Wheels of Fortune: A Centennial Institute Recap
While reforming surface transportation funding and financing is an evergreen topic in federal Washington, major events over the last two years have only drawn further attention to the subject. Congress recently passed the $1.2 trillion, bipartisan infrastructure bill in part to address underfunded and poorly-maintained infrastructure throughout the United States. The COVID-19 pandemic also heightened awareness of the current precarious funding situation. Although the federal government provided financial assistance to keep transportation systems running, local transit agencies suffered greatly from a sudden drop in fare revenue despite maintaining services throughout the pandemic.
But despite increased attention due to the pandemic and infusions of federal funding for transportation priorities, there remain long-term challenges for the economic viability of the Highway Trust Fund as well as transportation funding more generally.
Eno recently hosted a series of webinars, panels, and discussion on the major, pressing issues facing transportation as part of the Centennial Institute. One panel explored opportunities for transportation funding and financing reforms. The panel featured:
Dr. Patricia Hendren, Executive Director, Eastern Transportation Coalition
Emeka Moneme, Vice President, Corporate Strategy and Innovation, Transurban
The Problems with Unstable Funding
Dr. Hendren indicated that changing transportation modes are affecting traditional transportation funding mechanisms. The Highway Trust Fund is funded by a cent-per-gallon excise tax on gasoline, which has become less viable over time with increasing automobile efficiency and the transition to hybrid and electric vehicles. The U.S. is one of the few countries in the world that funds its infrastructure programs through an exclusive federal fund. However, in 2008, the U.S. government began regularly transferring funds out of the General Fund (collected through general taxation) to make up for lost gas tax revenues. Congress transferred a total of $271.8 billion from the general fund to the HTF since 2008. In addition to the gas tax, transportation operators raise funds through driver (tolls) and registration fees.
However, the COVID-19 pandemic significantly disrupted existing transportation funding mechanisms. In addition to decreased returns from gas taxes, user fees, such as tolls, brought in significantly less revenue as users stayed home either for lockdowns or for work. New York City alone saw a 63 percent decrease in traffic crossing the Metropolitan Transportation Authority (MTA)’s bridges and tunnels. Before the pandemic, user fees generated from MTA crossings accounted for a full 12 percent of the agency’s budget. Funding mechanisms were already under scrutiny due to changing traveler habits. In response to the cratering of funding sources, the federal government intervened. The American Rescue Plan Act, passed in March of 2021, included $30.5 billion in federal funding to support the nation’s transportation systems. Intervention helped stave off the worst of the service cuts, but illustrated the precariousness of current funding arrangements.
For instance, gas taxes that traditionally funded the HTF are returning less and less as users switch to more efficient or even entirely electric vehicles. As Dr. Hendren illustrated in the session, “the link between use and payment is broken. The more you use does not necessarily mean the more you pay.” In response to changing technologies disrupting policy and funding mechanisms, Dr. Hendren suggested that reestablishing a link between utilization and payment can help officials manage infrastructure use – which means more than just finding a replacement for the fuel tax. No matter if the solutions are based on travel time or infrastructure use, Dr. Hendren emphasized that any effective system will include a “mix” of payment methods, such as congestion to distance-based pricing.
Emeka Monome also indicated that traditional sources of infrastructure funding need to change to reconnect use and payment. “The need for us to both build back better and build back in a more resilient way is forcing us to come up with innovative solutions to make sure we have the resources required to deliver the infrastructure we need,” said Moneme. He discussed how dynamic tolling in the Washington, D.C area is used to help drivers recognize price signals. Moneme emphasized that clear pricing manages roadway demand by changing travel patterns while also securing steady infrastructure funding.
Potential Options for Future Funding
Both Dr. Hendren and Monome suggested alternatives to current transportation funding mechanisms. One alternative to a fuel tax would be a user fee known as congestion pricing. Congestion pricing works by charging a fee for the parts of the roadway network used the most during the busiest times of day to reduce demand. Pricing could also be dynamic, which would incentivize drivers to travel at other times of day, find alternative routes, or switch to another mode. Congestion pricing can come in the form of New York City’s cordon pricing scheme, which charges drivers entering a certain part of a municipality. All told, New York City estimates that it could raise up to $15 billion through congestion pricing. Ultimately, 80 percent of revenue generated by the congestion pricing program will be marked exclusively for funding NYC subways, busses, and regional rail systems.
Another form of transportation funding is the Vehicle Miles Traveled (VMT) fee, which charges drivers for their use of roadways by measuring their distance travelled. This can be measured using odometer readers, radio frequency identification (RFID) readers, and electronic logging devices. However, VMT policies face implementation challenges and have received scrutiny over privacy concerns as well as opposition from trucking industry groups. To counteract skepticism, Moneme encouraged organizations doing pilots to share their findings and communicate the benefits of their programs clearly to their community because, “the better you can explain and communicate the value the more on board [stakeholders will] be.” To illustrate his point, Moneme recalled that Transurban pilots alone reduced users’ concerns about data privacy from 50 percent to 15 percent. As Moneme explained, future funding mechanisms should be dynamic and flexible enough so that all vehicle users would understand shifting revenue formulas.
As the panel came to a close, both Dr. Hendren and Moneme expressed optimism but also realistic expectations for the future for transportation funding solutions. Dr. Hendren noted that “with our pricing reform, we do need to look at constraints or lack of constraints for how that funding can be made or can be used, and that is going to be one heck of a political fight.” Despite acknowledging the challenges ahead, Hendren commended the two U.S. states and 12 cities that already started various pilot programs exploring alternative funding methods. Moneme also emphasized how technological transportation developments, such as multi-jurisdictional and multi-market tolling will help private and public actors secure funding in a changing transportation world. He also expressed optimism about new federal funding for distance-based pricing programs in recent congressional legislation that will hopefully inform the public on new transportation funding mechanisms.
To hear more from the panelists on the future of transportation funding, check out a recording of the panel hosted during Eno’s Centennial Institute on September 15, 2021.