Promising new proposals for solving the fiscal shortfall

|  August 17, 2010 |

Ken Orski, editor and publisher of the transportation e-newsletter Innovation NewsBriefs, notes that two new attempts to redefine the federal responsibility for surface transportation “are attracting growing attention and provoking lively discussion within the transportation community,” Orski says in his report.

Both proposals, he says, stem from a conclusion that the obstacles standing in the way of enacting a new multi-year federal surface transportation program are of a long-term nature and will not be overcome any time soon.

“These obstacles include the inability of Congress to come up with a meaningful way to pay for the program; the increasingly shaky and uncertain status of the Highway Trust Fund; the pressure for deficit reduction in the fiscal and budgetary actions of the next Congress, especially in the likely event of a Republican takeover; and a low priority given to the reauthorization by the Obama White House,” Orski points out.

The two initiatives, as analyzed by Orski in his Innovation NewsBriefs follow:

The Los Angeles 30/10 Initiative

The first attempt to redefine the federal responsibility is seen in a proposal embodied in the Los Angeles County Measure R and the so-called “30/10 plan” advocated by Los Angeles’ Mayor Villaraigosa. Measure R, a dedicated half-cent local sales tax, is expected to generate up to $40 billion for local transportation projects over 30-years. By using the sales tax revenue as collateral for long-term bonds and a federal loan, Los Angeles could accelerate completion of 12 key transportation projects in just 10 years rather than the projected 30 years (hence the “30/10″ moniker). Local authorities would repay the federal loan over 20 years with a portion of the proceeds from the sales tax.

The 30/10 plan is not just a job-creation initiative and an antidote to the current recession, as some advocates have portrayed it. It is a fundamentally fresh attempt to make states more independent of the increasingly unreliable federal aid and reduce the problematic reliance on the gas tax.

Already today, 60 percent of spending on transportation comes from state, county and local governments. The question before the states and local governments is whether they should continue to rely for the remaining 40 percent on the increasingly uncertain federal largesse or whether they should free themselves from federal dependence and embark on a more independent course of action that would offer more control over their own transportation destiny.

Mayor Villaraigosa’s initiative would have the city of Los Angeles take a first step toward that fiscal independence. His proposal could be a harbinger of new thinking of how states and local governments could be empowered to fund local transportation infrastructure. If widely adopted, this approach would shift the federal role from one of directly funding local transportation infrastructure to one of merely facilitating its financing (it would also provide a powerful argument for a well-financed National Infrastructure Bank or a large expansion of the federal TIFIA loan program). We think the Villaraigosa initiative is a fiscal policy innovation of potentially far-reaching significance –and one that U.S. DOT officials and the Congress must not ignore as they ponder how to address the long-term shortfall in highway investment.

The Reason Foundation Proposal

The second proposal comes from the Reason Foundation, always a source of bold and innovative thinking. The authors of that proposal (Robert Poole and Adrian Moore) think that we should confine the future federal responsibility to funding programs that are of the greatest federal interest and refocus the Highway Trust Fund on expanding, modernizing, and rebuilding the Interstate Highway System.

The report makes the point that American taxpayers “have lost trust in the Trust Fund” as an instrument of maintaining and preserving a nationwide super-highway system. Instead, the Trust Fund has turned into “a kind of all-purpose public works program that now funds sidewalks, bike paths, recreational trails, museums, and streetcars—with ever-larger chunks of the money earmarked for pet projects unlikely to pass any sensible benefit/cost test.”

The report recommends greatly narrowing the focus of the Trust Fund to something that people could see as directly benefitting them, such as relieving urban traffic congestion and improving long-distance freight delivery.

Specifically, the refocused Interstate-oriented program (which the authors have dubbed “Interstate 2.0″) would include adding selected routes to the Interstate map to reflect 21st-century America (vs. 1940s America, on which the system’s map was based), adding capacity to key long-haul routes, some of it in the form of dedicated truck lanes, redesigning and rebuilding the 200-odd interchange bottlenecks across the country, and adding networks of priced express lanes on major urban freeway systems. A tangible results-oriented program, the Reason analysts argue, could rebuild support for federal transportation investment.

The alternative of expanding the focus of the federal program to all modes (mass transit, streetcars, high-speed passenger rail, “livability,” etc) is untenable, the report contends. First, with essentially zero likelihood of a federal fuel tax increase in the foreseeable future (read, before the 2012 presidential election), there is hardly enough money in the Trust Fund to meet even basic highway investment needs. Secondly, all the money in the Trust Fund comes from highway users, from what are still naively, or misleadingly, called “highway user fees.” The report authors recommend restoring the users-pay/users-benefit principle by safeguarding the monies generated by highway users for investment in the highway system.

What about streetcars, bikeways, sidewalks and that rhetorical abstraction of “livable communities”? There is no good reason why these should not be funded out of general revenues, the report argues— assuming there is a reason to support them with federal funds at all. They typically are the kind of social infrastructure that is supported locally by general taxation. What is more, over the past two years Congress has shown ample willingness to put general fund money into transit, high speed rail and “livability” projects. Why not let Congress continue doing so and leave the Highway Trust Fund to its original purpose of funding and preserving highways, the report asks.

The authors estimate that by refocusing the Trust Fund in this manner, an additional $10 billion per year could be freed up for highway investments, to be supplemented by toll financing where appropriate.

The Reason proposal may be expected to meet with opposition and disapproval, even outrage, from advocacy-oriented public interest groups for whom “multi-modalism” has come to mean the right of equal access to the Highway Trust Fund. However, they need to be reminded that the federal gas tax was sold to the public as a means of funding the construction and preservation of the Interstate Highway system. Those who urge restoring the Trust Fund to its original purpose are not necessarily against streetcars, bicycles or “walkable communities.”

They may even see some merit in the “livability” program, amorphous and ambiguous as that concept is. But let those amenities be funded by state and local governments, they say, or by general revenues, as are a host of other social programs that are deemed worthy of federal support. We agree with the authors of the Reason Foundation report that making this change is probably the best hope we have for preserving, improving and expanding the nation’s vitally important highway infrastructure.

The executive summary of the Reason Foundation report, “Restoring Trust in the Highway Trust Fund,” at http://reason.org/news/show/highway-trust-fund-summary and the full study report at http://reason.org//files/restoring_highway_trust_fund.pdf.

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