Regulatory Reform

Is the Highway Trust Fund About to Hit a Dead End?

By Steven Johnson

The Department of Transportation (DOT) released a report this past Tuesday showing that the Highway Trust Fund will run out of money by this August. The fund is the primary way by which the government maintains our roads and highways. While the fund received a $9.7 billion dollar infusion from the General Fund just after the start of this fiscal year, the fund’s outlays continue to outpace receipts and it will soon be in the red.

To be sure, part of the reason for this is that transportation infrastructure costs are on the rise. As the highways built in the 1960s and 70s start to hit the end of their expected life-cycle, many of our nation’s roads and highways will need to be repaired or rebuilt. While these legitimate infrastructure costs are rising, money from the fund is regularly wasted on projects that are uncritical, serve a relatively small portion of the populous, or take much longer than intended. The result is that only 62 cents of every dollar of fuel tax collected actually goes to building roads according to the Heritage Foundation. Because a significant portion of large-scale transportation infrastructure projects are financed through the federal fund, states have little incentive to prioritize the projects they take on or keep costs down on existing projects. The infamous “Bridge to Nowhere” in Alaska is the classic example of this. $320 million was earmarked for a bridge from a small town to an island with a population of 50 people. While this is certainly the most famous example, it is hardly the only one. From Boston’s “Big Dig” to Virginia’s “Mixing Bowl,” waste is ubiquitous in our system of transportation funding. The Highway Trust Fund is regularly used for public transit projects, recreation trails and tourist attractions instead of maintaining our roads.

The Highway Trust Fund is a classic example of the Tragedy of the Commons. The Tragedy of the Commons occurs when each “player” has the incentive to over-use a resource held in common. In this case, the players are the states, and the resource held in common is the Highway Trust Fund. When a state receives money from the Highway Trust Fund for transportation project, that state incurs almost all of the benefits (jobs, better infrastructure, etc.) of the project. However, because the majority of the funding comes from the federal fund, they incur only a small portion of the cost. In other words, states face concentrated benefit and diffuse costs. This gives states an incentive to waste money on two fronts. First, politicians vote for projects that they would likely never undertake if their state budget bore the full cost (e.g. “Bridge to Nowhere”). Second, project managers face few consequences when their projects go over budget or are not completed on schedule.

Transportation funding is beset by a plethora of problems. Decreasing revenue from fuel taxes, increasing infrastructure costs, environmental concerns and rising budget deficits are all serious issues which must be addressed by policymakers. While the complexities of federal funding can be daunting at times, the federal government has the opportunity to take a simple action to significantly improve our transportation system: turn the responsibility of transportation funding over to the states.

Right now, the Highway Trust Fund gets most of its receipts from the federal gas tax, which stands at 18.4 cents per gallon. If the federal government significantly cut or eliminated its gas tax, states would respond by increasing their gas taxes (or finding funds from other sources such as toll roads or taxing miles driven). This would shift control of transportation funding to the state level, and would avoid the current Tragedy of the Commons. ALEC’s Resolution to Restore Transportation to the States, urges just such an action because it will only require states to pay for transportation projects which directly benefit them, instead of bearing a portion of the cost of every wasteful project no matter where it is.

While the DOT might be busy finding new ways to increase revenue for the Highway Trust Fund, the federalist solution likely remains their best option. When states are responsible for the costs of transportation projects, better spending decisions and improved oversight are likely to follow.

In Depth: Regulatory Reform

In his first inaugural address, Thomas Jefferson said that “the sum of good government” was one “which shall restrain men from injuring one another” and “shall leave them otherwise free to regulate their own pursuits of industry.” Sadly, governments – both federal and state – have ignored this axiom and…

+ Regulatory Reform In Depth