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The Big Fix

The End of Federal Transportation Funding as We Know It

The End of Federal Transportation Funding as We Know It
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This month marks 120 years since the federal government got involved in funding road transportation. (Strange as it sounds, bicycle advocates did the bulk of the lobbying.) The original Office of Road Inquiry — today, the Federal Highway Administration — was a line item with a budget of $10,000. That was only enough money to build about three miles of road, and the office wasn't empowered to build roads anyway, but states fought tooth and nail against giving the feds even this incredibly modest level of transport oversight.

Today the federal transportation program faces perhaps its greatest challenge since that shaky start. The most urgent problem is funding. The Highway Trust Fund that pays for America's road and rail program is heading straight toward bankruptcy. For two decades politicians have refused to raise the 18.4-cents-per-gallon gas tax that populates the trust, even as it steadily loses purchasing power to inflation and fuel-efficient cars. The public has yet to embrace alternative funding sources — road fares or mileage fees on the user-pay side favored by economists; income taxes on the social welfare end — in part because people (mistakenly) believe they already pay a lot for transportation.

Money is only part of the problem. The other big sticking point is purpose. There's no longer a clear priority for national transport investment like there was during the heyday (or, rather, hey-half century) of the interstate highway program. Maintaining existing roads lacks the ribbon-cutting appeal of opening new ones. The closest thing to a new national initiative is a high-speed rail program, but while regional lines will no doubt emerge in dense corridors like California and the Northeast, political support for a national bullet train network is, to be generous, rather tepid. Lawmakers can barely muster the energy to pay for the rail system America already has, let alone a brand new one.

At stake is the very nature of America's top-down system of surface transportation funding. Confronted with these obstacles, officials and experts have intensified the debate over what role the federal government will play in funding transportation. Many are wondering, just as they did 120 years ago, whether there should be a federal role at all.

The Case for Devolution

On one hand, there are those who believe the country would be better off if federal governance of transportation were either significantly reduced or entirely eliminated. Last year urban scholar Edward Glaeser of Harvard called for the country to de-federalize transport spending because the central government has played an "outsized role" for decades. Earlier this year, writing for Bloomberg View, former New York City planning guru Rohit Aggarwala echoed the sense that the time has arrived for "cutting Washington's role in surface transportation":

Ending the federal surface-transportation program would be a radical move. But if Congress can’t get in gear, moving its stalled car out of the way of American transportation policy might help us all get where we need to go.

Many experts see a great deal of logic in devolving transportation funding responsibility to states and localities. The vast majority of the country's road network is local, and likewise most travel occurs in a person's home county [PDF], so to some extent it makes sense for this level of government to generate its own funding revenues and establish its own funding priorities. A World Bank report from back in 1994, which examined a number of developed countries, even concluded that as decentralization increases, so does local infrastructure spending.

Proponents of decentralization also point out that, like it or not, the process has already started. This past fall, a number of cities passed referendums to fund local transportation, extending a trend that goes back several years. Legislatures from Oregon to Virginia are handling the depleted power of state gas taxes by testing out new funding mechanisms like V.M.T. fees or sales taxes. In other words, with the federal government struggling to find its own funding footing, states and localities have found ways to fill the gaps themselves.

"I'd expect under a decentralized system we'd see more variation across metropolitan areas," says planner David King of Columbia University. "We don't necessarily have shared needs, or homogenous needs across the country, when it comes to what we need for transportation."

King and others in the decentralization camp note that the federal government frequently gets transport policy wrong. Financial and housing incentives used during the interstate construction era led, in large part, to the sprawl that's crippling metropolitan areas today. There's widespread feeling that federal involvement in transportation has resulted in more roads and rails than America needs, with the prospect of free federal money encouraging questionable projects — such as the Detroit People Mover years ago, and some streetcar lines more recently — that might not have been built with local funding alone.

On top of all that, there's reason to question whether the federal government actually redistributes Highway Trust funding fairly. Under the current system, states send their federal gas taxes to Washington, which returns most of the money (at least 95 cents on the dollar in the latest bill) to its place of origin. The feds have the power to redistribute the difference to states with greater needs, but a recent study published in the journal Transportation found that states benefiting from the system have less highway usage and higher income — not to mention better Congressional committee representation.

In other words, conclude study authors Pengyu Zhu of Boise State University and Jeffrey Brown of Florida State University, the extra money goes to places that may not need it at all:

These findings indicate that the user tax revenues are not used in places where they are most needed. Thus they provide little empirical support for any compelling policy argument for continued geographic redistribution of federal highway user tax dollars.

"Decentralization of transport finance is happening, and we shouldn't fear it," says King. "It may or may not be better than what we have, but the current system is not sufficiently wonderful that we should fight to make sure it remains."

The Case for Continued Federal Funding

Last month, for his first hearing as chair of the House transportation committee, Congressman Bill Shuster convened a panel to discuss "The Federal Role in America's Infrastructure." All three witnesses advocated for central involvement to continue, stressing the historical roots of national transportation investment and the need to coordinate interstate infrastructure.

"It's kind of a myth that it will be feasible for the federal government simply to shed responsibility and leave it to the states," says transport scholar Martin Wachs of the RAND Corporation, a California-based think tank. "There's a national interest in every aspect of the transportation system, and it's a political question as to how to organize it. It's a terrible mistake to think that the best thing to do is just to let it go."

A major counterpoint to devolution is that state infrastructure spending isn't always done wisely. Many new state and local funding measures have involved sales tax increases, but research has found that approach can be regressive, disproportionately harming low-income residents compared to wealthier parts of the population [PDF]. Virginia's new funding system has drawn some of this criticism: by scrapping the user-paid gas tax for a series of other taxes, the plan addresses the budget shortage but threatens transportation equity, especially if most of the money goes toward building roads.

Some progressives believe that transportation is a basic social service that must be provided to all people equally, and that many states and regions will simply extend a general dependency on single-occupancy car travel if left to their own devices. A report released last July [PDF] by the Tri-State Transportation Campaign found that many states clearly prioritize road funding, leaving little opportunity to expand transit systems. Yonah Freemark of the Transport Politic blog (and occasional Atlantic Cities contributor) has found that metro areas with high poverty rates spend less money on public transit networks — a problem he feels would be exacerbated in the absence of federal involvement:

We should reevaluate whether it is reasonable for metropolitan areas to take responsibility for funding transit, or whether such funding concerns would be better placed in the hands of national government decision-makers, who might be more likely to prioritize equal spending on transit across regions.

Another question facing strict devolution is whether current federal regulations would remain in place. If the federal government stopped collecting a gas tax, for instance, would it still oblige states to meet responsibilities in the Americans with Disabilities Act, stating that transit systems must offer comparable services to the disabled? Some states might consider such a scenario an unfunded mandate and either ignore the regulations or make drastic cuts to other parts of the transportation system to cover its costs.

Perhaps the biggest fear about decentralization is that certain states will decide to let their segments of the national highway or rail systems slip into disrepair. Speaking at the recent Congressional hearing, Edward Rendell, former governor of Pennsylvania, worried that without federal oversight, "America’s transportation infrastructure would resemble a patchwork of disconnected roads and rails" [PDF]. As a cohesive unit, the national infrastructure systems keep the cost of commercial transport incredibly low.

"I think that it's probably possible for the federal government and state governments to reduce their responsibility for some roads, for some rail lines, and so on," says Wachs. "I also think, however, in the end we're going to decide that there is a federal role. That we are a more integrated national society today than we've been at any point in our history."

Ideas for Reform

Of course there's a middle ground to this discussion. The federal government can keep some sort of funding involvement in the nation's roads and rails but see its traditional top-down role of governance reformed. Metropolitan policy expert Robert Puentes of the Brookings Institution has called for a new model that flips the old one on its head, with states and cities now taking the lead on funding. "The question of devolution in this context is provocative," he wrote last spring, "but it's not an either/or."

Americans interested in a new model of transport governance might want to take a long hard look at their neighbors up north, says David King. Canada's funding system does include a federal gas tax, but that money is returned to provinces with few restrictions, more or less enabling localities to direct spending as they see fit. In fact, only 7 percent of the Canadian federal fuel tax went to roads, according to a 2005 report by transport economist Robin Lindsey [PDF, p. 55].

That's not to say Canada's central government devolves all responsibility. Far from it. Individual projects can receive federal grants, and the federal government recently dedicated a portion of the gas tax to urban transport. But even with provinces and cities taking the lead, Canada has nevertheless produced some excellent public transit. Canada's top cities outrank every American city but New York on important ridership and farebox metrics — though Lindsey is quick to note that much of this difference is the result of Canada having far fewer interstates running through its cities.

"I would say the U.S. model and the Canadian model differ quite a bit, but you can't really say one is clearly superior to another," he says.

David Levinson, transport scholar at the University of Minnesota, has proposed a number of new governance models. One popular plan, drafted with Matthew Kahn and published by Brookings in 2011, outlines a three-step federal model of first fixing existing roads with the gas tax, then expanding them with competitive funding, then rewarding strong projects with subsidies. At his Transportationist blog, Levinson has also suggested limiting the federal role to research and regulation.

The best system, he says, might reduce central authority and reconfigure state departments of transportation as public utilities. In this "enterprising" model, as Levinson called it in a January report [PDF], a new transport utility would work with a local oversight commission to establish fair usage rates and maintain service quality. Australia operates with this type of system, as does the multi-modal TransLink agency in Vancouver, as do water and sewage and electric companies in the United States.

If infrastructure governance were a bit more decentralized, says Levinson, you'd expect innovative concepts like enterprising transport to reach the fore. ("It's the 'laboratories of democracy' idea," he says.) Then again, given the complexity of the situation, not to mention the general intransigence of the federal government in recent times, it seems quite possible that lawmakers will respond to the urgent need for transport funding reform with no reform at all.

"My sense is it's more likely to fade away than it is be reversed in terms of a great new federal role or be eliminated entirely," says Levinson." The status quo policy is to leave the gas tax where it is, and it will slowly diminish over time until it becomes almost an irrelevancy. If I had to predict what I think will happen over the next 20 years, I think that's the most likely outcome."

Top image: Brad Ingram/Shutterstock.com

Eric Jaffe is a contributing writer to The Atlantic Cities and the author of A Curious Madness (2014) and The King's Best Highway (2010). He lives in New York. All posts »

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