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Rethinking the Highway Trust Fund

Rethinking the Highway Trust Fund. by Robert W. Poole, Jr. Director of Transportation Policy, Reason Foundation www.reason.org/transportation bobp@reason.org. What is the problem?. Declining performance of highway infrastructure Major shortfall in highway investment

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Rethinking the Highway Trust Fund

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  1. Rethinking the Highway Trust Fund by Robert W. Poole, Jr. Director of Transportation Policy, Reason Foundation www.reason.org/transportation bobp@reason.org

  2. What is the problem? • Declining performance of highway infrastructure • Major shortfall in highway investment • Political gridlock over funding the federal program • Ever-increasing diversions of highway user revenue to non-highway uses.

  3. The users-pay/users-benefit principle is sound • Fairness: those who pay benefit. • Proportionality: use more; pay more. • Self-limiting: unlike Europe’s gas taxes • Predictable: annual revenue stream. • Investment signal: at least in the form of tolling.

  4. But diversion of Trust Fund monies undercuts this principle. • 1956: Interstates only • 1970: other highways, bus facilities • 1973: rail facilities • 1982: Mass Transit Account • 1991: “flexible” STP and CMAQ can fund bikeways, sidewalks, trails, etc. • 1998 and 2005: even more flexibility • Today, 25% of Highway Trust Fund monies are used for non-highway purposes.

  5. Current reauthorization may be a turning point • House bill (STAA) would make most of Trust Fund flexible, focus heavily on smart-growth planning and non-highway modes. • Federal program at risk of being converted into general public works/community development program. • Fuel tax would become general funding source, ending status as user fee.

  6. Yet the need for increased highway investment is well-documented. • Major highways and bridges are wearing out and must be replaced. • Cost of reconstructing Interstates has not been included in most estimates of “needs.” • Locations of people and business are very different from when the Interstates were being planned. • Many highways and bridges are under-sized for current—and projected—traffic.

  7. How large is the highway funding shortfall? • Estimates from AASHTO, Policy & Revenue Commission, Financing Commission, and FHWA C&P Report. • Federal, state, and local capital investment. • 2008 FHWA C&P report (all roads)*: • “Sustain” scenario: $27B/year short • “Improve” scenario: $78B/year short *Using B/C>1.2

  8. What is the appropriate federal role in surface transportation? • Interstate commerce clause • Alice Rivlin, Tom Downs both urged devolution of highways to states. • Interstates should be federal system, for cross-border travel and commerce. • GAO urges: sort out true federal interests and devolve the rest. (GAO-08-400)

  9. Our assessment justifies three functions: 1. Interstate system: • Goods movement • Personal travel 2. Research 3. Safety: • Safety regulation • Safety programs

  10. Budgetary impact of refocused federal program (1) Programs no longer funded by Highway Trust Fund: • Urban transit: $8.0B/year • Enhancements/misc. 1.8B/year • Safety regulation: 1.1B/year Total: $10.9B/year

  11. Budgetary impact (2): Interstate 2.0 • Rebuild 233 interchange bottlenecks: $128B • Add HOT networks in 19 most- congested metro areas: $98B • Reconstruct and modernize long-haul Interstates, starting with key truck routes: ??? • Net federal increase @ $10B/yr would be $200B over 20 years.

  12. How does an extra $10B/year compare with Interstate investment needs?

  13. Political feasibility (1):Highway community • Large new funding for the most important highways, urban and rural. • Addresses loss of trust in Trust Fund. • Restores users-pay/users-benefit principle. • But major break from 30-year status quo.

  14. Political feasibility (2):Non-highway programs • Social infrastructure should be paid for out of general taxes. • General fund: 2008 and 2009 bailouts of Trust Fund equal current Transit Account budget (≈$8B/yr). Plus $19.5B in 2010-11. • State/local support is already 70-80% of transit funding.

  15. Political feasibility (3):State governors and DOTs • GAO-08-400 analysis, by state, of full devolution: majority of states would have decreases in total fuel tax rate. • But our proposal would keep federal fuel tax, shift it to Interstates. • Would states replace 100% of shifted revenue ($10B/yr)?

  16. State governors and DOTs, cont. • Assumptions: • Feds replace transit funds • States don’t replicate all former highway programs. • State $ worth more than federal $ • Increased use of tolling and PPPs • Use of B/C screen of 1.2 or 1.5 • 46 states shortfall of only 4-11 cents/gallon; only 4 & DC greater.

  17. Conclusions:Trust Fund proposal While very ambitious, this approach could accomplish the following: • Restore the users-pay/users-benefit principle. • Restore trust in the Highway Trust Fund. • Modernize the ailing Interstate system. • Increase total highway investment. • Hold harmless urban transit.

  18. Other reauthorization principles • Remove federal barriers to tolling and PPPs; FHWA as facilitator, not regulator. • National priority for goods-movement infrastructure investment. • Urban congestion reduction via pricing and HOT/BRT networks. • Serious B/C requirement, e.g. 1.5. • GHG cost-effectiveness test: <$50/ton.

  19. Questions? Contact information: www.reason.org/transportation Bob.Poole@reason.org

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