House Republicans have proposed cutting federal spending on highways and transit by 30 percent. The plan, presented on Thursday, July 7, would severely reduce federal spending in accordance with House rules that spending cannot exceed receipts.
The reductions are a good idea, and very much attainable. It is unclear at this point how much of the spending will still go to impractical transit projects — such as high-speed rail — that are not self-sustaining and will need huge taxpayer subsidies far into the future.
Most federal surface transportation funds come out of gas taxes, which produce about $35 billion a year in revenue. Congress reauthorizes the use of these taxes about every six years — the current reauthorization is two years behind schedule. This year’s reauthorization effort is led by Representative John Mica (R-FL), chair of the House Transportation and Infrastructure Committee.
Republicans were in charge of Congress in 2005 when the last reauthorization took place (also two years behind schedule), but at that time they were hardly fiscally conservative. Congress authorized nearly $50 billion a year in spending, and made it mandatory — the appropriations committees had to spend that much even if revenues fell short. When revenues did fall short, Congress had to appropriate tens of billions in general funds to make up the difference. The 2005 bill was also a pork fest, with 7,000 earmarks totaling $24 billion.
When, with the help of Tea Party voters, Republicans retook the House in 2011, they changed the rules: forbidding earmarks; spending no more than revenues; and making spending optional instead of mandatory so the appropriations committees can cut spending further as they deem appropriate.
The July 7 proposal makes one other significant change: focusing on formula funds rather than competitive grants. When Congress first dedicated gas taxes to highways in 1956, funds were distributed to the states based on formulas using population, land area, road miles and other factors. But in the 1990s, Congress increasingly began using competitive grants.
The Obama administration argues that grants help make sure that federal dollars are spent where they are most needed. But in actual practice they end up being heavily influenced by politics. In October 2010, for example, the administration gave out billions in high-speed rail funds to states and congressional districts where Democratic members of Congress were fighting close re-election campaigns. The House Republican proposal focuses mostly on formula grants, which are relatively immune to political pressure, at least after the formulas are written. Mica also rejected Obama’s call for an infrastructure bank, which would have been a giant competitive porkmaking grantmaking program.
Not surprisingly, Democrats have blasted Mica’s proposal, saying the reduction in spending would cost jobs and hurt the stimulus effort. When Democrats were in charge in 2009-2010, Mica’s predecessor proposed to spend $500 billion over six years. In May 2011, the Obama administration floated a proposal to spend $480 billion over six years. Mica estimates that his plan would spend only $330 billion over six years ($35 billion a year plus inflation). And, unlike other plans, Mica’s plan would be entirely funded out of gas taxes and other highway user fees (mainly taxes on truck tires).
Democrats will also point to the nation’s “crumbling infrastructure.” But American highways, which are funded mainly out of user fees, are actually in pretty good shape: the number of bridges considered “structurally deficient” has steadily declined and the average condition of pavement has improved. It is America’s rail transit systems, which are funded mainly by non-users, that are in poor shape: The Federal Transit Administration estimates transit has a $78 billion backlog of deferred maintenance. Yet transit agencies continue to propose to spend more billions building transit lines that they can’t afford to maintain. The Democrats’ proposals to build even more rail transit will only exacerbate this problem.
Mica’s proposal does not specify what share of federal funds will go to highways vs. transit. Since all the revenue comes from highway users, the diversions to transit have weakened the already weak link that gas taxes provide between users and transportation providers. Before 1982, 100 percent of federal gas taxes were dedicated to highways. After 1982, 20 percent of all increases in those gas taxes have been dedicated to transit. This was done in an effort to placate highway interests (who wanted more money) and urban transit interests (who agreed to support higher gas taxes provided they got a share). In the 2005 bill, about 15.5 percent of federal gas taxes went to transit, and Mica has not suggested any change in this formula.
The problem with spending gas taxes on transit is that transit agencies end up with a huge windfall that leads them to waste money. This waste has been particularly severe when the money is distributed through competitive grants, which have given the transit agencies incentives to propose the most costly alternatives possible (such as rail transit when buses would work better) in order to get as large a share as possible of the total funds. Mica’s proposal to focus on formula grants will ease this, and he also proposes to remove barriers to private transit operators that may want to compete with public agencies.
The Republican plan does not follow all of Cato’s recommendations, but it is far better than any fiscal conservatives would have expected just a year ago. Reducing federal spending leaves states more dependent on local user fees than “free” federal handouts. Concentrating on formula grants reduces the perverse incentives created by those handouts. Eliminating earmarks and keeping spending within revenue limits are also great improvements.
Mica’s one problem is that he has been the chief promoter of an expensive rail transit project in his district that is predicted to carry very few riders. If built, the Orlando SunRail project would be so costly that it would be less expensive to give every daily round-trip rider a new Toyota Prius every other year for the next 30 years. Florida Tea Party activists have worked hard to kill the project, so far unsuccessfully. Mica will have a hard time explaining to Democrats why his district gets this fat piece of pork when their own favored projects will not be funded.
Randal O’Toole is a senior fellow at the Cato Institute and author of Gridlock: Why We’re Stuck in Traffic and What to Do About It.
