How to Save the Highway Trust Fund
The Highway Trust Fund is set to run out of money in September and Congress wants to save it with a one-time repatriation tax. The proposal would allow companies to repatriate off-shore income at a tax rate of 6.5 percent with the revenue directly funding the Highway Trust Fund. The problem with this plan is that it is a short-term, one-time solution. The only way Congress can ensure the long-term sustainability of the Highway Trust Fund is by raising highway user-fees.
For the early part of its existence, the Highway Trust Fund operated solely using revenue from the federal gas tax. However, the gas tax quickly became unpopular with consumers and is now difficult to increase. In 1993, the gas tax was raised to 18.4 cents a gallon and it has not changed since. With dwindling gas tax revenues, the Highway Trust Fund no longer has a stable funding source. Over the next ten years the fund is expected to operate with a $169 billion budget shortfall.
The Highway Trust Fund’s purpose is to pay for the expansion the highway system and regular road maintenance. With the fund now in dire straits, come September states will have no federal money to help pay for highway construction and maintenance.
Congress should instead seek to implement a long-term answer to the Highway Trust Fund’s capital problem.
Per-mile tolling is steadily gaining support as a solution to the Highway Trust Fund’s recurrent revenue problem. Oregon will implement a Road Usage Charge on July 1 after two successful pilot programs. States such as South Carolina are watching to see if Oregon’s Road Usage Charge is an effective policy. The experiment is likely to be a success, and if it is, the federal government along with the states should copy Oregon’s model.
Per-mile tolling could fund the highway trust fund indefinitely without many of the gas tax’s flaws. Per-mile tolling is a simple concept: the more you drive, the more you pay. The government could implement this policy by using an expanded system of tolls, or by placing devices in vehicles that track the number of miles driven.
The most obvious problem with the gas tax is that fuel efficiency is improving at a rapid pace. As cars use less gas, there will be less consumption to tax. Since 2002, revenues from the gas tax have decreased by more than $15 billion, adjusted for inflation, and this trend is going to continue. A per-mile tolling system would provide a stable revenue stream as long as cars still drive on roads.
The gas tax is also an unfair user-fee for highways. The goal of the gas tax was to ensure that those who used highways the most would pay the most. But with the rise of huge variations in gas mileage, fuel consumption is no longer the best predictor of road use.
Some argue that the gas tax is good policy because it rewards the drivers of fuel-efficient cars. While the use of electric and hybrid vehicles may be worth encouraging (although this is not often the case) highway user fees should not serve as a means to nudge drivers towards environmentalism. The gas tax subsidizes the cost of driving on highways for rich individuals who are able to afford the newest and most fuel-efficient cars, and leaves the poor footing the bill for the nation’s infrastructure.
Many road construction projects are a waste of money due to poor decision making from government officials. Per-mile tolling could help solve this problem by forcing lawmakers to think about how to finance road construction rather than how to fund it. This is a subtle yet crucial distinction. If roads are funded by tolls, lawmakers will only be able to fund the creation of roads that pay for their own construction and maintenance. Projects such as the “Bridge to Nowhere” will be unsustainable and consequently infeasible for governments to approve because they will not break even. If lawmakers are forced to determine whether a road will be able to finance itself, they may not choose to build the roads that no one needs.
Per-mile tolling would also enable innovations in traffic management. Toll roads like the Capital Beltway’s express lanes have implemented surge pricing. Surge pricing increases tolls during periods of heavy road use to incentivize travelers to use other forms of transit, such as buses or trains. Uber has successfully used surge pricing to efficiently regulate the demand of their service. The government should use Uber’s innovative idea to do the same with roads.
At the federal level, Representative Earl Blumenauer (D-OR) has been advocating for a federal per-mile toll since 2013. Voters are also becoming more receptive to plans to fund the Highway Trust Fund using user fees. At this point, 70 percent of Americans even support a 10-cent increase in the gas tax.
But a federal toll may not even be necessary. With the success of the Oregon road usage charge pilot program, the federal government could take its hands off the steering wheel and let states raise their own revenue for highway construction and maintenance. Giving control of highway funding to the states would avoid contentious Congressional battles and put decision-making power into the hands of the people that will actually end up using the highways they are funding.
While per-mile tolling reform will not become law during this round of Highway Trust Fund negotiations, the next funding crisis will offer lawmakers an opportunity to seriously consider changing highway funding structures. The next time the failures of the Highway Trust Fund come before Congress, Oregon’s toll model may finally gain the national support it deserves.
Patrick Holland is a contributor for Economics21. Follow Patrick on Twitter here.
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