Two major pieces of surface transportation policy news dropped this week. President Obama is readying the release of his budget, which will contain over $300 billion in transportation funding. Across the aisle, Rep. David Camp, R-Mich., the powerful chairman of the House Committee on Ways and Means, released a sweeping proposal to overhaul the U.S. tax code, which includes a component that would direct $120 billion in tax savings into the Highway Trust Fund.
The president's latest budget is far from surprising, as it differs very little from his previous surface transportation proposals. Of the combined highways and transit spending ($278 billion), he proposes to allocate 25 percent ($72 billion) to mass transit -- a mode that makes up about 5 percent of trips.
Thankfully, neither proposal has any chance of being enacted, at least as standalone comprehensive packages. Unfortunately, most of Congress's "business" is recycling and repackaging previous proposals, which means some aspects might well find their ways rolled into future legislation. With the current highway bill, MAP-21, expiring at the end of September 2014, Congress will begin the reauthorization process in the coming months. It is likely that some of these bad ideas will pop up again.
First, the president's budget. He wants a $302 billion, four-year transportation bill. Half of that would supposedly come from tax reform, amounting to a massive bailout of the Highway Trust Fund. This is par for the course for President Obama, who has long advocated eliminating the Highway Trust Fund in favor of a slush fund that would enable additional gimmicky projects such as high-speed rail and urban streetcars.
Since none of the low-value/high-cost projects that have become popular among left-wing urban fetishists are able to generate sustainable revenue streams, President Obama is seeking to eviscerate the longstanding user-pays/user-benefits principle that has guided transportation policy for half a century in the United States. For three decades now, more than a quarter of all federal highway user tax revenue has been diverted to non-highway projects, largely mass transit. Over that time, mass transit's national modal share (the percent of total trips made using mass transit) has actually fallen. It is now approximately at 1990 levels -- 5 percent -- after hundreds of billions of dollars in driver subsidies to mass transit. You can see the trends in these charts from the latest Commuting in America report:
As more details emerge in the coming weeks, it will almost certainly resemble the last several proposals the president has floated, which basically recycle the same four or five dumb ideas.
Now to Rep. Camp's proposed tax code overhaul. From a pro-market perspective, much of it appears to be a welcome change of pace. However, like the president, Camp calls for using over a hundred billion dollars in proceeds from tax reform to bail out the Highway Trust Fund. Camp's proposal, which would dedicate $126.5 billion to the Highway Trust Fund, is $25 billion less than the president's bailout, but is still problematic.
In the run-up to the last highway bill reauthorization, I strongly criticized a proposal from House Republicans that would have created a new permanent non-user revenue stream for the Highway Trust Fund that relied on expanded drilling on federal lands and depositing a portion of the lease royalty revenues into the trust fund. While Camp's proposal, like President Obama's, would be a one-shot transfer -- much like the gimmicky pay-fors contained in the MAP-21 law -- relying this heavily on non-user revenue could open a Pandora's Box of irresponsible transportation funding. At stake is the longstanding user-pays/user-benefits principle.
Compared to general revenue funding for transportation infrastructure, user-pays offers a number of advantages, including:
- Fairness: Highway users benefit from the improvements their user fees generate.
- Proportionality: Users who drive more pay more. Users who impose disproportionate costs, such as heavy trucks, are charged more.
- Funding Predictability: Highway use and therefore highway user revenues do not fluctuate wildly in the short-run.
- Signaling Investment: Revenue roughly tracks use, which provides policy makers with an important signal as to how much infrastructure investment is needed to maintain a desired level of efficiency.
The Brookings Institution's Clifford Winston recently released two papers (1, 2) highlighting the huge inefficiencies resulting from the current political provision of transportation infrastructure and services. Winston concludes that government transportation authorities should either privatize these responsibilities or start behaving more like private sector actors. Stifling regulations that prevent the adoption of new technologies, irrational labor contracts, and good old fashioned bureaucratic incompetence are driving up costs and reducing quality of service delivery. It doesn't have to be this way:
We need real reform, not more of the same. Rather than bailouts and short-term "fixes," Congress and the White House should be focusing on making structural changes to federal transportation policy that could provide sustainable and predictable long-term funding for infrastructure. These include lifting the current federal prohibition on states tolling their own Interstate segments, focusing on projects that can provide the highest value at the lowest cost, and promoting public-private partnerships at the facility level.
President Obama and House Republicans should go back to the drawing board. Bailing out the Highway Trust Fund at best kicks the can down the road. Now is the time for serious federal highway program modernization, not politics as usual.