House Republicans’ Shortsighted Proposal to Fund Roads through More Drilling

by Marc Scribner on November 16, 2011 · 7 comments

in Energy, Features, Mobility, Natural Resources, Politics as Usual

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Recently, Republican members of the U.S. House of Representatives have proposed opening up more federal land and offshore areas to natural resource extraction. Such a move would both increase domestic energy production and raise government revenues through royalty payments. During the current economic slump and resulting fiscal crunch, anything that can increase the quantity of energy supplied and reduce government deficits should be lauded. But what some Republican members of Congress propose to spend these revenues on is far from laudable.

Led by House Speaker John Boehner, some in the Republican caucus wish to pour oil and natural gas lease revenues into the Highway Trust Fund, which has suffered from severe shortfalls for several years now. Right now, a six-year surface transportation reauthorization proposal (“the highway bill,” the previous multi-year reauthorization expired 777 days ago) from House Republicans needs to find an estimated $75-$100 billion in additional revenues in order to fully fund their bill, and proponents of such a funding mechanism argue that this will help close the gap. Many in the free market energy community are also applauding.

However, both groups fail to appreciate the long-run dangers of moving from the current (and longstanding) “user-pays” principle to a “taxpayer-pays” principle. They ought to pay more attention to the concerns of free market transportation scholars, such as the Reason Foundation’s Robert Poole and the Independent Institute’s Gabriel Roth. Since the Interstate program was established in 1956, federal highway spending relied on the “user-pays/user-benefits” principle. The idea was to tax road users (on fuel, tires, etc.) and then use the tax revenues to fund maintenance and capacity enhancements. This makes sense, as one would expect user tax revenue to approximately track user demand. Revenues were deposited into the Highway Trust Fund, which is partially shielded from the highly politicized appropriations battles that take place over most funding. This concept has long enjoyed broad bipartisan support.

It is well known that Highway Trust Fund revenues are no longer able to keep up with surface transportation spending. The federal excise taxes on gasoline and diesel have not been raised in nearly 20 years, and inflation has eroded a considerable amount of that purchasing power. Automobiles have also become more fuel efficient, which may save consumers some money at the pump, but this does not reduce wear and tear on the roads or reduce congestion costs. And other than a handful of limited exceptions, federal highway funds may not be used by the states to toll their Interstate segments.

Since the early 1980s, mass transit systems been receiving revenue generated by highway users. Through the Highway Trust Fund’s Mass Transit Account, as well as the Federal Highway Administration’s Congestion Mitigation and Air Quality Improvement Program and the Surface Transportation Program, transit now gobbles up about 20 percent of these revenues — robbing Peter the driver to pay for Paul’s train ticket. While transit users certainly pay far too little in fares to support the current systems, many arguably pay too much for the services they receive. Most municipalities prohibit flexible, smaller, private paratransit service, and states and municipalities have a strong political incentive to burn through as much federal grant money as possible and “invest” in the most expensive transit options available — which means underused high-capacity buses and extremely expensive and inflexible rail transit.

To put it simply, federal surface transportation policy is a complete mess. Earlier this year, House Transportation and Infrastructure Committee Chairman John Mica proposed major reforms to surface transportation in the U.S. — slashing current federal spending levels by more than one-third. This would have forced states, counties, and municipalities to make wiser investment decisions and to entertain novel funding mechanisms. Sadly, in the name of “jobs, jobs, jobs” (note: the mantra is never “growth, growth, growth”), it appears likely that members from both parties will continue much of the waste that characterizes government transportation spending.

The transportation system is already over-politicized. The myopic Republican plan to partially fund transportation improvements through oil and gas lease revenues — breaking with the long-established “user-pays” principle — will almost certainly increase political manipulation of transportation investments in the future, thereby increasing waste, fraud, and abuse. The U.S. cannot afford to go down this road.

While I’m all for “drill, baby, drill!” and reducing the deficit with oil and gas royalty revenues, these monies should be deposited elsewhere. Elsewhere as in, “anywhere but the Highway Trust Fund.”

William Yeatman November 16, 2011 at 2:03 pm

I think (but I’m not sure) your point is that “The transportation system is already over-politicized. The myopic Republican plan to partially fund transportation improvements through oil and gas lease revenues — breaking with the long-established “user-pays” principle — will almost certainly increase political manipulation of transportation investments in the future, thereby increasing waste, fraud, and abuse.”

But you don’t explain how this would happen. If the Highway Trust fund is “partially shielded,” then why does it matter is X billion in oil and gas revenues goes into it? Why would that money become more vulnerable to political meddling?

Also, isn’t the optimal policy the privatization of all highways? Yet you seem to endorse Mica’s statist plan, statist.

Marc Scribner November 16, 2011 at 2:29 pm

It is shielded from appropriations meddling by 2 U.S.C. 651 (c)(1)(b). If the 90 percent threshold is reached, this exemption goes away. Poole noted that adding to the HTF $15 billion per year in new oil/gas revenue (which would be needed to close the funding gap) would mean that only 72 percent of HTF revenues would be coming from users — well below the 90 percent requirement. The Republicans seem to believe this is purely a revenue problem. If the money were spent well, that argument would hold some water. In reality, much is wasted and will continue to be wasted because the Republicans aren’t proposing any meaningful reforms on the expenditure side of things.

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