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Needed: A Fresh Approach to Funding America’s Infrastructure

Posted by Ken Orski on Monday, February 2nd, 2015

Innovation Newsbriefs
Vol. 26, No. 2

With the prospect of a gasoline tax increase pretty much ruled out both by the White House and the Republican House leadership, and with various proposals for funding transportation through corporate tax reform meeting with skepticism from leading Republican lawmakers and  thus facing an uncertain future  (not to mention their unlikely passage before the current transportation measure expires at the end of May) perhaps the time has come to reconsider the way we fund transportation.  Maybe we should abandon our 50-year old reliance on the gasoline tax and the Highway Trust Fund as the sole source of federal revenue and consider additional ways of paying for transportation infrastructure.  

These speculations no longer are seen as outside the realm of serious discussion. No less than U.S. Transportation Secretary Anthony Foxx has acknowledged  the need to rethink the traditional approaches to funding the federal transportation program. “We have to get unstuck from this idea that we’ve got to keep doing transportation [funding] for the next 50 years the way we’ve done it for the first 50 years of the Interstate system,” the Secretary said in an interview at the CityLab 2014 Conference in November 2014. 

A respected longtime industry lobbyist reflected the sense of many in the transportation community when he confessed,  ” I have come to a reluctant conclusion that transportation funding will continue to stagnate if we persist in sticking to the funding orthodoxy of the bygone Interstate Highways era.”  

And Senate Finance Chairman Orrin Hatch (R-UT) added his prestigious voice to those willing to look beyond the traditional “funding orthodoxy” by telling reporters that he is working on some proposals for funding the next transportation bill that do not necessarily involve the tax code.   

New Approaches to Funding Transportation

So what is to be done? One proposal, floated by House Ways and Means Committee Chairman Paul Ryan (R-WI), is to direct royalties from oil and gas exploration on federal lands to the Highway Trust Fund. This idea has found support also from Rep. Bill Shuster (R-PA) chairman of the House Transportation and Infrastructure Committee and Rep. Sam Graves (R-MO), the newly named chairman of its Highways and Transit subcommittee. However, like corporate tax reform, using royalties from expanded drilling on federal lands faces an uncertain political future and is unlikely to be adopted before the current authorization runs out in May. 

A more realistic and timely solution might be to shift a larger share of funding responsibility to the state and local level, an approach suggested by the transportation advocacy group Transportation for America (T4America). “States that want to continue investing will have to explore new ways to raise funding for transportation on their own,” said T4America director, James Corless in announcing the launch of a new initiative to support efforts to raise transportation funding through state legislation.

T4America’s proposal is backed by substantial evidence. The past two years have seen a number of states compensate for what they perceive as congressional inaction, with funding initiatives of their own. Indeed, for a number of states that have done so and have secured a stable, recurring source of funds for their transportation programs, a long-term federal transportation authorization may no longer be an imperative.

Surveys conducted by the American Road and Transportation Builders Association and the National Conference of State Legislatures show that state governments have become veritable laboratories for fiscal innovation. In the past two years, eight states have increased local fuel taxes (VA, MD, WY, MA, PA, VT, NH, RI). Others have floated toll revenue bonds (e.g. OH),  raised or increased reliance on highway tolls (e.g. DE, FL), or enacted or contemplate enacting dedicated sales taxes for transportation (AR, VT, WI, MN, GA).  

The “Can-Do” States

At least 20 states are poised to tackle transportation funding in 2015 according to the Council of State Governments (“States to Watch in 2015: Transportation Funding,” CSG Knowledge Center.)  Among them are Michigan, whose legislature, with strong support from Gov. Rick Snyder, voted  to sharply increase gas taxes over the next four years to raise more than $1 billion annually through a ballot initiative in the spring; Texas, whose  Gov.-elect Gregg Abbott announced plans to add $4 billion to road funding; Utah, whose state House is moving to raise the gas tax, possibly by as much as 10 cents a gallon;  Maine, whose Gov. Paul LePage unveiled a $2 billion three-year plan to rehabilitate transportation infrastructure; Iowa whose Gov. Terry Branstad suggested allowing local governments to add their own gas tax for fund local transportation projects;  Washington State, whose Governor Jay Inslee unveiled a $12 billion multi-year transportation plan funded through bonds, fees and a carbon tax; Connecticut, whose Gov. Dannel Malloy announced in his budget message that he is going to propose a “massive and comprehensive” long-term transportation plan; South Carolina, whose Gov.Nikki Haley unveiled a road funding plan that includes a 10-cent-per-gallon tax increase that is expected to generate $3 billion over the next ten years (the gas tax hike is tied to an income tax cut); Georgia, whose House of Representatives proposes to raise more than $1 billion a year in additional transportation funding by replacing the state gasoline tax with state and local excise tax on gasoline; South Dakota, whose Gov. Dennis Daugaard proposed in his Jan. 13 address to increase vehicle registration taxes and the state gas tax by four cents over two years; New York whose Gov. Mario Cuomo proposed $4.2 billion for transportation investments as he begins his second term;  Minnesota, whose Gov. Mark Dayton proposed an $11 billion transportation program over the next decade to be funded with a 6.5 percent gross receipts tax on gasoline at the wholesale level; and Florida, whose Gov. Rick Scott proposed $9.9 billion for transportation (over $4 billion for roads and bridges) in his 2015 budget request to the state legislature. 

In sum, states are not standing idly by, waiting for Congress to come to the rescue with higher federal gas taxes and more money. Instead, Governors, state legislatures and local governments, responding to uncertain prospects for future federal funding, are taking aggressive steps to make themselves less dependent on federal aid. They are raising state gas taxes, passing bond referenda, financing large-scale construction projects with long term credit, increasing reliance on highway tolls, entering into highway concessions, and putting private capital to work through public-private partnerships.”The proposals emerging from state Republican lawmakers seem like acts of pragmatism rather than shifts in philosophy,” observed the New York Times  (“Republican Governors Buck Party Line on Raising Taxes,”  Jan 24, 2015)

State revenue could reduce the need for federal funds

Collectively, these measures promise to generate billions of additional dollars for state and local transportation programs —revenue that could help reduce the need for federal funds. In the absence of additional state revenue, the federal transportation program would require an extra $15 billion in general funds each year just to maintain current spending levels. A six-year bill  would require a staggering $90 billion. (Note: current federal spending for surface transportation (incl. Amtrak), based on FY2015 appropriations, amounts to $53 billion while the federal gas tax and interest generate only $38 billion a year. This leaves an annual Trust Fund shortfall of $15 billion according to the Congressional Budget Office).

That is not to say that states should be expected to bear the full burden of bridging this funding gap. “Action at the state level must not be interpreted as an invitation for Congress to completely transfer the federal transportation program to state and local governments,” testified Alabama Governor Robert Bentley on behalf of the National Governors Association at a January 28 Senate EPW committee hearing on the transportation reauthorization.  Senate committee members seemed to concur.

Nevertheless, growing state and local fiscal independence poses some intriguing questions for congressional lawmakers. Will the mounting  fiscal involvement by state and local governments diminish the rationale for a strong federal role in transportation? Do increased transportation funds raised by states and local governments justify setting lower funding levels in the next  transportation reauthorization?  Should availability of stable and recurrent revenue in many states reduce the need for a long-term bill?  As the deadline to renew the transportation program draws nearer, these questions will no doubt become part of the congressional deliberations on the future size and scope of federal involvement in surface transportation.

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 25th year of publication.

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