DOT Wisely Rethinks the Federal Role in Transportation Funding

It would be understandable (though unfortunate) if Transportation Secretary Mary Peters and her senior policy people served out their remaining six months just keeping the wheels turning. Fortunately, after having championed new ideas during their time in office, they have decided to challenge Congress and the transportation community to go beyond simply “reauthorizing” the status quo federal surface transportation next year. The blueprint for this rethink, unveiled at the end of July, is called “Refocus. Reform. Renew. A New Transportation Approach for America.” To set the stage for such a rethink, the report briefly summarizes the problems with the current federal program: Loss of purpose; Decline in performance; Wasteful spending; and Dependence on a non-sustainable funding source: fuel taxes. I won’t belabor those points; they have been addressed in this and other newsletters, as well as in reports by the Government Accountability Office, the Policy and Revenue Commission, and others. Instead, let’s focus on what DOT proposes, and how it would address those problems. First, DOT calls for a more focused federal role, which would concentrate federal funding on a handful of major, national problems: enhanced interstate trade and commerce via a modernized Interstate highway system, a major assault on traffic congestion in urban areas, and continued improvements in highway safety. As tools for doing these things cost-effectively (i.e., ensuring real value for the federal investment), the report calls for: More direct pricing of roads; Establishing quality and performance standards; Institutionalizing benefit/cost analysis at the system and program level; Using federal dollars to leverage non-federal resources; Carrying out a coherent transportation research agenda, freed of congressional earmarking. Those would be very dramatic changes, and they would put numerous sacred cows at risk. So it’s hardly surprising that the report is already under assault from defenders of the status quo. But let’s ignore those criticisms to examine how DOT proposes to implement these worthwhile principles. The current 100+ federal highway and transit programs would be collapsed into two major programsââ?¬â??Federal Interstate Highway and Metro Mobility; two much smaller programsââ?¬â??Mobility Enhancement and Highway Safety Improvement; and a small set of others (including the operations of FHWA, FTA, NHTSA, FMCSA, plus New Starts, TIFIA, and Federal Lands). The two major programs would be greatly simplified. In both cases, a significant fraction of the federal funding would no longer be allocated by formula but by competitive, performance-based grants (20% of the total in the case of Interstates, 30% for Metro Mobility). The DOT’s recent Corridors of the Future and Urban Partnership Agreement programs are prototypes for such competitions. That would be a huge and welcome change. Under both major programs, states would be required to set performance targets and report their outcomes on a regular basis. For competitive grants, projects would have to be justified via benefit/cost analysis. And across the board, any project costing $250 million or more would have to evaluate a public-private partnership alternative. There is a lot moreââ?¬â??enhanced access to Private Activity Bonds, increased flexibility for TIFIA and for State Infrastructure Banks, and a pilot program for states to opt out of the federal-aid highway program (in exchange for loss of a small percentage of what they would otherwise get in federal funding and an agreement to expend all the returned funds on surface transportation projects). The proposal deliberately makes no recommendation on the level of funding, which it leaves for the next president and Congress to debate. Rather, it focuses on the substance of transportation policy. As such, it provides an excellent starting point for rethinking the federal role in surface transportation.