Commentary

Federal-Free Highways

By Gabriel Roth
April 6, 2003

Congress now spends $36 billion a year on roads. Some want to increase that to $60 billion a year. But, given that the Interstate Highway System is virtually complete, there is no longer a need for the federal government to fund state roads. A new proposal to return financial responsibility for roads to the states, introduced by the chairman of the Senate’s Environment and Public Works Committee, should be adopted.

Modern federal involvement in roads started with the 1956 Federal-Aid Highway Act, which established the Federal Highway Trust Fund (FHTF) to pay for 90 percent of the proposed 41,000 mile Interstate Highway System. The income of the FHTF was derived largely from taxes on gasoline.

The main achievement of the FHTF was a dramatic improvement of the U.S. highway system. Despite its reliance on comparatively low user fees, it succeeded in financing not 41,000, but over 46,000 miles of the Interstate Highway System that, although comprising only 1 percent of total U.S. road mileage, carries 24 percent of all vehicle-miles.

However, now that the Interstate Highway System is nearly complete, there is no need to continue federal funding of state roads. Congress is now considering the “Reauthorization” of federal expenditures on roads and transit for the six-year period that starts October 1, 2003. As noted, these expenditures currently average $36 billion a year and the reauthorization proposals envisage increases to over $60 billion. Congress needn’t spend that money. Besides the high cost, the present system has major disadvantages.

As federal funds meet up to 90 percent of the costs of the projects they support, they result in inflated demands for expensive facilities, for which the promoters do not have to pay. Boston’s “Central Artery/Tunnel” project, for example, was initially estimated to cost $3.3 billion, which neither the city nor the state could afford. After getting federal financing, the project was implemented and its cost has risen to $14.3 billion.

Other problems with the Highway Trust Fund are:

  • It enables Congress to divert highway funds for non-road purposes, such as transit projects, and to the General Fund.
  • It enables Congress to enforce burdensome regulations (including those from 70 different environmental laws), such as EPA car-pooling and vehicle-testing requirements, which Congress is unable or unwilling to legislate directly. .
  • It encourages expenditure on new roads rather than the maintenance of existing ones. .
  • It requires states to adopt regulations, such as the Davis-Bacon and ‘Buy America’ provisions, which can raise highway costs by 20 percent or more. .
  • It hampers innovation and flexibility in the financing and operation of roads. .
  • It rarely supports toll roads and privately-provided roads, although users of these facilities have to pay into it all the mandated charges. .
  • And it enables members of Congress to buy votes in their districts by financing “demonstration projects” most of which rank poorly in state highway programs. .

What, then, should Congress do? The obvious recommendation is simply not to re-authorize the federal financing of roads; to abolish the FHTF; to eliminate the federal taxes dedicated to it; and to restore highway-financing powers to the states. If federal funding of roads, and the relevant federal taxes, were abolished, each state would finance its roads in accordance with its own priorities

But it is not practicable to abolish the federal highway trust fund immediately. It is still needed to fund projects already authorized by Congress but not yet implemented. Also, some of the non-project activities it finances — e.g. those relating to research — are worth keeping. So all that could be done this year would be to stop the financing of new highway projects, to review and amend other FHTF elements, and to reduce federal taxation accordingly.

A proposal to do just this is contained in Bill S-2861, The “Transportation Empowerment Act,” introduced by Sen. James Inhofe (R-Okla.) in July 2002. It would, if adopted, “return to the individual States maximum discretionary authority and fiscal responsibility for all elements of the national surface transportation systems that are not within the direct purview of the Federal Government.”

Senator Inhofe now chairs the Senate’s committee on Environment and Public Works, which oversees the Department of Transportation’s Federal Highway Administration. He is in a strong position to push for the adoption of his sensible proposal.

Since retiring from the World Bank in 1987, Gabriel Roth has worked in Washington D.C. as a transportation and privatization consultant. He is the author of “Paying for Roads: The Economics of Traffic Congestion” and “Roads in a Market Economy.” A longer version of this article will appear in the spring edition of Regulation, published by the Cato Institute.