Looking Past the November Midterm Elections

Posted by Ken Orski on Thursday, September 23rd, 2010

Innovation NewsBriefs
Vol. 21, No. 21

The long-term fate of the federal surface transportation program continues to elicit much speculation amid expectations that Congress (or at least the House) will change hands in November and make serious attempts to trim government spending, while at the same time resisting any large-scale tax increases. What would a federal transportation bill enacted by a Republican-led 112th Congress look like (assuming, that is, that the bill gets on the legislative agenda at all, i.e. in the first 8-10 months of the new Congress, before it gets caught in the 2012 presidential election cycle)? Chances are it would be far less expansive than the bill proposed by Rep.James Oberstar and championed by the transportation community. A Republican majority, elected on a pledge to put an end to runaway spending and to shrink the size of government (see the House Republicans’ “Pledge to America”), might well decide to strip the legislation of prescriptive programs of non-essential nature, focus on the highway “core program” and investments of high national priority and let states assume responsibility for discretionary programs of primarily local benefit (and there are a lot of those!). In sum, a Republican victory in November foreshadows major changes in the scope of the federal-aid program. As one of our colleagues put it, the program as we have known it over the years, will simply cease to exist.

In a guest commentary, Richard G. Little, Director of the Keston Institute for Public Finance and Infrastructure Policy at the University of Southern California, offers his own reflections on how the reality of constrained resources and greater spending discipline in the next Congress might affect our future transportation policy.

More Stimulus Is Just a Band-Aid, the Real Transportation Issues Are More Profound

With the Administration and Congress paralyzed at the prospect of increasing the gas tax, we’ve been reduced to funding transportation with supplemental transfers from general revenue and, most recently, with a proposed $50 billion stimulus bill. We really need to reconsider our options.

For more than 50 years, Congress appropriated revenues from fuel and other excise taxes in a reasonably efficient way to construct the most extensive highway network the world has ever seen. The Interstate Highway System realized the dream of several generations of planners and politicians to knit together the vast and disparate geography of the U.S. with a network of high-speed, limited access roadways. Unfortunately, any great success inevitably leads to the question, “Now what?” and as a nation we’ve fumbled around with this for more than a decade. Since this has occurred during times when both parties controlled the White House and/or Congress, it suggests that this is not a purely partisan issue.

The facts are relatively straightforward. The U.S. economy and American way of life are intimately linked with what is still the most extensive highway network in the world. However, much of that network needs major repair and we never developed the kind of capital replacement strategy for the highway system we would expect from any well-run business enterprise. The asset management needed to keep the Interstate System in a reasonable state of serviceability will cost tens of billions of dollars annually, and the Trust Fund, for many well-documented reasons (e.g., see,Transportation for Tomorrow. Report of the National Surface Transportation Policy and Revenue Study Commission, December, 2007) will yield only a fraction of the funds to pay for all that needs to be done. What’s worse: while rational people would normally be expected to respond vigorously to what amounts to an existential threat to their economic well-being and basic quality of life, we’ve pretended the issue doesn’t exist.

Rather, instead of calls to increase revenue by raising the gas tax or some other means, or to set more stringent priorities for project eligibility, or to change the cost-sharing and allocation formulas, we have seen Congresses led by both sides fritter away much of what money was available on projects with little or no connection to the national highway infrastructure. In the truest spirit of the pork barrel, the Trust Fund has supported paving parking lots and local streets, and building museums, sidewalks, bicycle paths, and equestrian trails. There is no need to spend time discussing such projects; regardless of their merit, they are simply not what the Trust Fund was meant to be. Rather than a source of long-term investment capital, it has become a pot of money for local interests, through their Congressional delegation, to tap for projects they do not value enough to pay for themselves.

Addressing Maintenance and Repair Needs

Of course, a case can be made that now that the states have the liability of maintaining and rebuilding the Interstate System, the federal government should provide the funds to do so. This is a valid argument but not necessarily one that requires the hundreds of pages of legislation and thousands of earmarks typical of a reauthorization bill. The FHWA is actually quite skilled at developing allocation formulas. It can predict with a great degree of accuracy how much will be available to the Trust Fund and could, from data on highway and bridge condition, usage, and a host of other metrics, develop reasonably objective statewide allocations for these funds. Congress would only need to approve the methodology and vote up or down on the final appropriation; much like the Base Realignment and Closure (BRAC) process which has proven remarkably resistant to Congressional tinkering. This would go a long way towards beginning to address the accumulated maintenance and repair shortfall and also help transform state DOTs from primarily road builders into long-term asset managers.

Financing and Paying for New Infrastructure

Although a well-capitalized Highway Trust Fund could address most of the long-term maintenance and repair issues, expansion and new construction will require additional revenue. Over the past few years, many in the infrastructure community have called for the creation of a “National Infrastructure Bank” to address the chronic shortfalls in infrastructure investment. While there is certainly much to be said in favor of an institution that would make funding available for good projects, the proposals put forward generally assume that the bank would be capitalized with long-term Treasury debt, and details on how, when, and if the funds would be repaid are somewhat sketchy. Moreover, current congressional leadership has been clear on one point: Congress must oversee an infrastructure bank. However, given their rather spotty history with the Highway Trust Fund, the wisdom of giving Congress yet another piggy bank from which to fund their pet projects seems questionable.

Is There Another Way?

As an alternative, new construction could be funded directly through user fees in the form of tolls, or less directly from other locally generated revenues such as state and local fuel, sales, or other taxes. California, through its network of “self-help counties” has made extensive use of local sales taxes to fund highway and other transportation improvements (see the recent discussion in Innovation NewsBriefs, No 21-16, of the Los Angeles 30/10 Plan). These projects could be implemented through the wide range of emerging public private partnership arrangements or through public institutions—which agency leads matters less than the deliberate separation of new local projects from the federal Highway Trust Fund. No doubt, the widespread use of tolls as a revenue source would inspire pitched ideological debates but opponents of tolling offer nothing in their stead, failing to acknowledge the reality that new projects cost money and we have no plans for how to raise it.

Transportation improvements outside the scope of the Trust Fund such as urban transit, sidewalks and trails, and major investments for landside goods movement or high-speed rail, should be funded the old-fashioned way, via separate authorization and appropriation through the deliberative budgetary process. If such projects are of true national importance, then Congress should fund them and identify a revenue source to pay for them, whether through general funds or a more targeted tax or user fee.

Focusing on a reauthorization bill that purports to meet the nation’s combined transportation wants and needs from the $40 billion or so that the Trust Fund is expected to produce annually, or relying on one-time stimulus funding, only guarantees that we will never address the real question. That is, what does a 21st Century transportation policy look like, how will we fund it, and who will pay for it. This question is not new and an answer is long overdue.

Richard G. Little, Director of the Keston Institute for Public Finance and Infrastructure Policy and a Senior Fellow at the University of Southern California, was elected to the National Academy of Construction in 2008 and was appointed to the California Public Infrastructure Advisory Commission in 2009.

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 21st year of publication.

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