Providing Context for Eno’s Life and Death of the Highway Trust Fund Study

Providing Context for Eno’s Life and Death of the Highway Trust Fund Study

January 19, 2015  | Paul Lewis

In December 2014, Eno released a detailed research report about the current and future prospects of the Highway Trust Fund (HTF). The report, entitled How We Pay for Transportation: The Life and Death of the Highway Trust Fund, challenged the status quo in part by suggesting that one possible way to improve our federal highway and transit programs could be to eliminate the HTF. This controversial idea has helped to spur greater debate within the industry, particularly as the newly minted Congress looks to reauthorize the surface transportation bill.

In the weeks following the release of the report several articles were published discussing the report’s findings and conclusions, including a critique by the Reason Foundation. We hope to clarify a few points in response.

First, the Eno report is not intended to support any specific mode of transportation nor does it suggest that the big winners will be transit or other non-highway modes of transportation. In fact, as the report points out, a move away from highway-based funding at the federal level will move us away from those debates. When evaluating the transportation network as a system, planners and policy makers can better identify the best transportation investments rather than immediately partitioning off funding for highway and transit investments. American taxpayers, including liberals and conservatives, would likely be pleased to see an effort to target funding to the best investments and to leave more flexibility to localities to solve their transportation problems. Performance based funding allocation is simpler if the tie between user pay and donor-donee is broken.

A second misconception highlighted in Reason’s critique is the idea that the research wholly rejects the concept of user pay. It is important to reiterate that the paper is specifically focused on the federal program. Our paper thoroughly examines concept of user-pay, and how at the federal level it does not generate the benefits that in theory it seeks to provide. However, that is not necessarily true on the sub-national levels. Where politically palatable, states and localities can and should be employing user-based funding, such as Vehicle Miles Traveled (VMT) and tolling, to raise transportation investment revenues, manage congestion, and achieve other goals they might have. A top-down federally-mandated VMT or interstate tolling system would be incredibly challenging politically and would not necessarily produce any greater benefits. User pay systems are important, but they appear to have limited effectiveness and political appeal at the federal level.

An important aspect of the Eno paper is the comparisons to international countries. While the paper carefully caveats these comparisons, we would like to reiterate some of the key points. First, comparisons of each country’s investment level are, as the Reason piece points out, only a comparison of top-level government spending. During the research we found it all but impossible to find accurate comparisons of transportation investment for all levels of governments within a country, in part because each country classifies its surface transportation system in different ways. But in the countries that are most similar to the United States, such as Canada and Australia, the respective federal governments spend similar proportions of their transportation investments on roadways and highways because those investments are seen to have high levels of national significance (not because of the relative revenues of their federal gas taxes).

When discussing policy alternatives, the first Eno recommendation suggests that the United States should match federal spending to revenues, either by cutting the program spending levels or raising the gas tax. This would undoubtedly represent a positive development over the current situation of long-term uncertainty and emergency budget fixes. Though not outright rejected, Eno suggests that this alternative does not seem particularly likely, given raising the gas tax has gained such little political traction, and for better or for worse, maintaining spending levels has broad, bipartisan support.

Additionally, it is important to recognize that a cut in the federal program to meet current fuel tax revenues would not necessarily result in the states picking up the slack. A 2012 report by the Bipartisan Policy Center and Eno analyzed the local-level reaction to cutting the federal program and found that, although many states and localities could raise revenues, the amount raised would likely not be enough to make up for the federal cuts. This effect would also be inconsistent across the country, as many states would find it politically challenging to raise taxes. The end result might be a shift to less reliance on fuel taxes overall, since many recent transportation-related initiatives have been increases in sales taxes.

Finally, Reason correctly points out that other countries’ fuel taxes are much higher than the investment levels spent on their highway networks, implying that the gas tax is a tax on carbon and thus “singling out highway users for special treatment.” This actually gets at the root of why the fuel tax is such an inefficient method for sustaining an investment program. Users of significant amounts of fuel are creating substantial environmental externalities that are essentially subsidized in the United States. Much higher fuel taxes might help encourage more fuel-efficient cars, smarter development patterns, and reduced emissions. But a small federal fuel tax that is dedicated to highway investment is hardly a market-based solution to efficient transportation investments.

Although the Eno paper has received a lot of attention for its suggestion to explore abolishing the HTF, the reaction has been surprisingly positive. Many in the industry are realizing that more than 20 years after the official completion of the Interstate Highway System, the usefulness and effectiveness of the HTF may have ended. It is worth considering whether many of the policy goals of groups such as the Reason Foundation might actually be better served under a federal system that is performance based and funded through the general fund.

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