The federal role in surface transportation is changing. While the federal government still provides approximately 45% of the capital funding for highways and mass transit in the U.S., the total federal contribution has stagnated over the past decade. Some states and localities have long ago given up waiting for the federal government to increase its contribution, and instead have begun to raise their own revenues. However, despite these efforts, our overall investment in transportation, at all levels of government, is declining. According to a study released by Pew last year, state spending, adjusted for inflation, dropped from $105 billion per year in 2002 to $89 billion per year by 2012, while local spending dropped from $81 billion to $73 billion over the same period. [1]

Given a declining federal contribution, why haven’t more states and localities stepped up their investments? Part of the problem is that federal policy has failed to change as funding has changed. The federal program we have today was not designed to elicit greater investments on the part of the states or other grantees. Most of the program (about 92%) distributes federal money by formula for expenditure by grantees on projects of their choosing. While there is a matching requirement for these formula funds, there is little incentive for grantees to increase their match beyond what is required. No matter how much revenue states and localities raise, their federal formula share remains constant.

One important exception to this lack of incentives is discretionary grant programs. These programs, because they provide funding only to approved projects that apply for assistance, can adjust the level of funding provided based on how much revenue potential grantees bring to the table. The New Starts program, for example, is so competitive that grantees now assume they must bring at least a 50% match to their application to even be considered for a grant. The Transportation Investment Finance Innovation Act (TIFIA) loan program evaluates potential borrowers based on their ability to pay back a loan from a specific revenue source. The Transportation Investments Generating Economic Recovery (TIGER) program used local match as a key factor in selecting projects. And the Urban Partnership Agreements (UPA) under the Bush Administration required potential grantees to implement congestion tolls in order to receive federal funds. In each case, these discretionary programs provided substantial incentives for states and localities to raise new revenues.

Despite these clear benefits in terms of revenue-raising potential, discretionary programs have been disparaged by Congress and others. Moving Ahead for Progress in the 21^st Century (MAP-21) increased the percentage of funds going out by formula from 80% to 92%. Members of Congress have often referred to TIGER and UPA as “Executive Earmarking” meaning that the administration (and not Congress) is picking projects for purely political reasons. The Reason Foundation has called for eliminating the program and redirecting the money back to formula funding because the administration “failed to follow the rules and expectations of the program.”[2] A General Accountability Office (GAO) report last year strongly criticized the TIGER program for advancing projects with lower technical evaluation ratings.[3]

The problem with these critiques is that they are evaluating these programs in a vacuum, without acknowledging how we distribute the other 92% of our federal transportation money. Instead of evaluating these programs independently, we should be looking at how well they select projects compared to formula funds. When examined this way, such programs perform much better. The following are three ways that discretionary programs select projects more effectively:

• Analytical rigor

There is nothing preventing states and local grantees from rigorously analyzing projects on a cost-benefit basis in order to prioritize their investments with federal formula dollars. However, in practice, most do not do it. A 2014 Eno report on lifecycle cost analysis found that the number of states or other grantees using any form of economic analysis for their transportation investments was extremely limited. While most grantees certainly analyze projects, they typically do so on an engineering basis rather than an economic basis. This means that there is little to no accountability for the vast majority of federal funds.

All federal discretionary programs, by contrast, require substantial analysis by potential grantees. Even if you believe that these analyses are completely ignored by the federal government in favor of purely political decision-making, they are still advantageous because they inform those performing them. TIGER, for example, pushed numerous governmental agencies to perform cost-benefit analyses and helped them build skills in this area. But it is also true that these analyses are not ignored by the federal agencies receiving them. Instead they are used as helpful information for a competitive project selection process. This represents an enormous improvement over the typical formula-funded project.

• Political influence

One of the biggest criticisms leveled against competitive discretionary programs is that they are subject to “political influence”. The charge means that the competitive process is not pure and that the administration has “political” reasons for picking several TIGER projects, for example, in the home state of the Chair of the Senate Appropriations Committee. This is almost certainly a fair criticism. It is also somewhat naïve. What government program, in the history of government programs, has been subject to zero political influence? This is not only impossible, but also undesirable. In a representative democracy, political influence may also be known as voters getting what they want. The true criticism here is not about political influence at all, but rather which politician is doing the influencing.

The more relevant question is to what degree the competitive selection process is subject to politicization as compared to funds distributed by formula. Formula funds are distributed to states and metropolitan planning organizations (MPOs), where they are by no means immune from political influence. State legislators may choose horse-trade for projects, voting for another legislators pet project in return for a vote on their own, regardless of project merits. Project prioritization can be determined based on the constituency of the governor rather than by any kind of cost-benefit analysis. Even in cases where State Departments of Transportation are making most of he project decisions, these decisions are not made in a political vacuum. Distributing funds by formula with little accountability for national goals, as we do now for 92% of federal money, does nothing to prevent strong political sway over project decisions at the state level.

• National goals

MAP-21 established national goals and performance measures that are intended to eventually help ensure that states are spending formula money in line with national objectives. States and localities are supposed to set performance targets for each measure and report on how well they have achieved them. Since there is no consequence for failing to meet the targets, and the targets are set by the grantees themselves, and U.S. DOT has not completed the rulemakings for all the measures yet, this initiative is unlikely to have had any impact on state or MPO investment decisions so far. This means that there remains little to no accountability as to whether grantees are spending federal formula money in a way that advances federal goals. This is partly why many people question the utility of having a federal program at all.

Discretionary programs, by contrast, often have very clear objectives that can be evaluated. Projects of National and Regional Significance (PNRS), had it not been fully earmarked by Congress and then de-funded, had such objectives. The New Starts program faced substantial criticism in the 1980s and 1990s for supporting projects with wildly optimistic ridership projections. This resulted in reforms to the program that have resulted in more accurate projections and better returns on investment based on post-project evaluations. The UPA had a simple objective of inducing congestion pricing in metropolitan regions. While not everyone might agree with this federal objective, it was clearly achieved by the program in several metropolitan areas. When funds are distributed on a competitive basis, it is often easier to determine whether they are being used to advance specific federal objectives.

Conclusions

The root issue here is about power over decision-making. Congress wants Congress to decide who gets the money, not the Administration. Grantees would much prefer formula money with few strings attached to competing for limited discretionary funds. We should not pretend that Congress or grantees are actually upset because discretionary grant programs are subject to “political influence”. They just want to be the ones doing the influencing.

Congress also wants to earmark projects, but they have barred themselves from doing so. And if they cannot earmark, no one can –hence the charge of “Executive Earmarks”. But the difference is that when Congress was earmarking, their process was subject to zero analysis. Discretionary grants programs, by contrast, are subject to a high level of analytical rigor. From a public policy perspective, the grant programs are the clear winners.

The secret is that Congress actually kind of likes discretionary grant programs. This is why they have reauthorized New Starts for decades and even kept TIGER – a program developed under the oft-disparaged stimulus bill – since its inception. The reason Congress continues to approve these programs is that they are able to take some credit for the projects they fund. In the next reauthorization bill, Congress should recognize the value of increasing the amount of funding dedicated to such programs. This will not only provide them with potential benefits for new investments, but more importantly will assure that more federal money is spent towards the most innovative and effective projects of national importance.

The views and opinions expressed in this article are those of the author and do not necessarily reflect the official policy or position of The Eno Center for Transportation.

[1] Federal spending declined from $62 to $50 billion per year (excluding the stimulus bill).

[2] https://reason.org/news/show/eliminate-tiger-program

[3] https://www.gao.gov/products/GAO-14-628R