Raising the General Fund Option

We don’t have to fund transportation with a transportation-specific source of revenues.

Later this week, Representative Jim Oberstar (D-MN) is expected to reveal a draft of the next transportation bill, which will define the federal government’s road and urban transit funding for the next six years. Washington is likely to significantly increase spending for the Department of Transportation’s Federal Highway Administration and Federal Transit Administration. But the government must find a new source of revenues because the existing Highway Trust Fund, funded by the gas tax, is no longer producing enough money each year to fulfill government commitments. Serious options under consideration include raising the gas tax and taxing the number of vehicle miles traveled by individual automobiles. Yet a more reliable and coherent choice would be using general fund revenue to pay for the transportation capital program.

The creation of the Highway Trust Fund in 1956 solidified the American dependence on fuel taxes to pay for transportation. And indeed, the decision to build the Interstate System using gas taxes made since — users all drove vehicles relying on petrol, and heavier users would contribute correspondingly more to the system.

Yet, the system has produced relatively less and less since over the past fifty years. Politicians in Washington have been repeatedly unwilling to increase the gas tax based on inflation, one of the principal explanations for this year’s expected shortfalls. Second, cars are becoming both more efficient and less reliant on traditional fuels; this problem is likely to only get worse over the next decade. A continued reliance on the gas tax — even with an increase in the levy — is not a long-term solution simply because there won’t be enough gas being used. It should be noted that a rise in the gas tax is the ideal, and perhaps the only, short-term solution, but it doesn’t address long-term needs.

As a consequence of the difficulties resulting from the use of the fuel tax, many in Congress have suggested that the ideal future funding system is a vehicle mile traveled (VMT) tax, which would require drivers to pay based on distance driven. The advantage of this revenue source is that it would affect all cars, including hybrids and electrics. One disadvantage of relying entirely on VMT is that it does nothing to promote environmentally-sensitive energy sources; people driving petrol cars would pay just as much as those driving electrics. VMT also raises significant privacy concerns as it would likely require installing GPS devices in every vehicle.

Both of these solutions conform to the decades-followed ideology that transportation construction should be financed through transportation revenues. But that ideology is incoherent. Since 1983, the Highway Trust Fund has included a mass transit account. Drivers pay fuel taxes, and then a small percentage of those revenues go to public transportation capital expenses rather than road construction. Does it make since for drivers to pay for mass transit? Is that really transportation “paying for itself?” Isn’t everyone ultimately a user of the transportation system, and if so, why should only driving users pay?

Last year’s infusion of $8 billion of general fund revenues to keep the Trust Fund floating — a process expected to be repeated this year — violates the basic principle that expenditures on ground transportation be defined by actual revenues from gas taxes. Rather, they’re being “subsidized” by money from general federal government income taxes. But that decision by Congress to ensure continued funding of transportation expansion wasn’t necessarily a bad thing: indeed, it makes a lot of sense to fund almost all transportation programs from the general fund.

Using the general fund to fill the Highway Trust Fund doesn’t have to mean a less secure funding source. Congress could devote a certain percentage of overall income tax revenues to the Trust Fund, and it still would be able to define transportation spending amounts for six-year periods, as it does today.

Much of the problem with the fuel tax is that it encourages the sense that some states are “donors” and some are “donees;” states like Texas contribute far more to the Highway Trust Fund in gas taxes than they receive back every year in federal transportation dollars. In addition, conservatives are able to make the (somewhat valid) argument that drivers are subsidizing transit users. Moving to a general fund system would alleviate those concerns; the federal government could devote funds to whatever project in any state in any transport mode without having to answer concerns of “unfairness.”

In addition, the recent interest in encouraging states to consider multiple modal options for the same corridor — such as highway vs. intercity rail — encourages the idea that our transportation network won’t, or at least shouldn’t, be primarily road-based in the future. It’s not appropriate to envision such a system being entirely funded through roads fees; it’s a disingenuous approach that ultimately makes it difficult to envision parity between transit and road funding, since conservatives would never accept a system in which drivers pay fees and transit users largely benefit. Meanwhile, we know that transit users, already subsidized, wouldn’t be able to accept increases in fares that would cover capital costs.

This isn’t to suggest that users of the system shouldn’t be charged fees. Intercity rail and transit riders should continue to pay fares, and drivers should pay gas taxes and congestion fees in major urban cores. Yet, the idea that transportation capital projects should, as a rule, “pay for themselves” is an outdated approach that fails to anticipate the numerous indirect benefits of infrastructure investment, nor does it adequately address transportation goals related to environmental improvement, congestion relief, and the creation of livable communities.

We need a system in which everyone pays for roads, transit, and rail, because everyone benefits when the system is designed correctly, and a general fund revenue source may be the place to start.