surface Transportation Innovations newsletter (Dec. 2014) for tossing aside the users-pay/users-benefit principle on which federal and state transportation funding has been based for generations (and is also the principle used for all other basic utilities and infrastructure-electricity, water, telephones, etc.). I noted also that national government transportation spending is quite small in Australia, Canada, and Germany (which are federal systems), compared with centralized Japan and U.K., so Eno’s numerical comparisons are apples vs. oranges. And I provided the following table showing what a lousy deal these five countries provide for highway users:

Country Fuel Tax
U.S.$/gal
Revenue Surface Transport
Spending
Revenue/
Spending
Ratio
Australia $1.29 $14.0B $6.3B 2.22
Canada $0.37 $ 6.6B $6.2B 1.06
Germany $3.43 $24.5B $13.6B 1.80
Japan $2.00 $24.7B $36.7B 0.67
U.K. $3.55 $45.0B $15.3B 2.94

To clarify these numbers, the revenue column lists what each national government collects from highway users, while the spending column shows what it spends not just on highways but also on transit, railways, and other surface transport. As you can see, the only country where motorists and truckers are not being ripped off is Japan-which only recently switched from a dedicated highway fund like ours.

Eno held a conference earlier this month to discuss this study, and my Reason colleague who attended was surprised that Douglas Holtz-Ekin, a Republican conservative who has advised presidential candidates, supported the idea of shifting from dedicated fuel taxes to general-fund support, because he did not see any alternative.

Getting back to the numbers above, the worst-case example of what can happen is the U.K., which collects three times as much in fuel taxes as it spends on highways and all other surface transport infrastructure. It turns out that the U.K. was actually the first country to create a Road Fund supported solely by motor fuel taxes-in 1909 (10 years before Oregon created the first U.S. fuel tax dedicated to highways). By 1923 the British Treasury was already eyeing the balances in the Road Fund, and managed to pry it open in 1926. Ten years later, it was abolished, leading to ever-higher fuel taxes and severe under-investment in highway infrastructure.

Then there’s Germany, land of the autobahns. A long news story in the March 12th Christian Science Monitor, headlined “In Precision-Driven Germany, Crumbling Bridges and Aging Roads,” cited chapter and verse about the deteriorating condition of the country’s highways, bridges, and streets. Hamburg-based transport economist Andreas Kossak gave a presentation to the Transportation Research Board Congestion Pricing Committee in April on 15 years of efforts to shift from general-revenue to user-based funding of transportation infrastructure. The Pällman Commission in 1999, citing worsening infrastructure conditions, called for phasing in direct user charges, but the only result was the truck tolling system Toll Collect, starting in 2005. In 2012 a second commission again documented poor conditions and funding shortfalls, but failed to make serious recommendations. The same members reconvened in 2013 and this time recommended “additional direct user financing,” but the only change in the works is a controversial plan to charge tolls to foreigners-but not Germans-for driving on the autobahns.

I draw two lessons from these overseas examples. If the HTF were abolished, there is no chance of Congress abolishing federal fuel taxes. They’d likely be renamed greenhouse gas taxes and the proceeds put into the general fund. And whichever faction held the reins of government would allocate transportation funding according to its latest fancy: high speed rail one term, marine highways another, streetcars yet another, and maybe some highways that passed muster as intermodal connectors. And the idea that a federal government on the road to insolvency would actually invest more in high-priority transportation infrastructure if the link between user payments and spending were abolished strikes me as fanciful.

What we need to do instead is strengthen the users-pay/users-benefit principle by coming up with a better highway user charge than per-gallon fuel taxes. Per-mile charges-including the tolls we use to finance long-term public-private partnership projects-are a far better way forward than leaving infrastructure investment to a federal general fund that is in long-term decline.

Robert Poole is director of transportation at Reason Foundation. This article originally appeared in Public Works Financing.

Robert Poole is director of transportation policy and Searle Freedom Trust Transportation Fellow at Reason Foundation.