The Age of General-Fund Financing is Already Here, But It May Not Matter

» A long tradition of using the Highway Trust Fund to sponsor transportation infrastructure in the United States was thrown out the window in 2008. But has anyone in Washington noticed?

About a year ago, House Transportation and Infrastructure Committee Chairman James Oberstar (D-MN) introduced a $450 billion proposal for a six-year transportation bill, hoping to get it out of the Congress and into the President’s hands by the end of the year. Unfortunately, Mr. Oberstar’s bill hasn’t even made it out of committee — primarily because no one in Washington has taken the steps necessary to fund it.

The biggest problem for the U.S. government is that its traditional source of revenues used to build highways and transit — fuel taxes — are drying up; not only has the fixed rate not been increased since 1993, but Americans are on average driving less and are using more fuel efficient cars. As gas prices increase and the switch to hybrids and electrics continues apace, this difficulty will only intensify. Meanwhile, because of political resistance to raising the gas tax during a recession, there’s little hope of that happening anytime soon. Other conceivable funding options, such as infrastructure banks, public-private partnerships, and extensive tolling, will only cover a small portion of the growing gap.

But the future of American transportation depends on finding the money to keep the infrastructure in good shape: this is a debate that will, for instance, determine how many of the hundreds of planned transit projects across the country listed on this site actually get built. And that’s why everyone in both the executive and legislative branches spent the last year scratching their heads, as if suddenly a politically acceptable answer to their monetary woes would pop out of thin air. There’s been a collective case of naivete floating around Washington for the last year when it comes to transportation, when the fact of the matter is that the money to fund improvements is not going to magically appear.

In fact, Congress has developed a solution to this fiscal hole — it’s just one that it claims to be unacceptable: the use of the general fund. As Ken Orski — an Associate Administrator of the Urban Mass Transportation Administration (now FTA) between 1974 and 1978 — pointed out to readers of his Innovation Briefs last week, Congress has allocated a total of $79.2 billion of income tax-sourced funds to pay for ground transportation projects over the past two years. That’s almost twice what the Highway Trust Fund is supposed to devote to highway and transit projects every year.

Orski notes that $43.2 billion went directly to make up for shortfalls in Trust Fund revenues. The rest of the money went to the Stimulus’ roughly $45 billion in one-time only project funds, including the Administration’s $8 billion commitment to high-speed rail.

Indeed, despite the fact that most influential members of Congress have claimed to be completely committed to the user fee-based Highway Trust Fund model — in which roads users pay for the completion of more roads, in addition to public transportation — the fact is that the body has spent massive sums using a different funding model, in which everyone pays for transportation investments though the general fund.

This brings the transportation world into unfamiliar territory. Whereas the distribution of funds has been relatively stable since the beginning of the Interstate era, with Congress setting in stone spending levels over five to six-year periods, an increasing reliance on congressional allocations, voted on every year, could mean uncertainty and a loss of security on the part of local transit agencies, state departments of transportation, and private contractors.

The underlying concern with this situation: If fuel tax revenues aren’t determining how much is spent on new infrastructure, Congress will be deciding how much to spend, each and every year. And members will have to weigh infrastructure spending against other priorities also funded by the general account, leaving highway and transit projects in the potential lurch. There would be no assurance of continuity across presidential administrations or political control over the legislature. For lobbying groups, this is a petrifying possibility.

But it may be the future, as Orski suggested about a month ago. He quotes former Secretary of Transportation James Burnley, who told Orski “What worries me is that the whole concept of the trust fund is breaking down… By 2013, we could find the whole notion of the trust fund obsolete.”

This situation, however, is not nearly as scary as it sounds. Even if Congress decides not to increase the gas tax and determines as unacceptable another form of user fee (such as a vehicle-miles-traveled (VMT) tax), it has the technical ability to make general fund-sourced expenditures more stable than have been the current emergency shortfall allocations. The legislature could commit a certain percentage of income tax revenues directly to transportation, essentially filling the Trust Fund with standard, predictable infusions, just from a different revenue source.

From the standpoint of increasing social equity, there are strong arguments to be made in favor of this approach. And a decision fund transportation with non-highway revenues would discourage what is now the politically necessary massive funding advantage for road infrastructure creation over public transportation, a consequence of the fact that drivers are the people who pay. Everyone contributes to the general fund.

Moreover, transportation infrastructure is popular: That’s why communities across the country have endorsed transit sales tax increases by a two-to-one margin over the past ten years. This means that even if Washington isn’t able to get its act together to dedicate adequate dollars for transportation, other levels of government can step in; the public sector, after all, doesn’t begin and end on the National Mall. And America, despite suffering the effects of a recession, remains a wealthy country that can find the money to pay for things — if its leadership demonstrates an interest in doing so.

There are plenty of ways states, metropolitan areas, and cities could develop new and more effective funding sources without relying on the federal government. Regional compacts could dedicate a certain percentage of a fuel tax surcharge to a high-speed rail line, for instance. Big cities with already adequate public transit systems could implement congestion pricing. States could implement VMT systems of their own (as Oregon already has). By increasing reliance on local sources of funding, states and cities may find themselves better able to get what they want done.

Indeed, though there may be negative consequences for poorer jurisdictions to reducing their reliance on Washington for the funding of local roads and transit, many regions may find themselves suddenly able to do things they hadn’t done before. If New York had more control over its local transportation spending, couldn’t it build the Second Avenue Subway more quickly? Couldn’t many of the smaller cities planning bus rapid transit lines simply construct them, without waiting on Washington to allocate them the funds?

Of course, that may be unreasonably optimistic thinking. States already have the ability to shift most of the “highway” revenues they get from Washington to other projects, like transit or pedestrian facilities — but they very rarely do they do so. Yet if states and municipalities are to take an increasing role in the transportation funding process, they may become the ground floor of discussions about where to direct limited funds for transportation investments. They must be pressured into responding appropriately to their new role.