What happened: In July, Congress passed a rare piece of bipartisan legislation to fund surface transportation for two years. “Moving Ahead for Progress for the 21st Century” (MAP-21) provided $105 billion for the next two years to fund road repairs, mass transit and other critical repair and expansion projects.
Federal Government Comes Through on Transportation Funding (Barely)
In July, Congress passed MAP-21, a rare piece of bipartisan legislation to fund surface transportation for two years.
December 18, 2012
What it means: Members of both parties were quick to congratulate themselves on MAP-21, while the Department of Transportation announcement hailed it as “a milestone for the U.S. economy and the nation’s surface transportation program.” But while they did manage to forestall the immediate crisis, they shouldn’t have been so quick to pop the champagne corks.
Perhaps any legislation might have been seen as a minor miracle in the 112th Congress, which is mercifully coming to an end on January 3. And MAP-21 did address some of the underlying issues that seem to keep our infrastructure projects tied up in knots by streamlining decision-making and introducing the concept of performance-based investments. But a fiscal crisis is looming just over the horizon.
The problem is that revenues have never matched the need and are increasingly falling short. MAP-21 failed to address the basic insolvency of our nation’s Transportation Trust Fund. Indeed, it just kicked the can farther down the road. The Congressional Budget Office’s most recent projections show that the highway account will begin fiscal 2014 with a zero balance and require a $10.4 billion general fund transfer (and $6.2 billion in the current fiscal year) to make good on all of its obligations. The transit account will only have $1.8 billion at the beginning of fiscal 2014, and MAP-21 assumes a $2.2 billion general fund transfer to get through. Unless we pass another reauthorization, one that has some true financing reforms in it, both accounts will begin fiscal 2015 with a zero balance and poor prospects.
Transportation investments require a long lead time and stable funding. That’s why the Highway Trust Fund was established in 1956 as part of the deal to build an interstate highway system, and gas revenues were dedicated to funding it (the first gas tax of one penny per gallon was established in 1932). The current picture, however, is of a transportation program that will be served up on an annual basis by Congress, just like other appropriations, which means that it becomes another political football. Beyond the gridlock in Washington, the root of this trouble lies with the reliance on the gas tax, our inability to increase it and with improvements in fuel efficiency. (Yes, you read that last one correctly.)
The federal government relies on taxes on gasoline and petroleum to fund the bulk of transportation investments. Yet there is a general consensus among the political class that raising taxes on gasoline is a third rail — to go there is political suicide. As a result, the federal levy of 18.4 cents per gallon has not been raised since 1993, when it was increased from 14.1 cents.
In 1993, President Bill Clinton had just taken office; our most popular movies were Jurassic Park and Schindler’s List, Intel introduced the first Pentium microprocessor and scientists at the European Organization for Nuclear Research invented the World Wide Web.
If gas were taxed as a sales tax — that is, a percent of the cost of the fuel, as opposed to a fixed amount per gallon — then the receipts generated would have increased over time in accordance with inflation and the cost of gasoline. Put another way, a 14.1-cent tax on gas in 1993, when a gallon cost about $1.10, would translate into an equivalent tax today of 45.76 cents per gallon. But somewhere we’re losing 27.36 cents per gallon, or almost $50 billion a year.
The other great transportation achievement of 2012 further undermines the Transportation Trust Fund. In August, President Obama and Congress agreed to double the fuel efficiency of new vehicles currently on the road. Under the new Corporate Average Fuel Economy, or CAFE, standards, auto makers’ fleets of cars and light trucks are required to achieve 54.5 miles per gallon by 2025. These new standards are excellent public policy. They will reduce greenhouse gas emissions, save consumers money and reduce U.S. oil consumption by 12 billion barrels.
But these new standards will also bankrupt the Highway Trust Fund even faster, as cars will require less gasoline to travel the same distances.
It is disgraceful how little MAP-21 did to pull our federal transportation program out of the financial crisis it is in. So how to get out of it?
Fortunately, the answer is fairly obvious — at least from an empirical sense. Gasoline taxes need to be raised and indexed to inflation. Every penny added to the federal gas tax adds about $1.75 billion in annual revenue. While policy groups can debate the efficacy of a 10-cent, 15-cent, 25-cent or larger increase, the amount is really dictated by how much time we need to buy before we transition to a new source of revenue that doesn’t rely on a finite commodity.
One alternative is to look at generating revenues based on miles traveled as opposed to gasoline consumption. Mileage-based user fees promise to bring in a new generation of transportation funding. Several states are conducting assessments (Oregon, not surprisingly, is ahead of the pack), and the results look promising. The technology has come a long way; simple transponders can calculate the mileage driven. The bigger question is a political one — to some this may feel like a move toward Big Brother. Yet drivers up and down the East Coast already use E-ZPass to pay for their tolls. And the benefits would be enormous. In New York State, our colleagues Jeff Zupan and Rich Barone have calculated that if we charged a mileage-based user fee at 4 cents a mile, we would be able to pay for the state’s current capital plans, which currently total $8 billion a year for mass transit and highways, without any borrowing.
There are other potential ways to replenish the trust fund’s depleted coffers. Tolls could be added to more interstate highways, taxes could be levied on oil instead of gasoline or the gasoline tax could be indexed to inflation, sparing Congress politically difficult battles. In all likelihood, a combination of measures will be needed.
With the landmark change to CAFE standards this summer, we have seen that far-reaching steps are possible. We hope that same visionary spirit can help shape a new approach to sustaining our nation’s transportation infrastructure.