Status of Federal Highway Legislation

The U.S. transportation system has been broken for too long. The federal highway program was created half a century ago to build a coast-to-coast 42,000-mile network of interstate highways across the country. To pay for this program the government instituted a “user fee” in the form of a federal gas tax. This tax has not only remained in place long after the network was completed, it has grown considerably over the years. Now the Highway Trust Fund, where the money is pooled, has become a source of spending for so many needless, big government projects, that it has repeatedly required bailouts to stay afloat.

Congress needs to reform the way transportation dollars are spent and begin to return decision-making powers to the states where they belong. Our gas taxes are too high and the system we pay into is inefficient and usually counter-productive.

Highway Trust Fund: On July 31st the Highway Trust Fund’s authorization will expire. After this date the fund will not be able to spend money unless it receives legal authority from the government. In response, Congress will likely consider an $11 billion bailout of the fund. Heritage Action will oppose any bailout and instead wants to see real reform. A reform bill that Heritage Action supports is the Transportation Empowerment Act (TEA) which will likely be introduced this week by Rep. Ron DeSantis (R-FL-06) and Sen. Mike Lee (R-UT). The bill would turn back control of highway decisions to states.

Status: The federal government is responsible for 40 percent of national spending on surface transportation projects (highways and mass transit specifically). The account for that funding is called the Highway Trust Fund (HTF). Congress is expected to produce legislation that bails out the HTF and extends the federal highway program for anywhere from a few months to several years. As a result of a recent short-term extension, on July 31st the legal authority for the HTF to distribute federal funds will expire. The Department of Transportation has also forecast that the amount of money in the HTF will drop below a critical level on that same date, July 31st.

The fact that HTF outlays have exceeded expenses since 2001 is ironclad evidence that federal surface transportation spending is out of control and inefficient. The next two months leading up to the deadline promise a spirited debate over the shape of a potential reform. The Transportation Empowerment Act (TEA) would return responsibility and revenue for transportation funding back to the states, placing infrastructure funding on a sound long-term footing.

Background: A major federal role in highway construction began with the 1956 Federal Aid Highway Act. This law also created the HTF. Modeled on the Social Security Trust Fund, the HTF was envisioned as a pay-as-you-go fund. Revenue would come in, and that money would be earmarked specifically for highway construction. The primary source for that revenue was and remains the federal gasoline tax, which at the time was 4.3 cents per gallon. Today the tax stands at 18.3 cents per gallon.

The Federal Highway System was completed decades ago, but Congress, accustomed to federal transportation spending, elected to continue the operation of the HTF and the taxes that supported it. In this same period, Congress also created the Mass Transit Account, diverting around 17 percent of gasoline tax revenue to fund mass transit projects.

A Broken Fund: Today, the HTF is insolvent, and will run out of money this July. More fuel efficient cars and wasteful diversions necessitate periodic transfers of federal money from the general fund into the HTF to cover obligations. This fiscal year’s transfer is estimated to be around $13 billion. Since 2008, more than $54 billion in bailouts have gone into the fund. Future shortfalls are growing astronomically, totaling $167 billion over the next decade. In the past, present and future, funding methods for the HTF have proven deeply ineffective.

Wasteful Diversions: The gap between revenue and outlays in the HTF is mostly self-inflicted, the result of a congressional infatuation with mass transit and pork-barrel spending. According to the Heritage Foundation, 25 percent of all gasoline tax dollars paid into the HTF are used for a purpose other than highways.

Mass transit spending is ineffective. According to the Brookings Institution, the average American commute is 25 minutes. The average transit trip is 47 minutes. As a result, rational commuters have chosen not to use mass transit. Spending on transit has climbed, and the American population has increased dramatically, but transit ridership has grown little. Traffic congestion has increased as well. Americans spend almost a workweek every year (38 hours) sitting in traffic. The evidence is clear that the 30-year experiment diverting funds originally marked for a successful transportation medium (highways) towards an unsuccessful one (transit) has failed.

There are other diversions from the HTF. The Transportation Alternatives Program (TAP) allows funding for bike paths, museums, and highway beautification. Last year, the federal government spent almost $900 million on TAP. The Congestion Air Quality Mitigation Program, a program intended to help states reduce pollution, cost $2.2 billion in 2014 and has had little effect on air quality.

Unequal Treatment of States: The HTF has long allocated funds based on which states possessed the most political clout rather than on the basis of true highway needs. Transit money goes disproportionately to six cities: Philadelphia, Washington, D.C., New York, San Francisco, Boston, and Chicago. 28 states pay a larger proportion of the gasoline tax revenue than the proportion of federal highway spending that they receive. Northeastern states with large union presences get a bigger percentage of HTF revenue, while fast-growing southern states are left with more limited amounts.

Transportation Empowerment Act (TEA): TEA is the main conservative solution to the current system. It would reduce the federal gasoline tax in increments over a five-year period, down to 3.7 cents per gallon. Over that time frame, remaining revenue from the gas tax and other user fees would be block-granted to the states. At the end of the five-year period, state governments would become responsible for their own transportation planning and financing. States have unique transportation needs that should be met at the discretion of state officials, not distant federal lawmakers.

Under TEA, wasteful diversions would be eliminated, ensuring that highway dollars fund highways. If states wish to fund transit projects with their highway dollars they are welcome to do so. The federal government would retain a small role in maintaining connections between state transportation networks.

Bad Solutions: Some have suggested other policies to reform the HTF. “Repatriation” is a budgetary maneuver where the corporate tax rate is temporarily lowered. Companies keep large amounts of money offshore as a result of astronomical American corporate taxes. As a result of the temporary reduction, corporations will bring those monies back to the U.S. mainland, creating a short-term tax windfall. The money from the windfall will then be used to fund a massive new highway bill. The problem of HTF insolvency would then reoccur in the long-term, and the billions of dollars in wasteful diversions would continue.

Other suggested options are a short-term (yearlong) highway bill that would last until Christmas of this year. Supporters claim that this would allow time to consider a longer-term bill. Conservatives should oppose this course, as it simply continues the process of bailing out a broken system. The same is true for any other long-term highway bill that extends the HTF’s present structure without fundamental reforms.

Recommended Action: Heritage Action urges readers to contact their member of Congress and encourage him or her to oppose the coming $13 billion bailout of the HFT and to support the Transportation Empowerment Act.

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