May/June 2008 Issue

A looming fiscal crisis sets the stage for a high-funding showdown.
By Rob Bhatt


Editor’s note: As the debate about the future of transportation and how to fund it continues in Washington, AAA has called for a new vision and purpose for the federal transportation program before motorists are asked to pay more. Delivering on a new vision will ensure the continuance of what we all know as the American way of life. It is premised upon our ability to go from where we are to where we want to be, at the time we want, via the route we prefer, on the transportation mode that best serves our needs.
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. Furthermore, last summer’s collapse of the Interstate 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.

In many ways, the decisions that federal lawmakers make about our transportation network will have as much direct impact on our daily lives as anything else they do. For these reasons, AAA presents this primer on the key issues surrounding the future of the places in our nation where the rubber really does meet the road.

SAFETEA first

The five-year $244.1 billion federal transportation spending law known as SAFETEA-LU (an acronym for Safe, Accountable, Flexible, Efficient Transportation Equity Act: A Legacy for Users) expires in 2009. The reauthorization process, which resumes after the new president and Congress are sworn in next year, promises to be a far cry from business as usual. Agencies such as the Congressional Budget Office (CBO) warn of an impending deficit for the federal Highway Trust Fund. The account 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, the trust fund’s revenues have since grown at a slower pace than spending. The CBO expects the fund to exhaust the last of its reserves this year and rack up growing negative balances beginning in 2009. Because money from this account, allocated in shares to each state, currently finances about 45 percent 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 in increments from 4 cents per gallon in 1956 to its current level in 1993. 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.
Other 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.

These are just some of the reasons why Congress 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, called the National Surface Transportation Infrastructure Financing Commission, will release its recommendations later this year. Based on the interim report that this commission 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 as they craft a successor to SAFETEA-LU. As the process moves forward, privatization, congestion pricing and mileage fees are likely to emerge as the funding alternatives that generate the most passionate debate.

Corporate highways

The private sector is eager to enter America’s infrastructure industry. Twenty-three states have already adopted legislation allowing companies to either 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 in deals to take over operations and maintenance of existing toll highways in Chicago in 2004 and Indiana in 2006. Other states are considering similar agreements with the Cintra group and other corporations.

Proponents of these arrangements, often called public-private partnerships (P3s), contend that market dynamics such as competition and earnings pressure 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, said Cintra’s $1.8 billion deal to take over the Chicago Skyway allows the company to double tolls (to $5) in the first 12 years of its 99-year lease and continue increasing them after that. He also said 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 in conjunction with tolls to either finance new highways or simply manage traffic. Also known as variable pricing, congestion pricing makes it more expensive to drive during heavy traffic periods.

Part of the growing allure of congestion pricing, and tolls in general, stems from advances in wireless communications technology that make it relatively easy to collect tolls via transponders mounted in vehicles without stopping motorists. On California’s State Route 91 Express Lanes, which were built by a private developer in 1995 and acquired in 2003 by the Orange County Transportation Authority, motorists pay $1.20 to use the eastbound lanes before 5 a.m. on weekdays. The same drive costs $10.50 during peak commute hours on Friday afternoons.

“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 the law authorizing private toll roads in California. “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 value pricing creates 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 way to make motorists pay for the demands they create and the wear they place on highways is to tax them 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) completed testing on a program to use GPS and wireless communications technology to create just such a fee. Like every other state, Oregon charges a 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. Congress has sought input on the feasibility of implementing such a fee on a national basis.

James Whitty, manager of ODOT’s Office of Innovative Partnerships and Alternative Funding, said this 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 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 the prospect that the ability to use this system is about to get more expensive.

Rob Bhatt is senior editor of AAA Washington’s Journey magazine.

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