New Transportation Era
by Robert Poole
Issue 215– November 14, 2012
Regardless of what Congress does about the January 1st “fiscal cliff,” serious transportation analysts are coming to grips with the reality that “business as usual” will not be an option for federal transportation funding. The looming insolvency of the federal government will soon put an end to the practice of using general fund money (“borrowed from China”) to maintain spending levels beyond what comes into the Highway Trust Fund from highway user-tax revenues. Two recent reports from DC-based think tanks deal with several aspects of this funding crunch and make recommendations for reform of the federal program.
The first of these is “The Consequences of Reduced Federal Transportation Investment,” a joint product of the Eno Center for Transportation and the Bipartisan Policy Center. It crunches the numbers to estimate the impact on each state and on urban transit systems if the federal program were cut by 35%, the approximate amount of recent general-fund additions to the Trust Fund. In terms of highway capital investment, it identifies ten states with the highest federal share—not only small ones like Rhode Island (115%) and Vermont (75%) but also much bigger ones like Virginia (86%) and Minnesota (67%). For transit systems, the report identifies those most impacted by reductions in operating costs (whose federal share ranges from 15% to 21%) as well as the six most-dependent on federal capital grants (for which the federal share is currently between 81% and 100%). Faced with 35% cuts, the states and metro areas would very likely seek both to cut costs and increase state and local funding. The authors estimate that for highways, states would likely make up between 54% and 80% of the lost federal money. For transit, they are more pessimistic, assuming that no increases in state aid are forthcoming and that local governments would be unable or unwilling to cover more than a fraction of the lost federal aid. (http://bipartisanpolicy.org/
The other report, “Highway Robbery,” is from the Center for American Progress. Its main focus is to call for an end to two current policies that adjust the redistribution of federal user-tax revenues: equity bonus and minimum set-aside rules. The authors provide a tabulation of how much each state gains or loses from these two rules. The equity bonus program was created to ensure that each state gets back at least 95% of the dollar amounts it collects and deposits in the Trust Fund (i.e., it reduces the extent of redistribution among states). CAP characterizes this as a bad thing, assuming that the states that benefit from equity bonus “paid a significant amount into the Highway Trust Fund but could not demonstrate sufficient need to get that money back through the need-based formulas” used to allocate most of the HTF monies. Equity bonus in 2010 accounted for $9.6 billion out of the $43.1 in the federal program. (www.americanprograss.org/wp-
Both CAP and the Eno/Bipartisan authors dislike divvying up the federal spending by formula and would much prefer that the federal program be largely “performance-based.” Under this approach, the US DOT would set national goals for surface transportation, and all user-tax revenue would be allocated (in a mode-neutral way) to projects and programs judged by the feds to contribute most to achieving the federal goals. Most state DOTs, by contrast, view the federal program as an additional source of funding for what has always been a state-defined program, responding to state and local priorities. And highway user groups also tend to support the latter view, seeing “mode-neutral” funding as taxing highway users (cars and trucks) to pay for ever-expanding non-highway programs.
I’m with the highway users on this. But where does that leave us in terms of reforming the federal program to cope with up to 35% less revenue? My Reason colleague Adrian Moore and I argued in our 2010 policy study that it is time to refocus the federal program on what is truly federal: interstate commerce. That approach would devolve to the states responsibility for all non-highway programs and all highway programs except the Interstates and the National Highway System. (http://reason.org/studies/
To help states cope with their added responsibilities, Congress could do the following:
- Remove the remaining federal restrictions on tolling;
- Continue the TIFIA loan program at its newly expanded size and remove the current $15 billion cap on tax-exempt private activity bonds for highway and transit projects;
- Eliminate the latest increase in federal fuel-economy standards (54.5 mpg by 2025), which ARTBA estimates would avoid losing tens of billions in Trust Fund fuel tax revenues between now and 2025.
How could metro areas and transit agencies cope with this reconfiguring of the federal role? To begin with, they could make more aggressive use of managed lanes and managed arterials. In both cases, the reconfigured freeways and arterials would not only provide congestion relief for drivers; they would also provide uncongested guideways for region-wide express bus service. Second, transit agencies could make sensible decisions to make much greater use of buses and bus rapid transit (BRT), which is far more cost-effective than light rail and streetcars. Third, they could make roadways work better via more aggressive use of traffic signal coordination and freeway ramp metering. Fourth, they could more actively promote vanpools and telecommuting centers, both of which are highly cost-effective.
It’s incorrect to assess transportation’s future as if the only thing that will change is the amount of federal assistance. “Business as usual” must also change on the spending side, with a much greater emphasis on getting more bang for the bucks.
Robert Poole edits the Reason Foundation’s Surface Transportation Innovations, where this first appeared.