THE BLOG

The State of Transportation Funding: A Realistic Examination of Pseudo-Federalism

06/30/2015 05:13 pm ET | Updated Jun 30, 2016

Contributed by Elizabeth Bastian, Eno's 2015 Thomas J. O'Bryant Fellow

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In a recent article published in Innovation NewsBrief entitled "A Conservative Vision for the Future of the Highway Trust Fund (HTF)," Ken Orski shared heartening data, indicating that the states are stepping up to fill the transportation funding gap left by a stagnated federal program. According to Mr. Orski, several states "have taken steps to significantly increase their transportation budgets this year." He claims that 25 states enacted transportation funding this year, with another 16 in the process of doing so, "generating billions of additional dollars" for local transit and highway projects.

If states were generating billions of additional dollars, this would represent a significant change to long-term trends. According to a 2014 Pew Charitable Trust study entitled "Intergovernmental Challenges in Surface Transportation Funding" state spending on transportation dropped by 20% between 2002 and 2012 compared to a drop of 4% at the federal level (Figure 7, Page 10). This tracks closely with the long-term decline in gas tax revenues across all levels of government, which peaked in 2004 (Figure 10, page 15).

We examined Mr. Orski's data and confirmed five cases of states that have managed to pass legislation to create new or additional sources of dedicated revenue for transportation. For example, both the Utah Senate and House agreed on a measure that will increase the gas tax by 5 cents-per-gallon beginning January 2016, as well as add a 12% tax on the wholesale price of gasoline, which are estimated to generate more than $17 million in 2016 and nearly $53 million in 2017.[1] The Georgia (7 cents-per-gallon increase for gasoline and 10 cents-per-gallon increase for diesel), Idaho (7 cent-per-gallon increase and increase in vehicle registration fees), Iowa (10 cent-per-gallon increase), Nebraska (6 cent-per-gallon increase), and South Dakota (6 cent-per-gallon increase) legislatures have all passed transportation-related revenues in order to pay for transportation projects in the 2015 general session.

However, of the 25 states listed at the end of Mr. Orski's article, which he refers to as having "enacted transportation legislation," 11 are really states with bills that either failed to pass or have yet to be put to a vote, or with proposals from the executive branch that have not been approved by the legislature.[2] And not all states are creating "additional dollars" through tax increases or bond programs. Most of the states listed in Mr. Orski's summary are merely appropriating funds as part of their biennial or annual budgetary processes; and, in some cases, they are actually decreasing the amount of money going towards transportation. Here are just a few examples of states that Mr. Orski listed as having enacted state legislation, with clarifications indicating what is actually going on (quotes are from the original Orksi article):

Montana: "A bipartisan group of state senators introduced a bill that calls for spending $50 million in cash and $50 million in bond proceeds over two years on infrastructure." However, the bill is currently listed as "probably dead" on the state legislature website, with the most recent action being a failed 3rd reading vote on April 27.[3] The House and Senate adjourned Sine Die on April 28, 2015.

Tennessee: "Gov. Bill Haslam released a three-year transportation program featuring $1.2 billion in infrastructure investments... The budget ensures that projects already underway won't be negatively impacted by decisions out of Washington, he added." This $1.2 billion is budgeted, not yet appropriated, to the Tennessee Department of Transportation. Moreover, the 2016 program only includes 2 new projects - the rest consist of delayed projects carried over from previous years' transportation programs. These projects were delayed or halted because of the uncertainty of the Highway Trust Fund's solvency, which supports the majority of the projects contained in Haslam's program.[4]

Washington: "The state legislature approved and sent to the governor a $7.6 billion transportation budget to keep existing transportation programs going." This bill, which appropriates funds for the 2016-2018 budget, represents a decrease in spending. It is over a billion dollars less than the 2013-2015 biennial transportation budget ($8.7 billion).[5]

Unfortunately it appears that, contrary to what Mr. Orski is asserting, in general states are struggling to meet their transportation needs in the wake of stagnant federal funding.[6] His proposed solution to the federal HTF crisis is to reduce the federal program from the current $50 billion a year to $40 billion to match incoming fuel tax receipts, allowing for states to fill the gap. Mr. Orski suggests shifting activities such as TIGER grants, Transportation Alternatives, and "other expenditures of lesser federal priority" out of the HTF program, implying that these programs can add up to $10 billion in cuts and the extra money generated by these new state transportation bills can pick up the slack. But there are some clear flaws to this logic, namely that the TIGER grants receive congressional appropriation outside of the HTF (and, therefore, cannot be shifted out of it), and the Transportation Alternatives Program account for only $1 billion in annual spending. Removing this one program from the HTF would still leave a $9 billion gap in the HTF that would need to be filled with other federal cuts to core highway and transit programs.

In Eno's 2014 paper The Life and Death of the Highway Trust Fund, we concluded that aligning spending with fuel tax revenues is a preferable alternative to the current approach of irregular general fund bailouts. However, the data on state actions so far indicate that we cannot simply move towards a smaller federal program and assume that states will fill the gap in terms of essential transportation infrastructure investment. Eno's and the Bipartisan Policy Center's 2012 joint report The Consequences of Reduced Federal Transportation Investment concluded that most states, even those with large populations in metropolitan areas, would not be able to fill a funding gap left by federal cuts in transportation. If we are going to move towards a smaller federal program (which is not recommended) it is critical to include incentives that can help states overcome the substantial barriers to creating new funds for transportation investment. There is no evidence that states will be able to fill the massive gap without this help.


[1] Transportation Investment Advocacy Center. State Funding Initiatives Report. May 2015.

[2] Sources: ARTBA's 2015 State Transportation Funding Initiatives Report; T4America's survey, "State Legislation to Raise Transportation Revenue; NCSL State Bill Database; Council of State Governments' "State Data;" AASHTO Daily Transportation Update.

[6] Take Texas, for example. Orski claims that a series of 3 transportation-related bills will raise over $4 billion a year for transportation - but this is not necessarily true, at least not for the next 5 years. First, let's take the $1.3 billion diversion. This money, taken out of the funds raised by the state motor fuel tax, primarily went to the Department of Public Safety, but will now go towards the TXDOT budget. This isn't really generating new funds, but rather allows TXDOT to hold on to revenues. Voters passed a referendum in November (Proposition 1) that allows the $2.5 billion dedicated funds from the general sales tax and motor vehicle sales tax. However, neither of these diversions will begin until 2020, and both have thresholds. The $2.5 billion will only be diverted if funds raised from the sales tax exceed $28 billion - last year it was just over $27 billion. For the motor vehicle sales tax, 35% of any revenues raised beyond $5 billion will be transferred into the highway fund, which is initially expected to raise $250 million the first year and grow from there. So for FY 2016, TXDOT should receive the $1.3 billion in the highway fund, but will have to wait an additional 5 years to reap the rewards of the other bills - and that's only if those thresholds are met. (Source: The Texas Tribune: House, Senate Leaders Confirm Transportation Funding Deal)