Congress Finance

The Federal Role in Surface Transportation Funding

» Contesting Washington’s involvement in transport funding could be deeply problematic.

The issue of how or even whether Washington should be involved in the funding of American transportation programs has been of concern for decades. When most travel undertaken is of a local nature — people getting to and from home, work, and leisure — why should the federal government be involved with the financing of new or maintained roads and transit systems?

Like with most expenditures, one clear argument for federal involvement is that using funds derived from nationally produced revenues allows for a more progressive apportionment of overall spending power, since revenues can be redistributed among the population as a whole. This, after all, is how our national social programs work, in health and education, for example. The benefit is obvious: A more equal society in which people all over the country are blessed with the nation’s wealth. The U.S. provides similar benefits to people in Mississippi and Connecticut even though, of course, incomes in the former state are far lower than those in the latter.

I have argued that transportation, like other issues more commonly referred to as matters of public concern, is an essential matter of overall social welfare. We need a robust national mobility system to guarantee that all of our country’s residents have adequate access to jobs, goods, and people. For this reason, I have repeatedly endorsed the idea of using national income tax receipts to pay for transportation expenditures, moving away from the gas-tax model that is currently used. Using income tax receipts allows the creation of a more progressive model for funding, and, perhaps more importantly, disconnects how revenues for the transportation system are collected from how they are distributed. This latter insight is controversial, however, since most transportation economists can’t help but endorse the idea of a “user pays” model, since it aligns with their sense that supply should equal demand.

For the most part,* the federal government has endorsed this “user pays” approach, using a federal gas tax since 1956 to pay for the construction of the Interstate Highway System, and, in more recent years, its maintenance, as well as the construction and maintenance of many of the nation’s transit systems. The problem is that this approach is not progressive. In fact, states generally receive back from the federal government almost exactly what drivers have paid in taxes at gas stations in those states. As a result, the system does not move funding from the states with the most funding to the states that need funding most.

Indeed, rather than there being some sort of national plan that determines how federal transportation funding is spent, the money is generally passed back out by formula, with a few regulations but not much else attached. Because of differences in Congress about what policies the government should be encouraging, there are no prohibitions on new highways and few preferences for pedestrian or bike infrastructure, as there probably should be. It’s much like the revenue sharing policies that have been in place for the Department of Housing and Urban Development since the Nixon Administration.

Rohit Aggarwala wrote yesterday that the lack of consensus about the rationale for a federal transportation policy, combined with the inability of Congress to raise the gas tax to fund the system, suggests that there is an argument for simply eliminating the federal gas tax and allowing states to determine how to fund their transportation networks alone. This reasoning is appealing in that it would devolve revenue-production and funding decisions to a lower level, which ought to be good for small-d democracy. Aggarwala suggests that a devolution of transportation policies would force low-tax states (which often happen to be high-driving states) to make a clear decision about how many roads they should be building. I would agree that the idea of spending federal gas tax revenues on new highways around Sun Belt cities, which we do a bit too much currently, is anathema to the nation’s transportation needs.

Moreover, seeing as how the federal transportation funding system is not particularly progressive, as outlined above, keeping decision making in Washington no longer seems so reasonable. So let states decide for themselves, not only in terms of how much they want to raise, but also in terms of how much they want to build. In fact, states already raise the majority of their own transportation revenues.

The problem with this whole line of discussion is that it would likely be devastating for transit systems in major cities, particularly in conservative states with no history of state support for public transportation. One major advantage of the current federal finance system is that it devotes a fifth of all transportation funding to transit. The consequence is that cities are awarded funds for maintaining their bus and rail systems by formula at about $8 billion a year (and that’s not even including the $2 billion annually devoted to new transit construction). That funding plays an essential part in ensuring cities can keep their systems up to date.

Were the federal funding system devolved, some progressive states such as New York and California could increase the share of funding aimed towards transit. Yet the evidence suggests that when most states are given the option by the federal government to determine how funding is spent, they direct the large majority of financing to roads. States that have established state infrastructure banks have similarly shown themselves clearly oriented towards highway construction. This is a serious problem if we are to believe that leaving all transportation funding in state hands is a good idea.

There is some argument to be made that cities that want to invest in public transportation should simply pay for it themselves, yet that approach has a number of serious flaws. First, it would be a serious impediment for poorer cities to continue the funding of their transit systems, since they lack adequate local funds; there is a very strong correlation between metropolitan-area income and the amount of money cities spend on transit operations, producing highly inequitable results. Second, cities in low-tax states may find their ability to actually raise taxes locally stymied by state legislatures that believe that any tax increase should be prevented. Finally, there is little evidence that locally funded transit projects are “better” or “more efficient” than federally funded ones, since most projects already require a significant local contribution.

This discussion does not answer the question of whether or not the federal government should be directly involved in the funding of the nation’s transportation systems. But we certainly should raise the question of whether simply diverting all power and decision-making authority to the states would really be of much benefit to the nation’s cities.

* Over the past ten years, Congress has had to shore up its transportation funding repeatedly with infusions from the general fund (income tax- or debt-derived) to supplement the declining revenues from the gas tax.

18 replies on “The Federal Role in Surface Transportation Funding”

According to those most likely to refuse funding for city transit, the market should take care of the problem. People will move out of the cities and states with crap infrastructure and into tho which maintain it. Would it cause misery? Yes, but it might be worth it to show that cities that invest are magnets while those that don’t wither.

The problem is that a city with crappy transit will have traffic producing much CO2 – which affects *everyone*. Therefore we all have an interest in making giving every city in the world a green(er) transportation network. From a practical point of view, we should aim to give every city in our country a green(er) transportation network.

Personally, this is why I can’t wait for cars to be all powered by clean electricity. Then crappy transportation become an economic (and hence local) problem, not an environmental (and hence global) problem.

“Cities in low-tax states may find their ability to actually raise taxes locally stymied by state legislatures that believe that any tax increase should be prevented”
Hell, even New York (city) had problems!

I can’t but disagree with policies like “ban construction of all new highways”. Each situation is particular. Not all new highways, especially long-distance links on areas whose population is exploding like AZ or NV are necessarily bad.

It is problematic to place a ban on all new highway construction as if US didn’t need any more of them.

The problem comes in when you take a ***rational*** look at what’s being built where.

When you have more populous states struggling to maintain their infrastructure while more rural states are adding lanes to existing roads and/or building new ones because you have a 20-car backup at a particular intersection between 8:10 and 8:20 AM, that’s not rational. But states/municipalities will do that. Theoretically, federal road/public transit funding can control some of that – but then politics gets involved, and rational thinking goes out the window.

As John R said above, and as one of the commenters on Rohit Aggarwala’s story alludes to, if you let market forces take over, the one good thing is that eventually even the most conservative states (read “states with penny-pinching Tea Partiers who want money from the federal dole but don’t want to contribute to the pot that produces the federal dole”) will have to figure out how to fund transportation. And that debate would likely spell an end to sprawl as we know it. Why? Because if new roads can’t be built into a wilderness, the old saying “you can’t get there from here” comes into play.

Remember also that President Eisenhower intended the interstate highway network to be just that: interstate, and primarily for military transport. There is a story that comes from the last years of his presidency: he became rather upset when told that the swath of cleared land that cut through a neighborhood in Washington was for a new highway. His intent was highways to surround cities with highway loops and for those loops to link cities, not for highways to cut across cities. If that concept doesn’t make sense to you, go study the Autobahn – it’s the concept on which our interstate highways are based.

There is no situation in the US under which constructing new expressways is appropriate. We have too many already. Several should be ripped out.

Yes, there are probably some places where rural two-lane highways might still be worthwhile.

My 2cents worth: As a soccer fan, I can’t help comparing the transit situation to US interest in the “beautiful game.” Countries like Germany, England, etc. have an ingrained soccer “culture;” the US does not. In like fashion, most European countries transit is publicly funded often under quasi-socialist governments, hence a transit “culture;” again, the US does not. Until we can wean ourselves away from the automobile, transit in the US will always be a poor relation.

In Great Britain, railways do receive significant central government subsidies for urban and local lines, although they are “ostensibly” privatised. However, what little subsidy there is for local bus services (which are nearly all privatised) is gradually being eroded with the current cutbacks in local government funding. It is becoming increasingly difficult to live in medium-sized towns with a population of less than 100k population (yet alone rural areas) without a private motor car. Evening bus services are virtually non-existent and Sunday and public holiday services are extremely limited.

There is a fair amount of highway construction out there that is not occurring by demolishing vast swaths of cities (actually, this is the LEAST common new design these days).

Two long-distance important highways that are being constructed are I-11 (Las Vegas – Phoenix, two of the US cities that are growing the fastest) and I-69 in the Midwest.


Great job discussing this issue – one that has tormented this NJ/NJ area planner for the past few years.

It has become clear to me that states still operate in the mode that roads are public (ex. NYSDOT) – while transit operations are really private sector responsibilities that the government was forced to subsidize and bailout (the MTA is NYS is a public benefit corporation – bourne of two companies and the IND).

There is no rational reason that NYSDOT does not maintain railroad trackage in NYS – even if the MTA were to exist to simply operate transit service.

Therefore, it is clear to me that states view rail as not their responsibility, to the same way roads are. After all, roads were the foundation of modern civilization and are obviously a public good. The same cannot be said for rails – vehicle capacity is very limited (NOT passenger/cargo capacity), thus few entities can utilize the track and profit. (at least not in the same way truckers can on interstates)


In the absence of federal policy, states will at first push sexy projects forward like the Tappan Zee Bridge in NY, but over time funding will stabilize and thoughtful, long term decisions will prevail.

However – Interstate cooperation will/can become a big big problem. Today, NY and NJ have issues working together for a common good (see ARC Tunnel, TZB) and the federally mandated Port Authority has strayed far from its original mission to construct a freight railroad connecting Long Island with New Jersey. States will have to find a good mechanism to get around this problem of who pays for whom.

Texas has decided to use tolls to fund highway construction. I agree with this idea, since it is a use tax. Some states are looking at raising the sales tax and eliminating the gas tax. Also a good idea, since gas purchases are reducing. I live in around Dallas. We have been paying a 1 cent sales tax for many years to fund mass transit. States such as New York would be allowed to make local decisions on transit choices if they raised the sales tax to fund transit projects. With the completion of the Interstate system, they is less coordination required for highway construction. The more funding and decision making that can be pushed to a local level is better. If states and municipalities make bad decisions, so be it.

Tolling is a fine idea for expressways. The only catch is: there are too many expressways already, so using tolls for newly built expressways… will not provide enough money to pay for the expressways. They’ve already discovered this in California.


I laud your commitment to equitable provision of transit service among cities of similar size and density. It shows your generosity of heart and mind. However, it’s a very sub-optimal solution, because it ignores cultural preferences.

Middle-class people in the “heartland” are not going to ride the bus, even if it stops in front of their house (Heaven forfend!)

So quit taking money from the rich blue states to give to the poor red states for transit they DO NO WANT! “Nigra’s” and “wetbacks” ride THAT!

Yes, some rural-dominated state legislatures may refuse to allow the cities to raise the revenues needed to build proper underground systems, but you know what? That’s just killing the goose that laid the golden eggs.

Let the people who elected them freeze in the wilderness when the sand trucks that used to be paid by the citizens of the vibrant city that the legislature strangled stop running.

“Using income tax receipts allows the creation of a more progressive model for funding, and, perhaps more importantly, disconnects how revenues for the transportation system are collected from how they are distributed. This latter insight is controversial, however, since most transportation economists can’t help but endorse the idea of a “user pays” model, since it aligns with their sense that supply should equal demand.” (emphasis added)

This is the key bit. Regardless of what the future federal role might be, decisions regarding how to invest transportation funds need to be made with less regard to the sources of the revenue, otherwise we will continue to over-invest in the modes and projects that are most lucrative now as opposed to those most critical to the future. One argument for maintaining a strong federal role is that the “user pays” model is even more entrenched in the states, many of which have constitutional or statutory limitations barring the use of gasoline tax revenue for anything other than roads and bridges.

“This latter insight is controversial, however, since most transportation economists can’t help but endorse the idea of a “user pays” model, since it aligns with their sense that supply should equal demand.”

You’re kidding, right? The US has about the lowest rate of motor fuel taxation in the developed world, and that’s surely a major part of the reason why our dependence upon cars, trucks, and the roads that carry them is off the charts, even compared to low-density Canada and Australia. Reducing motor fuel taxes would be an extremely bad idea– in fact, they should be raised, and by a lot.

The regressivity of fuel taxes is a valid concern, but it should be addressed by adjusting other taxation to compensate: reduce sales taxes, make income taxes more progressive, maybe increase the EITC and basic Social Security benefits.

Virginia’s governor is proposing to eliminate the state’s gas tax altogether and replace it with a sales tax increase. Great– now people who drive a little or not at all will pay the same as those who drive a lot. Worse, apparently the plan enjoys 2-1 support from across the political spectrum, including from organizations that ought to know better. It’ll pass in Virginia, then everywhere, and we’ll be significantly more screwed than we are now.

Sometimes being an American is so embarrassing that I can hardly stand it.


Not to oversimplify, but it seems that Red State Congresspersons dislike a merit-based Infrastructure Investment Bank awarding grants & loans because, excluding Texas and Georgia, their transportation projects are mostly lower merit. The highest merit project in Indiana should be HSR from Chicago-Indianapolis-Cincinnati, rather than the low meritI-69 highway.

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