Innovation Brief: Rethinking Transportation Funding (12/9)

Rethinking Transportation Funding  

Has the time come to reconsider the way we pay for transportation? Should the Highway Trust Fund and its fuel tax revenue continue as the main source of funds for the federal transportation program? If not, what are the alternatives? And more broadly, is the age of long term reauthorizations and of heavy reliance on federal funding, drawing to a close?

These questions are no longer considered as outside the realm of a serious policy debate.

No less than U.S. Transportation Secretary Anthony Foxx has acknowledged  the need to reconsider 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 a recent interview at the CityLab 2014 Conference on Urban Solutions for Global Challenges.  (“Improving Transportation Federally Can Begin Locally,”The Planning Report, Nov. 2014.)

Meanwhile, statements by congressional leadership have cast doubt on the the prospect for a long-term (six-year) reauthorization whose estimated price tag is estimated at one hundred billion dollars.

“We will oversee a legislature in which ‘bigger’ isn’t automatically equated with ‘better’ when it comes to writing and passing bills,” wrote House Speaker John Boehner and future Senate Majority Leader Mitch McConnell in a joint post-election opinion piece in the Wall Stret Journal.  The statement was couched in vague generalities but its message was clear: there will be no massive splurge in spending in the Republican-controlled Congress next year. (Now We Can Get Congress Going, WSJ, Nov. 5, 2014)

President Obama seems to have reached the same conclusion. Responding to a question by FedEx CEO Fred Smith about the prospects for a gas tax increase and a transportation bill at a recent meeting with members of the Business Roundtable, the President said, “Even if we were able to get something done [during the lame duck session], it would not be the kind of 10-year solution that we need…The best they [i.e. Congress] could do would be to stagger through another year.”

As for the lack of action on the gas tax, the President observed, “In fairness to members of Congress, votes on gas taxes are really tough. Gas prices are one of those things that really bug people.” Instead, Mr. Obama continued, we should be looking for a “dedicated revenue source for infrastructure funding that is not so politically frightening to members of Congress.”  However, the President did not volunteer what that revenue source might be (transcript of the President’s remarks to Business Roundtable can be found at, December 3, 2014).

The President’s clear-eyed assessment of the congressional mood has dimmed the hopes of infrastructure advocates for a boost in transportation revenue even as gas prices have reached  a four-year low. Confessed one longtime industry advocate,  ” I have come to a reluctant conclusion that transportation funding will continue to stagnate if we continue to stick to the funding orthodoxy of the Interstate Highways era.”

Eno Transportation Center Report  

Joining in challenging the funding status quo has been the Eno Center for Transportation, a self-described “neutral, non-partisan transportation think tank.” Its new report, entitled provocatively “The Life and Death of the Highway Trust Fund,”  questions the continued viability of of the Highway Trust Fund and suggests eliminating the Trust Fund in favor of a funding structure based on General Funds.”The current approach to funding surface transportation is not working,” declared the report’s authors, citing political opposition to increasing the gas tax, diminishing travel per capita and improved fuel efficiency that have held down demand for gasoline, and the desire to maintain transportation spending above trust fund receipts, necessitating continual General Fund infusions to keep the Trust Fund solvent.

“Maintaining the status quo will continue to produce funding uncertainty and perpetuate current funding problems,” states the report. Instead, the entire surface transportation bill might as well be funded with general funds through the appropriations process. This more straightforward approach  “deserves fair consideration as an effective long-term solution to our national transportation funding problem,” concludes the report.  (“Eno Releases Report on Sustainable Federal Funding,” December 3, 2014).

While  Eno’s proposed approach might make good sense policywise,  it is not likely to find widespread support among transportation stakeholders. The transportation industry does not cherish the thought of having “their” program become part of the annual appropriations process that would expose it to  budget cutting pressures and to competition for funds from other programs.

States Are Assuming More Responsibility for Transportation Funding

Eno’s proposal is not the only alternative funding scenario to have caught the attention of the transportation community.

The transportation advocacy group Transportation for America (T4America) thinks the solution lies in shifting a larger share of funding responsibility to the state and local level.  “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. His announcement came at the conclusion of the organization’s two-day conference in Denver to discuss transportation funding innovation at the state and local levels. (“Raising Money for Transportation Through Innovative State Legislation,” November 13-14, 2014, Denver, CO)

T4America’s proposal is supported by solid evidence. The past two years have seen a growing number of states seeking to compensate for the lack of congressional action with funding initiatives of their own. Indeed, for a growing 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 is no longer an imperative.

Surveys conducted by the American Road and Transportation Builders Association, the National Conference of State Legislatures and AASHTO’s Center for Excellence in Project Finance have identified more than 30 states that have passed transportation-related fiscal initiatives in the past three years. The surveys show that state governments have become veritable laboratories for fiscal innovation. Six states have increased local fuel taxes (MD, WY, MA, VT, NH, MA). Others have introduced fuel taxes at the wholesale level (e.g. PA, VA), floated toll revenue bonds (e.g. OH) or raised highway tolls (e.g. DE, FL). Still others have enacted or contemplate enacting dedicated sales taxes for transportation (AK, VT, WI, MN).

The movement toward seeking greater fiscal independence continued into the midterm elections. Maryland and Wisconsin took steps to shelter their transportation revenue against diversion to other programs, while Texas voters agreed to divert $1.7 billion in oil- and gas-production taxes to the highway fund. More recently, the Michigan State Senate voted  to sharply increase gas taxes over the next four years to potentially raise more than $1 billion annually to fix the states’s roads and bridges. As for the future, 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).

At the local level, things have not been standing still either. A growing number of local jurisdictions have been approving bond issues and dedicated sales taxes to support local transportation improvements.

Collectively, these measures are generating billions of additional revenue for state and local transportation programs and making up for the absence of long-term federal funding. According to ARTBA’s Transportation Investment Advocacy Center, the transportation initiatives that were on the November ballot will provide nearly $21 billion in additional revenue.  In California alone, local sales taxes will raise $3.8 billion for transportation in 2014 according to Caltrans. (“Another Big Election Winner: Transportation Funding Initiatives,” ARTBA press release, Nov. 5, 2014).

In sum, states are not standing idly by, waiting for Congress to come to the rescue with 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 passing local bond referenda, financing large-scale construction projects with long term credit, and entering into investment partnerships with the private sector.

With the midterm elections having increased Republican majorities among governors and in state legislatures to historic highs not seen since the 1920s, the movement toward greater fiscal autonomy, self-sufficiency and financial innovation at the state and local level is likely to grow in strength.

The time to reconsider the manner we pay for transportation may indeed be upon us.



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— Posted on December 11, 2014 at 8:41 pm by