When Is A Bailout No Longer A Bailout?

09/29/2015 01:19 pm ET Updated Sep 30, 2016

After years of inaction, short-term bailouts, and extensions, transportation policy has finally begun to move in a different direction. The bad news is that it has the potential to make things much worse. The good news is that it is possible for Congress and the transportation community to turn this into an opportunity.

Since 2008, Congress has put forward a series of general fund transfers to prop up the Highway Trust Fund, which funds our federal surface transportation program. Each time, Congress has outwardly approached the bailout as a temporary measure that would keep funds for highway and transit programs flowing until a permanent solution could be found. While such a solution has been elusive, there was at least the pretense that the problem would eventually be addressed on a sustainable basis. Even MAP-21, a 2-year bill funded in part through a general fund bailout, was portrayed as a band-aid.

With the DRIVE Act, the 6-year Senate bill introduced this summer, and the GROW AMERICA Act, a 5-year bill introduced by the President for a second time this year, both Congress and the Administration are proposing non-user based funding solutions. In lieu of sustainable under-based funding, Congress proposed a series of "pay-fors" that are a way to pretend that they are not borrowing more money or raising taxes.

These budget gimmicks shift the burden of paying for transportation from users to non-users, and from the current generation to future generations. Meanwhile the President has proposed paying for everything with one lump sum from tax on a one-time repatriation of offshore profits of American corporations. While neither of these strategies is necessarily likely to result in a fully-funded long-term bill, it does appear that Congress and the Administration both agree they want to "find" enough money to pay for as long of a bill as politically feasible.

This shift in policy has the potential to be highly toxic for federal transportation policy. By shifting away from user-based funding Congress and the Administration have made it increasingly likely that we will face permanent uncertainty with respect to the federal program.

They are also increasing the likelihood of continued underinvestment in our infrastructure, since it is very difficult to increase overall funding without a funding source. And by keeping funding more or less stagnant, they are likely to keep the policy stagnant as well. It is very difficult to allocate money more effectively, encourage more state or local investment, or introduce greater performance and accountability, without an increase in the size of the overall pie.

But it does not have to be this way. Congress and the Administration are now essentially conceding that transportation can only be paid for with a mix of general funds and user fees (mostly gas tax revenues). This is not necessarily a bad thing. In fact, as Eno has demonstrated, most of our peer nations use either a mix of general funds and user fees or just general funds to fund their transportation programs at the federal level. We could do the same and have a sustainable, effective, and equitable transportation program. We just need to do the following:

Admit what we are doing. It has now been 7 years since the first bailout of the Highway Trust Fund (HTF). It has been 22 years since the last gas tax increase. It has been 33 years since the last gas tax increase explicitly for transportation investment. It is long past time to admit that a gas tax for transportation is not imminent. The politics in the U.S. appear to be moving further away from a potential gas tax increase, and general fund bailouts are now so routine that they are considered a legitimate way to fund a long-term bill.

The first step towards improvement is admitting you have a problem.

It is time to admit that the federal transportation program is now funded through a mix of user fees and general fund revenues and move on. Perhaps this is not the ideal way to fund a national program. Perhaps it is better than a gas tax. This question is moot because the current policy is what it is, it doesn't appear to be changing, and we need to adjust to it accordingly.

Change how we spend the money. Much of the way we spend money under the federal surface transportation program is based on the concept of user fees being the sole source of revenue for the program. For example, the formulas for what each state gets under current law are based on maintaining the same ratios as SAFETEA-LU, which distributed money in large part based on where gas tax revenues are derived. With general funds now accounting for approximately 30% of the program, there is little logic to maintaining these ratios, other than the fact that changing them would create a huge political battle. But with Senators Inhofe and Boxer both leaving the Environment and Public Works Committee next Congress, there could be an opportunity for the new committee leadership to attempt to revisit these distributions.

Much of the rationale for restricting 80% of the surface program to highways is based on the concept that user fees should be returned to those who paid them. The use of general funds should open the door to more multimodal programs, where states and localities get to choose where they invest the money rather than the federal government. Once the monies are coming from general revenues, there is no reason the federal government should restrict spending to highways as opposed to other modes if that is where states and localities want to spend it. Moreover, much of the rationale for formula programs is also based on the need to return money from whence it came. With more general revenues in the program, there is an opportunity to create more discretionary grant programs that award funds to the projects with the greatest return on investment based on national goals and objectives. Now that Congress has established specific national goals in current law, there is an excellent opportunity to create multimodal discretionary grant programs targeted towards achieving those goals.

Introduce accountability for performance. Since the completion of the Interstate System, the purpose of the federal surface transportation program has expanded and become more vague. When user fees accounted for virtually all surface transportation funding, this was less of an issue since transportation users were paying. Now that general revenues account for an increasing share of the program, all taxpayers, regardless of whether they use the system, deserve to know what they are getting for their money.

MAP-21 began the process of introducing national goals and performance measures. Unfortunately it appears that the DRIVE ACT authors view this work as having been completed rather than just begun. There is little in the Senate Bill to encourage greater accountability for the national goals MAP-21 articulated. Most critically, there is nothing that ties funding to performance in any way, leaving little incentive for improved investment decisions. If Congress is going to continue to use general funds for transportation, this implies that transportation provides broader benefits beyond the users of the system (which, in fact, it does) and therefore can draw from a broader base of funding. This broader base deserves to know what it is getting for its money.

Make the pitch for more funding. Introducing accountability may have another benefit as well - it could make it easier to get more funding for this critical program. Admittedly, getting more funding for anything in Congress is a substantial challenge at the moment. Nothing is going to make that an easy process. But what we do know is that asking for more funding via a gas tax increase without introducing accountability is a process that has failed again and again across multiple administrations and Congresses of various political stripes. Any change of strategy could be helpful.

A commitment to general funds could actually make the pitch for more funding more palatable. Note that funding for surface transportation, while still well below what is needed to even maintain our existing system, has kept pace with inflation and grown in nominal terms during this ongoing funding crisis. Gas tax revenues have fallen during this time. This means that Congress has consistently shown the ability to find an increasing amount of general fund revenues for transportation investment when necessary. They have also consistently shown an inability to raise additional user-based revenues during this same time period. General funds clearly have an advantage when it comes to raising revenues, and with the admission that they are the long-term solution and the introduction of greater accountability, this advantage could increase.

Conclusions

The idea of funding a national transportation program in part or wholly with general funds is not new. In fact it is the norm in the rest of the developed world and the U.S. has been the exception in the past. Now we are slowly moving in that direction as well, and Congress and the Administration are becoming more explicit about it. It is time to recognize what we are doing, and adjust policy accordingly. As of now we are stuck with a user-based policy without a user-based program. The program is going towards being partially user funded and partially general funded for the foreseeable future. It is time for Congress to formulate a policy that reflects that reality.