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The Federal Highway Trust Fund Is Going Broke. Here's Why That Could Be a Good Thing.

wherezjeff/Flickrwherezjeff/FlickrThis week President Obama is putting the hard sell on raising highway and transit aid, as the federal Highway Trust Fund (HTF) warns that it's bound by early August to run out of sufficient money to meet state obligations. The White House says Obama will discuss the matter Tuesday in Virginia, where he's expected to propose a "pro-growth business tax reform" solution. In Delaware on Thursday, he'll announce an initiative to increase private-sector investment in transportation. 

About 27 percent of highway and transit spending currently comes from the federal government, via the HTF, while states kicking in about 38 percent and 35 percent coming from municipalities. The HTF isn't set to "run dry" in August, as many are reporting, but it did tell states to expect an average 28 percent reduction in aid at that point unless Congress acts. The fund faces a $15 billion gap between projected spending and the money it will collect in 2015. 

House and Senate committees began addressing ways to shore up HTF funding last week, both in the short-term and the long-term. The existing two-year funding measure expires at this end of this September. Legislators are now looking at bills that would provide about $11 billion to the HTF through May 2015 and address long-term funding separately in the future. 

State governors still say Congress isn't acting fast enough, and it's hindering their ability to plan and build major highway and bridge projects. From Reuters

Republicans and Democrats who gathered in Nashville during the weekend for a National Governors Association (NGA) meeting said that at minimum Congress should approve a short-term fix before the federal highway account becomes insolvent by the end of August. Yet they want a longer solution to remove uncertainly that could stop or delay projects worth an estimated $3.6 trillion to fix crumbling roads and bridges.

The inability of Congress to agree increases pressure on states to find alternative financing for their share, governors said. It affects the work needed to create jobs and boost the economy while repairing outdated infrastructure to avoid disasters such as the 2007 Minneapolis bridge collapse that killed 13 people and injured 145.

According to the American Society of Civil Engineers, the U.S. needs $3.6 trillion by 2020 to maintain highways, bridges, and other infrastructure. One way to raise some funds would be to raise fuel taxes, relied on heavily by states and the federal government to fund infrastructure projects—and untouched by Congress since 1993.

Yet there's nothing stopping states from taking this matter into their own hands. Since 2013, seven states have raised fuel levies, reports Reuters, while Wisconsin Gov. Scott Walker is considering substituting sales tax and Indiana Gov. Mike Pence is pushing public-private partnerships. Other governors at the NGA conference also said they were looking at alternative funding solutions. 

When left a little more to their own devices, it seems states get innovative. They develop localized solutions. They experiment. 

Vice President Joe Biden was wistful when he told governors that, "you’re the ones leading in your states without much help from the United States Congress. You’ve got to lead us out of this mess we’re in." He saw this as an unfortunate byproduct of Congressional gridlock. But it may just be exactly what we need. 

"The federal and state governments are having difficulty maintaining transportation investments in large part because they rely heavily on the gas tax, a declining revenue source, to pay for road and transit infrastructure," Pew Research Center notes. "This revenue has fallen substantially in real terms across all levels of government over the past decade as a result of changing driving habits and increased fuel efficiency."

Clearly the fuel-tax system of infrastructure funding can't sustain itself and will only get less sensible with time. But fuel tax revenue decline doesn't tell the whole story of the HTF's funding gap. From Cato's Chris Edwards

In recent years, gas tax revenues have flat-lined. But the source of the HTF gap was highway and transit spending getting ahead of revenues, and then staying at elevated levels.

The chart (below) shows real federal highway and transit spending since 1970. Real highway spending (red line) has almost doubled over the last two decades, from $29.1 billion in 1994 to $56.2 billion in 2014. Real transit spending (green line) has also risen since the mid-1990s.

Cato at Liberty / DownsizingGovernment.org/chartsCato at Liberty / DownsizingGovernment.org/charts

In May testimony before the Senate Finance Committee, Edwards suggested that one way to close the large funding gap between what the HTF currently has and what it needs "would be to reduce spending and downsize the federal role in transportation. That approach would encourage state governments to pursue their own innovative solutions for highways and transit, such as new types of user charges, public-private partnerships, and privatization." 

"Privatization" of infrastructure sounds to most people like a spooky libertarian pipe dream, but Edwards points out that privately-funded infrastructure is already common. "Private infrastructure spending—on factories, freight rail, cell towers, pipelines, refineries, and other items—is four times larger than federal, state, and local government infrastructure spending combined," he said. 

Transporation policy analyst Emilly Goff agrees that "our Washington-centric approach isn’t solving our traffic and mobility issues." This is largely because when the federal government acts as a middleman, project priorities get skewed, she says.

When car and truck drivers pay the 18.4 cents per gallon federal gas tax (24.4 cents per gallon for diesel) at the pump, they expect better roads and less traffic congestion in return. Instead, Washington diverts more than 25% of that money to subways, streetcars, buses, bicycle and nature paths, and landscaping, at the expense of road and bridge projects.

A federal gas tax hike presumably would continue this unfair trend.

The beneficiaries of these local activities take from, but do not contribute to, the Highway Trust Fund. Better for New York and New Jersey to fund their subways, Oregon its bike paths and Maryland its trails.

And though much is made of the horrid state of our "crumbling infrastructure," we've actually been making a lot of progress on that front, says The Washington Post's Robert Samuelson.

Take bridges as an example. The record looks grim. In 2012, about 67,000 bridges were rated "structurally deficient."

But the record needs context. With 607,000 U.S. bridges, those 67,000 represent 11 percent of the total—a share that’s down from about 25 percent in 1990.

Samuelson also notes that "structurally deficient" doesn't necessarily mean unsafe. According to the Congressional Research Service, it may simply mean that weight restrictions need to be posted or some smaller repairs made. 

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  • Free Society||

    If states handled transportation, that'd be one less federal lever on the State's sovereignty.

  • dantheserene||

    We see less federal power as a benefit. Others see it as a disaster.

  • briannnnn||

    Finally they'll build a high speed train from Cincinnati to LA!

  • C. S. P. Schofield||

    The major problem with the nation's "infrastructure", bluntly put, is that Governments love new projects and hate to pay for maintenance. So they get involved with exciting (and expensive, and arguably useless) projects like high speed rail, and let the roads go to hell.

    I'm not sure that there is any final solution for this. Keeping such spending as local as possible should help, though. There are no major diagonal roads in Iowa (or there weren't in the 1980's); this is because every time some desk jockey in Des Moines dames up with the idea, a bunch of farmers (whose farms might be in the path) turn up at the state capitol to explain to the little idiot the extreme error of his ways.

    Which is another argument for splitting California into smaller States.

  • np||

    Wait, no ROADZ joke?

    Also, why are some posts like this on 24/7?

  • toolkien||

    Does this mean states can move the drinking age back down to 18? It may seem like a small thing, but the first real tear to my Republicanism was Reagan Forcing through the 21 year old drinking age by threatening to withhold highway funds. I was in college at the time and it further pushed out the drinking age ahead of me. My brother was just slightly three years older than I was. He got his "right" at 18, while it was moved to 19 for me, and as I was moving ahead on that cut-off, Reagan used extortionate means to move it 21. Hardly seemed to be the type of thing that the party of individualism and personal responsibility ought to be doing.

    I shifted from Republican to Libertarian-Republican at that time. And 18 years later the Republicans pushed through Medicare Part D and concertedly pushed the libertarians out of the party, so went any pretense to Republicanism. They haven't done much to work their way back into my heart. Their treatment of Paul, and a few others who have had the gall to espouse fiscal conservatism, since get it dry and sideways from the Republican establishment.

    As for roads, as the infrastructure continues to crumble, funds will dry up even more. We've got way to many bills to pay and not enough to go around. Our decline into second world status is going to be short and not so sweet.

  • Laird||

    toolkien, this is entirely off-topic to the roads issue, but your historical perspective is too short. You forget (perhaps didn't know) that the drinking age was 21 for a very long time. It was dropped to 18 only when the voting age was also dropped to that, during the Vietnam War. (I had just turned 21 when the drinking age was dropped to 18. I was mightily annoyed!) The argument was that the boys were old enough to die for their country but not old enough to vote or drink? So both ages were dropped, but when the drunk driving fatalities skyrocketed the drinking age went back up. You just happened to come along in that small 18-year-old window.

    None of which is intended to push you back to the Republicans, of course! It's just a history lesson.

  • NotAnotherSkippy||

    I haven't totaled up the impact but I would solve the problem with an increase in the gas tax AFTER implementing the following reforms:

    1) Remove all green energy tax credits inc. TSLA's subsidies
    2) Cut "transit" funding in half (ideally zero but that won't fly)
    3) Dedicate 90% of revenue to maintenance and block grant the remainder to the states in proportion to their revenue generation
    4) Fully privatize Amtrak
    5) Implement an annual wheelage tax for all alternative fuel vehicles equal to 3000gal/yr of gas consumption
    6) Repeal all mileage standards (gas tax is a Pigovian solution anyway)
    7) Require that 95% of all spending must be on actual projects and not administrative costs.

    Show me the socialists, er, Democrats are serious about infrastructure and not their sacred cows.

  • Bellbiv||

    Yes, we have the Movie Idiocracy in place as a shining example!

    Yes, get rid of fuel economy standards so we can burn through even more fuel than we already don't have!!!

    No Green! We must aspire to be as good as the Chinese Industrial belt, where surgical masks are a daily requirement to breath outside!

    Brilliant...

  • NotAnotherSkippy||

    Help me Government, you're our only hope!

    You need to look up what a Pigovian tax is, sport.

    Green energy requires fossil fuel backup (or nuclear which I'm sure you can't stand either), so you've saved, um, nothing really. All you've done is reward your cronies. Oh, and those EV's that you love so much? A big chunk of their power comes from coal which is far dirtier than burning gas.

  • entropy_factor||

    MUH ROOOOOADZZZ

  • Laird||

    NotAnother Skippy, those are good ideas. But I wouldn't give up on the transit funding piece quite so easily. Gasoline taxes are for roads and bridges, period. 100% of those revenues should be devoted to that purpose (OK, with a little bit for overhead, too). Not one penny of it should go to other uses (mass transit, bike paths, etc.). Spending on those things doesn't necessarily have to stop (I would stop it, of course, but as you say that won't fly), but Congress should have to appropriate the funds specifically for it. The gas tax revenues should be sacrosanct: they're for roads, and nothing else.

  • NotAnotherSkippy||

    I'm with ya. I just went down the slippery slope of what's politically "possible."

  • Uncle Jay||

    I like "not another skippy's" 4:08 post. He made some excellent points. Here's my idea. Make all federal and state roads toll roads. Illinois had a toll road from Chicago to the Wisconsin border back in the early 1990's, and it was the best road I had ever driven on, even better than the Deutche auto bahns. I do not know if it is still operating, but have found toll roads across the USA to be in better shape than the non-toll roads. Additionally, toll roads would eliminate unnecessary taxes (and croynism) when distributing our tax dollars to contractors. People would only pay when they actually use the roads, which is only fair. Only the simple minded, the statists cheerleaders and government control freaks would object to this idea.

  • Ahem'||

    "When left a little more to their own devices, it seems states get innovative. They develop localized solutions. They experiment."

    Here in New Hampshire we just "experimented" with a 23% increase with the gas tax on July 1st. That was our solution , yup that's us, "innovative".

  • wagnert in atlanta||

    A slight digression, because this statement annoys me:

    "The inability of Congress to agree increases pressure on states to find alternative financing for their share, governors said. It affects the work needed to create jobs and boost the economy while repairing outdated infrastructure to avoid disasters such as the 2007 Minneapolis bridge collapse that killed 13 people and injured 145."

    The Minneapolis bridge collapse wan not due to "outdated infrastructure." It was due to a defect built into the bridge when it was new. Twelve structural joints were undersized due either to design or construction error. They were finally overstressed and failed when the bridge was loaded with construction equipment and supplies on one side and bumper-to-bumper stalled traffic on the other. Age had nothing to do with it.

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