Commentary

How to Reform and Get More Value From Federal Transportation Programs

As Congress grapples with impending budget cuts, we need to do a fundamental rethink of how the federal government assists with much-needed transportation infrastructure. The reality going forward is that there will be no such thing as “general revenue” funding for much of anything beyond entitlements, defense, and interest on the national debt. As long as the federal budget remains grossly unbalanced, general-fund investments in infrastructure are essentially borrowed from China—an unsustainable situation.

Three key principles are necessary for a sustainable federal role in infrastructure:

  1. Users should pay for the infrastructure they use;
  2. Large capital projects should be financed, via revenue bonds and other mechanisms; and,
  3. The federal role should be narrowed to do only things that are truly interstate in nature, which means shifting more responsibility to the states, metro areas, and the private sector.

Reason Foundation’s new policy brief, “Funding Transportation Infrastructure in a Fiscally Constrained Environment,” explains why the model used for federal transportation programs—user taxes feeding centralized trust funds that make annual grants for cash-based investments, increasingly subsidized by general-fund money—needs replacing:

  • Because these user taxes are seen as taxes, Congress seldom increases them, even when their real value declines due to inflation and other factors.
  • Each transportation program involves large cross-subsidies, in which some users pay for other users’ projects, often for projects of low real value.
  • Federal money comes with costly strings attached, such as Davis-Bacon and Buy America requirements, needlessly raising the cost of federally aided projects.
  • Federal programs over-emphasize new capacity, leading to large amounts of deferred maintenance on existing infrastructure.
  • Most federal programs encourage state and local governments to fund large capital projects out of annual cash flow, rather than financing them over time, as businesses (and home-buyers) do.

The report sets out a comprehensive set of organizational, tax policy, and regulatory changes that would implement the above principles, thereby ensuring needed, cost-effective investment in airports, air traffic control, highways and bridges, ports and waterways, transit, and passenger rail.

Airports already make use of much of the proposed approach, and the report recommends that airports be liberated from federal grant funding by being allowed to self-fund their runway and terminal expansion projects. The only thing Congress would have to do is to remove the federal cap on individual airports’ passenger facility charges, which would enable airports to expand their revenue bonding abilities for such projects. Eliminating airport grants for passenger airports would save $2 billion a year.

The air traffic control system could easily be self-supporting from fees and charges, as are the air traffic control systems in Western Europe, Australia, Canada, and even South Africa. A decade ago Congress reorganized the Federal Aviation Administration, creating the Air Traffic Organization (ATO) within it. The ATO should be separated from FAA as a government or nonprofit corporation, funded and governed by its users and regulated for safety by the FAA.

The Highway Trust Fund (HTF) should be refocused on interstate commerce, rather than trying to do surface transportation at all levels of government, from sidewalks and bike paths to urban transit to recreational trails. Its revised focus should be the Interstates and others that make up just the National Highway System. Thus refocused, the HTF would no longer need the large general fund subsidies provided since 2007. To help states accommodate their enlarged responsibilities, the remaining federal barriers to states use of tolling should be abolished, and a larger share of federal aid should be in the form of loans via the TIFIA program, rather than grants.

The Harbor Maintenance Trust Fund is broken, but not only because Congress spends only half the money generated by the Harbor Maintenance Tax each year. It is also broken because it takes money from ports that don’t need significant dredging and spends it on ports that do. But since all ports are in competition with one another, that policy makes no sense. Each port should self-fund whatever dredging it needs, with the cost being borne by that port’s users.

Federal waterways policy is even less sustainable, since the diesel tax paid by commercial carriers covers only eight percent of federal spending on channel dredging and lock-and-dam capital and operating costs. Waterways interests are calling for large increases in federal general fund support, but even the research arm of the Army Corps of Engineers has suggested the alternative of self-funded waterways, with larger user fees making possible revenue bond financing of needed improvements.

Passenger rail is problematic, because airlines and bus lines provide basically unsubsidized service to the vast majority of inter-city passengers. Where niche markets for passenger rail exist (e.g., the Northeast corridor), passenger fares and related real-estate value-added should become the means of support. The private sector may have a role to play in such service, especially if Congress deregulates post-Amtrak rail labor.

Urban transit, while playing an important role, is quintessentially the responsibility of specific urban regions, which derive all the benefits from such service. Federal funding has biased many transit investment decisions away from cost-effective bus and bus rapid transit projects to very costly and not very effective rail projects. Subways and commuter rail have a key role to play in very dense urban areas with large traditional central business districts, but that description applies to only a handful of America’s largest urban areas.

In short, federal transportation infrastructure programs are in dire need of major reform. This is not simply because the federal government is running out of discretionary funding. It is also because all of these programs misallocate resources. What this country cannot afford is to continue putting tens of billions of dollars into programs that waste resources by favoring low-value projects over high-value projects. A large-scale shift to users-pay/users-benefit, revenue bond financing, and devolving some federal responsibilities to state, metro-area, and private-sector parties will revitalize U.S. transportation infrastructure, allocating investment dollars where they will be most productive.

Robert Poole is director of transportation policy and Searle Freedom Trust Transportation Fellow at Reason Foundation. Poole, an MIT-trained engineer, has advised the Ronald Reagan, the George H.W. Bush, the Clinton, and the George W. Bush administrations.

Surface Transportation

In the field of surface transportation, Poole has advised the Federal Highway Administration, the Federal Transit Administration, the White House Office of Policy Development, National Economic Council, Government Accountability Office, and state DOTs in numerous states.

Poole's 1988 policy paper proposing privately financed toll lanes to relieve congestion directly inspired California's landmark private tollway law (AB 680), which authorized four pilot toll projects including the successful 91 Express Lanes in Orange County. More than 20 other states and the federal government have since enacted similar public-private partnership legislation. In 1993, Poole oversaw a study that coined the term HOT (high-occupancy toll) Lanes, a term which has become widely accepted since.

California Gov. Pete Wilson appointed Poole to the California's Commission on Transportation Investment and he also served on the Caltrans Privatization Advisory Steering Committee, where he helped oversee the implementation of AB 680.

From 2003 to 2005, he was a member of the Transportation Research Board's special committee on the long-term viability of the fuel tax for highway finance. In 2008 he served as a member of the Texas Study Committee on Private Participation in Toll Roads, appointed by Gov. Rick Perry. In 2009, he was a member of an Expert Review Panel for Washington State DOT, advising on a $1.5 billion toll mega-project. In 2010, he was a member of the transportation transition team for Florida's Governor-elect Rick Scott. He is a member of two TRB standing committees: Congestion Pricing and Managed Lanes.

Aviation

Poole is a member of the Government Accountability Office's National Aviation Studies Advisory Panel and he has testified before the House and Senate's aviation subcommittees on numerous occasions. Following the terrorist attacks of Sept. 11, 2001, Poole consulted the White House Domestic Policy Council and the leadership of the House Transportation & Infrastructure Committee.

He has also advised the Federal Aviation Administration, Office of the Secretary of Transportation, White House Office of Policy Development, National Performance Review, National Economic Council, and the National Civil Aviation Review Commission on aviation issues. Poole is a member of the Critical Infrastructure Council of the Los Angeles Economic Development Corporation and of the Air Traffic Control Association.

Poole was among the first to propose the commercialization of the U.S. air traffic control system, and his work in this field has helped shape proposals for a U.S. air traffic control corporation. A version of his corporation concept was implemented in Canada in 1996 and was more recently endorsed by several former top FAA administrators.

Poole's studies also launched a national debate on airport privatization in the United States. He advised both the FAA and local officials during the 1989-90 controversy over the proposed privatization of Albany (NY) Airport. His policy research on this issue helped inspire Congress' 1996 enactment of the Airport Privatization Pilot Program and the privatization of Indianapolis' airport management under Mayor Steve Goldsmith.

General Background

Robert Poole co-founded the Reason Foundation with Manny Klausner and Tibor Machan in 1978, and served as its president and CEO from then until the end of 2000. He was a member of the Bush-Cheney transition team in 2000. Over the years, he has advised the Reagan, George H.W. Bush, Clinton, and George W. Bush administrations on privatization and transportation policy.

Poole is credited as the first person to use the term "privatization" to refer to the contracting-out of public services and is the author of the first-ever book on privatization, Cutting Back City Hall, published by Universe Books in 1980. He is also editor of the books Instead of Regulation: Alternatives to Federal Regulatory Agencies (Lexington Books, 1981), Defending a Free Society (Lexington Books, 1984), and Unnatural Monopolies (Lexington Books, 1985). He also co-edited the book Free Minds & Free Markets: 25 Years of Reason (Pacific Research Institute, 1993).

Poole has written hundreds of articles, papers, and policy studies on privatization and transportation issues. His popular writings have appeared in national newspapers, including The New York Times, The Wall Street Journal, USA Today, Forbes, and numerous other publications. He has also been a guest on network television programs such as Good Morning America, NBC's Nightly News, ABC's World News Tonight, and the CBS Evening News. Poole writes a monthly column on transportation issues for Public Works Financing.

Poole earned his B.S. and M.S. in mechanical engineering at Massachusetts Institute of Technology (MIT) and did graduate work in operations research at New York University.