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Why is the Highway Trust Fund going broke (and what can be done about it)?

You may have been hearing some doomsday reports in the media about the impending bankruptcy of the Highway Trust Fund. The US Department of Transportation has a ticker where you can watch the balance drop. What is happening, and why?


Photo by Joe Shlabotnik on Flickr.

What is the Highway Trust Fund?

The Highway Trust Fund (HTF) is basically a bank account that was established by Congress in 1956 to pay for the Interstate Highway System. The HTF is funded through revenues from the federal gas and diesel taxes, and an assortment of other taxes on things like truck tires. The idea was that these taxes are essentially road user fees, and thus should be set aside for transportation.

In 1982 we started the long and painful slog away from the "user fee" concept with the creation of the Mass Transit Account, which funds transit capital projects.

How important funding from the HTF is for transportation infrastructure varies a lot from state to state. In our region, federal funding comprises 86% of transportation capital investment in Virginia, and it's also really important for WMATA, according to the Bipartisan Policy Center.

How much money is in the HTF right now?

The HTF is divided into two main accounts, the Highway Account and the Mass Transit Account. The former has $8.1 billion in it right now and the latter has $2.8 billion.

That sounds like lots of money. Why the wailing and gnashing of teeth?

True, the current balance in the HTF is roughly 80% of what it was last October. That seems far from empty. But we really are about to blow through those billions.

Most programs financed by the HTF are operated on a reimbursement basis. That means that money to pay for projects doesn't go out the door until the project is complete and has been inspected. It's not unusual for states to basically be handing over big piles of receipts at the end of the fiscal year to get paid back. Thus, most of the projected drop has yet to occur.

Also, the summer construction season is just now kicking into high gear. People are freaking out because bids for work are going out the door while a letter from Transportation Secretary Foxx warns that reimbursements may well be delayeda cash flow crisis for states.

Why is this happening if it's possible to predict it in advance?

The HTF is in crisis because it's traditional revenues are no longer sufficient to cover the spending levels Congress authorized for transportation programs. To cope, Congress has been periodically bailing out the trust fund for the last few years using infusions of money from the General Fund (the pot all our income taxes go into).

So this is an artificial crisis? We're creating it by spending more than we have?

Some folks certainly see it that way. Others note our crumbling bridges and burgeoning demand for transit capital projects. Also the current transportation spending authorization, passed in 2012, did not increase spending.

If our transportation spending is reasonable, why can't we find the money to pay for it?

We last raised the gas and diesel taxes in 1993. The CBO estimated last year that if these taxes had been indexed to inflation, the 18.4¢-per-gallon tax on gas would be 29¢ today. Basically, the HTF has lost 38% of its purchasing power to inflation alone.

When people bring up raising the gas tax, smarty-pants folks correctly point out that cars have become more fuel efficient, and even in these more efficient cars people are driving less, so the gas tax is becoming conceptually inefficient or obsolete. Ideologues point out that we spend HTF money on things that encourage people to drive less, and thus pay less into the fund, like transit infrastructure, sidewalks, and bicycle facilities. However, more intellectually pure solutions like road pricing or a tax on vehicle miles traveled are not ready for prime time. So, let's stop changing the subject.

The CBO estimates that raising the two motor fuel taxes by 10¢ would solve the problem without eliminating funding for any current transportation programs. In other words, other issues are marginal compared to the effectiveness of simply adjusting motor fuel taxes for inflation.

A bipartisan proposal to do just that is finally making the rounds after years of General Fund bailouts. However, such a proposal is both a referendum on our economic recovery since 2008 and our sense that we need a federal transportation program. That means it's got a long row to hoe with the Obama administration and tea party conservatives.

What will happen if the HTF empties out while we are waiting for Congress to act?

USDOT will stop writing checks. Stop work orders will go out on projects. Contractors will get laid off. The lights are going to go off in some people's houses.

Because this pain will be very visible, and affect every state, it's likely that Congress will provide a general fund bailout at a minimum for this summer. Just a couple of months ahead on the calendar, however, the current transportation spending authorization will expire at the end of September, another impending crisis that requires Congressional action.

Many professionals in the transportation sector are weary of the constant lurching from one short-term authorization to another, and the de facto endless funding cut that is inflation. However, I'm not convinced that we transportation professionals have fully confronted why many in Congress, or even the general public, might be reluctant to fund our work.

It's not just time to raise the gas taxit's time to increase transparency in transportation planning, truly listen to the public's priorities about transportation, and earn the trust required to justify dedicated revenues. I'll talk more about that in an upcoming post.

Politics


Will Cantor's loss push congressional Republicans to balk on transportation compromise?

Last night, US House majority leader Eric Cantor lost the Republican primary to a tea party challenger who painted Cantor as too willing to compromise with Democrats. Cantor's loss makes this summer's looming congressional fight over transportation funding all the more unpredictable.


US Highway Trust Fund balance. If Congress doesn't act soon, money will run out. Image from USDOT.

MAP-21, the federal transportation funding bill, expires in October. But the US Department of Transportation (USDOT) will begin running out of money in August. Without a bipartisan bill to add new money, federal transportation funding will trickle to a halt.

Transportation wasn't a major issue in Cantor's election, but immigration reform was. Cantor mostly opposed immigration reform, but he briefly contemplated compromise, giving his more conservative opponent David Brat an opening to attack.

Some pundits fear that will push every other House Republican away from compromise in general, and grind whatever progress Congress was making on anything to a halt.

From an immigration perspective that probably makes little difference; House Republicans were not going to compromise anyway. But it could make a huge difference for transportation.

Transportation funding was a non-partisan issue in the 20th Century. Every six years Congress would pass a transportation bill with broad support from both parties. But in recent years, amid declining gas tax revenue and increasing need for supplemental funding, transportation has become a partisan spark.

Congress seemed primed to act, but now it's an open question

Up until Cantor's defeat, the general assumption in the transportation world has been that Congress would do something this summer. "Something" might mean a long term solution like a new bill and new taxes. Or it might mean a band-aid, like an extension of MAP-21 with an infusion of federal general fund dollars. Either way, Congress appeared to be making some progress.

But now? House Republicans might very well cease all legislative activity, and hope to ride out the rest of election season without upsetting their conservative base.

Polls show that raising money for transportation is popular, and voters rarely punish officials for doing so. But that may not matter to Republicans concerned about attacks from the extreme right.

While in Congress, Cantor fought against progressive transportation funding. But in this case his personal vote, and even his leadership on the specifics, might be less important than the simple fact that he was probably willing to advance a bill.

On the other hand, maybe the Republican establishment will take this as a call to arms, and moderate legislators will become more powerful. But that seems unlikely the day after the biggest tea party victory of the season.

Cross-posted at BeyondDC.

Roads


Foxx has the makings of a great Transportation Secretary

President Obama yesterday nominated Charlotte Mayor Anthony Foxx as the next Secretary of Transportation. If Foxx's experience in Charlotte is any indication, he'll make a strong choice.


Charlotte streetcar construction. Photo by Reconnecting America.

During his nomination press conference, Foxx said "cities have had no better friend" than the US Department of Transportation under outgoing Secretary Ray LaHood, and that if confirmed he would hope to "uphold the standards" LaHood set. That's great news.

The fact that Foxx comes from a major central city is also a huge benefit. It means he understands urban needs, which aren't just highways.

Charlotte may not be New York, but it's made great strides in the right direction. The city's first rail line opened a few years ago, and a streetcar line is under construction now. Charlotte also gained bronze-level status as a bike friendly community in 2008, and launched bike sharing in 2012.

Foxx has been a strong advocate for urban rail, especially streetcars. He knows transportation and land use are tied at the hip, and has fought repeated attacks on Charlotte's streetcar by former Mayor and current North Carolina Governor Pat McCrory.

He's also worked as an attorney for bus manufacturer DesignLine.

Foxx also knows that state Departments of Transportation can sometimes be part of the problem. At the federal level, it's common for USDOT to delegate responsibilities and funding to state DOTs, under the assumption the states have a better understanding of local needs. But state DOTs aren't any more local than any huge centralized government. And since they usually focus on highways, the result is that federal dollars mostly go to highways as well.

Since Foxx fought with the state over Charlotte's streetcar, he knows that funneling everything through state DOTs means states hold the cards. He knows that can hurt cities.

Finally, Foxx hired Arlington, VA's former county manager, Ron Carlee, to run Charlotte's city government. Foxx would have heard about Arlington's reputation for progressive transportation planning during the hiring process, and presumably counted it in Carlee's favor.

Of course, no one can really predict what kind of Secretary Foxx will be. When progressive champion Ray LaHood was first tapped for the job, the blogosphere worried his history as a Republican from rural Illinois meant he'd be a status quo highway builder.

But we do know that Foxx has made a priority of building transit in his home city, and has had to fight to make it happen.

Cross-posted at BeyondDC.

Roads


A lot rides on how USDOT defines "congestion"

Congress has done its job, such as it is, and passed a transportation bill. Now it's handed off the policymaking to USDOT, which must issue a raft of rules, definitions, and guidance to accompany the new law, known as MAP-21. According to sources with intimate knowledge of this process, much depends on how DOT decides to measure congestion.


Photo by Joe Shlabotnik on Flickr.

New performance measures for the Congestion Mitigation and Air Quality Improvement program (CMAQ)and quite possibly for the entire national highway system (depending how they define "roadway performance")require a working definition of congestion.

If the agency follows the prevailing orthodoxy, states could be rewarded for wasteful highway spending. If it adopts better measurements, smarter investments and less wasteful spending will follow.

The CMAQ measures will also require a definition of "cost-effectiveness," a related but somewhat separate can of worms.


Graphic from CEOs for Cities.

The above graphic shows the wrong way to measure travel performance. The "Travel Time Index" awards a better score to Charlotte than Chicago, even though commutes in Chicago are shorter, because drivers in Charlotte spend a higher percentage of their time in free-flowing traffic.

USDOT should include distance driven in any measure of congestion

Performance measures in the MAP-21 law have been criticized for being toothless, since many of them don't have consequences attached. However, there is still the possibility that state performance rankings could be made public. And a spotlight on state failures could be an effective way to encourage good decisions.

Streetsblog asked Joe Cortright for his advice to DOT officials struggling to define congestion. Cortright is an economist and senior policy advisor for CEOs for Cities. In 2010, the organization commissioned him to write Driven Apart, a critique of prevailing methods of measuring congestion. His words of wisdom for USDOT: "Don't make the mistake the Texas Transportation Institute makes."

TTI's Urban Mobility Report, released every year, invariably gives top honors to places that have overbuilt road capacity. The institute measures congestion only by looking at the degree to which traffic slows down people's commutes. The problem with that, Cortright says, is that "you end up rewarding places that encourage people to drive longer and longer distances, and then you look at those long distances that they're traveling, and say because they're moving at a relatively higher speed much of the time that they're driving, that the system is somehow performing better."

Over the past few years, USDOT has been very deliberately working hand-in-glove with HUD and the EPA to treat transportation and land use as one cohesive system. It only makes sense that the agency use the same ethic in measuring roadway performance and congestion. By doing so, DOT would have to acknowledge that a long commute along miles and miles of free-flowing highways is no bargain compared to a short commute in dense traffic, not to mention an even shorter commute on transit.

Clark Williams-Derry, research director for the sustainability-focused Sightline Institute, suggests that congestion may simply be the wrong thing to measure. "Focusing on congestion is like, in a basketball game, focusing only on the number of assists you get," Williams-Derry said. "It's an interesting fact, but it doesn't tell you the final score."

But people treat this one piece of the picture as if it's "the whole story," he says. Why not measure how long it takes to get from place to place? Or how much it costs? After all, a major argument against congestionand the reason that congestion reduction is elevated to a national priorityis that time spent stuck in traffic is lost productivity, which adds up at a national level. But the TTI method actually masks how projects affect total travel time, and wouldn't help measure productivity gains or losses.

The upshot is that following the same methods as TTI's Urban Mobility Report to set performance goals under MAP-21 would be a huge mistake. "It would focus resources on projects that are sprawl-oriented, that encourage decentralized development," Cortright said. "You can raise your performance on that measure most by having people drive more, as long as they're driving faster."

Cortright recommends that DOT put more emphasis on vehicle miles traveled than travel speed, and notes that this is especially important when it comes to measuring the cost-effectiveness of projects that are supposed to mitigate congestion and improve air quality. That's another tricky definition DOT is going to have to figure out.

It's not cost-effective for USDOT to encourage projects that induce driving

When DOT decides how to judge the cost-effectiveness of a CMAQ project, they can either focus on the CM (Congestion Mitigation) or the AQ (Air Quality), but those aren't the same thing. "It's unambiguous that if people drive fewer miles there's going to be less pollution," Cortright said. "A lot of the quote-unquote 'congestion reduction' projects essentially encourage more VMT."


Widening roads induces more people to drive, which makes it a poor method to address congestion. Image from Todd Litman at the Victoria Transport Policy Institute.

"There's this pervasive mythology that our pollution problems are chiefly caused by people having to idle in traffic," he continued. "There's no evidence for that, and the evidence there is suggests that if you reduce congestion, people actually drive further, and that more than offsets the benefits of less idling."

In addition, Williams-Derry pointed out that not all congestion is stop-and-go traffic. Congestion that consists merely of slower but smoothly flowing traffic actually improves air quality, since cars work more efficiently at slower speeds. That's what makes CMAQ a tricky program to judge, since its two goals are sometimes at odds with each other.

If DOT is going to measure cost-effectiveness, Cortright and William-Derry say, it needs to think like a business. Starbucks would never build a second café next door so that it could move the line faster at 9:00 a.m. and then have it sit empty the rest of the day. Building more roadway capacity to handle peak-of-the-peak traffic makes just as little sense.

Cost-effectiveness also can't be measured without examining what are known as "externalities"the costs of driving that are passed on to the public. "The existing gasoline tax doesn't even cover the maintenance on the highway system that we have now," Cortright said. "It doesn't reflect the economic losses to crashes, it doesn't reflect the economic externalities associated with the environmental effects of burning all this gasoline and putting carbon in the atmosphere, and it doesn't reflect the foreign policy and military costs of being so dependent on foreign oil."

"If I were USDOT, I'd try to add in, in figuring cost-effectiveness, the cost of all those other subsidies to automobiles," he added.

There are still people inside and outside DOTincluding some of the authors of MAP-21 inside the halls of Congressfor whom the only cost-effective transportation solution is to expand roads so cars can move faster. Not only would this do nothing to solve the problem of congestion, it would actually exacerbate the air pollution that the CMAQ program is designed to address.

By being thoughtful about how to define success in the CMAQ program specifically, and roadway performance generally, USDOT can have a tremendous and lasting impact on whether our transportation system is sustainable and sensibleor whether it drives us off a cliff.

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