Roads Require Reliable Revenue

Blog Post
Thursday, March 12, 2015

In less than three months, the highway bill enacted last July will expire and the program’s trust fund will face imminent depletion. At that point, Congressional failure to act would cause tens of thousands of infrastructure projects to be put on hold and would jeopardize construction jobs across the country.

The highway trust fund has historically operated on a “user pays” principle, where motor vehicle and fuel taxes paid by those who directly benefit from roads fund programs to maintain and improve the system. However, when Congress last raised the federal gas tax in 1993, lawmakers chose not to index it to inflation. As a result, the gap between revenue and expenditures has grown as the real value of the tax has declined.

As the chart above shows, there would be no shortfall in the highway trust fund today had its dedicated revenue source been allowed to grow with inflation. But instead of rectifying this problem or finding an alternative source of dedicated revenue, Congress has largely relied on fiscally irresponsible patches funded by general revenue transfers and gimmicks.

The inadequate and unreliable funding of highway programs has made it difficult for states to carry out long-term projects and maintain deteriorating infrastructure. Many elected officials and transportation advocates regularly point to the fact that one in four interstate highway bridges are considered obsolete or in need of serious repair as evidence that the status quo is unacceptable.

With gas prices nearing record lows, it may now be time for Congress to revisit raising the gas tax as a fiscally responsible solution. In the last Congress, the Republican chairman of the House Transportation and Infrastructure Highway Subcommittee, Rep. Tom Petri (R-Wis.), joined with Ways & Means committee member Rep. Earl Blumenauer (D-Ore.) to support a bipartisan bill that would have increased the gas tax back to the level it would be had it been indexed to inflation in 1993.

On the other side of Capitol Hill, Senators as ideologically diverse as James Inhofe (R-Okla.) and Dick Durbin (D-Ill.) have also indicated willingness to consider a gas tax increase. And just last week, Rep. Reid Ribble (R-Wisc.) released a letter signed by 285 lawmakers from both parties calling for a responsible and permanent funding solution to the Highway Trust Fund.

Even if lawmakers can’t come to a consensus on raising the gas tax, there are a number of other revenue sources (such as a vehicle miles traveled tax) that could be used to responsibly plug the shortfall and maintain the “user pays” principle. The National Surface Transportation Infrastructure Financing Commission created by the 2007 Highway Bill recommended a number of possible alternatives that Congress could look to for ideas.

Alas, not every idea that has been proposed for addressing the highway trust fund has been fiscally responsible. President Obama and a number of others have proposed using revenue from other one-time sources like corporate tax reform to plug the shortfall, but this would hardly be a be a long-term solution: in just a few short years, Congress would be right back where it started and the shortfall will have only grown larger.

Additionally, such an approach would fail to maintain the historical "user pays" principle that forms the basis of the highway trust fund. There is little point in maintaining the charade of a trust fund if there is no link between spending and dedicated revenue.

Another idea that has been proposed is to raise the gas tax but offset the increased revenue with cuts to other federal taxes. This would effectively be just another a general revenue transfer and is misguided at a time when the national debt is nearly twice it’s historical average as a percentage of GDP.

One last thing Congress may want to consider is how reforming highway spending programs could improve the return on federal investment. Recent analyses by the Brookings Institution and several others have suggested that directing a greater proportion of federal funds towards repairing existing roads rather than building new ones could lead to better outcomes at lower cost. While such reforms would likely be insufficient to avert the need for increased revenue, they could nevertheless strengthen critical infrastructure in a fiscally responsible way.

Our nation’s highway system is at a crossroads, and it’s long past time for politicians on both sides of the aisle who regularly profess their support for a 21st century infrastructure to agree on a responsible way to pay for it.