My Public Works Financing column on preparing transportation infrastructure for federal insolvency led to my chairing a panel at last December’s Government Public-Private Partnership conference in Washington, D.C. The American Road and Transportation Builders Association (ARTBA) government affairs chief Dean Franks, Fitch Ratings’ Scott Monroe, and I had a lively discussion plus Q&A, with good attendance despite being the last session on a Friday afternoon.
My focus in the July 2024 Public Works Financing column was on the federal government’s debt and deficits and the impending fiscal insolvency of Medicare and Social Security around 2035 impacting long-term transportation funding. Since then, the federal budget outlook has become even more alarming. January’s Congressional Budget Office forecast expects federal deficits over the next 10 years to total $21.1 trillion, adding to the current record-high national debt of $36 trillion. If the CBO is correct, it would be another 71% increase in the debt in the next 10 years.
Last month, former Comptroller General of the United States, David Walker, told Congress that he believes there is a 70% chance of a serious debt crisis before the end of this decade (2030). Similarly, The Economist featured a sobering discussion of an out-of-control federal budget deficit that may lead bond investors to demand a “term premium” to buy future Treasury Bonds. The magazine explained that this additional interest is intended to compensate bond buyers for “financial chaos” due to unsustainable government borrowing.
But this message is not getting through to much of the transportation infrastructure community. ARTBA and the American Association of State Highway and Transportation Officials (AASHTO) are full of praise for all the transportation projects funded by the Infrastructure Investment and Jobs Act (IIJA) signed by President Joe Biden in 2021. There is widespread expectation amongst many in the transportation world that Congress will use the IIJA spending level as its baseline in the 2026 surface transportation reauthorization bill. A state director of transportation whom I greatly respect told a panel at the Transportation Research Board’s annual meeting last month about the need to continue transportation funding with IIJA as the baseline level.
If you look around the country at significant bridge projects, self-help states have relied on toll financing and public-private partnerships (P3s) to replace aging, undersized bridges. However, other states facing political opposition to tolling continue to ask for and receive federal grants for one-third to half of their bridges’ costs. This kind of federal funding continues to erode the long-standing users-pay/users-benefit principle, which has been the primary highway funding concept since Oregon invented the fuel tax in 1919. Most Americans today pay gas taxes at the pump but have little idea how roads and highways are paid for. Ribbon-cutting ceremonies and COVID-19 pandemic stimulus projects may contribute to some drivers increasingly thinking roads and bridges are funded by their members of Congress.
The transportation community should recognize the United States has entered a new political era. The second Trump administration is seeking to expand executive power, and Elon Musk’s Department of Government Efficiency (DOGE) and the narrow Republican majority in Congress say they are looking to cut the size and scope of the federal government, which will likely impact federal infrastructure spending.
One potential change in federal transportation policy could be the end of discretionary grant programs and curtailment of Congressionally-approved spending in the American Rescue Plan Act of 2021, the Infrastructure Investment and Jobs Act of 2021, and the Inflation Reduction Act of 2022. It would be fiscally prudent for Congress to scale back trillion-dollar federal spending that increases federal budget deficits and the national debt, especially when there are good user-pay options to fund many of those infrastructure projects.
It’s time for those concerned about America’s aging infrastructure investment to think ahead on securing and sustaining needed funding in this new context. The forthcoming 2026 surface transportation reauthorization bill offers an opportunity to start forging a different way forward.
One necessary policy change would be to return highway funding to the users-pay/users-benefit principle. From now on, the federal Highway Trust Fund (HTF) should spend only as much money as the revenue generated by federal highway user taxes (gas taxes). To avoid cutting back the Highway Trust Fund outlays, the current federal user-tax rates would need to be significantly increased, as they should have been in every surface transportation reauthorization bill since 1993. Politically, however, the current Republican-held Congress and President Trump seem very unlikely to raise federal gas taxes.
For major projects, toll financing should be expanded, and a much-needed change would be to broaden a still-unused federal pilot program for toll-financed Interstate highway reconstruction and modernization. Called the Interstate System Reconstruction and Rehabilitation Pilot Program (ISRRPP), the program only allows three states to use toll financing to each reconstruct only one Interstate highway. When North Carolina proposed using ISRRPP to rebuild aging I-95, users of that corridor revolted at being singled out to pay tolls, compared to users of the state’s other Interstates that would not be tolled. A workable ISRRPP would be open to all states and usable for all their Interstate reconstruction projects. Eight states have already done very detailed Interstate tolling studies and one or more would likely take advantage of the expansion of ISRRPP, providing a model for other states to follow.
Another good policy change would be to increase the ability of state transportation departments to develop more revenue-financed public-private partnership highway projects. The current pipeline of P3 express toll lane projects cannot be financed by the very limited amount of private activity bonds (PABs) that the U.S. Department of Transportation is allowed to approve, due to the current $30 billion cap on the bonds. Ideally, that cap should be removed now that private activity bonds for P3s have become a mainstream policy.
Finally, since state and local governments own nearly all U.S. transportation infrastructure (including the Interstates within their borders), state transportation departments and planning organizations should begin seriously considering a future in which the federal government no longer provides funding that is borrowed from future taxpayers. With the rising national debt, that time may be nearer than states think. Given potential federal fiscal insolvency within a decade, planning for sustainable infrastructure funding based on the users-pay principle would be wiser than lobbying for debt and deficit spending based on the inflated and unsustainable levels set by pandemic-era stimulus funding.
A version of this column first appeared in Public Works Financing with the headline “Paying for Roads and Bridges when the Free Federal Money Runs Out.”