In face of uncertainty, there is no wonder that some projects only move forward if the government is willing to subsidize them.
The federal Highway Trust Fund needs another bailout (upwards of $8 billion). It is facing insolvency some time in 2013, and it needs reauthorization by the end of March. The House is working on a bill menacingly entitled the American Energy and Infrastructure Jobs Act, a five-year, $260 billion transportation bill. Among some good ideas, the bill would supplement the “Trust,” which to date is financed almost exclusively from an 18.4 cent federal gas tax, with energy royalties. That is a very bad idea.
The HTF is a case study in institutional corruption. In its original (1956) version, the Fund financed the expansion of the federal interstate system. There’s a credible argument that the scheme wasn’t really needed (we built a respectable road system in the 1920s without much federal assistance), and you can argue over the distribution of the funds and, certainly, the Davis-Bacon requirements that tag along with them. Still, the Fund provided a national public good (albeit one with local aspects in production and consumption), and funding through the federal gas tax was as close to benefit taxation as the national government can come under the Constitution.
The system was too good to last. In 1970, Congress began to divert funds for non-highway purposes. It took another, bigger step in 1982, when the interstate system was essentially completed and Congress dedicated 20 percent of the HTF to urban mass transit. Another law in 1991 (ISTEA) went yet further down that path. (Funny how these things tend to happen under Republican administrations.) Also in the 1990s, Congress began to divert gas tax increases from the HTF to the general budget. In the out-years, these maneuvers came to be called “raids,” and the HTF was periodically replenished with bailout transfers from general revenues. The 2005 enactment was the product of an earmarking, universalist Congress on acid; it contained the notorious “bridge to nowhere,” among countless other national priorities. About one-third of HTF funds are now being diverted to local, non-highway uses.
The only way to reverse this trend is to revert to the original design: gas tax for highways, end of debate. Senator Jim DeMint (R-SC) has supplied a proposal to that effect. Any such move, of course, faces stiff opposition from state and local lobbies, which talk a good federalism game until someone tells them to finance local public goods from local taxes; and from the invest-in-America’s-future-boondoggles crowd that encompasses the Obama administration, the Chamber of Commerce, and n outfits in-between. Still, it’s not completely crazy to think that reform might be possible. The diversion of user-financed public goods always carries a risk of undermining the political coalition that sustains the scheme. It worked over the past three decades because that coalition could always be assured that heck, there’d be another pot of money around the corner.
It’s when there won’t be such a pot—and the highways are crumbling—that the original HTF coalition might find the resolve to throw the hangers-on under the locally financed bus.