Executive Summary
To keep the U.S. competitive in the global economy, surface transportation investment must be substantially increased. The first step is to avert a potential reduction due to revenue shortfalls in the Highway Trust Fund. The next step the nation needs to take toward that goal is to restore the purchasing power of current programs by increasing highway capital investment to approximately $160 billion and transit investment to nearly $40 billion by 2015. Finally, the nation must address the long-term viability of funding for transportation programs.
The only way those levels of funding can be achieved is for all levels of government—federal, state, and local—to continue to fund their historical shares and for each level of government to increase their funding participation. Over the past decade the federal government has provided approximately 45 percent of highway and transit capital funding, while 55 percent has been provided by state and local governments.
Meeting America’s surface transportation needs will require a multi-modal approach which preserves what has been built to date, improves system performance, and adds substantial capacity in highways, transit, freight rail, intercity passenger rail, and better connections to ports, airports, and border crossings. Meeting several of these multi-modal needs will require sources of revenue outside the Highway Trust Fund.
The Immediate Federal Funding Crisis
The federal highway program faces a funding crisis beginning in fiscal year 2009 and accelerating dramatically in fiscal year 2010. Current Highway Account revenue projections for 2009 show a shortfall of $4.3 billion in revenue. That shortfall will require an obligation reduction in the highway program of about $16 billion, or a 35 percent reduction in new obligation authority.*
A three-cent fuels tax increase, or its equivalent in other revenue, can avert the dramatic $16 billion highway program cut, and allow for modest growth in the highway program.
Restoring Program Purchasing Power
Commodity prices for steel, concrete, petroleum, asphalt, and construction machinery increased dramatically from 2004 to 2007. As a result it is estimated that between 1993, the year in which federal fuel taxes were last adjusted, and 2015, construction costs will have increased by at least 70 percent. To restore the purchasing power of the program, federal highway funding will have to be increased from $43 billion in 2009 to $73 billion by 2015. To restore the purchasing power of the transit program, federal funding would have to be increased from $10.3 billion in 2009 to $17.3 billion in 2015.
To generate the revenues to support this increase, between 2010 and 2015, federal fuel taxes would have to be increased by 10 cents or its equivalent. The rate would need to be increased by 3 cents or its equivalent in 2009 to sustain the program at the level guaranteed in SAFETEA-LU. It would have to be increased by another 7 cents or its equivalent in 2010 to restore the program’s purchasing power.
Table 1. Highway Trust Fund Options to Increase Revenues
Short-Term Federal Revenue Options for the Highway Trust Fund (2010–2021)
There are several options to accomplish the dual objectives of sustaining the program at the levels authorized by SAFETEA-LU and then restoring the program’s purchasing power. (Table 1.)
Short-Term Federal Funding Options Outside the Highway Trust Fund
Whether the problem is the need for better intermodal connections to ports, airports, or railroads, or the expansion of railroad capacity itself, the scale of the public-sector investment needed is beyond that which can be met from the Highway Trust Fund. The United States needs to find ways to significantly increase freight-related investment using new sources of revenue. (Table 2.)
Stabilizing funding for Amtrak and capitalizing new intercity passenger rail corridor service will also require substantial revenues from outside the Highway Trust Fund.
Table 2. Federal Options for Increasing Revenue from Sources Other Than the Highway Trust Fund
State and Local Government Investments
AASHTO believes that if we are to make the large increase in funding needed, state and local governments must do their part as well. That means for the period between now and 2015, state and local highway capital investment would have to increase to approximately $89 billion, and their transit investment increase to around $21 billion. The good news is that they have delivered increases on this scale before.
In 1981, highway capital investment was a total of $19.7 billion, $11.5 billion in federal funding and $8.2 billion state and local. By 2005, it had increased to $75 billion, up 280 percent, that included $33 billion federal, a 187 percent increase, and $42 billion, state and local funding, up 412 percent. If state and local investment increases at the same annual rate for the 10 years between 2005 and 2015, as it did for the 24 years between 1981 and 2005, it will increase to $89 billion.
During the 23-year period from 1981 to 2004, transit capital investment on all levels increased by 290 percent, from $3.4 billion to $14.2 billion. It is significant to note that in the period from 1990 to 2005, state funding for transit increased by 256 percent from $3.7 billion per year to $9.5 billion per year.
Over the past two years, transportation measures nationally have done well at the polls. In the 2004 elections, 76 percent of transportation ballot measures passed. In the 2006 elections, between statewide measures and city, county, and transit proposals, $40 billion in new funding for transportation was approved.
Tolls are currently collected on 4,600 miles of roads in 25 states. Toll-generated revenues amounted to $7.75 billion in 2005, which represented 5 percent of total highway revenues in that year.
AASHTO has taken the position that every state should be given all options possible for funding opportunities in the areas of tolling and public–private ventures so states can determine for themselves what is in the best interests of their citizens. AASHTO has also embraced a bold goal of increasing the percentage of toll revenues to 9 percent of the total for highway revenues nationally. AASHTO’s position is that federal policy should enable and encourage innovative finance tools and innovative contracting tools as well.
Long-Term Federal Revenue Options
Over the past three years, Oregon has been field testing a mileage-based user fee, which could be the alternative needed to replace the fuel tax as the primary means of support for the Highway Trust Fund. What Oregon’s experiment has demonstrated is the complexity of implementing such a change. Congress should be urged to fund additional pilots and studies during the period from 2010 and beyond to test and explore alternative revenue options. (Table 3.) AASHTO is developing a report on additional long-term revenue options which will be published later this year.
Table 3. Long-Term—Alternatives to Supplement or Replace Fuel Taxes
*Dollars committed to be paid out from the Highway Trust Fund begin with a payout of 27 cents on the dollar in the first year of commitment. Therefore in order to save $1 in payouts it is necessary to reduce the commitments (obligation limitation) by $4 to generate the necessary savings.
