Letting States Keep Gas Tax Money, Opt Out of the Highway Trust Fund

Texas is one of several states that pays more in federal gas taxes that it receives back in federal highway money, making it a “donor” state. Texas Sen. Kay Bailey Hutchison proposed legislation yesterday that would allow Texas and other donor states to “opt out” of the highway trust fund.

The idea of devolving most federal highway funding—and responsibilities for the Interstate highway system—to the states was seen as quixotic when proposed in 1996 by then-Sen. Connie Mack and then-Rep. John Kasich as the Transportation Empowerment Act. Yet it garnered the support of governors and Department of Transportation directors from a number of states—including then-governors Pete Wilson (CA), George Voinovich (OH), John Engler (MI), and David Beasley (SC). So Sen. Hutchison’s revival of the idea should not be dismissed out of hand.

A key rationale for devolution is that the funding approach developed to build the Interstate system is now obsolete. That approach transfers large sums from larger and fast-growing states to smaller and slower-growing states. And states like Texas end up subsidizing other states. That is exactly backwards of what a real user-fee system would do—which is to generate and spend large sums in the places with huge problems of congestion and insufficient highway capacity. A side benefit of devolution would be the elimination of tons of pork, as members of Congress would no longer be able to earmark pet projects that are political winners but economic losers.

The downside is that the Interstate system is critically important to interstate commerce, and the federal government has a constitutional responsibility to ensure that states do not erect barriers to interstate commerce. That’s why I can guarantee you that the trucking industry’s natural inclination will be to oppose devolution, as further “balkanization” of the Interstate system. But this doesn’t have to be an either/or proposition. Congress could enact standards for the Interstate system as a condition of approving devolution—things like nationally inter-operable electronic toll collection, pavement quality, bridge clearance heights, etc.—that states would be required to adhere to.

I, for one, welcome a new debate on devolution.