Summary of Restoring Trust In the Highway Trust Fund

Refocusing the federal program and federal fuel tax revenue

This is the Executive Summary of the report Restoring Trust In the Highway Trust Fund.

Federal surface transportation policy is at a fateful crossroads. Since the completion of the Interstate system, the federal program has lost its focus and its sense of purpose. And the userspay/users-benefit funding mechanism which built that system (dedicated fuel taxes) has gradually been transformed into a public works tax for Congress to spend on its own-rather than highway users’-priorities.

Most proposals to reformulate the federal transportation program would further break faith with highway customers. While appearing to advocate simplification and program consolidation, they would add costly new non-highway programs, increasing highway use taxes but diverting much of the proceeds to still more non-highway programs, from passenger trains to energy subsidies to federalized land-use planning. Yet it is thanks to these very trends that American taxpayers no longer have trust in the Highway Trust Fund. Instead of welcoming an expanded federal program, most oppose increases in fuel taxes as unlikely to improve their own transportation situations.

This study argues that the federal program needs to be rethought. The federal transportation program is notoriously politicized, failing to make the best use of existing funds and failing to focus on the most important national transportation goals. Every serious study in recent years has concluded that America is under-investing in highway infrastructure; indeed, we are not even investing enough to maintain its current mediocre performance and condition, let alone enough to produce major improvements. But rather than simply putting larger sums of money into a seriously flawed process, the better course is to rethink and refocus the federal role, in order to spend more on core federal purposes and less on peripheral concerns. Some reauthorizations have brought big changes to the federal transportation program. This one should as well, not by moving further away from a user-fee funded system designed to improve mobility, but by moving back toward it.

While the federal government may have an interest in a wide range of transportation issues and concerns, direct federal involvement is both unwise and inappropriate in many of these areas. The facilitation of inter-state travel and commerce and international trade are clearly federal responsibilities, so a larger emphasis on inter-state and international transportation should be at the core of a rethought federal role. The Interstate highway system was laid out more than 60 years ago, and begun 50 years ago. Increasing portions of it are reaching the end of their design life and need complete reconstruction. Most urban Interstates need major additions to eliminate bottlenecks and reduce congestion, and as the lifeblood of goods movement, many inter-city Interstates need more lanes to handle projected growth in truck traffic.

A major federal effort to rebuild and modernize the Interstate system for the 21st century (Interstate 2.0) would give new focus to the federal highway program. It offers the opportunity to restore the original user-fee nature of highway user taxes. Ever since the ISTEA legislation of 1991, each federal reauthorization has expanded the eligible uses of federal highway user taxes to an ever-larger array of non-highway programs. Indeed, this diversion ultimately goes back to the 1970 PL 91-605, which first permitted Highway Trust Fund monies to be used for transit facilities, undercutting the users-pay/users-benefit principle. Subsequent reauthorizations steadily increased non-highway uses, such that today urban transit, bikeways, scenic trails, “enhancements,” and numerous other programs consume about one-quarter of all current federal highway user tax revenues.

Congress could dramatically increase funding to reduce the very large backlog of cost-effective highway projects via two changes: (1) shifting non-highway programs either to general revenues or to the states, and (2) narrowing the federal Highway Trust Fund’s focus to rebuilding and modernizing the Interstate system, both urban and inter-city.

This Interstate 2.0 approach would increase federal investment in the nation’s most important arteries by nearly $10 billion per year. Refocusing the federal gas tax on rebuilding and modernizing these vital roadways would restore the kind of trust in the Highway Trust Fund that was present during its early years. Making this change is also probably the best hope we have for gaining political support, not for all-purpose transportation tax increases, but for significantly improving the performance of the nation’s most critically important highway infrastructure.

This proposal should be attractive to the traditional highway community, which in recent decades has accepted diversions of highway-user taxes to non-highway purposes in exchange for a larger total program. That trade-off appears to be coming to an end, thanks to strong public opposition to increasing the gas tax.

This proposal would lead to genuine increases in needed highway investment, targeted to the most urgent national needs.

Friends of mass transit should understand that in today’s political climate, it is not necessary to tap into the gradually shrinking pool of petroleum-based highway taxes in order to have high-quality transit systems. State and local jurisdictions, where the benefits from transit occur, have been more willing to invest in transit in recent years. We don’t think there is any national interest or benefit from local transit systems or reason for the federal government to help fund them. For now though, Congress seems keen to continue funding transit and is increasingly willing to spend general fund monies on transportation. Since transit is unable to generate significant user revenues the way highways can, it is a far more appropriate candidate than highways for general-fund support.

Most states would be better off with the proposal presented in this paper. All would benefit from the major reconstruction and modernization of their most important highways, the Interstates. They would gain new freedom to manage their non-Interstate highways, freed from costly federal requirements and priorities, and instead could focus on their own transportation needs and goals. On the funding side, although they would no longer receive federal funding for non-Interstates, they would gain new freedom to use tolling and public-private partnerships to shore up their programs. If they decided to replace some former federal revenue, states could find savings by aggressive efforts to improve efficiency, prioritizing projects that will produce the largest benefits, and embracing tolling to pay for new roads and improvements to existing ones, preferably via public-private partnerships that shift financing and risk away from taxpayers and onto the private sector.

The urgent need to rebuild and modernize vital Interstate highway infrastructure is bogged down by a system that prioritizes politics and ribbon-cutting. The federal gas tax has become a general-purpose public works tax instead of a true highway user fee. Refocusing the federal program on Interstate 2.0, and restoring the true user fee nature of the federal fuel tax, offers a way to cut the Gordian knot.

Full Report (.pdf)

Robert Poole is director of transportation policy and Searle Freedom Trust Transportation Fellow at Reason Foundation. Adrian Moore is vice president of Research at Reason Foundation.