Federal Highway Funding Deadline Nears

36601064The current federal funding stream for highways runs its course July 31. The Senate is looking at a four-year option, while the House appears more in favor of extending it through this year and soon revisiting the matter.

Every member of Indiana’s delegation is keenly aware of the situation. While in D.C. this week, the Indiana Chamber continued to advocate for a long-term solution to financing the federal Highway Trust Fund. A patchwork of re-authorizations that are often only for a few months is no way to manage transportation assets, set national priorities or plan for future needs. U.S. Transportation Secretary Anthony Foxx said in his letter this week to state departments of transportation:

“Congress’s failure to pass a long-term bill is of great concern to all of us who are engaged in the work of building and maintaining our nation’s transportation infrastructure. Careening from self-inflicted crisis to self-inflicted crisis undermines our system. We need Congress to break the cycle of short-term extensions; we need a long-term bill with significant growth.”

Highway Trust Fund Has Some Potholes

36601064The Congressional Budget Office asserts the national Highway Trust Fund would need $3 billion in ADDITIONAL revenue to keep funding transportation projects through the end of September. And it would need $8 billion if Congress chose to extend funding authority until the end of 2015. Read more via The Hill.

Obviously, there are serious challenges facing America’s road infrastructure.

Cam Carter, the Indiana Chamber’s vice president of economic development and federal relations, outlines the main problem.

“Congress needs to get its act together and summon the political will to fashion a long-term solution to the insolvency of the highway trust fund,” he asserts. “We’ve had our fill of short-term patches. Some will say that the highway fund is insolvent because today’s vehicles are more fuel efficient and that is depressing revenues going into the fund – and there is some truth to this. But, the greater truth is that Congress hasn’t raised fuel taxes to keep up with inflation since 1993 and that, more than anything, is the root of the problem.”

Congress Seeks Short-Term Fix to Highway Trust Fund Dilemma

The U.S. Congress voted last week to provide $10.9 billion to the U.S. Department of Transportation to fund the Highway Trust Fund in order to reimburse states for repairs and infrastructure improvements for roads, rails and airports.

The nearly $11 billion was cobbled together from general fund revenues by any number of budgetary gimmicks not rationally tied to the fuel (gasoline and diesel) excise taxes that normally go into the trust fund (e.g., an extension of customs fees as well as so-called “pension smoothing”).

Few lawmakers in the Indiana delegation (and the entire Congress for that matter) are happy that it is not a longer-term solution; those we spoke with were frustrated by the delay and the funding mechanisms. The Indiana Chamber agrees this is no way to conduct the people’s business, but it is better than the alternative of the highway fund going broke, work stoppages and the idling of hundreds of thousands of construction workers across the country. We will work with the delegation to secure a more rational bill and reauthorization of the multi-year surface transportation bill in coming months.

A New Way to Pay for Highways

How to pay for current and future road repairs is a challenge for nearly all states. The federal Highway Trust Fund is not the answer, at least not in its current form. Governing magazine asked a Tax Foundation expert for his perspective on some alternatives. Governing reports:

Commute to work is a bit on the bumpy side, then you know the answer is road repairs. The follow up question is: Given how long this downturn has afflicted state and local budgets, who’s going to pay to repair potholes and the like?

Well, it’s not going to be the feds. The Highway Trust Fund, which finances an average 45 percent of a state’s highway and transit capital costs, is shrinking. One reason for that shrinkage is that the federal gas tax has been stuck at its current rate (18.4 cents per gallon) since 1993, which means it is not keeping up with inflation, to say nothing of state needs. Congress is not likely to raise the federal gas tax rate this year or next, so that leaves the states. In theory, they have a little room to raise or tinker with their gas tax formula — something most states have not done in years.

Given the importance of a healthy road system to economic development, what approaches could states take to raise revenue for road repair and building? I put that question to Mark Robyn, an economist with the Tax Foundation. Here’s an edited version of our conversation:

Is this a good time for states to raise their motor fuel taxes?

It’s difficult to raise most taxes. The gas tax — an excise tax — is interesting because it’s one of the few that states levy that really looks like a user fee. You pay it when you use a specific service, and the rate is set at a level to pay for the service you consume. It’s like an entrance charge to a state park. You wouldn’t call that a tax as long as that revenue is used to pay for upkeep of the park and the charge reflects what the costs are.

The gas tax, though not perfect, is an approximation of that relationship. Revenue received from gas taxes usually is used for road and highway maintenance; the fee you pay approximates how much road you consume. But different cars get different gas mileages; electric cars don’t even use gas but they also don’t cause less damage to the road. So the gas tax is not perfect but it is similar to a user fee. If states want to structure the gas tax like a user fee and if the state is not getting the money it needs for roads and repair, the next logical step would be to increase the gas tax. But people have to believe the money is being spent wisely. Not all states do that, and people say, "Well, I see this waste of money. If you increase my taxes, you’ll waste a portion of it." When I say states are wasting money, I mean they are using it for road projects that people don’t see as valuable — the "bridge to nowhere." If there are no "bridges to nowhere" and people are driving over potholes, they’ll be more willing to accept gas taxes to avoid potholes.