The Highway Trust Fund Is Running Low

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Lydia DePillis explains why the federal fund for transportation infrastructure projects is going broke. Most of the money comes from gas taxes:

Americans are actually using less gas than they used to — both because they aren’t driving as much, and cars are getting more efficient. Meanwhile, Congress hasn’t raised the gas tax from 18.4 cents per gallon since 1994, which is now far behind what it was then when you take inflation into account. Consequently, revenues have started to sputter in recent years … Congress has been aware of this problem for a while now. Instead of raising the gas tax, or finding some other funding mechanism, it’s simply plugged the hole with multi-billion-dollar transfers from the general fund. The last authorization, a $19.5 billion chunk granted in 2012, expires at the end of this September — at which point, unless Congress acts, the federal contribution for hundreds of state projects will drop to zero.

Eric Jaffe looks at how Obama proposes to fix the problem:

It’s too soon to scrutinize the details of the bills, but one element of Obama’s plan seems likely to endure.

That’s an idea to let states place tolls on their free interstate highways. Right now, states can only toll an interstate highway to pay for the construction of new lanes. The new plan would let states create tolls to pay for maintenance of a crumbling highway they have no plans to expand at all. (Three states already have such permission through a federal pilot program — Missouri, North Carolina, and Virginia — but none has acted on it.)

The idea has a little something for everyone. It shifts power to the states, which conservatives tend to like. It makes drivers pay for road use more directly than the gas tax does, which economists like; in fact, the free-market Reason Foundation recently proposed a similar plan. And it lets politicians avoid the unpopular move of raising the gas tax during an election year, which every party likes. For the record, the C.B.O. recommends a 10 to 15 cent per gallon hike.

Ben Adler advocates the simplest solution – raising the gas tax:

The simple thing to do here would be to raise the gas tax. It would guarantee a revenue stream, and it would have the positive environmental side effect of discouraging gasoline consumption. But Obama is afraid to propose that, since it polls poorly and Republicans would reflexively oppose it. Republicans have blocked every effort to raise the gas tax since they took over Congress after the 1994 midterm elections. Rep. Earl Blumenauer (D-Ore.), a leader on smart growth and transportation policy, introduced a bill last December that would double the gas tax. The chair of the House Transportation Committee, Rep. Bill Shuster (R-Penn.), flatly rejected any gas tax increase in February. “Economically, it’s not the time,” Shuster said, as if there ever were a good time in his mind.

But Pethokoukis prefers to get rid of the tax altogether:

Oh, you wouldn’t have to do all at once. You could phase it out over several years. Meanwhile, states and cities could start calculating what their infrastructure needs really are — repairing existing roads vs. building new ones — and the best way to pay for them, such as state gas taxes, broader sales taxes, tolls, or  advanced congestion pricing. …

With added flexibility, AEI’s Richard Geddes thinks state and local governments could consider “investment public-private partnerships” or IP3s. In return for a large, upfront payment, a government would lease a highway to a private entity to operate and collect toll revenue. That initial payment would go into a fund, which would then issue an annual dividend to citizens based on the fund’s investment earnings much like Alaska’s Permanent Fund or Norway’s sovereign wealth fund. A recent AEI analysis performed using data from Columbus, Ohio, suggests that annual payments could be as high as $1,800.

The Bloomberg editors like Congressman Steve Israel’s idea:

Israel, a New York Democrat, suggests allowing companies holding large cash stockpiles abroad for tax reasons to bring their profits home at a preferential rate — on the condition that they spend about 10 percent of the repatriated income on a new kind of infrastructure bond.

The idea is modeled on Build America Bonds — which is good, because that program, started in 2009, performed quite well. With a direct subsidy to issuers, it supported more than $180 billion in public works, and saved state and local governments an average of 0.84 percentage point on interest costs for 30-year loans.

Randal O’Toole, however, questions the entire premise of this debate:

For several years, there has been an almost continuous drumbeat about “crumbling infrastructure” which naturally carries over into the Highway Trust Fund debate. “Nearly one in four of America’s bridges [are] either structurally deficient or functionally obsolete,” says the Washington Post.

In fact, state highways are in excellent condition. The number of bridges that are “structurally deficient,” meaning worn out and requiring extra maintenance, has steadily declined from nearly 119,000 in 1992 to less than 67,000 in 2012, and now stands at less than 11 percent of the total. “Functionally obsolete” bridges represent the other 14 percent of the Post’s “one in four,” but these are simply bridges that have lower clearances, narrower lanes, or other issues that might slow traffic but not create serious problems. As for the 11 percent that are structurally deficient, few are in any danger of falling down: the recent bridge collapses in Minnesota and Washington states were due to design flaws, not maintenance failures.

A disproportionate share of the structurally deficient bridges are locally owned, not state owned. While states pay for most of their roads out of gas taxes, tolls, and other user fees, local governments rely heavily on sales taxes, property taxes, and other general funds. This underscores the importance of funding transportation out of user fees, not general funds.