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Let States Build Their Own Highways

Congress can't pass a real transportation bill. And it shouldn't have to.

When Congress left town for the August recess, it did so without coming to an agreement on a long-term transportation bill. Instead, the president signed a three-month extension that set the stage for another showdown this fall. More than 30 such temporary extensions have passed since the last multi-year transportation bill expired in 2011.

The inability of Congress to come together to pass a transportation package has frustrated the myriad special interests whose lobbyists want assurances that the dollars will keep flowing for years, and not just months, to come. And the media, which seldom miss an opportunity to push the "crumbling infrastructure" narrative, treat the matter as just another lamentable example of congressional gridlock inhibiting progress. But the real source of the dysfunction is the fact that Washington is so involved in state and local transportation funding decisions in the first place.

In July the Senate passed a six-year, $320 billion transportation bill that the House subsequently refused to take up-primarily because it would authorize spending for six years but only provide enough revenue to pay for the first three. Another $51 billion would have to be found for the final three years.

Not only that, but almost $48 billion in additional revenues would be needed to cover the first three years' worth of spending beyond what the federal gas tax and related fuel taxes are set to provide. Under the bill, that money would come from a number of provisions that have little or nothing to do with transportation. For example, an estimated $9 billion is supposed to be raised from the sale of 101 million barrels of oil from the Strategic Petroleum Reserve, and an estimated $17.1 billion is supposed to come from lowering the interest rate on dividends that banks purchase from the Federal Reserve.

These unrelated offsets do not belong in a transportation bill, needless to say.

Most of the financing gimmicks won't actually pay for the spending that will occur in the next three years anyway. Taxpayers for Common Sense found that more than 90 percent of the offsets don't kick in until after the initial spending splurge, and two-thirds of the cash won't be collected until after the six-year life of the bill. In its July 31 Weekly Wastebasket blog post, Taxpayers for Common Sense wrote that to raise money, the bill "would extend current budget treatment of [Transportation Security Administration] fees from 2023 to 2025, worth $3.5 billion."

The federal gas tax, which has been the traditional source of revenue to pay for transportation spending, is at the heart of why Congress has been unable to pass a long-term bill. Federal gas tax revenues haven't been enough to cover the amount Congress has authorized to be spent on transportation infrastructure in recent years, forcing policy makers to transfer more than $60 billion in general funds to the Highway Trust Fund (HTF) just since 2008.

Proponents of hiking the gas tax—currently 18.4 cents a gallon—point out that it hasn't increased since the mid-1990s. They correctly note that price inflation has eroded the revenue's "purchasing power" in the intervening period.

The federal gas tax, however, was originally created in 1932 as a "temporary" deficit-reduction measure. It was used to pay the federal government's regular bills until the national interstate system was created in 1956, at which point revenues from the gas tax were redirected to the newly created HTF. The idea was that the tax would act as a "user fee," in that people who traveled the roads financed by the fund would effectively pay for the privilege when they bought fuel.

But as is often the case with government programs, the trust fund has ended up being used to cover parochial projects that do not benefit Interstate drivers in particular—or the nation as a whole. For instance, under the current Senate bill, 25 percent of the funding would go to state and local transit systems rather than highway construction or maintenance.

With those expansions in the HTF's mission came increases in the gas tax, until further hikes finally became politically untenable. Not surprisingly, the special interests who benefit from government transportation spending, including the business community, have been pushing for an increase in the tax for years. But Republicans have been reluctant to embrace one.

Opponents generally fall into two camps: First is a small contingent that favors spending only what the current gas tax (and related fuel taxes) brings in. That would be about $34 billion a year. Second is a majority that wants to find a way to spend more than $50 billion a year without raising the gas tax. That's what the Senate bill would do.

A better approach would be for Congress to devolve transportation spending to the states. There is little sense in the federal government taking money from people through the gas tax, running it through the federal bureaucracy, and then sending it back to the states via politically conceived transportation spending formulas. Those politically driven decisions ultimately produce wasteful projects like the Big Dig in Boston, Interstate 99 in Pennsylvania, and the Bridge to Nowhere in Alaska.

State and local governments are perfectly able to handle the process of funding their own transportation needs, as demonstrated by the fact that they already pay for approximately three-quarters of total highway and mass transit spending.

In 2014 testimony to the Senate Finance Committee, the Cato Institute's Chris Edwards noted that the HTF's misallocation of resources creates winner and loser states, with the losers often being those that actually need the highway funds most. Citing a study by Pengyu Zhu of Boise State University and Jeffrey Brown of Florida State University, Edwards noted that highway aid "has been biased against states that have larger highway systems and more highway use, thus biased against states with greater needs."

Transferring funding decisions away from Washington would also create better incentives for state policy makers. If they believe more money for transportation projects is needed, they should make the case to their constituents for higher taxes. Indeed, state gas taxes went up in six states on July 1, and other states have also passed increases in transportation-related taxes in recent years.

This change would also free states from the numerous mandates that come with receiving funds from the federal government, like the pro-union Davis-Bacon rules, which unnecessarily increase the cost of transportation projects by approximately 10 percent by requiring heavy use of organized labor, and the Reagan-era law that allows the federal government to withhold 10 percent of a state's highway funds if it dares to allow people under the age of 21 to legally purchase and consume alcohol. These inefficient one-size-fits-all mandates are clear abuses of federal power.

Given that members of both parties enjoy having a large federal role in transportation policy, momentum for devolving spending to the states is unlikely to originate with Congress. Still, it would be nice if even a couple of the current Republican aspirants to the White House made good on their supposed limited government values by supporting a move toward subsidiarity in transportation.

None has so far, while several are actively working to maintain the status quo. A few months ago, Sen. Rand Paul (R–Ky.) co-sponsored with Sen. Barbara Boxer (D–Calif.) the Invest in Transportation Act of 2015. That bill would reduce the U.S. corporate tax rate on foreign-source earnings from 35 percent to 6.5 percent for five years if the earnings are repatriated to the United States. All that new revenue would go to the HTF, thus avoiding, according to Paul and Boxer, the need to increase the federal gas tax.

As far as repatriation bills go, this might be the least terrible we've seen. But that's faint praise. Paul is focused not on making the case for reforming a punishing corporate income tax but on the good that would allegedly come from the federal government raising more tax dollars for infrastructure spending. There's nothing free-market about that.

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  • Fist of Etiquette||

    A better approach would be for Congress to devolve transportation spending to the states.

    Oh, God, no. The Commonwealth of Pennsylvania already has the very worst roads in the country. Leaving it up to Harrisburg we'd exist as one giant pothole.

  • gaoxiaen||

    In Pennsylvania, you know that someone is driving drunk if they're not swerving wildly.

  • Win Bear||

    But that is the problem with federal handouts: people become dependent on them and they come with strings attached.

  • RoyMo||

    Move to Idaho, where we know if it isn't in Boise and is paved it was paid for by Federal money. It's not so bad, with all the basalt the gravel looks like really fresh asphalt and I can buy a new windshield every two years when it becomes cloudy from the volcanic glass dust.

  • Ben Johannson||

    "A better approach would be for Congress to devolve transportation spending to the states."

    Do you mean the states should do the taxing, or a federal highway block grant?

    "These inefficient one-size-fits-all mandates are clear abuses of federal power."

    Is there some objective method of determining whether a one-size-fits-all mandate is more or less efficient than fifty? With what definition of inefficiency?

    "That bill would reduce the U.S. corporate tax rate on foreign-source earnings from 35 percent to 6.5 percent for five years if the earnings are repatriated to the United States."

    The corporate tax should be abolished because it incentivizes wasteful behaviors, not as a meaningless repatriation scheme. All that would happen is to watch multinationals convert their foreign currency earnings into U.S. Dollars we already have and can put into circulation whenever we want. Net gain = zero.

    "There's nothing free-market about that."

    Yes, in areas where markets cannot exist one typically finds nothing free-market.

  • Win Bear||

    Is there some objective method of determining whether a one-size-fits-all mandate is more or less efficient than fifty? With what definition of inefficiency?

    It's like slavery: economic theory tells you that it isn't efficient, but the real reason to get rid of it is that it is morally wrong.

    Yes, in areas where markets cannot exist one typically finds nothing free-market.

    Roads can be supplied just fine by the free market; they were for a long time before the state granted itself a monopoly.

  • Ben Johannson||

    How does a market exist with a government purchaser?

  • NotAnotherSkippy||

    OMG! The evil corps would bring their capital back to the U.S.. The horror! Why, it might b distributed to shareholders or even *gasp* invested! But we don't need that capital because we already have dollars!

    You're that 'tard that believes that growth comes from the gov't printing money. It doesn't.

  • Ben Johannson||

    "OMG! The evil corps would bring their capital back to the U.S.. The horror!"

    It's silly of you to go around claiming corporations are all evil.

    "Why, it might b distributed to shareholders or even *gasp* invested!"

    You do not appear to have read either the article or my comment. de Rugy discusses "repatriation" in the context of additional funds for highway construction, as do I.

    "But we don't need that capital because we already have dollars!"

    Can't use Yuan or Euros to invest in the United States.

    "You're that 'tard that believes that growth comes from the gov't printing money. It doesn't."

    Growth is a result of spending = incomes = employment = output.

  • NotAnotherSkippy||

    So capital can never flow across national boundaries except in the form of cash? There is NO way to EXchange FOReign currency? Sure you wanna stick with that, sport?

    And growth comes from production, not consumption. We never have a shortage of the latter.

  • Ben Johannson||

    "So capital can never flow across national boundaries except in the form of cash?"

    Not for multinationals. You've wandered off-topic.

    "There is NO way to EXchange FOReign currency?"

    If you exchange your euros for USD you're getting currency already within the banking system and ultimately supplied by Federal Reserve operations and Treasury spending.

    "And growth comes from production, not consumption. We never have a shortage of the latter."

    There is not a professional economist on the planet who would agree with you.

  • soflarider||

    I knew it would happen. Libertarians are messing with my roads.

  • Vampire||

    "Yes, in areas where markets cannot exist one typically finds nothing free-market"

    Lol. This is nonsensical, as markets can exist with anything. Just because it's out of one's comfort zone doesn't mean it cannot be. As the market has handled things far more complex very effectively, more so than central planning could dream of doing. Top men and socialism doesn't become magically efficient and when it comes to RoADz.

    The "crumbling infrastructure" is a direct result of road socialism. The states have already proven to be a failure. There is no economizing, efficiency, nor innovation. It is stifled, in favor of using crappy materials and procedures so these bureaucracies can get either the same budget, or a larger one for the next year. Especially so when the infrastructure is crumbling due to them manufacturing the crisis.

    Things like crumb rubber are opposed, because it would make the roads last much longer. There were direct experiments conducted, and crumb rubber roads outperformed conventional roads hands down.

    The answer to the crumbling infrastructure is private property, competition, and free markets. Governments don't like competition, nor wish to give up any revenues they get by way of extortion.

  • Win Bear||

    ^^ THIS ^^

    The usual argument goes like this:

    Progressive: Free markets have failed for X, that's why government needs to step in!

    Libertarian: How do you know? Free markets have never been tried for X!

    Progressive: But they would fail because [usually some irrelevant argument about partial deregulation or the ever mythical externalities].

    Where progressives and socialists are right is that complete deregulation is hard: it usually ends up being corrupt, it creates chaos for a while, and nobody can say what market we end up with. And partial deregulation, the kind legislatures go for, is usually just a code work for more rent seeking and crony capitalism.

  • Ben Johannson||

    There is no economic theory which states markets can exist in everything, nor is there one in which total deregulation is considered a goal for optimal performance.

  • NotAnotherSkippy||

    There is no empirical evidence that government has added value. In fact Venezuela and the USER prove just the opposite.

  • Ben Johannson||

    I haven't made any argument regarding value. Jumping around, switching subjects isn't useful.

  • JPyrate||

    "I haven't made any argument regarding value."

    That's the problem with any Government spending. When you spend other peoples money, on other people, you lose all sense of value, and therefore lose any sense of an argument for, or against spending that money.

  • Ben Johannson||

    You are certainly entitled to your own normative arguments, but economics is a positivist field and I haven't made any argument regarding the value of government spending.

  • Brian||

    There are lots of economic non-theories.

    Yawn.

  • Ben Johannson||

    No, markets cannot exist in anything. They require very specific conditions to exist, two of which are many buyers and many sellers. Having Iowa do its own buying as de Rugy explicitly calls for isn't a market but a monopsony and fifty states sill certainly not be competing with each other for asphalt.

    How does one draw a supply curve for roads?

  • NotAnotherSkippy||

    Someone learned a new word and wants to use it 5 times to cement the memory. Nothing prevents a market in roads from forming other than gov't. Many private roads have existed in the past. Many subways began their life as private ventures. Many bridges did too.

  • Ben Johannson||

    How do you have a market with one buyer? Name the economic theory that states this is possible.

  • uunderstand||

    Basic free market economics says so. According to wikipedia:

    " In mainstream economics, the concept of a market is any structure that allows buyers and sellers to exchange any type of goods, services and information. The exchange of goods or services, with or without money, is a transaction.[1] Market participants consist of all the buyers and sellers of a good who influence its price, . . ."

    Used vehicle sales occur like this all of the time. A has a 2001 Chevy S10 with 145,000 miles on it. B is looking for a truck just like that. They meet, agree on a value, exchange money or goods acceptable to both for that value. That is the very definition of a market.

  • Ben Johannson||

    I'm afraid that does not support the contention a market can exist anywhere. Markets must have many buyers and sellers. They must be in rivalrous and excludable goods. They must offer consumer and seller choice.

    These conditions cannot be satisfied under monopsony or monopoly. They cannot be satisfied when the good is non-rivalrous because there is no supply/demand equilibration via competition. That's basic economic textbook theory.

  • Fairbanks||

    You seem to be making up your own definition of a market and what is basic economic theory. Markets exist when buyers and sellers exchange goods. Markets exist with few, or even one, sellers or buyers. And even markets with one buyer and/or seller have supply/demand curves and equilibrium points. If they didn't then no transactions would take place. Are you suggesting that if a monopoly exists then no transactions take place? Maybe the buyers in a market with a monopoly seller don't like the results versus what would happen if there were many sellers, but trade certainly occurs. When trade occurs without coercion, that's a market.

  • Unreconstructed (Sans Flag)||

    The argument is that there doesn't *have* to be one buyer - in fact, that there *shouldn't* be. Removing the federal influence isn't the end game, it's a step in the right direction.

  • Ben Johannson||

    No, that isn't de Rugy's argument at all. She explicitly states that each state government should fund highway construction via tax raises or federal block grants. This leaves each government as the monopsonist within its borders. This does nothing to create competitive markets.

  • JPyrate||

    It creates competition between the states. Some states will not be able to compete in the asphalt market. Therefore some states will innovate, and build better, and more cost effective roads with new materials.

  • Ben Johannson||

    New Jersey does not compete with Iowa for limited quantities of asphalt and crews to pour it on the ground. Local contractors have significant cost advantages and political pressure will always be in favor of businesses which pay taxes within the purchasing state. It's a non-rivalrous process and difficult to see how decentralizing the 25% of highway construction and maintenance the Feds fund will change this.

  • Win Bear||

    They correctly note that price inflation has eroded the revenue's "purchasing power" in the intervening period.

    Good! Hopefully it will erode it away completely!

  • C. S. P. Schofield||

    My personal preference would be to find some way to emphatically tell the local, state, and federal governments "No more high-flying social engineering projects until you can take care of something as straightforward as maintaining the goddamned roads. No more funding for activist organizations, no more National Endowment for the (snooty) Arts, no more porkbarrel projects like the F-35, everything S.T.O.P.S. until you get the goddamned roads in shape again. And, BTW, we're f*cking locking you-all in your legislative offices, on MREs until you come out with a plan."

    Since I don't see that happening short of the Second Coming, I suppose Reason's proposal will do.

  • Mr. Flanders||

    I feel like "roads" is always the go-to point for any progressive arguing with a libertarian. But in my opinion, its better to let them have roads. I say sure, government can build the roads. They won't be of great quality, but they'll be passable enough. We have more important things to argue about.

  • RoyMo||

    This just shows that libertarians haven't learned a thing since Jefferson and Gallatin built the National Road.

  • geo1113||

    I find progressives go there when discussion of taxes come up. If you say we are taxed too much, progressives say we need roads. To which I respond "governments don't need to take 1/3 of every dollar in taxes to build roads". I get the deer-in-the-headlights look. Then they add education. And basically they get the same response from and I still get the DITH look.

  • Tionico||

    The Constitution DOES provide that FedGov have the responsibility of building and maintaining post offices and post roads, and the interstate highway system (both the "I" and the "US" road systems) could rightly be consideredas falling under that mandate. SO.. if FedGov were to assume that valid responsibility and continue to tax fuel nationwide, then use it proportionally throughout the several States to MAINTAIN the highways themselves, and nothing more (no transit, trains, airports, intrastate projects not part of the I or US systems now, I believe things would turn round right.. oh, AND dump the bacon bill that forces union workers perform the repairs, and those laws requiriong ALL workers on any highway job be paid unio scale, even in non-union companies. Why should a guy distting in a cone truck parked at the side of the road watching the grass grow get paid $35+ of our tax dollars?

    ALL other spending of funds from the federal fuel taxes should be ended. Now. NO money to flow through FedGov then be selectively disbursed to state and local projects. A tiny town not far from me recently did some major road rebuilding within its small city limits. Part of that funding came from FedGov. WHY? Made me mad. The Feds likely had a huge hand in the design, as it is so poor as to render the entire project a joke.

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  • ConstitutionFirst||

    Go away, Troll!

  • CatoTheYounger||

    If there is a great argument for privatizing the roads, New Jersey would be it.

  • JJM||

    Only someone with a Phd could write something so utterly stupid.

    Ever since the time of ancient Rome the State has paid for the construction of "viae publicae" (public roads) for a wide variety of strategic reasons such as the facilitating the movement of troops for both offense and defense as well as establishing trade and civilian transport.

    The reason for this is simple, it's because the nation has potentially a larger vested interested in connecting "point A" that passes through "point B" to "point C" than perhaps "point B" has in either building or maintaining a road at all. This is an inconvenience when dealing with things such as interstate trade, but potentially far more serious in the case where you need to mobilize military or emergency services personnel.

  • AD-RtR/OS!||

    The Feds must be saving Billions in CA since Jerry stopped building "stuff" back in the 70's, and the road maintenance has been shuffled down the priority list below critical needs like walking/running/biking/equestrian trails - Oh, and Choo-Choo trains.

  • ConstitutionFirst||

    LOL! Ever drive on Massachusetts roads?
    Then when you cross the state line into New Hampshire, it's like going from a Mexican barrio into urban Texas.
    Even with federal standards there is great disparity, just wait until it is all up to the individual states!
    Can't wait.

  • ||

    Ok Cato: "Washington Delende Est." That simple.

  • CHARLES(SWVA)||

    Holy mackeral dere Andy. I thought this was settled back in Eisenhower's term. I was for it then.

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