Transportation conundrum

A looming fiscal crisis sets the stage for a highway-funding showdown

By Rob Bhatt

When politicians use the phrase, "Where the rubber meets the road," they are typically speaking metaphorically. But as this summer's campaigns for Congress and the presidency heat up, voters should pay attention to candidates' positions on issues related to tires and pavement in the literal sense.

A growing number of cities are feeling the stranglehold of gridlock at a time when the primary federal source for building and maintaining the nation's highways, bridges and transit systems is failing to keep pace with demand. Last summer's collapse of the I-35W Bridge in Minneapolis remains a dire reminder that the consequences of inattention to our surface transportation needs are not only inconvenient—they are potentially deadly.

Federal lawmakers' decisions about our transportation network will have direct impact on our daily lives. For these reasons, AAA presents this primer on the key issues.

SAFETEA first

The five-year, $244.1 billion federal transportation spending law known as SAFETEA-LU (Safe, Accountable, Flexible, Efficient Transportation Equity Act: A Legacy for Users) expires in 2009. The reauthorization process will resume after the new president and Congress are sworn in next year. It promises to be a far cry from business as usual.

The Federal Highway Trust Fund draws most of its revenues from the 18.4 cent per gallon tax on gasoline (and 24.4 cents per gallon on diesel) that motorists pay at the pump. Though it boasted a $20 billion surplus as recently as 2001, spending has since outpaced revenue. The Congressional Budget Office expects the fund to exhaust the last of its reserves this year. Since money from this account, allocated in shares to each state, currently finances about 45% of all transportation construction across the country, cuts in trust fund spending would have far-reaching impacts.

In the past, Congress has overcome revenue shortfalls such as these by increasing the fuel tax rate, which has grown from 4 cents per gallon in 1956 to 18 cents per gallon in 1993, still its current level. Some lawmakers, including Rep. James Oberstar (D.–Minn.), chairman of the U.S. House Committee on Transportation and Infrastructure, support increasing the fuel tax again to account for inflation.

However, any such proposal is likely to meet resistance. Some lawmakers are reluctant to risk the political consequences of asking voters to pay more to fill their tanks when gasoline prices are already at record highs. Some contend that the current highway-spending program is inefficient. Others believe that, as cars become more fuel-efficient and vehicles powered by alternative fuels enter production, the tax on gasoline will become obsolete.

Congress has created two commissions to evaluate the nation's future transportation needs—and ways to pay for meeting these needs. One panel, the National Surface Transportation Policy and Revenue Study Commission, has already recommended raising the fuel tax rate in conjunction with the removal of barriers to new funding alternatives. The other panel, the National Surface Transportation Infrastructure Financing Commission, will release its recommendations later this year. Based on an interim report released in January, it is expected to also encourage the pursuit of alternative funding sources.

Congress and the president will consider recommendations from both panels, and other parties, in crafting a successor to SAFETEA-LU. As the process moves forward, the funding alternatives that are likely to generate the most passionate debate are privatization, congestion pricing and mileage fees.

Corporate highways

The private sector is eager to enter America's infrastructure industry. Twenty-three states have already adopted legislation allowing companies to build or manage highways, and the number of private toll roads across the country is on the rise. A foreign investment consortium called Cintra/Macquarie paid billions to take over operations and maintenance of existing toll highways in Chicago (in 2004) and Indiana (in 2006). Other states are considering similar agreements.

Proponents of these arrangements, often called public-private partnerships (P3s), contend that market dynamics force companies to manage highways more efficiently than government agencies. However, some observers caution that P3s do not always serve the public interest as well as advertised. John Foote, a senior fellow at the Kennedy School of Government at Harvard University, notes that Cintra's $1.8 billion deal to take over the Chicago Skyway allows the company to double tolls in the first 12 years of its 99-year lease and continue increasing them after that. He also notes that the city of Chicago could exhaust its $1.8 billion windfall within a decade or so.

"In this case, users will see ever-increasing tolls and ever-increasing revenues being banked by the private investor, with, at best, only modest improvements in service," Foote told a subcommittee of the House Transportation Committee about two years ago.

Life in the fast lane

A growing number of private companies and public agencies are turning to congestion pricing to finance new highways or simply manage traffic. Congestion pricing (also known as variable pricing) makes it more expensive to drive during heavy traffic periods. The growing use of congestion pricing, and tolls in general, stems in part from advances in wireless communications technology that make it relatively easy to collect tolls via transponders mounted in vehicles.

"There are large urban areas that are being strangled by traffic congestion because they've stopped adding lane capacity to their freeway systems," says Bob Poole, founder of Reason Foundation, a Los Angeles-based think tank that helped create a California law authorizing private toll roads. "We see enormous scope for adding new capacity, admittedly at a high cost, with toll funding and public-private project structures."

Advocates of congestion pricing compare highways to such utilities as power or phone companies, which also charge higher rates during peak-use periods. Critics say congestion pricing creates "Lexus lanes," highway lanes that are more readily accessible to the wealthy than they are to the poor.

Pay as you go

Some contend that the most equitable method of funding is to tax motorists on the distances they drive, possibly at higher rates in congested regions or during peak traffic times. Last year, the Oregon Department of Transportation (ODOT) tested a program to use GPS and wireless communications technology to create just such a fee. Like every other state, Oregon charges a state fuel tax that is added to the federal fuel tax at filling stations. Based on the results of its study, ODOT concluded that it could replace its state gas tax with a "Road User Fee" within 10 years, if state lawmakers are so inclined. Congress has sought input on the feasibility of implementing such a fee on a national basis.

Any proposal to use technology to monitor the distances that individuals travel will inevitably raise privacy concerns. James Whitty, manager of ODOT's Office of Innovative Partnerships and Alternative Funding, notes that his state's test program limited the amount of data that was compiled and took other steps to protect the privacy of motorists. However, he acknowledges that no amount of safeguards may be enough to satisfy the concerns of the most ardent privacy-rights activists.

These and the other issues that Congress and the president will tackle in the next highway bill promise a spirited round of discussions. Time will tell whether the policies that come out of this process prove to be as profound as the 1956 law that President Eisenhower signed to create the Interstate Highway System. The only thing that seems certain for now is that the ability to use Eisenhower's system is about to get more expensive.

Rob Bhatt is a senior editor for AAA Washington's Journey magazine.

What people are saying

On gas taxes:

"I think you have to have a gas tax increase. We haven't raised the gas tax for a number of years, and my feeling is, with the amount of work that needs to be done, just to get the system in a state of good repair and add mass transit, it is going to require a significant amount of dollars.

"Fifteen to 20 years down the road, we're going to have to look at a vehicle-miles traveled system."

—Frank Busalacchi, Wisconsin Secretary of Transportation

On congestion pricing and toll express lanes:

"The people who are benefiting the most are people who pay the tolls and use those lanes … most people in America will never have that choice until we build whole networks of these kinds of lanes in areas with problem congestion.

"There's a modest benefit to the people who stay in the regular lanes, because traffic that would have been joining them in the regular lanes moves into the new lanes. But what happened on the [California State Route] 91 corridor is that there was such huge continued growth during the 12 years or so that those lanes have been in operation that the initial congestion relief in the regular lanes is now basically invisible. Continued growth of housing has overwhelmed capacity on the free lanes.

"Studies show that only 20% of the people [who use express lanes] are the wealthy. The other 80% are people who use the lanes once or twice a week when it's really worth it for them. The data shows that these are people of all demographic levels and ethnic groups."

—Bob Poole, Reason Foundation

On public-private partnership deals:

"The public utility system that we have, whether it's natural gas or cable television, is primarily funded by private investment. Many other countries are further ahead than we are in enlisting private investment to fund public infrastructure, but I think the U.S. is going to head in that direction.

"When you bring in private investment, you bring in profit maximization incentives. You bring in private investors who are seeking the highest rate of return, so you need to be careful of how you regulate the system, particularly in terms of the regulation of prices."

—Rick Geddes, National Surface Transportation Policy and Revenue Study Commission

"We write to strongly discourage you from entering into public-private partnership (PPP) agreements that are not in the long-term public interest in a safe, integrated national transportation system that can meet the needs of the 21st century.

"The Committee on Transportation and Infrastructure of the U.S. House of Representatives believes that many of the arrangements that have been proposed do not adequately protect the public interest. The Committee will work to undo any state PPP agreements that do not fully protect the public interest and the integrity of the national system."

—Extract from a May 2007 letter to states, signed by James Oberstar, chairman of the House Committee on Transportation and Infrastructure, and Peter DeFazio, chairman of the Subcommittee on Highways and Transit.