from Renewing America

Finally a Highway Bill, But Big Financing Problems Remain

December 3, 2015 11:45 am (EST)

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Blog posts represent the views of CFR fellows and staff and not those of CFR, which takes no institutional positions.

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For the first time in a decade, Congress has cobbled together a highway bill that guarantees transportation infrastructure funding for several years. House and Senate negotiators announced a deal this week, and the final votes are expected shortly. Unfortunately, the bill does nothing to fix the terrible infrastructure financing system, nor does it increase current spending levels enough.

First the good news. It fully funds highway and transit spending for five straight years, ending a six-year era of multi-month funding patches that made planning for multi-year capital investments at the state and local level particularly difficult. The act beefs up security measures for rail that could help to prevent accidents, like the one that left eight dead near Philadelphia last May. It sets up a new grant program focused on improving freight corridors. And Amtrak would be given more freedom to focus its resources on the heavily-traveled northeastern corridor.

But on the big-ticket dilemmas facing federal transportation policy, this bill is a disappointment.

The FAST Act, as it’s known, does nothing to fix how the federal government funds highway and transit spending. The financing system is a mess. Our updated infographic scorecard on federal transportation policy serves as a useful primer for what’s gone wrong. Drivers pay a federal gas tax, with those revenues placed in trust funds dedicated solely to pay for highway, roads, and transit. But the gas tax is not producing as much revenue as it did in the past, mostly because the gas tax has been stuck at 18 cents since 1993, meaning its real value has been on the decline for over two decades. Since 2008, gas tax revenues have been less than highway spending, forcing Congress to borrow money from the general fund to plug the gap. Next year the gap is estimated to be $16 billion. In ten years it could be $25 billion.

Instead of raising the gas tax or finding a sustainable long-term self-financing solution to the deficit, the highway bill relies on one-off withdrawals and budget gimmicks. Most of the hole will be plugged by withdrawing from the Federal Reserve’s rainy day surplus fund. The rest comes from lowering Federal Reserve dividend payments to banks, selling oil from the Strategic Petroleum Reserve, levying some customs duties and outsourcing some IRS work.

And while the United States should be spending substantially more on transportation funding, the highway bill increases funding only slightly above inflation adjustments. Other peer countries in the G7 spend nearly twice as much (as a percentage of GDP) on transportation infrastructure. According to official government estimates, we are only spending enough to maintain our highways and roads, but not enough to improve or expand them. Since 1980, the U.S. population has grown four times faster than new lane construction. Congestion is now twice as bad as it was in the early 1980s.

Policymakers have been grasping at partial solutions. States and localities have been raising their own gas and sales taxes to pay for transportation investments, but not enough to make up for where federal spending should be. Politicians from across the political spectrum have supported using more public-private partnerships (P3s) to take some of the burden off the public sector. But private financing only works for a limited number of projects that have a high enough rate of return.

Transportation infrastructure is a public good, and public dollars should make up the lion’s share of the investment gap. Ultimately, the American people will have to spend more to pay for their infrastructure. This means raising federal tax revenue to fully fund the spending through some kind of tax hike. By locking in budget gimmicks for five years, the highway bill delays the serious discussion this country must have about how to pay for and improve its infrastructure.

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