Recent news reports have zeroed in on Washington’s next cliff, the transportation cliff that is expected to happen when the federal Highway Trust Fund runs out of money sometime this summer. Most of these articles have a hidden agenda: to increase spending for transit even though transit now gets 20 percent of federal surface transport dollars but carries little more than 1 percent of the travel carried by automobiles (about 55 billion passenger miles by transit vs. 4.3 trillion passenger miles in cars and light trucks). This article will help explain the politics of the transportation cliff.
1. Why are we about to go off a transportation cliff?
Since 1956, federal highway programs have been paid for out of federal gasoline taxes. These taxes go into the so-called Highway Trust Fund (“so-called” because it’s not very trustworthy) and then are distributed to the states for highway construction and maintenance. In 1982, Congress began dedicating a small but growing share of gas taxes to transit. Today, more than 20 percent of federal gas taxes are spent on transit, and there is no guarantee that the remaining 80 percent goes for highways, as Congress often diverts some to such things as bike paths, national park visitor centers, museums, and other local pork barrel.
Congress reauthorizes this spending every few years. Traditionally, an authorization bill provides a spending ceiling. But the 2005 reauthorization bill made spending mandatory, meaning the ceiling was also the floor. When the 2008 financial crisis led to a reduction in driving, gas tax revenues failed to keep up with spending. Since then Congress has had to supplement gas taxes with about $55 billion in general funds in order to keep the Highway Trust Fund from running out of money.
In 2012, Congress passed another reauthorization bill. Although this one didn’t mandate spending, Congress went ahead and spent to the limit anyway, knowing full well that this would mean the Highway Trust Fund would be exhausted by sometime in 2014.
Anti-auto interest groups often portray these supplements as highway subsidies. But they would not be necessary if Congress weren’t diverting 20 percent of gas tax revenues to transit. Although more money goes to highways than to transit, because highways are so much more heavily used, federal subsidies to transit are about 80 times as great, per passenger mile, as federal subsidies to highways.
2. What will happen if we go over the transportation cliff?
In the past, states made their highway and transportation budgets assuming they will get a steady flow of federal dollars. But as transportation expert Ken Orski has shown, state have already realized they can’t count on a steady stream of federal funds and at least half have taken steps to back away from federal dependence.
If Congress goes over the transportation cliff, it won’t mean a sudden halt to highway projects and transit systems. Instead, states will spend money out of their own accounts, possibly getting short-term loans until the federal funding situation is resolved. A Rather than a transportation cliff, it would be more accurate to describe it as a transportation pothole. But while everyone expects Congress to soon supplement the Trust Fund, this particular pothole will give more states incentives to find alternative sources of funding.
The cliff isn’t the real issue. Instead, it is the reauthorization bill. Though most transportation reauthorization bills last six years, the 2012 bill expires this September. All of the posturing about the cliff is really an effort to promote changes in a new reauthorization bill.
3. What is the Obama administration’s position?
President Obama has proposed to replace the 2012 law with the “GROW AMERICA” act, which, absurdly, stands for “Generating Renewal, Opportunity, and Work with Accelerated Mobility, Efficiency, and Rebuilding of Infrastructure and Communities throughout America.” This bill would increase overall transportation spending by 38 percent, including a 22 percent increase in highway spending and a whopping 70 percent increase in transit funding.
Where would all the new money come from? Obama has also proposed to reform corporate taxes, which is supposed to reduce them in the long run but somehow will lead to a $150 billion one-time increase in revenues over 10 years. Obama proposes to spend four years of this increase on transportation. After that, the Highway Trust Fund would go over another transportation cliff.
There are a lot problems with this proposal. Congress hasn’t agreed to corporate tax reform, nor has it agreed to dedicate any revenues from that reform to transportation. The one-time injection of funds still leaves federal transportation programs unsustainable in the long run. Perhaps most important, increasing transportation’s dependence on general funds will make it less accountable to users and more accountable to pork-barrel politicians.
Historically, most federal transportation money is in formula funds, meaning it is distributed to states based on such factors as state populations, land areas, and road miles. Such funds are hard to use as pork barrel. But Obama wants much if not most of the new spending in competitive grant programs, which supposedly allows the money to be spent where it is most needed.
In fact, competitive grants give the administration enormous power to reward the faithful and punish opponents. For example, Obama’s last grant of $2.5 billion to the California high-speed rail project came with a mandate that the money be spent in the congressional districts of two Democrats who were facing stiff opposition in an election that took place a few weeks after the grant was awarded. (They narrowly won re-election.)
4. What is Congress’ position?
Most observers assume that the GROW AMERICA bill is DOA. While House Transportation and Infrastructure Committee Chair Bill Shuster has promised to have a new reauthorization bill “on time,” there is still likely to be a major fight in Congress.
In 2012, the House Transportation Committee passed a bill that reduced spending to little more than revenues. But they couldn’t get the House as a whole to approve the bill because Republicans representing big cities objected to reduced federal spending on transit. So Congress eventually passed a version of the Senate bill, which spent about $15 billion a year more than revenues. That’s why we’re headed for a transportation pothole today.
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5. Do we need to increase spending to keep America’s highways from crumbling?
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.
6. Do we need to increase spending on transit?
Many of the groups most eager to portray the transportation pothole as a crisis are really interested in increasing transit spending. Yet there is virtually no relationship between transit subsidies and transit ridership. Since 1970, federal, state, and local governments have collectively spent more than a trillion dollars (in today’s dollars) subsidizing transit, yet transit ridership has declined from nearly 50 annual trips per urban resident in 1970 to around 44 annual trips today.
The real goal of increased transit spending is to build new rail lines. Such lines mean increased profits for rail contractors and excuses for urban planners to increase urban densities because people living in dense housing are supposedly more likely to ride transit than drive.
At the same time, while highways and bridges are in pretty good shape, our transit systems are not. Rail transit lines suffer from a $60 billion maintenance backlog, which is growing because transit agencies are putting less money into maintenance than is needed to keep transit lines in their current state of poor repair.
The problem is that politicians would rather fund new transit lines than maintain existing ones. Peter Rogoff, who until recently was the head of the Federal Transit Administration, even complained that transit agencies with crumbling systems still applied for funds to build new rail lines that they couldn’t afford to maintain. “If you can’t afford to operate the system you have,” he asked, “why does it make sense for us to partner in your expansion?” Having said that, he continued to give out grants for new rail lines because Congress effectively required him to do so.
In 2012, about 30 percent of the money spent on highways came from general funds, mostly at the local level, but 75 percent of the money spent on transit came from general funds. This made transit agencies far more responsive to unions, rail contractors, and other special interests than to transport users, which is the main reason why transit systems are in such poor shape.
7. Should we raise gas taxes?
Raising federal gas taxes by 10 cents per gallon over the current 18.4 cents could allow Congress to continue to spend on both highways and transit at current or increased levels. Representative Earl Blumenauer (D-OR) has even proposed a 15-cents-per-gallon tax increase. Proponents of such an increase, including Blumenauer, want to see even more money flowing into transit and the construction of new rail projects.
In the long run, however, such an increase will still run into a transportation cliff. This is partly because Congress is likely to fully spend whatever revenues come in, and partly because a combination of inflation and increasingly fuel-efficient cars will reduce long-term revenues no matter what the tax.
Gas taxes are more of a user fee than sales, income, or other general taxes. But they are an imperfect user fee, as they don’t give signals to users about the costs of the facilities they use and don’t give signals to highway providers about the real demand for the roads they build.
8. What’s the solution?
In the immediate term, Congress will no doubt spend supplement the Highway Trust Fund with another $8 billion to $10 billion in general (meaning borrowed) funds. Beyond that, Congress needs to curb transportation spending to be no more than revenues.
In the long run, we’ll need to find a better way to pay for transportation than gas taxes. For highways, that means mileage-based user fees. This will not only assure adequate funds for maintenance and improvements, variable fees could virtually eliminate the traffic congestion that costs Americans $200 billion per year. One issue is that, if roads are funded out of mileage-based fees, there won’t be any need for federal involvement, which is good for those who want to devolve federal power to the states but bad for members of Congress who want to get credit for giving people money.
Meanwhile, most if not all transit costs should be funded out of fares, not taxes. Funding transit out of fares means relying more on buses and halting all or nearly all rail expansions. The best way to do this is to privatize transit, as private operators will be focused on serving users, while public agencies end up serving mainly transit unions and suppliers. If Congress or states feel the need to support low-income transit riders or other transit-dependent people, they should do so using transportation vouchers, not by subsidizing unresponsive transit agencies.
None of this will happen so long as Congress remains focused on increasing revenues to spend on special interest groups. Instead, Congress needs to recognize that transportation facilities are primary for transportation users, not unions, not rail car manufacturers, and not engineering and design firms.
Here’s my vote. Eliminate the federal gas tax altogether and let states and localities manage on their own. Yes, I know that’s not fair to Mississippi does who does not have the same tax base as Texas to fund roads. But Mississippi’s road needs are, even by proportion, much smaller than Texas’ road needs. And that’s not fair to Alaska who has a much larger area to pave over, but maybe we don’t want to provide federal funds to pave over Alaska. Maybe we don’t want to pave over Alaska at all.
“What is Congress’ position?”
I going to pass on a host of good, off-color jokes here, but you have to admit that the stance is wide on this issue.
Brilliant move. Drain the funds from the transportation fund for non-highway purposes and then claim it is broke.
The term “transportation cliff’ will soon become a buzzword in political and media circles. Your evening news will make ordinary citizens believe that in the next few months all roads will close, bridges will fall down, etc. – unless they let the expanding all-powerful feds come to the rescue.
It will be another crisis not going to waste and will be used as an excuse for more, not less, federal control and entitlements to the politically favored.
“What is Congress’ position?”
I going to pass on a host of good, off-color jokes here, but you have to admit that the stance is wide on this issue.
lol
You mean off-color jokes like:
Yes, their position is to be firmly behind the prostrate taxpayers. Prostate exams are covered in Obamacare, yes? Certainly reach arounds are not provided by Congress.
There is a larger problem to be considered: due to decades of diminishing returns, the net social return on investment in highways today is LESS than the cost to finance the average project according to:
http://research.upjohn.org/cgi/viewcontent.cgi?article=1118&context=reports
[see pg 25, fig. 14 for the graph that tells the story]
So the bottom line is that any solution that results in more spending on highways will hurt the US economy.
O’Toole’s proposal to privatize transit, while at the same time securing government funding for highways has one obvious conclusion: The end of transit. And that puts us in a moral hazard situation: With the government effectively forcing people to drive by funding only one mode of transportation, there is no alternative but to drive, be forced to pay gas taxes, and be forced to pay even higher fuel costs due to the impossibility of switching to an alternative when energy supply shortages occur.
And then there is another interesting tidbit – while we are well past the point of diminishing returns for highways, it turns out there are vast network effects yet to be exploited in the domain of transit. This means that if we ramped-up spending on smart transit project, the return on transit would INCREASE. The obvious rebuttal to that point is that increases in federal spending for transit since the 1980’s did not produce a great increase in transit use. Why is that? Because at the same time, we were lavishing money on highways. Knowing that highway expansions hurt the economy, and cutting back to reflect that reality, the ability of transit dollars to produce results increases.
So maybe it is time for our anti-planner to get off the 1938 World’s Fair mentality of planning, and take a fresh look at the realities of transportation.
One more point: While it is to be expected that O’Toole will target transit as the cause of any problem that can be solved by a free-market approach, it is important to remember that the imminent depletion of the Highway Trust fund was anticipated (and ignored) as far back as 2002:
Lawmakers Unite to Oppose Plan to Cut Highway Spending
http://nyti.ms/1kVpuHf
“Senator James M. Inhofe of Oklahoma, one of the most conservative Republicans in Congress, called highway spending essential to the economic recovery that appears to have begun in the last few months”
How ironic that while Inhofe was staunchly defending highway spending as essential to growing the economy, the returns were flirting with dropping below the costs of financing the projects. Misplaced faith in the value of highways is the real culprit in the whodunnit of Highway Trust Fund depletion, though I suspect that conclusion would not impress the top donors to the CATO institute as much as blaming transit.
Matt Logan,
You make some interesting points. I agree there are many highway projects that are probably not worthwhile, although these would have to be judged on a case-by-case basis. By the same token, virtually all rail projects are also not worthwhile.
You mischaracterize my position when you say I want “to privatize transit, while at the same time securing government funding for highways.” In fact, I oppose the use of general funds for all transportation (except, perhaps, vouchers for low-income people). Would this mean the end of transit? No, as I show in my Cato paper on privatizing transit, there are a number of private, unsubsidized transit companies out there today.
In criticizing me and Inhofe, you fail to recognize the difference between “government funding” for highways and government funding for transit: the former comes largely (at least 70%) from highway users while the latter comes largely (at least 70%) from people who don’t ride transit. So one is a user fee and the other is a subsidy. While I think highway users would be better off if roads were private, funding them exclusively out of user fees is a good interim solution.
Given the propensity of transit agencies to sign generous union contracts and build expensive projects, funding government transit agencies exclusively out of user fees would come a lot closer to meaning the end of transit than simply privatizing them. I advocate privatization as the best way to save essential transit services without subsidies.
By “securing funding” I meant creating a mechanism operated by the government for funding highways. Even a system that tries to emulate a user-pays model that is operated by the government is itself a guarantee that offers highways an advantage compared to transit when that means turning transit entirely over to the private market. Private investors generally expect a higher return on their investment ( > 10%/yr ), whereas the user-fee system would operate as a government sponsored non-profit in order to maximize the value to “the users”. So there would effectively be an “opportunity cost subsidy” compared to the private market.
Keep in mind that my criticism is that it was economically counter-productive to increase funding for highways, even though supposed economic benefits were used to justify depleting the highway trust fund well before the 2012 transit issue existed that you brought up. If you are going to attribute the cause of the Trust Fund running out ALL spending and its justification needs to be considered, not just the lightening rod spending. I consider the question of subsidy to be another matter entirely.
And on that matter of “subsidy”, considering that a majority of Americans feel they have no choice but to drive, and yet would prefer more options for getting around, is it really a subsidy if the fees they pay are used to build what they want as opposed to what they feel forced to use?
Matt, welcome aboard. I hope you have a thick hide because if you stay here, you’ll soon be attacked as a moral degenerate, or worse, by not bowing down at the altar of the “Bitch Goddess Automobility.”
Keep in mind that many posters here strongly believe that auto dominance is some inevitable outcome of “the market” and “free choice.”
Of course if you ignore are not told what the real tradeoffs are, such as has happened too often during the past century or so vis a vis the automobile and its impact on our cities and mode of living, then it will look this way. Auto usage is nice like owning a single family home. In the former case, there are a lot of costs such as less liveable cities and myriads of hidden costs such as accident costs not covered by insurance, “free” (sic) parking, and so forth. In the latter case, one is in hock to a bank for 30 years, let alone solely responsible for replacing the roof and other maintenance, let alone high property taxes…but I digress…
Matt, in arguing with The Antiplanner, also don’t forget the issue of “path dependence” in regard to the technocratic favoritism given to highways and automobiles over the past century, at least since the early 1920’s. I mean such things as downzoning of commercial and industrial developments to 0.4 or less floor area ratios, to “prevent congestion” and to guarantee “enough” off-street parking.
Then there are downzonings of residential land and limits on total number of units to “prevent congestion” too, off-street parking mandates, and a whole laundry list of other government mandates and exactions that facilitate the automobile vs. more traditional, denser land use, transit, walking, bicycling, etc.
Chuck Marohn of Strong Towns puts a hug stake through the heart of such balderdash in his extremely convincing “Curbside Chat” lectures he makes around North America, such as this great video from Vancouver in 2013: http://www.youtube.com/watch?v=efgURk6w8LE. I recommend watching the whole thing.
There goes “msetty” again. He “likes” to “poison the well” and to “comment” about “people” rather than “ideas.”
And he also “loves” overusing “scare quotes.”
Frank sez:
There goes “msetty” again. He “likes” to “poison the well” and to “comment” about “people” rather than “ideas.”
Matt, see what I mean.
What is “The Antiplanner” if not an attack on the people who plan for a living?
But in terms of ideas, there is an idea that rings true in msetty’s comments: there is an unspoken reverence applied to the automobile in many discussions I have had on this topic. This is to be expected since most of the people that The Antiplanner appeals to are individuals who have become so dependent on the automobile that it is hard for them to imagine how any other mode of transportation could be of value to them.
Wasn’t it Ronald Reagan who pointed out how Government steals people’s freedom by making them dependent on a government program? I believe that statement is true, and applies to automobile infrastructure. Have you ever researched how your State DOT selects projects? Here in Wisconsin, they select projects based on safety and congestion problems that are projected to be created by bad planning. Back in 1960, there were enough highly-valuable highway projects yet to be built that despite the bad planning, there was a net positive return on highway investment. But that has changed – as of 2005, the net return on federal highway spending has dropped below the cost of financing the project.
So it is time to invoke the conservative principle of “personal responsibility”, and stop providing government services every time a municipality fails to consider how their growth plan will create congestion and safety problems. It is also time for “personal responsibility” to be applied to drivers – if you don’t like congestion, find a way that does not increase the size of government to address the issue – like choosing to use a different route, or by not driving at exactly the same time as everyone else. If you are afraid for your safety on the road, maybe it is time to look in your rear view mirror and fix that problem by improving your won driving behavior, which studies show is the most efficient way to make our roads more safe.
Yes, I have a thick skin msetty. The tactic I like to engage the conservative automobile-enthusiasts with is showing them how their blind support of the automobile and hatred of transit is actually contrary to their core beliefs personal responsibility and limited government.
their blind support of the automobile and hatred of transit is actually contrary to their core beliefs personal responsibility and limited government.
Yes, because building boondoogle rail lines for 1% of commuters, at a cool $200 million a mile,i is the very definition of personal responsibility and limited government.
Are you two pimple-faced losers done with your circle jerk? And btw, no one asks you to come here if you feel the Antiplanner is “attacking transit” (which he is not).
What is “The Antiplanner” if not an attack on the people who plan for a living?
Wrong.
It’s right in the tag line, should anyone chose or be able to read it: Dedicated to the sunset of GOVERNMENT planning. [Emphasis added for those unable to read or too blinded by statist ideology.]
Seems to me, especially given the timing, that this is just a sock puppet for Dan or msetty. Or perhaps he’s just Setty’s meat puppet, invited to incite and poison the well, a concept Setty can’t seem to grasp given his limited faculties.
But the puppetry playing out here is magnificent.
Bravo government planners. Bravo!
There is a rather widespread agreement that government splurges on transit, symphonies, sports stadiums, NASCAR racetracks, shooting ranges, concert halls, etc. should once built by taxpayers at the very least pay for their own operating costs.
They always promise to cover their operating costs when seeking funding, but with the help of planner logic dishonesty they usually are proven to be lying and end up draining government money from other priorities.
Hey, Frank, how do you know that I’m not Matt’s “meat puppet” as you put it?
I think the problem is that you can’t grasp the fact that not everyone is enamored of automobiles, suburbs and the like. If you bothered to investigate, there are actually tens of millions of people, if not hundreds of millions or more, who want alternatives to what government auto planning over the past 90 years has produced.
Matt, just to make a long story short, the objectives of teabaggers are oligarchy, plutocracy & despotism.
Setty, you don’t have to put meat puppet in quotes. It’s a real term. Look it up. If you can.
And if you and Andrew (the highwayman) are models of the planner types who rail against autos, then yeah, y’all suck. Intellectually bankrupt is the term. See how I didn’t need quotes around that?
Now, as they say in the UK, bugger off!
There is a larger problem to be considered: due to decades of diminishing returns, the net social return on investment in highways today is LESS than the cost to finance the average project according to:
http://research.upjohn.org/cgi/viewcontent.cgi?article=1118&context=reports
[see pg 25, fig. 14 for the graph that tells the story]
So the bottom line is that any solution that results in more spending on highways will hurt the US economy.
This isn’t actually correct. Eberts presents two separate decision rules for calculating optimal investment. As he mentions (see p. 23), one of them suggests that optimal levels of provision were recently reached.
In any event, it does not follow that the next project to be financed will be the average project. Indeed, Eberts notes throughout the the paper the importance of distinguishing between average and marginal effects. It is what is happening at the margin that matters.
My interpretation is that the low rates of return observed at a national level are indicative of the counterproductive influence of the federal government in the production of highway services (and other modes as well). Suboptimal provision and artificially high costs due to layers of regulation attached as strings to state and local grants are symptoms of this problem. That is why I agree with Randal that this ‘fiscal cliff’ should naturally proceed as a process of devolution of authority for financing transportation down to lower levels of government. I’d prefer outright privatization, but devolution would be a step in the right direction.
And then there is another interesting tidbit – while we are well past the point of diminishing returns for highways, it turns out there are vast network effects yet to be exploited in the domain of transit.
The evidence for this is where? I haven’t seen it.
This means that if we ramped-up spending on smart transit project, the return on transit would INCREASE. The obvious rebuttal to that point is that increases in federal spending for transit since the 1980?s did not produce a great increase in transit use.
Where are all of these so-called ‘smart’ transit projects? Any why aren’t all of the ‘smart’ transit planners pursuing them? The obvious rebuttal is that giving more money to the same people who have spent billions and failed to increase use will not work this time around, either. After all, what can we expect them to do differently?
Why is that? Because at the same time, we were lavishing money on highways. Knowing that highway expansions hurt the economy, and cutting back to reflect that reality, the ability of transit dollars to produce results increases.
Who is this ‘we’ you keep referring to? If you think government is incapable of optimally providing highways, then why do you expect them to be able to optimally provide transit service? By the way, cutting highway spending will probably also cause collateral damage to transit, since the bulk of transit service is provided on road networks. Allowing them to deteriorate will almost certainly impact transit service.
Misplaced faith in the value of highways is the real culprit in the whodunnit of Highway Trust Fund depletion, though I suspect that conclusion would not impress the top donors to the CATO institute as much as blaming transit.
No, the causes for Trust Fund depletion are well known. Revenues declining due to greater fuel economy, sluggish economic performance, and small per capita declines in passenger travel. These are coupled with a political process that has responded to these declining revenues by continuing spending levels unabated, including on programs that have nothing to do with highways (Randal has identified several of these).
“Then there are downzonings of residential land and limits on total number of units to “prevent congestion” too, off-street parking mandates, and a whole laundry list of other government mandates and exactions that facilitate the automobile vs. more traditional, denser land use, transit, walking, bicycling, etc.” ~msetty
People employ all sorts of rationalizations for their behaviors. But what all too often driving things is not the reasoning that is stated but the feelings that are felt. The last decade alone is littered with projects that would’ve brought density to central city neighborhoods teaming with progressives who showed up in force to oppose and kill those projects.
The reasons stated may have been things like “The city is concerned about off-street parking in the neighborhood”. But the city knew from day one of the plan the unit to parking spots ratio but didn’t oppose it. What changed their tune – rightly or wrongly – was the local neighborhood opposition.