Navigant Research Blog

The Coming Crack-Up on U.S. Highway Funding

Lisa Jerram — May 6, 2014

The White House has submitted its transportation funding proposal to Congress, where it immediately fell victim to the legislative rigor mortis that’s overtaken the 113th Congress.  The current lack of congressional activity is partly thanks to the November elections.  But it also reflects two broader trends in Congress that spell serious problems for the future of U.S. infrastructure.

First is the loss of bipartisan agreement on the importance of transportation funding.  Transportation used to be one of the few areas on which Republicans and Democrats could be counted on to pass legislation, even when they disagreed about broad policy objectives.  This is no longer true.  While transportation funding is not as contentious as some issues, there is less consensus on its importance than in previous eras.  That means that policy disagreements are more likely to prevent action from being taken.

Broke by Fall

The second, and related issue, is the divide over tax policy.  Although support for tax reform is strong, proposals put forward by the House Ways & Means Committee chair and the White House have not made much progress.  One ongoing area of disagreement is whether to use new revenue from eliminating tax breaks to fund other priorities, such as transportation, or whether any tax reform must be “revenue neutral.”

This divide will make it very difficult to address the problem of dwindling gas tax revenue.  The transportation funding problem is better described as a revenue problem.  As we’ve noted before, the U.S. Highway Trust Fund – which comes from gas tax revenue – has been steadily dropping, creating a major gap between U.S. infrastructure needs and available funding.  This issue has been abundantly clear to Congress and the White House for years, yet there’s no solution in sight because of an unwillingness to make difficult decisions about new revenue schemes.

The problem may come to a head this summer.  According to the White House and the Congressional Budget Office, the Highway Trust Fund will run out of money in August.

Pothole Puzzle

This creates problems for states looking to start major construction projects in the warmer spring and summer months.  A new report by advocacy group Transportation for America projects that gas tax revenue in fiscal year 2015 will not be able to fund any new projects.  And this problem will only worsen as the U.S. passenger car fleet becomes increasingly fuel efficient under stringent Corporate Average Fuel Economy (CAFE) regulations out to 2025 and urban areas continue to push alternatives to individual car ownership.

Congress could raise the gas tax, but this is extremely politically unpalatable.  New revenue could come from increased use of tolls.  Indeed, the White House has proposed allowing states to implement tolls on interstate highways for the first time.  It could come from greater use of privately operated, tolled highways – though early results on that have been mixed, with the highways garnering little revenue.  It could come from mileage-based taxing schemes, but these face hurdles due to privacy concerns.

Each of these options would continue to move the United States away from a long-term, national vision for the country’s transportation future and toward a patchwork of ad hoc solutions that rely more on city and state initiatives.  While localities do well as laboratories for innovations in transportation, the United States will not be well-served in an increasingly competitive global economy if it is not able to support a robust national transportation infrastructure.

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