How to Finance the Next Six-Year Transportation Authorization: A Taxing Issue

October 19, 2010 by
Filed under: The Right Answer 

The issue of passing a six-year authorization for federal transportation programs has been a vexing issue, with numerous opportunities missed to build support for this critical legislation. First, the Obama Administration decided to take a pass in making this bill a priority, turning to the stimulus and health care (how has that worked out for the Administration, hmmmm?). The Administration left quite a few supporters at the altar, not the least of which was Congressman James Oberstar (D-MN), Chairman of the House Transportation and Infrastructure Committee, who had worked arduously to craft a forward-looking bill, responsive to the changing circumstances across the country. With all the attention and energy focused on first the stimulus and then health care, Congressional leaders purposely let the legislation languish. The Administration was also quick to undermine DOT Secretary LaHood when he suggested early on that a rise in the gas tax might be needed.

The major stumbling block for the legislation, as it were, has always been this: how to fund the estimated $500 billion price tag. This is clearly the overweight gorilla in the room. The old mechanisms, principally the gas tax, are no longer structured to carry the burden. The real reduction in driving and the advent of more fuel-efficient automobiles and trucks have combined to reduce gas tax collections. Permanently. This has also led to large infusions of general fund monies to stave off collapse of the Highway Trust Fund. As conservatives, we do not like tax increases but we would rather raise taxes to fund necessary infrastructure improvements than pay for them with more debt. We believe in “pay as you go.” We would also note that the federal gas tax has not been raised since 1993 (N.B., in the 50’s the gas tax was raised by Congress by voice vote- sotto voce, I’m sure). The state of Virginia, my home of residence, has not seen fit to raise the state gas tax since 1986. Gee, are we surprised that the money doesn’t go as far? We shouldn’t be. But unlike the state of Virginia, the federal government does not have a state liquor monopoly to sell (and raise taxes in stealth fashion at the same time- such is reform).

As conservatives, we don’t begrudge the feds the money to keep our transportation infrastructure in fighting trim (this is a role cheerfully filled at the federal level since colonial times). The only problem is our infrastructure in NOT in fighting trim. The Federal Transit Administration recently released a report citing an abysmal $77 billion figure to bring the nation’s transit system to an acceptable state of repair. We also hear that over thirty percent of highway bridges in the U.S. are substandard and in need of urgent repair (think the I-35W bridge collapse in Minneapolis). We would also note that while other nations are effectively rebuilding and improving transportation infrastructure (think China, France, India and other competitors), we are consumed with debates about the proper role of our national government, all the while avoiding the tough decisions that would give us the resources to do the same. The President of France proposed in 2009 a $31.4 billion program for transit in the Paris region, yes, $31.4 billion. That would be about 11 Washington Metro Dulles Phase 1 extensions (yes, Virginia, even at today’s prices).

It would seem to us that the solution to this conundrum will have to be multifaceted. While the gas tax will not be the main source of funds, it could be one of many ways to fund transportation infrastructure improvements. An increase in the gas tax (there I said it) would accomplish a multitude of goals. Other tools such as Public-Private Partnerships (PPP’s) and Infrastructure Banks could leverage existing funds (at federal, state and local levels). PPP’s have the potential to maximize a mixture of public and private funds to the benefit of our failing infrastructure. Properly structured and monitored, the Infrastructure Bank concept could complement traditional grant programs in new and innovative ways. We’ll look in detail at these and other promising financing tools from a conservative perspective that might dig our way out of the infrastructure ditch we’ve steered ourselves into. We like low taxes and unfettered business environments. We also like to get from one place to another without the travail we too often encounter in cities across the country. Let the debate expand!!

Glen Bottoms
Executive Director


6 Responses to “How to Finance the Next Six-Year Transportation Authorization: A Taxing Issue”

  1. beowulf says:

    Why is the US Government the only government of any size that doesn’t use capital budgeting for infrastructure? So long as the benefit-cost ratio is greater than 1.0, every dollar borrowed would add to the Nation’s wealth. Congress could fund highway work (or any other justified infrastructure project) through the Federal Financing Bank. Its off-budget, so it doesn’t count against the rather pointless “statutory debt limit” (if Congress doesn’t want so much debt, they should think about that before they approve appropriations bills).

    Congress only needs to strike the FFB’s $15 billion obligation cap and allow it (as the FDIC can) to borrow from the Federal Reserve directly at Tsy rates. Let’s see, a 3 month Tsy note is 0.14%, a one year Tsy bill is 0.25%. Borrowing from the Fed directly (as Tsy did to fund World War II spending ) would put the cost of financing $500 billion at the one year rate, at $1.25 billion a year. There’s no real risk from rates going up in the future since the Fed refunds its net earnings to Tsy anyway.

    Congress could simply allocate gas tax revenue to cover the debt service. 18 cents a gallon brings in what, $30 billion a year? Even covering the ASCE’s $2.2 trillion wish list would only be $5.5 billion a year in debt service. I suppose if Congress strikes Davis-Bacon and saves, I dunno, 10% in project costs– then only $4.95 billion a year.

  2. vanyali says:

    How is Obama’s transportation bank idea not a way for the government to sidestep the debt ceiling to borrow more money for transportation projects?

    He’s proposed putting $30 billion of government money into it, soliciting private money on top, and promising some sort of return to that private money. How is that different from the government selling bonds to private parties, taking their money from the sale, and promising an investment return in the future?

    Is the difference (other than the detail of this bank being int he Transportation Dept instead of Treasury Dept) just the way the government would tax us to pay that return — through a toll or a gas tax instead of the income tax?

    That sounds a lot like government borrowing to fund current government spending from future tax revenues to me.

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