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.