Where Will the Money Come From?

During the Antiplanner’s visit to Washington DC last week, I tried to encourage people to think about the incentives created by federal transportation funding. But the first question on the minds of most of the people I talked with was, “How will we pay for highways and transit?

From outside the Beltway, this question almost seems like nonsense. In fact, no one would have ever asked this question before 2008. When Congress set up the Highway Trust Fund in 1956, it decided to spend the money strictly on a pay-as-you-go basis, meaning it wouldn’t spend any more than was collected in gas taxes and other highway revenues (mainly excise taxes on cars, trucks, and tires, most of which have since been repealed).

Pay-as-you-go had a disadvantage: when inflation hit, it seriously slowed the pace of construction because the gas tax wasn’t indexed to inflation. But the policy also had an advantage: since no one was borrowing money against anticipated future revenues, nearly all of the revenues could go for construction rather than a significant chunk going for interest and other finance charges.

The 1956 law was set to sunset after six years, leading to a pattern of reauthorizing bills every six years. The 1982 reauthorization was the first to divert a specific share of gas taxes to transit. Not coincidentally, it was also the first to include earmarks: ten of them. The number of earmarks exponentially grew until there were over 3,000 in the 1998 bill.

The amount of spending in an authorizing bill is usually a maxima, with the appropriations committees free to spend less if they decide it is best. In the 1998 bill, controversy over earmarks led the House Transportation Committee to include a provision mandating that 100 percent of the authorized funds be spent; apparently, they feared that the appropriators would delete some of their carefully crafted earmarks. The same language was included in the 2005 bill.

This became a problem in 2008, when the financial crisis combined with high gas prices led to a reduction in gasoline sales. Since the bills assumed continued growth, they ended up spending billions more than revenues.

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We heard all kinds of crazy proposals to do this in the 2012 bill and 2014 extension. One, for example, was to discontinue Saturday mail delivery and dedicate the savings to transportation. Instead, they used a combination of pension smoothing, customs duties that had been set to expire, and a transfer from the Leaky Underground Storage Tank fund (appropriately called the LUST fund).

One idea I heard last week–from someone who I otherwise fully agreed with–was to reform immigration policy and then use the visa fees paid by new immigrants to close the transportation deficit. Aside from the fact that immigration reform is about as popular as a gas tax increase, there just isn’t any connection between immigration reform and transportation.

The most obvious idea–go back to pay-as-you-go and stop spending more than is collected in revenues–isn’t even on the table. Yet the truth is that federal transportation dollars are a lot less important to the states than Congress would like to think. To a large degree, they consist of Congress taxing us and then making us grateful for giving our money back. Since the states are perfectly capable of doing that themselves, there doesn’t seem to be any critical federal role in transport.

The only people for whom federal transportation funding is a life-or-death cause are members of Congress itself. They are addicted to spending through a vicious cycle of spending and campaign contributions. The 2014 election cost nearly $4 billion, and the 2016 election will probably double that. In order to raise enough millions to get re-elected, Congress has to give out billions, yet each additional billion dollars given out raises the stakes for the next election.

My second-best solution is to just ignore the budget rules and go on deficit spending the way they have been for the past seven or eight years. As one congressional staffer admitted to me, any revenue offset they find is just “funny money” anyway.

What is most likely to happen is that Congress extends the current bill another two years. This raises the question of how Congress can become gridlocked when one party controls both the House and the Senate. The answer, of course, is that the Republican Party is far from unified on this and other spending issues, with the Tea Party newcomers being deficit hawks and the old timers tending to be more for pork. This means the problem will only be solved when American elect enough true fiscal conservatives to Congress, which in turn will probably only happen when the next financial crisis makes the 2008 crisis look like a mere dip in the road.

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About The Antiplanner

The Antiplanner is a forester and economist with more than fifty years of experience critiquing government land-use and transportation plans.

2 Responses to Where Will the Money Come From?

  1. bennett says:

    “The only people for whom federal transportation funding is a life-or-death cause are members of Congress itself. They are addicted to spending through a vicious cycle of spending and campaign contributions. The 2014 election cost nearly $4 billion, and the 2016 election will probably double that. In order to raise enough millions to get re-elected, Congress has to give out billions, yet each additional billion dollars given out raises the stakes for the next election.”

    Of course this type of quid pro quo transaction is unethical and illegal, but the SCOTUS has made the burden of proof impossible. I’m just glad to see these illegalities brought up here. As I recall for a post from years past, most Antiplanners were defenders of the Citizen United ruling which helped institutionalize this rampant and illegal behavior.

  2. MJ says:

    I’m just glad to see these illegalities brought up here. As I recall for a post from years past, most Antiplanners were defenders of the Citizen United ruling which helped institutionalize this rampant and illegal behavior.

    Well, first of all they aren’t illegal. How unethical they are depends largely on your own personal politics.

    I hate to break it to you, though — money in politics is an old story and predates the Citizens United decision, even though many populists like to pretend this one decision simply opened the floodgates. It is more symbolism than reality. Even if money were taken out of politics entirely there would still be incentives for legislators, particularly at the federal level, to engage in pork-barrelling.

    That is why many skeptics of bigger and more centralized government like myself prefer devolution of responsibilities for things like transportation. Shrinking government also reduces the incentives for the types of ‘unethical’ behavior you describe.

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