Policy

Reason Writers Around Town: Shifting Transportation to a Users-Pay/Users-Benefit System

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Reason Foundation Director of Transportation Robert Poole writes:

As Congress grapples with impending budget cuts, we need to do a fundamental rethink of how the federal government assists with much-needed transportation infrastructure. The reality going forward is that there will be no such thing as "general revenue" funding for much of anything beyond entitlements, defense, and interest on the national debt. As long as the federal budget remains grossly unbalanced, general-fund investments in infrastructure are essentially borrowed from China—an unsustainable situation.

Three key principles are necessary for a sustainable federal role in infrastructure:

  1. Users should pay for the infrastructure they use;
  2. Large capital projects should be financed, via revenue bonds and other mechanisms; and,
  3. The federal role should be narrowed to do only things that are truly interstate in nature, which means shifting more responsibility to the states, metro areas, and the private sector.

Reason Foundation's new policy brief, "Funding Transportation Infrastructure in a Fiscally Constrained Environment," explains why the model used for federal transportation programs—user taxes feeding centralized trust funds that make annual grants for cash-based investments, increasingly subsidized by general-fund money—needs replacing:

  • Because these user taxes are seen as taxes, Congress seldom increases them, even when their real value declines due to inflation and other factors.
  • Each transportation program involves large cross-subsidies, in which some users pay for other users' projects, often for projects of low real value.
  • Federal money comes with costly strings attached, such as Davis-Bacon and Buy America requirements, needlessly raising the cost of federally aided projects.
  • Federal programs over-emphasize new capacity, leading to large amounts of deferred maintenance on existing infrastructure.
  • Most federal programs encourage state and local governments to fund large capital projects out of annual cash flow, rather than financing them over time, as businesses (and home-buyers) do.

The report sets out a comprehensive set of organizational, tax policy, and regulatory changes that would implement the above principles, thereby ensuring needed, cost-effective investment in airports, air traffic control, highways and bridges, ports and waterways, transit, and passenger rail.

Full piece here.