Competitive Enterprise Institute | 1899 L ST NW Floor 12, Washington, DC 20036 | Phone: 202-331-1010 | Fax: 202-331-0640
Congress is well known for going down roads to nowhere. In the case of the upcoming highway-bill reauthorization, that may be true in a more literal sense. On this occasion, it is Republican members who have come up with a misguided piece of highway robbery that breaches their own longstanding principles. House Republicans have proposed expanding domestic fossil-fuel extraction on federal lands and in offshore areas, and depositing much of the royalty revenue into the federal Highway Trust Fund.
While “drilling for roads” may sound appealing to many conservatives (and expanding domestic energy production should certainly be a top legislative priority), it is short-sighted. Incorporating this new revenue stream would undermine a longstanding funding principle of the Interstate Highway System — that highway users ought to pay for their use of highway infrastructure. This should concern anybody who cares about the future health of our nation’s highways.
The federal government has been involved in comprehensive highway funding since 1916, the year which saw the passage of the Federal Aid Road Act. In 1932, Congress enacted the first federal gasoline excise tax as a deficit-reduction measure. In the early history of federal aid for highway building, use had no direct impact on infrastructure investment, which was instead funded by general revenues. This arrangement resulted in a low-quality highway network and highly politicized fights over road appropriations. It was not until the 1956 Highway Revenue Act, coupled with the creation of the modern Interstate system, that Congress attempted to remedy these problems by directing fuel-tax revenues into the new Highway Trust Fund.
The Highway Trust Fund is largely shielded from the politicized appropriations debates that afflict most federal spending. Relying on highway users is the fairest way to fund the Interstate system. Payment is proportional — if you drive more, you pay more. Charging users also ensures a reasonable level of funding predictability, because highway use does not change wildly in the short run. And given that user-tax revenue roughly tracks road use, it provides an important signal as to how much infrastructure investment is needed to maintain a desired level of efficiency. Highway users pay the tax, but they are also the beneficiaries of the resulting investments and improvements.
During the 35 years that it took to build the Interstate system, fuel taxes provided an adequate source of pay-as-you-go funding. As a result, America built its modern superhighways without adding to the national debt. In 1982, Congress authorized that a portion of fuel-tax revenue be dedicated to mass transit. It was at this time that the user-pays/user-benefits bond began to weaken.
Fast forward to 2011, and the Highway Trust Fund is facing insolvency. The last time Congress raised excise taxes on fuel — currently set at 18.4 cents per gallon of gasoline and 24.4 cents per gallon of diesel — was 1993. Inflation has reduced its buying power by 40 percent, annual vehicle-miles traveled have increased by 30 percent, and mass transit now siphons off one-fifth of highway user-tax revenues.
A quick, temporary fix would be to raise federal fuel-tax rates, but this is a political non-starter in the current political and economic climate. If House Republicans are truly serious about improving our nation’s highway infrastructure without increasing federal tax rates on fuel, they could devolve more transportation funding responsibility to the states and support more tolling. They could also rein in the waste and abuse of highway-user revenues at the hands of pro-mass-transit special interests and their enabling politicians.
Instead, House Republicans appear ready to undermine one of the more fiscally conservative funding mechanisms in existence. A provision of the 1974 Budget Act requires that the Highway Trust Fund receive 90 percent of its revenue from users in order to maintain its exemptions from appropriations meddling. Assuming drilling royalty revenues are great enough to close the near-term funding gap, the House Republicans’ proposal would push the percentage of user-based Trust Fund revenue to well below 80 percent.
Weakening this standard calls into question the purpose of having a federal trust fund in the first place. If that were to happen, the chorus for abolition of user-pays and a reactionary reversion to general-revenue funding of highways would only grow louder. Rather than learning from our previous mistakes, we would be making them all over again.
While we would all benefit from expanded domestic-energy production and increased lease revenues, Republicans ought to reconsider “drilling for roads.” Expanding energy production and funding road projects through the existing user-pays mechanism are both laudable goals, each worth pursuing on its own. Lawmakers should decouple the two and address them in separate legislation. America’s highways are far too important to be left to myopic political gimmickry.