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Transportation 101 Series
Revenue: What Are the Options?
Historically, the federal government has contributed about 45% of transit and highway capital investment, while states and localities have shouldered primary responsibility for the extensive costs of operating and maintaining the system. (National Surface Transportation Infrastructure Financing Commission, Paying Our Way: A New Framework for Transportation report).
Federal highway and transit programs are facing a dire revenue situation. Highway Trust Fund (HTF) revenue projections for fiscal year 2010 and beyond show that without additional funds, federal investments will have to be drastically reduced from today’s levels, which are far short of meeting capital needs.
Current user fees generate only enough revenue to finance $35.1 billion of federal highway, highway safety, and public transit investments in fiscal year 2010, which would be a 34% cut from this year’s $53 billion funding level. (House Committee on Transportation and Infrastructure, A Blueprint for Investment and Reform).
It’s Economics 101: There is no such thing as a free lunch. There are only a few viable options to address the problem.
Option 1: Cut transportation programs commensurate with available funding levels by narrowing the scope of federal transportation programs or by reducing the federal matching share for projects.
Trade-off: These approaches simply shift responsibility to states and local communities, which will be forced to find other revenue sources to address transportation needs.
Option 2: Pay for additional transportation spending with nontransportation-related tax increases or deficit spending.
Trade-off: This approach discontinues the “user pays” basis of federal transportation policy. Instead, surface
transportation programs will be paid for by increasing corporate taxes or by borrowing from future generations. Most important, this eliminates the certainty of a multiyear transportation program and forces it
to compete with other domestic discretionary programs as part of annual budget and appropriations processes.
Option 3: Increase user fees to address well-documented needs for today and tomorrow.
Trade-off: The simplest, most straightforward, and effective way to generate enough revenue for federal transportation programs is through increasing federal gasoline and diesel taxes. This fact has been substantiated and then endorsed in recent studies by a broad spectrum of organizations, including two congressionally chartered commissions and the U.S. Chamber of Commerce.
Increased user fees should be coupled with the opportunity for states and local communities to exercise a full range of financing options to stretch federal, state, and local resources and to access private capital. Financing is not a substitute for federal resources. The federal government still needs to be a full funding partner in maintaining, modernizing, and expanding the nation’s transportation system.
The Chamber would support an increase in user fees if Congress advances a SAFETEA-LU reauthorization bill that realistically achieves the following:
- A refined federal role, oriented to achieve national interests.
- Significant program reform, emphasizing performance management and accountability to ensure that costs are minimized and benefits are maximized.
- The creation of new opportunities to access private sector funding sources.
- Improvement in the integrity of user fees by limiting earmarks and nontransportation spending.
- The establishment of a road map for a sustainable revenue model.