top of page
Search
  • Samuel Hatch

Roads to Nowhere: American Infrastructure Funding

Updated: Dec 13, 2019

American infrastructure funding is stuck in the mud - or perhaps, a very large pothole. The Trump Administration has repeatedly pledged that fixing aging American infrastructure is a high legislative priority. Congress has done the same. Yet, both have failed to address recurring budgetary shortfalls for road and bridge projects. The yearly shortfall has been increasingly supported by reallocating funds earmarked for maintenance, which has unfortunately led to a growing backlog of road and bridge repair needs.[1] Properly funded infrastructure has lasting effects, where these investments have been found to result in noticeable long-term economic growth.[2, 3] To capture this long-term growth and to ensure safe and reliable roads and bridges, changes to federal infrastructure funding policies are necessary.

According to an October 2019 report from the Congressional Budget Office, road and bridge infrastructure funding faces a $14b yearly shortfall.[4] The Highway Trust Fund (HTF), which is charged with the construction and maintenance of the nation's roads and bridges, has had to navigate the yearly shortfall in a number of ways. The most common methods have included reducing the number of new projects started, or to reallocate money earmarked for maintenance-specific projects to be used for new road and bridge projects.


Unfortunately, shifting money away from maintenance projects has led to a backlog of desperately needed repair. In the American Society of Civil Engineers' 2017 Report Card, it is estimated that the Highway Trust Fund needs $533b to sufficiently address that backlog.[5] Aging bridge infrastructure is a critical issue, as nearly 40% of all American bridges are over 50 years old and are reaching the ends of their operational and designed lifespans. Barring changes to infrastructure funding sources, the maintenance backlog is only going to increase.

The HTF is primarily funded by federal fuel taxes, which are imposed on all gasoline and diesel sales. At 18.4 cents/gallon of gasoline and 24 cents/gallon of diesel, these taxes brought in $34b last year for infrastructure funding.[4] These taxes were last raised in 1993, which for context was just months after Bill Clinton's first inauguration. Over the 26 years since that raise, this main revenue source for federal infrastructure funding has been left untouched, allowing inflation to reduce its real purchasing power.[6, 7] Increasing fuel standards and the emergence of electric vehicles into the market have played a role as well, ultimately culminating in an inability to properly fund our road and bridge needs. So, what are our options?

 

Raising Federal Fuel Taxes

By restoring the federal fuel taxes to their inflation-adjusted 1993 levels, the federal government would see $61b in infrastructure funding, almost twice the current revenue of $34b. The additional $27b came from the inflation-adjusted taxes for gasoline - 33 cents/gallon - and diesel - 43 cents/gallon - and assumed that 140b gallons of gasoline and 35b gallons of diesel are still sold.[8, 9]


$27b in supplemental revenue would offset the recurring budget shortfall of $14b, and eventually solve critical road and bridge maintenance needs. By structuring these taxes to rise with inflation, the federal fuel taxes would not need to be readjusted year after year, sparing political fights for other issues. Also, as the federal fuel taxes already exist, no administrative overhaul would be necessary in order to collect it, and proposed raises could be enacted quickly. 23 state government and legislatures (of various ideological and political leanings) have raised their fuel taxes higher than these proposed fuel taxes, so although the proposal is technically a tax increase, it seems to be far from a politically dangerous one. While raising federal fuel taxes would quickly bring in desperately needed infrastructure funding, it is not the only possible policy solution.

 

Imposing Mileage Fees on the Commercial Trucking Industry

The states of New York, Kentucky, Oregon, and New Mexico have shown that the imposition of fees on the commercial trucking industry can be a viable revenue source for road and bridge funding.[4] Differences exist between the state systems, but they are all structured to impose per-mile fees on freight, escalating with weight; essentially, the heavier the tractor-trailer, the more they pay to the state. These fees are founded on the notion that a fully-loaded freight truck puts far more strain on a road or bridge than your Honda Civic, and so they should bear the cost of maintaining that infrastructure. The federal government does collect a "Heavy Vehicle Use Tax", but it only brings in $1b for infrastructure funding, and it does not incorporate mileage into its fee calculation.[10] Oregon, meanwhile, collected $328m in revenue from these commercial mileage fees alone, while the previously mentioned October 2019 CBO report found that a federal 5 cent/mile fee could result in $12.8b in revenue. While this addresses the yearly budget shortfall, such a system would require extensive administrative investments in order to properly collect the fees, as all four states reported instances of non-compliance. Meanwhile, the commercial freight industry would be a substantial lobbying obstacle to any proposed national fee system.

Replacing Fuel Taxes with Mileage-Based Systems


A step further than freight fees, the federal government could replace the current fuel tax system with a mileage system for all vehicles. During a pilot program in Oregon, 5000 voluntary drivers were charged 1.5 cents per mile driven, in place of the state fuel tax.[11] Oregon was able to collect the same level of revenue as state fuel taxes under this system, showing that a mileage system is a viable revenue alternative. At the federal level, a small halfpenny increase in the per mile fee (to 2 cents/mile) could see substantial revenue for infrastructure funding. Meanwhile, increasing fuel standards and electric vehicle market share would not pose a threat to the revenue source, which is an issue of our current fuel tax system. However, this system would need to be properly structured to enforce accurate reporting and balance serious privacy concerns, as monitoring systems may employ GPS. Car manufacturers could be mandated to produce new vehicles with pre-installed monitoring systems with privacy safeguards, but that would inherently lead to a slow roll-out period as Americans replace their current cars. Political obstacles are certain to arise with a mileage system, as those who need to drive further in their everyday lives - rural voters - could be extremely opposed. The nation's underfunded infrastructure needs a solution that is administratively and politically feasible now, not 10 years down the road (or bridge).

 

Final Thoughts


Raising federal fuel taxes is the most viable solution to our infrastructure funding problems. It is simple to implement administratively, and although political hurdles certainly exist, they are manageable when compared to the freight and consumer mileage-based policies. To avoid voter or legislative opposition to tax increases, this policy could be rephrased as a return to the 1993 tax, while well-maintained roads and bridges could be described as a worthwhile investment to the American driver. Paying more at the gas pump seems enticing when compared to a costly trip to the mechanic, replacing blown tires and damaged suspension systems from hitting potholes at 40mph. Raised federal fuel taxes could potentially save American drivers more in their car's maintenance than they would spend on the increased fuel prices.


This policy option is not perfect. Increasing fuel standards and the possibility of larger electric vehicle market shares could eventually cause issues for any fuel-based funding source. However, with a $533b maintenance backlog and a recurring $14b budgeting shortfall, federal infrastructure funding needs a solution now. Although revenue issues caused by electric vehicles are certainly a bridge to cross in the future, there must be a bridge first. By raising the federal fuel taxes, the infrastructure budget becomes fully funded and the backlog of necessary road and bridge maintenance can be addressed. Ultimately, raising the federal fuel taxes are a realistic, viable policy that can be enacted swiftly.

 

References:


1. Olorunnipa, Toluse, and Mike DeBonis. May 26 2019. “Trump falls short on infrastructure after promising to build roads, bridges and consensus.” The Washington Post, https://www.washingtonpost.com/politics/trump-falls-short-on-infrastructure-after-promising-to-build-roads-bridges-and-consensus/2019/05/26/1027446e-7c9f-11e9-8bb7-0fc796cf2ec0_story.html


2. Aschauer, David Alan. 1989. “Is Public Expenditure Productive?” Journal of Monetary Economics 23(2):177-200. https://doi.org/10.1016/0304-3932(89)90047-0


3. Duran-Fernandez, Roberto, and Georgina Santos. 2014. “An empirical approach to public capital, infrastructure, and economic activity: A critical review.” Research in Transportation Economics 46:3-16. https://doi.org/10.1016/j.retrec.2014.09.001


4. Congressional Budget Office. October 2019 "Issues and Options for a Tax on Vehicle Miles Traveled by Commercial Trucks". https://www.cbo.gov/system/files/2019-10/55688-CBO-VMT-Tax.pdf


5. American Society of Civil Engineers. 2017. “2017 Infrastructure Report Card: A Comprehensive Assessment of America’s Infrastructure.” https://www.infrastructurereportcard.org/wp-content/uploads/2016/10/2017-Infrastructure-Report-Card.pdf


6. Congressional Budget Office. 2015. “Public Spending on Transportation and Water Infrastructure, 1956 to 2014.” https://www.cbo.gov/publication/49910


7. Kane, Joseph W. and Adie Tomer. 2019. “Shifting into an era of repair: US infrastructure spending trends.” The Brookings Institution. https://www.brookings.edu/research/shifting-into-an-era-of-repair-us-infrastructure-spending-trends/


8. Using https://data.bls.gov/cgi-bin/cpicalc.pl to calculate adjusted prices for .184 (gasoline tax) and .24 (diesel tax).


9. Total Revenue = (140b gallons of gasoline x $0.33) + (35b gallons of diesel x $0.43). Sales pulled from the US Energy Information Administration https://www.eia.gov/tools/faqs/faq.php?id=23&t=10


10. US Department of Transportation, Federal Highway Administration. "The Heavy Vehicle Use Tax: Funding Our Nation’s Highway Programs and Leveling the Playing Field" https://www.fhwa.dot.gov/policy/091116/pdfs/fhwatri-fold.pdf


11. Oregon Department of Transportation. 2017. "Oregon's Road Usage Charge" https://www.oregon.gov/ODOT/Programs/RUF/IP-Road%20Usage%20Evaluation%20Book%20WEB_4-26.pdf

114 views0 comments
Post: Blog2_Post
bottom of page