1. Rethinking the Highway Trust Fund by Robert W. Poole, Jr. Director of Transportation Policy, Reason Foundation www.reason.org/transportation bobp@reason.org

2. What is the problem? Declining performance of highway infrastructure Major shortfall in highway investment Political gridlock over funding the federal program Ever-increasing diversions of highway user revenue to non-highway uses.

3. The users-pay/users-benefit principle is sound Fairness: those who pay benefit. Proportionality: use more; pay more. Self-limiting: unlike Europe’s gas taxes Predictable: annual revenue stream. Investment signal: at least in the form of tolling.

4. But diversion of Trust Fund monies undercuts this principle. 1956: Interstates only 1970: other highways, bus facilities 1973: rail facilities 1982: Mass Transit Account 1991: “flexible” STP and CMAQ can fund bikeways, sidewalks, trails, etc. 1998 and 2005: even more flexibility Today, 25% of Highway Trust Fund monies are used for non-highway purposes.

5. Current reauthorization may be a turning point House bill (STAA) would make most of Trust Fund flexible, focus heavily on smart-growth planning and non-highway modes. Federal program at risk of being converted into general public works/community development program. Fuel tax would become general funding source, ending status as user fee.

6. Yet the need for increased highway investment is well-documented. Major highways and bridges are wearing out and must be replaced. Cost of reconstructing Interstates has not been included in most estimates of “needs.” Locations of people and business are very different from when the Interstates were being planned. Many highways and bridges are under-sized for current—and projected—traffic.

7. How large is the highway funding shortfall? Estimates from AASHTO, Policy & Revenue Commission, Financing Commission, and FHWA C&P Report. Federal, state, and local capital investment. 2008 FHWA C&P report (all roads)*: “Sustain” scenario: $27B/year short “Improve” scenario: $78B/year short *Using B/C>1.2

8. What is the appropriate federal role in surface transportation? Interstate commerce clause Alice Rivlin, Tom Downs both urged devolution of highways to states. Interstates should be federal system, for cross-border travel and commerce. GAO urges: sort out true federal interests and devolve the rest. (GAO-08-400)

9. Our assessment justifies three functions: 1. Interstate system: Goods movement Personal travel 2. Research 3. Safety: Safety regulation Safety programs

10. Budgetary impact of refocused federal program (1) Programs no longer funded by Highway Trust Fund: Urban transit:$8.0B/year Enhancements/misc. 1.8B/year Safety regulation: 1.1B/year Total:$10.9B/year

11. Budgetary impact (2): Interstate 2.0 Rebuild 233 interchange bottlenecks: $128B Add HOT networks in 19 most- congested metro areas:$98B Reconstruct and modernize long-haul Interstates, starting with key truck routes: ??? Net federal increase @ $10B/yr would be $200B over 20 years.

12. How does an extra $10B/year compare with Interstate investment needs?

13. Political feasibility (1): Highway community Large new funding for the most important highways, urban and rural. Addresses loss of trust in Trust Fund. Restores users-pay/users-benefit principle. But major break from 30-year status quo.

14. Political feasibility (2): Non-highway programs Social infrastructure should be paid for out of general taxes. General fund: 2008 and 2009 bailouts of Trust Fund equal current Transit Account budget (≈$8B/yr). Plus $19.5B in 2010-11. State/local support is already 70-80% of transit funding.

15. Political feasibility (3): State governors and DOTs GAO-08-400 analysis, by state, of full devolution: majority of states would have decreases in total fuel tax rate. But our proposal would keep federal fuel tax, shift it to Interstates. Would states replace 100% of shifted revenue ($10B/yr)?

16. State governors and DOTs, cont. Assumptions: Feds replace transit funds States don’t replicate all former highway programs. State $ worth more than federal $ Increased use of tolling and PPPs Use of B/C screen of 1.2 or 1.5 46 states shortfall of only 4-11 cents/gallon; only 4 & DC greater.

17. Conclusions:Trust Fund proposal While very ambitious, this approach could accomplish the following: Restore the users-pay/users-benefit principle. Restore trust in the Highway Trust Fund. Modernize the ailing Interstate system. Increase total highway investment. Hold harmless urban transit.

18. Other reauthorization principles Remove federal barriers to tolling and PPPs; FHWA as facilitator, not regulator. National priority for goods-movement infrastructure investment. Urban congestion reduction via pricing and HOT/BRT networks. Serious B/C requirement, e.g. 1.5. GHG cost-effectiveness test: <$50/ton.

19. Questions? Contact information: www.reason.org/transportation Bob.Poole@reason.org