By Randal O’Toole
Many fiscal conservatives, including some of my fellow Cato scholars, are upset with House Republicans for introducing a transportation bill that allows deficit spending. The bill authorizes about $50 billion in annual expenditures on highways and transit for the next five years even though federal gas taxes, the traditional source of revenues for this spending, are expected to be only about $38 billion a year.
Yet this bill, while not perfect, is a huge improvement over any bill Congress has passed in the last 30 years. Moreover, strategically, it may be the only path towards the fiscally conservative goal of devolving federal transportation spending to the states.
Fiscal conservatives in Congress, including Scott Garrett (R-NJ) and Jeff Flake (R-AZ), propose to allow states to “opt out” of federal transportation funding (which comes from the 18.3-cent-per-gallon federal gas tax) by increasing their own gas taxes by that amount. While a great idea, it doesn’t stand a chance as long as most members of Congress see transportation as pork. By taking the pork out of transportation, the House Republican bill will make it possible to truly devolve transportation later this decade.
Transportation was an unimportant source of pork in 1956, when Congress created the Interstate Highway System. While the interstate highways themselves were a form of pork, once the law was passed there was very little pork in how it operated. Congress distributed federal gas taxes to states using formulas that included such factors as each state’s population, land area, and road miles.
The Bureau of Public Roads (later the Federal Highway Administration) collected gasoline taxes and passed them out according to the formulas. For the next two-and-one-half decades, other than tinkering with the formulas every six years or so, there were no political decisions to be made by either Congress or the administration.
That changed in 1982, when Congress began diverting gas taxes to transit–initially about 11 percent, now about 20 percent. The 1982 bill also saw the first earmarks; the 10 earmarks that year exponentially grew to more than 6,000 earmarks in the 2005 reauthorization.
Ron Paul recently defended earmarks, saying “Congress has an obligation to earmark every penny, not to deliver that power to the executive branch. What happens when you don’t vote for the earmark it goes into the slush fund, the executive branch spends the money.” But the Highway Trust Fund was not a slush fund; because it was distributed to the states by formulas, the executive branch had no say in how it would be spent.
In 1991, however, Congress decided to put billions of dollars of transit’s share of gas taxes into “competitive grant” programs. While competitive grants supposedly supported the best projects, in fact they were mainly slush funds distributed on political grounds.
The biggest competitive grant program was “New Starts,” which supported construction of new transit lines. Since the main way cities could get more money from this fund was to build the most expensive rail transit lines they could, New Starts gave cities incentives to replace low-cost buses with high-cost trains.
(Coincidentally, the Obama administration has recently proposed to make New Starts even more political by eliminating all quantitative criteria for grants and substituting such indefinable criteria as “livability,” “environmental justice,” and “multimodal connectivity.”)
In 1998 (and again in 2005), Congress took the unusual step of making transportation spending “mandatory,” meaning the annual appropriations bills had to spend the money each year even if gas tax revenues fell short. Revenues began falling short in 2007, forcing Congress to appropriate general funds to the highway trust fund. Although the 2005 bill expired in 2009, routine extensions to the bill have continued and will continue such mandates until Congress passes a new bill.
The House transportation bill would depoliticize transportation by eliminating earmarks; eliminating mandatory spending; dedicating all gas taxes to formula funds instead of competitive grants; and rededicating federal gas taxes to highways while supporting transit (including a modified version of New Starts) out of general funds. Taking the pork out of transportation will make it politically feasible to fully devolve federal transportation spending in the next highway bill, which Congress will take up in around 2017.
This doesn’t mean the House bill is perfect. The main battle between House Republicans and Senate Democrats has been whether Congress should continue to spend transportation dollars at historic levels or if it should cut back spending to no more than revenues. The inflation-adjusted historic rate of about $50 billion a year is $12 billion a year more than anticipated gas tax collections over the next five years.
As it happens, the $38 billion in gas tax revenues is just enough to fully fund the highway program at historic levels, while the other $12 billion has been going to transit and other programs. Thus, House Republicans proposed to fund transit out of other funds. The Republicans’ proposal to continue deficit spending was an olive branch to the Senate in exchange for taking earmarks, competitive grants, and mandatory spending out of the bill. Since that deficit spending won’t be mandatory, the annual appropriations bills can choose to fund less than the full $12 billion a year.
A key point is that the House bill only authorizes deficit spending, while the 1998 and 2005 bills mandated it. This means appropriations committees can revisit the issue in annual bills. If no bill is passed, mandatory deficit spending will continue under extensions to the now-expired 2005 bill.
The proposed compromise has raised the ire of not only fiscal conservatives but the powerful transit lobby (which is far better funded than the supposedly powerful highway lobby). Transit advocates would prefer to retain transit’s 20-percent share of gas taxes than rely on Congress to fund transit out of deficit spending or some hoped-for oil and gas royalties.
From a fiscally conservative view, the best bill would devolve federal spending to the states. Short of that, the best bill would end deficit spending and minimize pork. While Republicans may believe they need to make concessions to Democrats to pass a bill, they should hold the line on keeping out earmarks and competitive grants funded out of gas taxes.
One acceptable compromise would end deficit spending, earmarks, and competitive grants, but allow states to spend gas taxes on either highways or transit. My own proposal would do this, but include user fees (defined as state or local taxes or fees paid by users that go to the facilities those users use) in the formula for allocating federal funds to the states. This would give states a short-term incentive to be responsive to users, not politicians, and help the long-term goal of devolution.
Two Cheers for the House Transportation Bill is a post from Cato @ Liberty – Cato Institute Blog
