The Fuse

A Moment of Opportunity and Need in Surface Transportation Funding

by R. Kress | July 06, 2015

Coinciding with this summer’s legislative push to pass a surface transportation bill, the Brookings Institute’s Hamilton Project has released a new study, Financing U.S. Transportation Infrastructure in the 21st Century. The research, which notes that transportation systems represent “the backbone of America’s economy,” asserts that “most Americans feel the burden of a weakening transportation infrastructure.” Citing a report from 2012, the Hamilton Project also asserts that funding for infrastructure improvements can spur more economic growth and create more jobs than any other type of government investment—and with current economic trends of low growth and relatively high unemployment, now is the time for investment in infrastructure.

Funding for infrastructure improvements can spur more economic growth and create more jobs than any other type of government investment.

The study argues that the current moment is not only a time of great opportunity but also a time of great need: The country’s infrastructure systems are in a state of embarrassing disrepair. “The American Society of Civil Engineers…deems one in four bridges either functionally obsolete or structurally deficient,” the report explains. “Furthermore, the World Economic Forum’s annual Global Competitiveness Reports show that in the past six years, the United States has fallen from ninth to sixteenth in overall infrastructure quality.”

The situation is even worse when viewed from the perspective of motorists. The project cites a study showing that more than a quarter of American roads are in substandard condition, costing the average urban driver $377 in extra fuel and auto maintenance annually. Collectively, that means that families and businesses across the country are paying an additional $80 billion thanks to poorly maintained roads.

The report reiterates an argument made many times before in recent decades: The current system of funding road repairs and maintenance is broken. Thanks to congressional inability to pass cogent transportation funding covering a term longer than one or two years, we have a national transportation network that is increasingly decentralized and fragmented. Furthermore, state and local governments have been forced to increase spending steadily since the 1950s, while federal spending remains relatively stagnant (see chart).

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The first place to look for funding is the Highway Trust Fund (HTF), which is set to run out (yet again) this summer after falling to its lowest level since 1969. In the chart below, the HTF’s downward trend—and increasing reliance on general funds—is clear.

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The HTF receives the vast majority of its funding from the federal gas tax. Stuck at the same rate since 1993—18.4 cents per gallon—the federal gas tax is weak and growing weaker. If adjusted for inflation alone, the gas tax should currently be 30 cents per gallon. State gas taxes vary wildly, by as much as 40 cents nationwide (California boasts the nation’s highest state gasoline tax, at 50 cents per gallon).

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Challenges associated with increasing the federal gas tax are well documented—although it is often recognized as the simplest and most effective way to rejuvenate the highway trust fund while nudging motorists towards fuel efficient vehicles, many have described raising it as the “third rail” of American politics, which legislators dare not touch for fear of angering motorists. The Hamilton Project argues that a simple, linear tax hike alone is not the solution.

Instead, the study argues that a variable federal gas tax could serve as an effective compromise: When gas prices rise, the tax decreases accordingly, and vice versa. The paper argues that such a tax structure would help stabilize gasoline prices for consumers and businesses, cushioning oil market volatility for the end user. In the last year alone, the collapse in oil prices would have translated to higher tax revenues which would have bolstered the balance of the HTF.

At the same time, the study argues that gas tax reform is not a comprehensive solution. As vehicles become incrementally more fuel-efficient, federal gas tax receipts will gradually diminish and become a less viable solution for the future. To address this likely shortfall, the report recommends three long-term solutions.

Upgrade user fee technologies

Most drivers are accustomed to the traditional user fee collection model: The toll road, which enables motorists to drive on a well-maintained, direct route and pay per usage. The report, however, posits that current toll roads are implemented through a flawed system, because those paying the toll are not the road’s only beneficiaries. Business owners in the areas immediately surrounding toll road exits also benefit, as well as residents who see higher property values than residents in comparable homes further from a heavily utilized toll road. Even if these parties usually use local roads and rarely access the toll road, the study argues these groups still benefit and should contribute to its funding. As precedent for this approach of drawing funding through indirect beneficiaries, The Hamilton Project cites the fact that the federal gas tax supports mass transit infrastructure: Even if you purchase gasoline but never use a bus or subway, you benefit from these systems as a driver by encountering less congestion on the roads.

The study also urges an upgrade in user fee collection models. It acknowledges technologies like E-ZPass to expedite transactions in the New York region, but notes that different passes are required in other states. By creating a single system nationwide, the study argues that we could see a reduction in travel times, congestion and air pollution.

Pooled procurement

State and local governments have been forced to carry out the majority of the infrastructure investment burden. However, as smaller financial entities, they are missing out on bulk pricing opportunities they could enjoy as a nationwide purchaser.

For states to benefit from the advantages of scaled pricing, the paper proposes that the federal government create a digital database where infrastructure operators nationwide can communicate about procurement needs and planning.

Create a national infrastructure strategy

Perhaps the most exigent long-term solution the paper proposes is the creation of a national infrastructure strategy. Disorganization, poor accounting and incomplete investments are eroding the efficiency of transportation system management in its current, decentralized form.

Right now, the variation in federal funding received at the state level varies drastically. In the chart below, it’s clear to see just how much of the shortfall must then be allocated from the local and state coffers—with some states shouldering a disproportionately larger burden.

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Of course, the paper notes that infrastructure cannot suffice with a one-size-fits-all solution. Different regions face unique challenges that must be taken into account. Consequently, the study recommends creating a commission of federal, state and local stakeholders to develop a national plan together. Not only will this provide much-needed feedback on the federal level, but also, the paper suggests that it will improve communication between departments on the local level: For example coordinating road and sewage system improvements so streets need only be torn up once.

Above all, the Hamilton Project asserts that now is the time to act on infrastructure reforms. With public borrowing rates at near historic lows, a future return on investment is nearly a guarantee. Furthermore, construction workers are still coping with a higher unemployment rate than the rest of the country—and infrastructure projects stand to create myriad jobs in that sector. Lastly, recent disasters such as Superstorm Sandy and Hurricane Katrina have illustrated the true cost of weak infrastructure: When properly built, funded and maintained, infrastructure can save lives, prevent damage and ultimately save money. The study urges lawmakers to learn from these recent disasters and use these lessons in future infrastructure projects so that history is not repeated.

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