Talking Transportation Dollars and Sense: The Future of Funding

Nossaman transportation policy expert Edward Kussy and rail veteran Kevin Sheys assess the relative merits of the federal transportation funding proposal in the Eno Center for Transportation Report “The Life and Death of the Highway Trust Fund.”

This is a brief commentary on the Eno Center For Transportation’s excellent report on federal transportation funding, entitled The Life and Death of the Highway Trust Fund (Report). The Report contains a great deal of quality information and some very interesting and insightful policy discussion. Rather than summarize the Eno Report here, we thought it would be more fun to have a dialog on our take on the issues raised in the Eno Report.   *         *          *

Sheys:  The Eno Report notes that since 2008, Congress has transferred billions of dollars from the General Fund into the Highway Trust Fund five times (2008, 2009, 2010, 2012 and 2014). Do you agree with the Report’s observation that this series of “fixes” from the General Fund is a clear sign that the country needs a more sustainable method for funding its national transportation needs?

            Kussy: The shortfall in the Highway Trust Fund has been documented by the Department of Transportation, the American Association of State Highway and Transportation Officials (AASHTO), this report, and many others. In 2005, Congress directed the Secretary of Transportation to appoint two commissions to look at the future of the country’s surface transportation programs and funding for those programs. Both commissions recommended that the gas tax be raised as an interim measure and that new ways to fund the transportation programs be developed. A primary recommendation of the National Surface Transportation Infrastructure Financing Commission was to establish a tax based on vehicle miles traveled instead of the amount of motor fuel purchased. Congress ignored those recommendations, and, in my view, a major disappointment with MAP-21 is the failure to provide for pilot projects, further studies, or other measures that build on the recommendations of these two commissions.

I do not agree with the Report that the failure of Congress to act on any revenue increases for the Highway Trust Fund is based on a fundamental abandonment of the concept of a transportation trust fund. Rather, it is part of a larger refusal to raise sufficient revenues for government programs as a whole. The supplementing of the Trust Fund with general fund monies is paid for by reducing funds that might otherwise have been used for a different purpose. Thus, whether the program is funded out of the general fund or a dedicated trust fund does not address the underlying unwillingness to set taxes high enough to pay for the program authorized by the various surface transportation reauthorization acts.

            Sheys:  The Report says the Highway Trust Fund process—its tax collection and funds distribution system—has caused fundamental problems in the way the country makes transportation investment decisions. Specifically, the tendency of the Highway Trust Fund approach to frame investment decisions in modal terms (i.e., highway v. transit) creates tensions between “donor” and “donee” states. Do you agree with the Report’s conclusion that the Highway Trust Fund regime creates fundamental problems in project selection and hinders efforts to devote federal funds to national transportation goals?

            Kussy: The Report correctly identifies these issues as creating some problems for the system as a whole. There has long been tension between the need of paying for a national system of roads and states wanting to obtain the same proportion of transportation apportionments that is their proportion of the total federal gas tax and other taxes that are paid into the trust fund. The problem has grown worse over time. Before the recent need for general fund supplements, the problem was resolved by allocations from some of the surplus in the Trust Fund through a number of different mechanisms. I also agree that the donor/donee issue creates a problem for a federal highway program designed to address national transportation needs. However, there are many other national goals that are only moderately impacted by the donor/donee issue.

The Report also asserts that the very existence of the Trust Fund distorts federal transportation expenditures as a whole. At the same time, the report acknowledges that transit and highway advocates have banded together to work to restore the health of the Highway Trust Fund. The reason for that is not only a cynical effort to maintain a secure funding source, as the Report suggests, but that over the last 40 years, the Federal-Aid Highway and Federal Transit Programs have become so intertwined on many levels of the transportation planning and project development processes. Even the 80%/20% statutory split of the basic allocations to the two programs do not present an entirely accurate picture because of the numerous opportunities to move highway funds to transit programs, and, to a much smaller extent, to move transit funds to highway programs.

Keep in mind that in the normal case, trust fund revenues are generated entirely from vehicles using the highway system. The justification for using highway revenues for transit is that transit, including both buses and trains, and highway systems are closely connected, particularly in urban areas. The Federal Transit Program also receives general fund appropriations for a major portion of its activities, which, with a few relatively small exceptions, is not the case for the Federal Aid Highway Program.

It is hard to see how this arrangement completely undermines the accomplishment of national transportation goals. Federal law has resulted in a surface transportation program that requires regional transportation planning in every urban area over 50,000 population, sets national standards for highway and transit design, construction and operations, ensures an environmental review of projects built with federal funds, responds to disasters, protects civil rights, and provides opportunities for disadvantaged business enterprises. None of these are related to the donor/donee issue.

            Sheys:  The Report includes research conducted on transportation funding regimes in Australia, Canada, Germany, Japan and the United Kingdom, focused on how these countries ensure adequate transportation investment and make the best investment decisions with systems that are completely or substantially based on general appropriations. Do you think the fact that these countries have effective methods for funding their national transportation priorities bodes well for the United States? Could we improve our funding and investment decisions through the use of a general funding regime? Is the Highway Trust Fund essential for sustainable and predictable funding of surface transportation in the U.S.?

            Kussy: I am not certain that using funding mechanisms of other countries will benefit the U.S. I also doubt that Congress will address the continuing failure to adequately fund the U.S. transportation network unless this results in demonstrable economic damage, because of our inability to compete on the world market, or because a series of transportation failures graphically illustrate the problems with our infrastructure. Congress responds to crises pretty well, even in the current political climate.

I do not think that a general fund program would be more rationally funded than the current system. For example, should some future statute move the surface transportation program from the trust fund to the general fund, the first thing many legislators would want is assurance that no more funding would be made available for transportation than would be the case before the transfer. In fact, as the Report acknowledges, the trust fund is sheltered to some extent from the debates typical for general fund programs because there are fewer political steps between the establishment of a grant program and the implementation of a project. That is an important difference in the US because we do not have the party discipline typical of a parliamentary democracy.

A key aspect of the current US system is that for highway projects, the federal government does not decide which projects should be built or funded with federal funds. All these decisions are made at the state and local level. These agencies depend on the federal government to provide a predictable funding stream so that they can plan their programs and budgets. Transit projects are similar, except that some projects are funded from the general fund, and thus must receive specific appropriations. It is difficult to imagine that should Congress have more budgetary control of highway and other transportation projects there would be no effort to directly influence, mandate, or forbid the construction of specific transportation projects.

The trust fund has historically provided some protection from these kinds of actions, so yes; I believe it is essential for a sustainable and predictable transportation system.

            Sheys: The Report acknowledges the vested interest of the appropriating and authorizing committees of Congress and the Highway Trust Fund stake holders. In recognition of these realities, the Report suggests that Congress could “codify” the present de facto regime by continuing the Highway Trust Fund but establishing a predictable, long term general fund commitment to transportation funding. What do you think of this idea?

            Kussy: I don’t think that this is a bad proposal. It certainly preserves the advantages of a trust fund system and the contract authority which is the essential part of this system. My only concern is that I am not sure it is sustainable. First, as the Report notes, the primary benefit of relying on general fund appropriations is that transportation programs would be “prioritized” against other domestic programs. In recent years, the non-defense discretionary budget has been reduced or frozen and many agencies have had to deal with precipitous cuts. Recent political developments make it unlikely that this will change. It is hard to imagine that transportation programs would not be affected by such cuts to an even greater extent than they are already. Second, appropriations committees of the House and Senate would probably have serious difficulties with a “contract authority” program using increasingly large amounts of general fund monies. Contract authority, which effectively avoids a major step of the appropriations process, is a key element of the operation of the trust fund. Finally, with greater oversight will come greater interest in large or controversial projects. Over time, this would erode the independent authority of the states, another key element of the Federal-Aid Highway Program.

            Sheys: Does the idea of eliminating the Highway Trust Fund in favor of surface transportation funding entirely through general fund appropriations deserve further consideration?

            Kussy: The Report is a thoughtful and well researched document. My problem with it is that it only considers program funding without the numerous other impacts that would be associated with abandoning the Highway Trust Fund. Almost all of the foreign countries that the Report cites divide transportation into a national program and a subnational or provincial program. That is not the case in the U.S. The federal government helps fund some types of transportation projects and a variety of federal conditions are attached to the use of those funds, but otherwise surface transportation is a state and local matter. States and local governments design, build, and operate the nation’s highways, decide which projects to build, and when to use federal funds. Federal goals are met through providing financial inducements, but not requirements. The trust fund protects this relationship because it reduces the power of the federal government over specific projects. It also provides a predictable source of funding on which the states and local governments can rely. Clearly, the endless short term extensions of expired transportation authorization statutes undermines this system, but I see no reason why it should be different if the Trust Fund were not to exist, as this seems to be the fate of all government programs in the current political climate. Finally, surface transportation infrastructure is reaching a crisis because of the failure to invest sufficiently in its upkeep and improvement. That needs to be fixed by additional investments, whether through a higher gas tax, a vehicle miles traveled tax, ubiquitous tolls, an enhanced sales tax, or some other means. None of this has anything to do with whether the trust fund should or should not continue to have a dedicated revenue stream and why the current legal regime should or should not continue.

Kevin Sheys, a partner in the Nossaman LLP Infrastructure Practice Group, focuses his practice on passenger and freight railroad and public transit projects. Edward Kussy, a partner in the Nossaman LLP Infrastructure Practice Group, focuses his practice on federal law issues related to infrastructure and other matters. He is also a member of Nossaman’s Environment and Land Use Practice Group. Mr. Kussy was deputy chief counsel—the top career lawyer—at the Federal Highway Administration in Washington, DC, for 18 years, where he helped develop and implement the innovative federal policies that support public-private partnerships (PPPs) – such as USDOT’s policies on PABs, TIFIA and SEP-15.).

The views and opinions expressed in this article are those of the author and do not necessarily reflect the official policy or position of The Eno Center for Transportation.

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