Reforming Highways

Background:
Depending on the jurisdiction of America’s roads, bridges, and highways, the responsibility can fall on the national, state, and municipal governments, and all actors can work with private-sector funders.

 
The federal Highway Trust Fund (HTF) is currently the most relied-upon source of dollars for infrastructure investment. However, the Congressional Budget Office finds that spending from the HTF exceeds the revenue that it takes in. By 2021, they project that both the highway and transit accounts of the HTF will not be able to meet all of their obligations. Average revenues for the fund are about $34 billion (generated from gas taxes and user fees) but over $56 billion in annual outlays will create a cumulative shortfall. By law, the HTF cannot incur a negative balance nor can it borrow to fulfill its obligations. Therefore, the federal government must continually enact legislation such as “transportation stimulus” and “shovel ready investments” to shore up funds on various projects.

 
Current Situation:
States and localities have already been aggressively strategizing alternative financing options simply because of unreliable and scarce federal resources. The proliferation of public-private partnerships at the state level is creating a swell of long-term investments in capital transport projects. The advocacy group Infrastructure USA notes that many states have entered into over thirty public-private partnerships worth $20 billion, and that $35 billion in municipal bonds are annually sold to finance local transportation.

 

But even if the HTF and federal resources are buffeted by an increased gas tax or an expansion of the Fund’s borrowing authority, there simply isn’t enough political willpower or financial strength to adequately fix the problem. For example, the Transportation for Illinois Coalition revealed that over five years the state would need upwards of $42.5 billion for capital improvement projects, $20.8 billion for local roads, and $16.5 billion for the public transportation system in just the Chicago area. That’s more than the entire HTF could fund, even if it was properly financed and healthy. The American Society of Civil Engineers gave the country a D+ on our domestic infrastructure and identified nearly $3.6 trillion in needed investments.

 

Ultimately, states and localities must ask themselves why they should wait for national politicians to maybe fund some of their projects when they could simply do it. Given the incredible amount of work required to update the country’s current infrastructure combined with any new efforts in 21st-century transportation projects, Congress should seriously consider a new method beyond a federal trust fund to finance these critical projects.

 

Options for Reform:

In 2014, an opportunity for funding reform was introduced. Although it was ultimately not successful, it presents a unique framework for reforming the troubled federal highway trust fund. The Transportation Empowerment Act of 2014 would have reduced the federal role in financing infrastructure projects by devolving that authority to the local level.
The basic framework is as follows:

 

1. Transfers most authority over federal highway and transit programs to states over five years.

Through several changes that dramatically reduce what kinds of projects will fall under federal jurisdiction, the bill devolves funding authority to each state. This shift makes a lot of sense because only local residents or commuters will know which roads and bridges need fixing or where new investments can be made. Governors can prioritize projects and locate funding partners and schemes that work best for their transportation needs and their budget’s bottom line. Many municipal and state-wide leaders have already committed to independent investment, and this bill would firmly “put the ball in their court” to make the responsible and politically accountable investment choices.

 

2. Lowers the federal gas tax to 3.7 cents from 18.4 cents over the same time period.

Because the Act still holds the federal government responsible for the National System of Interstate and Defense Highways, the gas tax is not completely eliminated. But the 80% reduction would be a significant boon to every driver’s wallet. The reduced revenues in the HTF mean that states would need to come up with their own funding schemes, but this provides states the freedom to innovate to find appropriate revenue streams for projects such as through a “per-mile” tax or private loans and capital.

 

3. During the five-year phase out, states will receive block grants that come with fewer federal strings attached.

It’s not clear what the formula or allocation process will be for the block grants, but they could provide a base of cash that states will need just to maintain pace with current investments during the transition. A block grant mechanism gives states and localities the freedom to apportion the funds based on their needs and not national political ear-mark trading. However, once each state demonstrates their ability to independently fund their own transportation infrastructure these grants should cease.
Of course, this bill is not a perfect solution for federal trust fund woes. And it’s safe to assume that it’s details will change in potential future iterations. But in general, there’s reason to believe that devolving funding authority to the states means that the federal government will spend less over the course of time. If national resources are no longer committed to most transportation infrastructure, then general spending will decrease, and the HTF will no longer need to over-borrow at the taxpayer’s expense.