Transportation Bill a Big Disappointment

The House and Senate finally reached agreement on a bill to reauthorize the federal highway and transit program. While state Departments of Transportation (DOTs), transit agencies, and the design/construction people are generally happy-figuring that something is better than nothing-this is actually a pathetic performance.

The underlying reality is that the funding system based on fuel taxes is increasingly broken, but this bill doesn’t even attempt to fix it. Instead, it “kicks the can down the road,” just as Congress and the White House continue to do with respect to out-of-control entitlement spending.

For more than 55 years, the federal program has been funded by highway users, and state and local governments have grown accustomed to ever-higher amounts of federal transportation money each year. Now that fuel taxes are failing as a user fee, two things needed to happen: (a) downsize the program to fit within projected revenues and (b) begin shifting to a more direct user fee.

Reason’s major policy study (by Adrian Moore and me) in 2010 argued that the federal program had evolved into a kind of all-purpose public works program, with 30 percent of all the money that comes from highway users being diverted to non-highway purposes (mostly transit but also recreational trails, sidewalks, bike paths, beautification, and even transportation museums). Leave those things to local governments and refocus the federal program on rebuilding and modernizing things like the Interstate highways, we argued.

And if that kind of change didn’t produce enough money for legitimate highway improvements, remove federal obstacles to states using toll finance and public-private partnerships (PPPs) to supplement what they get in the way of federal cash.

What Congress has done is tinker a tiny bit with the bloat in the program, by eliminating one small diversion (“Complete Streets”) and no longer mandating that states devote 2 percent of their total funds to things like trails and bike paths. That 2 percent category still exists, but they can now spend it on “boulevards” instead.

Instead of removing federal restrictions on tolling, or at least expanding several promising toll pilot programs, they instead eliminated one of the pilot programs and failed to expand tolling beyond what was already allowed. On PPPs, the House managed to delete three anti-PPP measures that were in the Senate bill, removing that threat. And they did agree to expand the useful Transportation Infrastructure Finance and Innovation Act (TIFIA) program, which has provided gap (loan) funding for a number of PPP toll programs. But without expanded tolling authority, needed efforts like rebuilding and modernizing the aging Interstate system cannot move forward.

And worst of all, they came up with an outrageous gimmick to cover the shortfall in fuel tax funding. To prevent annual highway and transit funding from declining over the next two years, they needed $19 billion for FY2013 and 2014. They plan to dump $19 billion of general fund money into the Highway Trust Fund for this purpose. But budget rules require this to be “paid for” by savings elsewhere. To do this, they are amending the Employee Retirement Income Security (ERISA) Act that governs private-sector pension funds to produce alleged savings of about $20 billion over the next 10 years. One shudders to think what they will come up with after this transportation bill expires in 2 years, and the gap that needs filling is even larger. Analysts from the Competitive Enterprise Institute argue that the “pension smoothing” technique authorized by the bill is “a license to make up numbers for [pension fund] income projections.”

From where I sit, about the only saving grace is that this travesty will only last for 2 years. At that point, the non-sustainability of this kind of nonsense should be obvious to everyone, opening the door to serious transportation reform.