Preserving the Highway Trust Fund and Paying for Transit Projects

In recent weeks my Reason Foundation colleagues and I have been strongly critical of the House proposal to supplement the Highway Trust Fund (HTF) with revenues to be derived from expanded oil and gas production. Indeed, we participated in a joint news conference with the Competitive Enterprise Institute, Natural Resources Defense Council, and Taxpayers for Common Sense in defending the principle that the federal program should continue to be based on the users-pay/users-benefit principle. Closing a large HTF funding gap with non user-tax revenues, even if there were enough money to do so (which there isn’t) would destroy the HTF’s protected status as exempt from across-the-board federal spending cutbacks. That’s because the Budget Control Act grants that protected status only to trust funds that obtain at least 90% of their funds from user taxes.

But last week, the House Ways & Means Committee came up with a way to save the Trust Fund. It would shift funding for urban transit out of the HTF (where it has been since 1983) and support it out of general federal revenues. That would close $40 billion of a projected $50 billion gap in the four-year House bill, which would retain the Highway Trust Fund’s protected status. (To be sure, the $40 billion general-fund amount for transit would still have to be “paid for” by other spending and revenue changes, but because the new Alternative Transportation Account would not be a user-tax-supported trust fund, the arena of possible “pay-fors” is wide open.)

Needless to say, transit-friendly interest groups are going berserk over this change, putting out news releases using terms such as “decimate,” “slash,” and “just short of defunding” transit. When you look past the rhetoric, they seem to be advancing three arguments.

First, even if the first four years’ $40 billion (preserving recent funding levels) is ensured, all bets are off in subsequent periods. They fear that in the coming era of reducing the size and scope of the federal budget, the merits of continued federal support for urban transit will fail to carry the day. Since I don’t see supporting urban transit as inherently federal, I wish they were correct, but given the lavish federal support transit has received over the last several decades, I don’t see that happening—so those fears are greatly exaggerated.

Second, these “progressives” rely on the argument from . . . tradition. There has been a Mass Transit Account within the Highway Trust Fund ever since 1983, with about 20% of all highway user tax revenues being diverted to transit. That’s true, but times change, and we have entered an era in which all kinds of traditional federal programs will have to be rethought. The actual history of the transit account’s creation (see James A. Dunn’s book, Driving Forces) shows that it came about when President Ronald Reagan’s Department of Transportation Secretary Drew Lewis decided to build a coalition in favor of a gas tax increase that Reagan himself opposed. Urban Democrats held out for a transit carve-out in exchange for supporting the gas-tax increase, and Lewis gave it to them—though Reagan still threatened to veto the bill. But after a poor GOP showing in the November 1982 elections, Reagan gave in, justifying the increase as helping to repair roads and bridges (and ignoring the transit provision).

Third, and most egregiously, transit advocates are simultaneously defending federal transit funding as helping to reduce the congestion faced by gas-tax-paying motorists while simultaneously cheering on the Administration’s proposed gutting of Federal Transit Administration evaluation rules based on congestion reduction. A January 25th Federal Register notice would replace the “antiquated” formula under which new rail and bus projects must demonstrate travel-time savings with a “simplified” measure: annualized capital and operating cost per trip, regardless of whether it saves any time or reduces congestion. But it’s worse than that. If you read the fine print, all kinds of costs would be excluded from this calculation—extra pedestrian access, aesthetically oriented design features, LEED certification for transit facilities, etc. And benefits that “capture the vision of a community” including environmental benefits and impact on local economic development will also increase a project’s score. Sponsors would no longer have to use actual local travel forecasts in projecting ridership; they could use an Federal Transit Administration-developed “simplified national model.” Nor would they have to develop a baseline alternative.

Pure and simple, this is a way to allow “nice to have” projects like streetcars and other projects with minimal impact on congestion to gain federal funds. The more you read this stuff, the less it sounds like transportation and the more it sounds like the community development projects that the Department of Housing and Urban Development (HUD) funds. By embracing these kinds of criteria, the transit community has essentially conceded the case for no longer funding transit out of highway user taxes.

Interestingly, what we now call the FTA began life as the Urban Mass Transit Administration, located within HUD. Perhaps in addition to shifting federal transit to the general fund, Congress should move FTA back to HUD, where it would be a better fit.