Frittered away

| September 01, 2006

One dollar of every $6 in gasoline tax revenue goes to non-highway spending.

Tucked amid the many important infrastructure projects in the $286 billion transportation bill President Bush signed in 2005 is Alaska’s proposed Gravina Island Bridge. The $223 million structure would replace the 7-minute ferry ride that currently connects Ketchikan, Alaska, population 8,000, to Gravina Island, at a cost of $4.5 million for each of the island’s 50 residents.

Dubbed the “Bridge to Nowhere,” the project has been widely criticized as an outrageous example of pork-barrel spending. Also called earmarking, “pork” is funding that is paid for by all taxpayers but that brings economic benefits only to a few – in this case, the constituents of U.S. Rep. Don Young, R-Alaska, who heads the House Transportation Committee.

Such projects raise the ire of many, including watchdog groups such as Taxpayers for Common Sense. “The preponderance of these member projects indicates a transportation-funding program that is heading down the proverbial road to ruin,” Erich Zimmermann, a TCS senior policy analyst, told the U.S. Senate during a May 2005 briefing.

Zimmermann’s comments echo those of experts who warn of a fiscal crisis that will keep our overburdened highways at the mercy of congestion that now costs our economy $168 billion each year. While projects such as the Gravina Island Bridge garner the most media attention, in reality, such earmarks siphon off only about 8 percent of the highway budget. Other factors, such as declining Highway Trust Fund revenues, diversion of highway funds to non-highway projects, and excessive bureaucratic hurdles all conspire to thwart highway improvements.

Recognizing the seriousness of the situation, Congress in 2005 created the 12-person National Surface Transportation Policy and Revenue Study Commission. Its task: study highway needs and recommend alternatives to fuel taxes for highway funding. At the commission’s June 26 meeting in Washington, D.C., Federal Highway Administrator Rick Capka told attendees the Highway Trust Fund “is no longer sustainable in its current form.”

Established 50 years ago this summer to ensure a dependable source of federal funding for highways, the fund receives revenue from two main sources: taxes on motor fuels, including gasoline and diesel; and truck-related taxes, including the heavy-vehicle tax and taxes on truck, trailer and tire sales. Congress in 1983 divided the fund into two accounts: the Highway Account, which receives the bulk of the fuel-tax receipts and all the truck-related receipts, and the Mass Transit Account.

In the past four decades Congress has increased the federal fuel tax three times: in 1983, 1990 and 1993. But because federal fuel-tax rates are not indexed to inflation, they have lost a third of their purchasing power since the last adjustment in 1993, according to a 2005 report from the National Chamber Foundation of the U.S. Chamber of Commerce.

This funding shortfall has huge implications. Consider that through 2015, annual Highway Trust Fund revenues will fall $23 billion short of maintaining highway and transit systems and $48 billion short of improving the systems, according to the chamber. The most recent highway act – the Safe, Accountable, Flexible and Efficient Transportation Equity Act – A Legacy for Users (SAFETEA-LU) – guarantees $286 billion in federal funding for highway and transit capital improvements through 2009. Yet the chamber estimates that revenue coming into the Highway Trust Fund during this period will total only about $231 billion. Under current financial models, the fund will go bankrupt in 2008.

And federal funding is only part of the story. While about 42 percent of the capital investment in highway improvements comes from the federal government, the remainder comes from state and local sources. To maintain the current system, all levels of government must invest increasing amounts, from $235 billion this year to $304 billion in 2015, according to chamber estimates. Current revenue streams will fall short of these levels by $500 billion through 2015. That shortfall doubles to $1.1 trillion if the goal is to improve, rather than merely maintain, the system.

In real terms, federal fuel tax revenue will drop 50 percent by 2030 due in part to increasingly fuel-efficient vehicles, including trucks, John Conti of the U.S. Department of Energy told the commission at its June 26 meeting. “That doesn’t count the penetration of alternative fuels that are not taxed.” The DOE forecasts that 5.7 million alternate-fuel vehicles will be sold annually by 2030, a quarter of all vehicles sold.

While revenue drops, costs continue to climb. The American Road and Transportation Builders Association estimates the cost to build highways has increased 17 percent since last year, primarily because of skyrocketing materials costs, notably asphalt, steel and iron. Cost increases are compounded by regulatory delays that slow projects down and bring inflation into play, says Jack Basso of the American Association of State Highway and Transportation Officials. “You’re always chasing your tail,” he says. “The more time goes on, the more costs go up.”

Diversion of Highway Trust Fund dollars to non-highway projects also thwarts improvements that could ease congestion. Alaska’s Gravina Island Bridge is only one example of the more than $24 billion earmarked for more than 6,000 projects in SAFETEA-LU, many of them unrelated to highways. Capka told the commission that 16 percent of the federal gasoline tax and 12 percent of the federal diesel tax is diverted to non-highway use.

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