The Senate Environment and Public Works Committee (EPW) produced a bipartisan, five-year, $303 billion highway reauthorization proposal that would increase federal highway funding by 34% over the 2015 Fixing America’s Surface Transportation Act’s (FAST Act) funding levels. The committee’s press release said:
“Today we are going big, proposing the largest surface transportation reauthorization package in history,” said Senator [Kevin] Cramer (R-ND)…
The Surface Transportation Reauthorization Act of 2021 sets a new baseline funding level at a historic high of $303.5 billion for Department of Transportation programs for highways, roads, and bridges. This marks an increase of more than 34 percent from the last reauthorization to pass Congress, the FAST Act, in 2015.
The prior authorization for surface transportation programs expired in 2020; Congress passed a one-year extension that will expire on September 30, 2021.
Alas, the plan does not contain an agreed-on way to pay for the “largest surface transportation reauthorization package in history,” let alone covering the existing shortfall in the Highway Trust Fund’s revenue—even if spending is not increased above the 2015 Fast Act’s levels.
Federal gasoline and diesel taxes dedicated to highways were first authorized in 1956 to pay for building the Interstate Highway System. The money would all be accounted for in a new Highway Trust Fund and all would be spent to build these new highways. The principle was the users-pay, users-benefit. It’s the same principle all 48 states followed when they first enacted their own state per-gallon gas taxes between 1919 and 1929.
Many infrastructure groups have called for biting the bullet on the Highway Trust Fund’s “insolvency” by supporting an increase in federal fuel tax rates. But President Joe Biden has ruled that out, based on his pledge to not raise taxes on Americans making less than $400,000 per year.
Notice what has happened here. To the president, the gas tax has become “just another tax,” rather than the dedicated user fee it began as.
Congress must share the blame for this, since over the last 40 years it has again and again diverted highway user tax revenues to an expanding array of non-highway uses. Gas taxes are now diverted to fund urban mass transit, ferryboats, bike trails, even sidewalks (“Safe Routes to School”). This evolution has seriously undermined the users-pay/users-benefit principle the gas tax was based on, which has undercut public trust in the Highway Trust Fund. This has led a large fraction of the public to oppose needed increases in highway investment, arguing (like President Biden) that they’re against an increase in taxes.
But in fact, the amounts being raised by federal and state fuel taxes are far less than what is needed to deal with huge amounts of deferred maintenance on roads and highways, let alone the estimated $1 trillion cost of rebuilding and modernizing the aging Interstate system’s highways and bridges.
Public misunderstanding about the real infrastructure needs cities and states are facing shows itself in a variety of ways, including populist opposition to toll-financed projects, such as rebuilding much of I-35 through downtown Austin ($7.5 billion), replacing nine aging bridges on Interstate routes in Pennsylvania ($2.2 billion), and replacing the inadequate I-10 bridge across the Mobile River in Alabama ($725 million).
The Republican-controlled Texas legislature this spring has once again refused to authorize any new toll-financed public-private partnership projects. Similarly, the Republican-held Pennsylvania State Senate has voted to prohibit the Pennsylvania Department of Transportation’s toll-financed P3 bridge replacements. And in Alabama, the local metropolitan planning organizations in Mobile are now promoting tolls, but only for trucks, which would not raise enough money to replace the bridge there and would grossly unfair.
For toll-financed public-private partnerships to play a significant role in addressing America’s under-funded highway system, the revenue question must be dealt with.
At the federal level, this should mean pushing hard for the return of users-pay/users- benefit principle as the best way to fund highway infrastructure. Drivers should know gas tax money will be used on the roads they drive on.
Since an increase in federal fuel taxes has been ruled out by both political parties, I suggested, in my EPW testimony last month, a short-term fix for the Highway Trust Fund. The Congressional Research Service has shown that the revenue from federal highway user taxes is very close to the amount of federal highway spending. Thus, devoting all that Highway Trust Fund revenue exclusively to highways—and funding other programs via the general fund—would be more transparent to taxpayers and would help restore the users-pay/users-benefit principle for highways. And if federal fuel taxes were to become pure user taxes (as they were in 1956), there’s a decent chance that federal gas taxes could then be indexed to inflation, as many state fuel taxes have been in recent years, to ensure drivers are paying the costs of using and maintaining those roads.
That change could get us through the current five-year surface transportation reauthorization bill timeline. But what happens after that, as increasing vehicle fuel economy and the growing market share of electric vehicles reduce the annual gallons of gasoline sold in the United States?
Environment and Public Works Committee members seemed very interested in moving toward replacing federal per-gallon fuel taxes with some kind of federal mileage-based user fee. While I fully support mileage-based user fees (MBUF) as the future, I, and another witness, told committee members the country is nowhere near public consensus on making this shift or on figuring out the institutional and technology questions that would enable viable state and federal MBUF systems.
But this Congress could do something besides continuing to fund multi-state pilot projects to test various MBUF methods and technologies to make progress. Congress could encourage states to begin converting their aging Interstates to per-mile electronic charges, with the new revenues replacing state fuel taxes on the rebuilt and newly-tolled bridges and corridors.
To build public support for the mileage charge being the replacement for the fuel tax, participating states would need to provide rebates of the state highway user taxes for the miles driven on the tolled replacements. This is available today for trucks on both the Massachusetts Turnpike and the New York Thruway. Trucking service company Bestpass offers multi-state transponders and a single toll account for each subscribing truck fleet, and one of the services offered is automating the refunds of those state taxes.
Congress could encourage this via two changes in current law. First, expand the current Interstate System Reconstruction and Rehabilitation Pilot Program from three states to all 50 states and allow participating states to use per-mile charges to finance reconstruction/modernization of all (instead of just one) Interstate corridors. Half a dozen states have studied, or are studying, toll-financed Interstate reconstruction, so there would be states ready to apply if this option were offered.
The second change would be two revisions of the tax-exempt surface transportation private activity bond (PAB) program. First, remove the $15 billion federal cap (which is all used up), or at least triple it. Second, modify the language in the statute to make it clear that private activity bonds can be used not just to finance greenfield projects but also brownfield projects to rebuild and modernize aging highway infrastructure.
This is entirely consistent with recent calls to “fix it first” and to “build back better.” The Interstates handle 25% of all vehicle miles of travel on just 2.5% of the nation’s lane miles. If several larger states began financing their reconstruction using per-mile electronic tolls, this would give those state transportation departments some budgetary relief, since they would no longer have to devote diminishing fuel-tax revenues to rebuilding and maintaining Interstates. And because these projects would avoid “double taxation,” they would demonstrate to highway users that per-mile charges really would be instead of, not in addition to, fuel taxes. That would help build support for mileage-based user fees consistent with the users-pay/users-benefit principle.
A version of this column first appeared in Public Works Financing.