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Are We Ignoring the Obvious Solution to the Transportation Funding Crisis?

Posted by Ken Orski on Monday, July 29th, 2013

Innovation Newsbriefs
Vol. 24, No. 10

The July 23 hearing on the Highway Trust Fund made it painfully clear that neither the government witnesses —U.S. DOT’s Undersecretary for Policy Polly Trottenberg and CBO official Kim Cawley — nor any of the participating members of the House Committee on Transportation and Infrastructure, had any clue as to how to pay for the hundreds of billions of dollars that transportation boosters say are needed to fund the next reauthorization. A six-year transportation bill would require roughly $320 billion ($53 billion/year) to maintain current spending levels. Trust Fund revenue and interest over the same period are expected to bring in only $240 billion according to CBO. This would leave an unfunded shortfall of $80 billion. Even a stop-gap one-year bill would require an extra $15 billion and increasing amounts in subsequent years to prevent future shortfalls if spending was maintained at the 2013 levels.

To be sure, the “peace dividend,” a 10-cent/gallon federal fuel tax increase, a mileage-based user fee and general fund revenue were all dutifully mentioned as possible sources of additional money –only to be shot down by one or more committee members as political non-starters

Nor do the Senators have any better idea as to where the money  would come from. This was the clear impression left by Sen. Barbara Boxer’s comments, made in a meeting with transportation industry representatives on July 25.  When asked to name some of the options for raising new money she begged off saying she did not want  “to get out in front” of her colleagues on that score.  Meanwhile, she added, the Senate Finance Committee, which will be in charge of  coming up with a funding plan for the next transportation bill, is reviewing how states are funding their transportation programs “to identify Highway Trust Fund  revenue options.”  Which brings us to our point…

There is another way…

Neither the House and Senate members nor the witnesses have thought of suggesting what is perhaps the most obvious solution to the impending funding crisis:  let individual states bring their transportation facilities up to a state of good repair with locally raised revenue, supplemented with their regular federal-aid highway funds. As for large-scale reconstruction and system expansion projects that are beyond the states’ fiscal capacity to fund on a pay-as-you-go basis, let them be financed with long-term credit and private investment capital. While this might  limit new investment to credit-worthy projects (i.e. those that generate revenue or are backed by dedicated taxes),  a vast majority of transportation megaprojects already fall in that category.

It looks like this is precisely what’s happening across the land. A growing number of states aren’t waiting for the financially troubled federal government to come to the rescue with new money. They are taking matters into their own hands and taking control of their infrastructure agendas. Our recent survey identified as many as 20 such “Can-Do” states (www.infrastructureUSA.org/category/blog). In addition, eight states are financing big-ticket highway and bridge projects with long-term credit and private financing without direct federal funding. Indeed, except for mass transit projects there are no major transportation facilities under construction or on the drawing board today whose completion hinges on federal appropriations.  

The states’ drive toward fiscal independence in transportation is getting noticed. Two prominent infrastructure advocates—former Gov. Ed Rendell who co-chairs the Building America’s Future coalition and House T&I Committee Ranking Member Nick Rahall (D-WV) —have made specific references to the new trend.  “Many at the state and local levels are weary of waiting for Washington to act and have begun to take matters into their own hands,” observed Rendell at a July 24 hearing of the congressional Joint Economic Committee.  “States are increasingly coming up with their own plans for raising additional transportation revenues.” echoed Rep. Rahall at the July 23 hearing on the Trust Fund.

A recent Brookings Institution forum also shined a spotlight on the phenomenon of “Can-Do” states. And at  ARTBA’s 25th Annual “P3 in Transportation”  Conference in Washington on July 25-26, state efforts to deliver major transportation investment projects through public-private partnerships were given a prominent place on the program.  Virginia, Texas, Pennsylvania, Florida and Indiana were singled out as leaders in the private delivery of  infrastructure projects. “What you are seeing is the governors’ and state legislatures’ pragmatic response to the dwindling federal capacity to fund major infrastructure,”  one senior state official told us. “We are convinced this trend will continue…”

Short- and long-term implications

States’ growing involvement in funding transportation is a phenomenon of far-reaching consequences. In the short run, more state revenue dedicated to transportation will lessen the pressure on Congress to come up with increased resources to fund the next reauthorization. Indeed, this may already be happening. Significantly, no governor or state legislator, nor their association representatives, joined Sen. Boxer on the podium during her recent call-to-arms to save the Highway Trust Fund from insolvency. Her sense of urgency about increasing federal investment in transportation infrastructure does not seem to be shared in state capitals which increasingly are showing impressive signs of fiscal independence and financing innovation.

In the longer run, greater state fiscal autonomy could modify the federal-state relationship in transportation. There would be less need for direct financial aid to state DOTs and more emphasis on credit assistance to support transportation investments of truly national scope and significance. (High-Speed Rail in the Northeast Corridor comes to mind). The need for federal oversight of transportation design, construction and safety standards would, of course, continue.

This is not devolution. This is the new reality of states acting responsibly  to preserve their transportation assets and modernize their infrastructure in the absence of adequate federal assistance.  And in the process of doing so, states will be helping to relieve the Congress of the politically embarrassing task of  repeatedly having to dip into the General Fund to bail out the ailing Highway Trust Fund.

C. Kenneth Orski is a public policy consultant and former principal of the Urban Mobility Corporation. He has worked professionally in the field of transportation for over 30 years, in both the public and private sector. He is editor and publisher of Innovation NewsBriefs, now in its 24th year of publication.

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