Category: Congress

» 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.

» MAP-21 will provide federal funding for highways and transit over the next 27 months. Passing the bill was an accomplishment for a do-little Congress, but serious issues about how to pay for transportation in the future have yet to be resolved. Nonetheless, there are some interesting features in the bill for new transit capital projects.

On Friday, the U.S. House and Senate passed MAP-21*, the federal government’s latest ground transportation authorization bill, modeled closely on the bill that passed the Senate in March. The $105-billion piece of legislation will provide funding for essential highway and public transportation programs, most of which are in the form of formula-based allocations that direct money automatically to states and metropolitan areas. The bill will be in effect for 27 months, expiring in September 2014.

MAP-21 replaces SAFETEA-LU, the last long-term federal transportation bill, which expired in 2009; in the meantime, we have seen extension after extension of that law and a seemingly never-ending set of grueling disagreements about the future of mobility policy in the U.S. that revealed stark partisan differences about the role of the federal government in directing the construction and maintenance of the nation’s road and transit systems.

There have been points in this debate when the chances of a bill passing — any bill other than an extension — seemed close to nil. Democrats have demonstrated a sincere interest in expanding the amount spent on new transportation capital, especially in high-speed rail and transit, as illustrated by President Obama’s proposal in early 2011 for a $556 billion, six-year bill. Republicans, meanwhile, have argued for constraining the amount spent on highways to revenues collected from fuel taxes — and abandoning efforts to expand funding for sustainable mobility. But ultimately the two sides have similar goals: To maintain existing transportation funding without increasing taxes to pay for them; in other words, to preserve the status quo.

Indeed, that is the first point to make clear about this transportation bill: It is neither transformational nor a long-term problem-solver. It does not “fail America,” as some have suggested, by failing to make the major reforms that have been suggested by proponents for four years. It does reduce the complication of moving a major project through the federal grant process and it reduces the overall confusion of programs in the U.S. Department of Transportation, two important changes.

It is, however, a disappointment that the bill does not do more to equalize decision making between modes, of course: Why do there continue to be separate budgets for highways and for transit? Why can’t rail (which goes unfunded in this legislation) be compared to highway expansion when the latter is being considered? Meanwhile, why do transit expansion projects continue to be subjected to rigorous competitions for funding, while highways do not?

The bill continues the decades-long trend of declining investment in transportation at the national level. As the following chart shows, as a share of the federal budget, transportation spending has declined from about 3% in the 1960s to about 2.5% in the 1970s to about 1.5% today. At the national level (including local and state funding), transportation spending has declined from about 2% of U.S. GDP to less than 1.5% (though there was a stimulus-related jump in 2009). There has been a general decline in the perception of the importance of spending public dollars on transportation. That trend will continue under MAP-21, which provides about $50 billion per year in funding, equivalent to spending today adjusted for inflation.

It is worth questioning whether we need to significantly increase spending on transportation. The massive federal investments in new highways from 1956 to the mid-1980s encouraged the decentralization of our cities and a decline in our transit systems. Now that our cities are growing again, some might argue that they should simply find the tax revenues to pay for improvements themselves — but that suggestion has its real weak points, specifically because it diminishes the redistributive potential of the federal system. Moreover, as long as national funding continues to pump tens of billions into highways every year, I question how cities will be able to keep up.

Preserving the status quo doesn’t mean keeping spending in line with revenues from the fuel tax. Because neither party has demonstrated an interest in working for an increase in the gas tax or establishing a viable alternative, maintaining current spending levels means that funds must be identified from elsewhere.

As such, the law creates a number of new financing methods to pay for expenditures not covered by the Highway Trust Fund, into which fuel taxes flow. The biggest change involves altering the way pension interest rates are calculated. But most of the shortfall will be covered by the government transferring in $18.8 billion in general funds from income tax collections, $6.2 billion in FY 2013 and $12.6 billion in 2014. Because the U.S. operates with a deficit, that money is effectively debt-based. Got a problem with that? The vast majority of legislators from both sides of the aisle do not seem to be particularly concerned.

As far as I know this is the first time in a federal transportation authorization bill that federal spending on ground transportation will be funded from a source outside of user fees. The conclusion: Federal transportation funding is no longer really dependent on the collection of user fees, and that’s not necessarily a bad thing at all.

MAP-21 will expire in 2014, but as indicated by the transfers from the general fund that will be necessary to fund programs, it will carry on the legacy of a bankrupt Highway Trust Fund. The Congressional Budget Office estimates that — assuming a flat level of spending only adjusted to inflation — by FY 2015 there will be a $9 billion shortfall in the Fund; by FY 2022, it will have increased to $95 billion. That’s money that will have to be redirected from the general fund again beginning in 2014, when the bill’s replacement is being devised, unless by then a new user fee funding device has become sufficiently popular to members of the next Congress.

MAP-21, of course, is more than just a spending bill. Like its predecessor, the large majority of funding in the bill is dedicated to highway spending. As can be seen in the chart below, transit and rail have established a share of about a quarter of federal ground transportation spending, a ratio that is similar to that of spending by state and local governments. That split has been in place since the mid 1980s and is way down from the large percentage of federal ground transportation funds dedicated to transit and rail in the 1970s and early 1980s. MAP-21 maintains that politically motivated balance. (The bill does decrease funding for bicycling and pedestrian programs, obviously not good news, but I’ll leave that discussion to others.)

In terms of funding for mass transit, the bill offers $8.478 billion in FY 2013, rising to $8.595 billion in FY 2014, both on par with existing funding levels, adjusted for inflation. Programs designed to distribute funds by formula remain the largest percentage of the bill and grow similarly, accounting for about $6.5 billion in spending in both years, mostly to pay for the purchase of new buses and the reconstruction of facilities (such as through State of Good Repair grants). The capital investment program, however, has been cut by about $50 million and is stuck at $1.91 billion in both years. This funding provides for the Small Start and New Start programs, which provide the grant funding for new rail and bus corridors.

Despite the lack of increase in funding for those capital expansion programs, a close examination of the bill shows that it offers a number of interesting changes in the way this money is to be allocated to transit agencies:

• The New Starts program, in the past reserved to new rail or bus lines operating in dedicated rights-of-way in new corridors, will be expanded to include “Core Capacity Improvement Projects” that significantly improving existing infrastructure while increasing capacity on the existing line by 10% or more.
• Bus rapid transit projects will be classified and funded in the following two ways:
  • Corridor-Based BRT will lack a separate right of way. As the bill describes, however, these BRT programs will involve “a substantial investment in a defined corridor as demonstrated by features that emulate the services provided by rail… including defined stations; traffic signal priority for public transportation vehicles; short headway bidirectional services for a substantial part of weekdays and weekend days.”
  • Fixed Guideway BRT, on the other hand, means a bus-based project that includes all of the features of the Corridor-Based BRT, plus “the majority of the project operates in a separated right-of-way dedicated for public transportation use during peak periods.” The law includes the provision that the federal government will provide 80% funding for up to three such projects each fiscal year. This is an excellent opportunity for cities that want to invest in a big and serious BRT program to set their ideas into action, with limited local support needed. I hope they’re paying attention.
• The federal government will provide expedited review for fixed guideway projects under two circumstances: New Start projects whose budget is less than $100 million in total; and projects designed by transit agencies that have recently completed similar projects that have achieved or surpassed expected budget, cost, and ridership measures.
• The Secretary of Transportation will be able to increase the federal share for a capital expansion project if “the net capital project cost… is not more than 10 percent higher” and ridership estimates are “not less than 90 percent” of the estimates at the time the project was approved into the engineering phase of the review process.

The bill expands the TIFIA reduced cost loan program to $1 billion a year (from just over $100 million) and increases the maximum federal share from 33% to 49%, both important advances for cities that promise to dedicate future tax or toll revenues to pay for transportation improvement programs. Essentially, the federal government is increasing the ability of local governments to take advantage of lower federal borrowing costs. In Los Angeles, which has promoted the program heavily under the name “America Fast Forward,” TIFIA loans will allow for the completion of such projects as L.A.’s Westside Subway.

MAP-21 does allow small transit agencies — those with 100 buses used in the peak — to receive operating assistance (currently only capital expenditures are covered by federal transit funding). Though this provision isn’t the kind of large increase in operations support that might be beneficial to cash-starved agencies that are expanding their systems while firing bus drivers, it raises the question of whether large transit agencies could split themselves into smaller operating entities to receive federal operating support via a loophole in the law.

The bill does have one really unacceptable feature: It reestablishes the inequitable relationship between the tax benefits provided for people using transit and people who park. Before the passage of the stimulus in early 2009, people taking transit were able to deduct up to $120 a month from their taxes for doing so, whereas people who parked were allowed to deduct $230; with the stimulus, those figures were temporarily equalized at $230. Now, MAP-21 pulls transit users back down, to $125 in deductions a month, compared to $240 a month for parkers. That’s a disappointment.

* Moving Ahead for Progress in the 21st Century. The bill text. It still needs President Obama’s signature to become a law, though this is expected in the coming days.

» Left with a chance to set in stone the rule that transportation funding should remain based on user fees alone, the House punts.

On Friday, members of the U.S. House took one of the most significant votes on transportation in years. A non-binding motion brought forward by Representative Paul Broun (R-GA) to limit federal transportation expenditures to receipts from the fuel tax assembled in the Highway Trust Fund was defeated, massively defeated, by a 82 to 323 vote. Translation: A large majority of the lower chamber endorsed the idea that the government should be using funds sourced outside of user fees — generally that means deficit-increasing debt — to pay for transportation investments.

Listening to the rhetoric of many political leaders in Washington, the outcome may come as a surprise. After all, isn’t this supposed to be a new age of fiscal discipline? Doesn’t everyone care about keeping expenditures in line with revenues to limit the deficit?

Apparently not when it comes to transportation. If last week’s vote proves anything, it is that support for the idea that spending on transportation should be limited to user revenues is confined to a right-wing minority so far on the sidelines that it does not even account for half of House Republicans. Faced with the choice between drastically reduced spending on infrastructure — a reduction of 30% or more if spending on transportation were to match revenues, according to some estimates (because of the fall-off in collections from the federal fuel taxes, which have historically paid for national spending on roads and transit) — or keep spending in line with demand, rather than the money available, the majority of elected officials across the political spectrum continue to select the latter.

The House’s vote comes almost 1,000 days since the transportation authorization legislation officially expired and it indicates that members of the Democratic and Republican Parties may not be as far apart in ideological terms as we might have thought. While the House GOP’s legislation announced earlier this year — H.R. 7, which would have significantly damaged transit funding — was certainly far from bipartisan, its Senate counterpart MAP-21 has just the right elements of moderation that can please politicians on both sides of the aisle, and indeed it made it through that chamber with a large majority of votes.

For a month now, House and Senate leaders have been working on a compromise between hard-core right-wing views about spending on transportation and the Senate’s moderation, and little has come of the negotiations. In fact, last week House Speaker John Boehner (R-OH) suggested that transportation spending be extended another six months, until the end of December, to avoid making any sort of hard decisions now about a long-term piece of legislation. (The current extension, which basically keeps federal spending at 2009 levels, will expire at the end of this month.) But now that it is obvious that members of both political parties really do want to keep spending going on infrastructure, perhaps compromise is in the offing.

Of course, in today’s Washington, in the middle of election season, you can’t count on anything of the sort.

Nonetheless, what choice do leaders on either side of the aisle have other than to compromise? Without a new law, spending on transportation won’t go up or down, but it will certainly remain above the levels provided for by the Highway Trust Fund. If that’s the case, why not at least make provisions for reforms of the transportation grant system, which everyone claims is too complicated already? That’s pretty much what MAP-21 does.

Republicans have demonstrated that they are unwilling to make the cuts to the federal budget for transportation that would be necessary if they wanted to honor their pledge to reduce the budget deficit; the vote last week proved that they care more about ensuring adequate investment in infrastructure (as they should!) than they do about taking out more federal debt in a period of record-low interest rates. Democrats in Washington, meanwhile, have shown no real interest in actually fighting for revenue increases through an increase in the fuel tax, major installation of tolling facilities, or the creation of a vehicle-miles traveled fee, all of which could restore the fiscal health of the Highway Trust Fund but which are considered too politically explosive to fight.

Thus here we are. Members of Congress seem to agree: The politically obvious choice is maintaining transportation spending and in the process doing nothing to increase taxes to pay for the program. Is that a big problem? Not really. But it certainly won’t do anything to reduce the deficit.

What does this suggest about the future of federal transportation spending? What seems clear is that it would be delusional to think that there will be any sort of quick return to a system in which expenditures are defined based on revenues. The grave for the user fee based model for transportation funding has just been dug a bit deeper.