How to fund highways? Not this way.

By Steve Brawner
© 2014 by Steve Brawner Communications, Inc.

How long could your family pay for today’s needs with tomorrow’s dollars before it would start to catch up to you? Congress is doing something like that, again.

The Highway and Transportation Funding Act of 2014 would provide extra highway funding for 10 months by pulling money from future revenues through a tactic known as “pension smoothing.” This allows employers to delay contributing to their employees’ pension plans, thus raising the employers’ taxable incomes now. Under a formula, they’ll make up the difference later, reducing their taxable incomes then, and at that point a future Congress will have to budget for that lost revenue. But that’s a problem for the future Congress.

The House of Representatives passed the $10.8 billion bill this past week, with all four Arkansas House members voting yes – which I guess they had to do, because the alternative was a train wreck. The Senate is expected to vote on the matter as early as this coming week.

This is happening because we’ve reached yet another unnecessary fiscal crisis. The Highway Trust Fund, which reimburses states for highway costs, will be dry within a couple of weeks – the result of too few dollars funding too many projects. The Arkansas Highway and Transportation Department (AHTD) has already delayed some contracts in case that happens.

Money flows into the fund as a result of federal highway laws passed periodically by Congress. In the past, these have been five- or six-year deals so states could make long-term planning decisions. It takes, after all, a long time to build a highway. The most recent, MAP-21, lasted only two years, and now it’s expiring. The Highway and Transportation Funding Act would extend MAP-21 only to May.

Highways are funded mostly through fuel taxes. These are easy to collect, they don’t require that much bureaucracy, and they are considered to be fair because they are user fees. The person using the government service, the highway, is the one who pays for it.

But the federal fuel tax has not been increased since 1993, which means inflation has eaten away at it. Meanwhile, cars have become more fuel efficient, so we’re buying fewer gallons to drive the same distance, thereby paying even less in fuel taxes. At the same time, construction costs have risen.

There’s waste in the highway system, of course, but even if all of that were eliminated, the country still would be investing far too little in its aging and decaying infrastructure. According to the American Society of Civil Engineers, the average bridge in America is 42 years old.

For now, the easiest, quickest, most efficient way of increasing highway funding is raising the gas tax, but politically that’s a tough sell. Even the Connecting Arkansas Program passed by voters in 2012 exempted fuel as part of its half-cent sales tax. Meanwhile, the fuel tax faces an uncertain future. As Scott Bennett, AHTD director, points out, reducing fuel consumption is a national priority, so how can consumption continue to be the primary way we fund highways? The Obama administration is suggesting letting states put toll booths on interstates – an inefficient way of collecting money that is inconvenient for drivers. Oregon is testing a vehicle miles traveled tax, where drivers’ mileage would be tracked, and they would be taxed accordingly.

It may be that the only solution now is for states to bear greater responsibility for maintaining and constructing the nation’s roadways. According to Bennett, 70 percent of Arkansas highway construction funding comes from the federal government, but other states pay more of their own way.

Arkansas voters have shown a willingness to pay for highways. In addition to the Connecting Arkansas Program, they also voted in 2011 for the Interstate Rehabilitation Program, which funds interstate improvements through a bond issue. Those two programs are funding $3 billion worth of work. On the other hand, they only apply to 4 percent of the state’s highway miles.

What do you think? Raise fuel taxes? Build toll booths? Track how far (and maybe where) we drive? Let the states take care of it?

Something has to happen. There are only so many times future dollars can pay for current work.

11 thoughts on “How to fund highways? Not this way.

  1. 1) Concerning toll roads – I recently drove to Frisco, Texas, to watch a FC Dallas match[shameless soccer plug 🙂 ] and traveled on the North Texas Tollway Authority. They do not have toll booths as they have tollway gantries that scan TollTags, for people who pay for those ahead of time, or they scan the license plates of others and send a bill in the mail at a higher toll rate. There is no slowing down. A very efficient way to collect tolls.

    2) I don’t care much for the Oregon method as that is too intrusive by the state for my liking.

    3) I don’t have much sympathy for inflation causing problems for the federal government since inflation is created by the Federal Reserve which is a creation of the federal government, so it is the Congress being hoisted with its own petard.

    4) I would prefer increasing the state gasoline tax rate.

    5) Regardless of the method used, I think the best idea is to move the collection of revenue and the spending of the revenue to the states and leave the federal government out of it. States are much more knowledgeable of what their needs are for infrastructure improvements. And states are more accountable to the voters and are thus more likely to be less inefficient in spending taxpayers’ dollars than the federal government.

  2. Thanks for commenting Ken. Here’s what I would say about your points.

    1. I wonder if that’s the norm for all new tolls these days? Probably. It’s still not as efficient as the gas tax. The bureaucratic expenses are far higher, so if we use tolls, we’ll be spending more on administration and less on roads. On the plus, they are more transparent.

    2. I also don’t care much for the Oregon method. In fact, I hate it.

    3. Inflation occurs naturally in an economy, Fed or no Fed, right? The alternative is deflation, which is far worse. That’s what Japan’s been going through for decades. Plus, a big reason why inflation is occurring is because of rising costs of materials. Asphalt is made of petroleum products, after all.

    4. Agreed.

    5. Moving more and more to that conclusion myself!

  3. No, inflation need not be the natural course of economic events. Under a commodity-based money standard, such as gold, prices are much more stable overall than a fiat-based money standard like we have now. The natural course in a commodity-based money standard is a slow deflation as the supply of the commodity increases over time and productivity improves, which means that one’s standard of living improves over time even if one’s wages are not rising. But if one’s productivity is rising, then one’s wages generally rise as well. If the goal is to have a generally rising standard of living for the citizens of a nation, I don’t think anything beats a commodity-based money standard.

  4. Got it. I’m not an economist, but I’ve always read that deflation is bad because people stop spending as they wait for prices to fall farther.

    But again, there are other factors that are causing inflation in the road construction industry – primarily, the cost of the material, petroleum. The same factors that caused gas to go from $1 to $4 are causing the cost of asphalt to rise as well.

    Government policies have helped contribute to that too, of course.

  5. oads are a Stone Age atavism kept alive by the state. Much better solutions abound and would have been implemented long ago if the state hadn’t been diverting precious resources from these free market solutions via taxation. The artificial availability of roads thanks to stolen funds (taxes) are what encourage the car-dependent automobile suburbs and exurban development that people have come to accept as the modern normal. The free market would have encouraged a very differently built environment suitable to a healthy mix of transportation systems. There would have likely been much denser development and a lot more fixed-path transit (rail).

    And minus government theft, the billions of dollars that got diverted (by force) into highways and suburban road systems would have been available for something else. And that something would likely have been evacuated tubes. http://dollarvigilante.com/blog/2013/7/17/if-one-more-person-asks-me-who-will-build-the-roads.html

  6. I think it should be left to the state. There isn’t a program on a national level that government runs well. Our roads like obama care has a lot of holes. Washington comes with entirely to many be bureaucrats and red tape.

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