A Challenge for the New Congress

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WASHINGTON-The new 112th Congress, searching for ways to make government more efficient and reduce spending, has a golden opportunity to narrow the scope of the federal government.


By ceasing to authorize expenditures from the Highway Trust Fund, and ending the 18-cent federal gasoline tax, Congress could let the trust fund expire and turn highway spending authority back to the states-along with the ability to levy the fuel tax for their own coffers.


Such devolution of responsibility to states would release them from expensive federal laws and regulations associated with current highway spending, such as environmental laws that add years to project construction (remember "shovel-ready" road projects?). Nor would states be bound by Davis-Bacon prevailing-wage requirements and Project Labor Agreements, which require the use of costly union labor on construction projects.


With the end of federal fuel taxes, some states would substitute their own, and would be free to dedicate the additional revenue to highways or other purposes, such as education, environmental protection, public pensions, income or sales tax reduction and so on.


Removing federal restrictions would expand states' opportunities to raise revenue by imposing highway tolls, which could ease traffic congestion by varying prices depending on when traffic is heavy or light. Such toll roads in southern California have eased congestion and raised revenue for the state.


Each state would be able to fund and build the roads it wants, using a combination of taxes, bond issues, tolls, and public-private partnerships.


The federal Highway Trust Fund was set up in 1956 so that road users would pay for the new, continent-spanning network of roadways we know as the interstate highway system. The tax then was 3 cents a gallon. Congress has raised it in steps to 18 cents for gasoline and 24 cents for diesel, with some earmarked for special purposes, such as mass transit.


Back in 1956, the enabling legislation contemplated that the interstate highway system would be completed in 1972, at which point the fund would be terminated. Devolving the fund to states would be in keeping with that congressional intent.


The Highway Trust Fund is projected to have revenues of approximately $34 billion in 2011, according to the Congressional Budget Office. In 2008, the latest year available, data from the Federal Highway Administration show that $31 billion was paid into the Fund, and $41 billion was allocated from general revenues and interest.


Since the fund's inception in 1956, it has collected $674 billion and allocated $757 billion-the difference of $83 billion appropriated by a series of Congresses tempted to spend more transportation funds. Reflecting this tendency, a June 2010 Government Accountability Office study was entitled "Nearly All States Received More Funding Than They Contributed in Highway Taxes Since 2005."


The current system of funding formulas favors some states over others. In 2008, states in Northeast, the Pacific Northwest, the Rocky Mountains, the Dakotas and Minnesota did particularly well. The Midwest, the South, California, Arizona, and Texas were not as lucky, with Texas getting the least from the system.


Devolving the Highway Trust Fund to the states would likely result in a decline in federal spending, with its attendant earmarks and Washington lobbying-a process the 112th Congress tells voters it wants to end-and potential cuts in the Transportation Department payroll. In addition, states would not be forced to fund mass transit.


One alleged disadvantage of devolving the fund to the states is the possibility of disparate maintenance from state to state. North Dakota drivers might arrive at the Minnesota border and find their way slowed because Minnesota has skimped on maintenance. But that disadvantage already exists today, with some states spending more on maintenance than others.


Others claim that certain states with particular geographic and demographic characteristics might need a grant from the federal government at least initially to maintain their highway network. Again, that argument is belied by the reality of today. Mississippi is the poorest state in the Union and receives less than average from the Federal Highway Trust Fund. If Mississippi and its roads can muddle through with less than average payments, other states can also manage.


Another disadvantage is that the federal government might end the fuel tax, devolve the fund to states, and then reimpose the tax for general revenues, as is the case in Europe. Now, the proceeds of the federal fuel tax are limited to transportation. Since the fuel tax raises about $1.7 billion for each penny charged, it might be hard for politicians to resist reimposing it.


For the fund to terminate, no new spending could be authorized under the fund. It would still take as much as four years for existing projects already initiated under the fund to be completed, but the fund would gradually decline and reach zero at the end of that time.


Greg Cohen, president and CEO of the American Highway Users Alliance, explained to me in a phone conversation, "Highway projects are typically multi-year endeavors. As such, when federal money is committed for a state highway project, the funds are spent over several years."


Charging for roads, and deciding where they should go, should be the responsibility of state or private providers. The interstate highway system is complete, and the technology for pricing roads without stopping vehicles is readily available. The Highway Trust Fund and the federal fuel tax have outlived their usefulness, and the 112th Congress should wind them down.



Diana Furchtgott-Roth is a contributing editor at RealClearMarkets, a senior fellow at the Manhattan Institute, and a columnist for the Examiner.  She is the author of Regulating to Disaster: How Green Jobs Policies Are Damaging America's Economy (Encounter Books, 2012).

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