The House Appropriations Committee has released a proposed 2018 transportation funding bill that follows the administration’s proposal to end the Transportation Investment Generating Economic Recovery (TIGER) grant program. This program, which spent $500 million a year funding numerous streetcar projects and other boondoggles around the country, was originally created to stimulate the economy. While there is no evidence that it actually did stimulate the economy, the economy arguably doesn’t need to be stimulated any more.
The bill funds $2.75 billion (a $500 million reduction from 2017) for the transit capital investment program (a.k.a. New Starts) and directs the Secretary of Transportation to “continue to administer” the program in accordance with the law. However, it doesn’t specifically mandate that the secretary sign any new full funding grant agreements, and so long as they remain unsigned, projects without such agreements can’t be funded.
As the Antiplanner predicted, the House rejected the administration’s proposal to stop funding Amtrak long-distance trains. Half the states are served only by long-distance trains, so cutting those trains effectively tells half of Congress that their interests are less important than those of the other half. The administration would be done better to propose to give Amtrak incentives to increase ridership in the form of 10 cents in subsidies per passenger mile carried. Since current federal subsidies average more than 20 cents a passenger mile (plus more from the states), this proposal would have led to a debate over “how much should the subsidy be?” rather than “which states should get subsidies?” Continue reading
Last week’s Congressional passage of the 1,301-page Fixing America’s Surface Transportation (FAST) Act represents, for the most part, a five-year extension of existing highway and transit programs with several steps backwards. Once a program that was entirely self-funded out of dedicated gasoline taxes and other highway user fees, over the past two-and-one-half decades the surface transportation programs has become increasingly dependent on deficit spending. The FAST Act does nothing to mitigate this, neither raising highway fees (which include taxes on Diesel fuel, large trucks, trailers, and truck tires) nor reducing expenditures.
If anything, deficit spending will increase under the FAST Act, which will spend $305 billion ($61 billion a year) over the next five years. Highway revenues, which were $39.4 billion in F.Y. 2015, are not likely to be much more than $40 million a year over the next five years, so the new law incurs deficits of about $20 billion a year. The law includes $70 billion in “offsets”–funding sources that could otherwise be applied to reducing some other deficit–which won’t be enough to keep the program going for the entire five years.
Aside from deficit spending, the greatest mischief in federal surface transportation programs come from competitive grants. When Congress created the Interstate Highway System in 1956, all federal money was distributed to the states using formulas. But in 1991 Congress created a number of competitive grant programs, supposedly so the money would be spent where it was most needed. In fact, research by the Cato Institute and Reason Foundation showed that Congress and the administration tended to spend the money politically, either in the districts represented by the most powerful members of Congress or where the administration thought it would get the greatest political return for its party.
The 2012 surface transportation law contained no earmarks and turned all but two major competitive grant programs into formula funds, thus taking the politics out of most transportation funding. This upset some members of Congress because they could no longer get credit for bringing pork home to their districts. So it is not surprising that the FAST Act goes backwards, putting more money into political grants than ever before.
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.
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.