December 4, 2015 3:50PM

Transportation Bill Steps Backwards

This 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.

Fortunately, the 2012 surface transportation law 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.

First, the law creates a new fund of $4.5 billion over five years for "Nationally Significant Freight and Highway Projects." This will lead state transportation departments to go out of their way to define projects as "freight" projects so that they can eligible for the fund. Some of the projects funded will no doubt be worthwhile, but experience with other competitive grant programs suggests that many will be frivolous or focused more on giving political leaders opportunities to cut ribbons rather than spend money effectively.

Second, the law converts part of the Bus & Bus Facilities Fund into a competitive grant program. The 2012 law had converted this to a formula fund, so the FAST Act is going backwards. The $300 million per year on competitive grants will encourage cities to build massive bus terminals that do little to increase mobility.

Third, the FAST Act increases funding for the New Starts transit capital grants program from just under $2 billion per year to $2.3 billion per year. This is probably the most pernicious grant program as it has given transit agencies incentives to propose the most expensive forms of transit--light rail, subways, and commuter trains--so they can get the most federal dollars.

Fourth, a subset of New Starts money is dedicated to "small starts," including streetcars and bus-rapid transit projects. Streetcars may be the most ridiculous form of transit as they are slow, far more expensive than buses, and with far lower capacities: a single streetcar line can only move about a fifth as many people per hour as buses on city streets. Bus-rapid transit isn't much better if it dedicates lanes to buses, as most such lanes will end up moving only a tiny fraction of the number of people who are moved by general purpose lanes. Despite these problems, the FAST Act increases federal funding for streetcar and other small starts projects from $75 million to $100 million per project.

Finally, the FAST Act broadens the use of Transportation Infrastructure Finance and Innovation Act (TIFIA) funds to include a much wider range of activities. TIFIA is supposed to be a competitive loan program, allowing state and local governments to borrow money to find high-priority projects and repay those funds at low interest rates out of local taxes and revenues. TIFIA has funded some important projects, but it has also helped fund many transportation boondoggles such as San Juan's Tren Urbano, a 10-mile rail line that cost $2.3 billion and that carries well under half the number of projected riders. Such boondoggles will increase under the FAST Act, which allows the use of TIFIA funds for, among other things, transit-oriented real-estate developments that have nothing to do with improving mobility.

Although the FAST Act is a five-year bill, Congress will start to run out of money to pay for it in about three years. That means that, shortly before that time, you can expect the drumbeats to begin about the phony infrastructure crisis. In fact, it is federal funding itself that is responsible for the infrastruture problems we have because earmarks, competitive grant programs, and other political distributions of funds have focused on building new, often unnecessary, projects rather than maintaining the infrastructure we have.

Unfortunately, fiscal conservatives in Congress who understand this played virtually no role in the writing of the FAST Act. Now they have five years to put together an alternative program of funding transportation without deficits and figuring out a strategy for passing that program through Congress in 2020.