Finding a Sustainable Highway Funding Source Part I

The U.S. highway trust fund is scheduled to “run dry” by August. Washington policymakers are doing their best to attract media attention in hopes that it will inspire Congress to find money from somewhere. Secretary of Transportation Anthony Foxx noted, “Come August or September we’re going to be in a hole.” Senate Budget Committee Chairman Patty Murray was less subtle, “The Highway Trust Fund is heading toward an avoidable crisis as early as July, and if we don’t act could lead to a construction shutdown on our nation’s roads and bridges.”

So what could Congress do? There are several potential solutions, but in an election year nobody wants to upset voters with user fee increases or program cuts so despite claims to the contrary it is likely that the House and the Senate will again transfer money from the general fund to the transportation trust fund. Since 2008 Congress has transferred $54 billion from the general fund in this manner.

However, there are numerous problems with these one-time ad hoc transfers.

It is poor policy. U.S. highway policy is based on a user-pay/user-benefit system. Drivers pay a gas tax that funds highway construction and maintenance. General fund revenues have no link to how much people drive. People who drive very few miles are subsidizing folks who drive long distances. In an era where most U.S. policy encourages conservation, this policy is a bizarre outlier.

It is poor economics. Due to these transfers we have spent more money on transportation than we have collected in gas taxes. Spending more than we collect lowers our credit rating and will lead to a day of reckoning.

It prevents state departments of transportation from engaging in long-term planning. Transportation projects take many years, typically eight to twelve, to plan and construct. Some state DOTs that rely on federal funds for Interstates and other major roads are delaying projects that they planned to build this year. Colorado is considering delaying Denver Interstate reconstruction projects; Nevada has delayed a transportation efficiency study; Oregon has delayed plans to widen US 26; These are just the short-term projects; few states are bothering to engage in serious long-range planning with funding a day-to-day issue.

What Congress needs to do is find a long-term solution. Many advocacy groups are pleading with Congress to raise the gas tax. But the gas tax has its own problems. It is an increasingly unfair payment mechanism as wealthier commuters who can afford hybrids or totally electric vehicles pay far less in gas tax than other commuters. Drivers who own older cars, and typically have lower incomes, pay far more in gas taxes since older vehicles are less fuel efficient. A small but significant amount of the gas tax supports non-road expenses including rail transit, recreational trails and non-native weed removal. Finally and most importantly, raising the gas tax is a short-term solution. Even if we raised the gas tax by 15 cents and indexed it to inflation, it would buy us 10-15 years until changes in the vehicle fleet would require another substantial gas tax increase. So most researchers and members of Congress who can afford to think long-term do not see the gas tax as a long-term solution.

What other funding options are available? Draconian land-use restrictions, forcing people to live on small overpriced lots, could reduce the distance traveled but that would merely shift the roadway infrastructure needed from freeways to local roads. Such land-use restrictions would also cause major economic harm. A national sales tax, lacking any user-pay user-benefit link is a particularly bad way to pay for transportation. Other potential mechanisms include raising license plate fees, millage rates and income taxes, which have no relationship to the distance that people drive, are even worse. Increasing some of these taxes could do real harm to the economy.

What is the best potential funding solution? Part two will explain tomorrow.