Highway Robbery

How Congress Put Politics Before Need in Federal Highway and Transit Funding

SOURCE: AP/Bill Waugh

In an era of strict fiscal discipline, we can no longer afford to steer scarce highway and transit dollars where they’re not actually needed most.

By Donna Cooper and John Griffith | October 2, 2012

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Endnotes and citations are available in the PDF version of this report.

In July Congress passed the Moving Ahead for Progress for the 21st Century Act, which authorizes federal funding for highway, bridge, and transit projects over the next two years. The law breaks from a tradition of long-term surface transportation bills, inhibiting long-term planning on the state and local level, while the guaranteed $41 billion per year is grossly inadequate to meet our country’s transportation needs. But those aren’t the law’s only flaws.

To make matters worse, Congress also missed an opportunity to fix costly inefficiencies in current funding rules, which divert billions in scarce federal highway program dollars from our country’s most pressing infrastructure repair and improvement needs.

Consider: Two of the formulas that Congress chose to continue in the two-year funding law distribute nearly one-quarter of all federal highway and transit funds according to factors that have little or nothing to do with a state’s transportation needs. Based on the latest data from 2010, slightly more than $10 billion out of approximately $43 billion in federal highway funds were distributed in so-called equity bonuses and minimum payments to states that could not demonstrate sufficient need through the traditional needs based funding formulas, according to new analysis from the Center for American Progress.

The case for increased federal investment in transportation infrastructure is well established. It makes no sense to use federal tax dollars to pay for carefully contrived set-asides intended to meet political objectives rather than the real need for infrastructure repair.

This paper lays out specific recommendations for reforming federal highway funding, helping the government direct money where it’s needed most. Specifically, we identify three inefficiencies in the current funding system:

• The equity bonus program, an overly complicated and remarkably inefficient formula that distributes billions of dollars without any consideration of need
• Minimum set-aside rules, which guarantee that certain small states get funding regardless of their share of total needs
• Imperfections in the funding formulas, which understate certain highway and transit costs relative to each state’s need

These three problems with our surface transportation funding result in funds being siphoned from states with a larger share of objective and legitimate infrastructure needs to states that have much less need for this federal support. (see Table 1)

The short-term horizon of the Moving Ahead for Progress for the 21st Century Act, or MAP-21 in congressional parlance, undermines good planning and project management for critical infrastructure investments. But there’s also an upside: Since the law expires in just two years, Congress has a fast-approaching opportunity to improve the surface transportation formulas with an eye toward getting the biggest bang for every federal dollar invested. A new, sounder approach would:

• Eliminate the equity bonus program and redistribute all funds through programs with objective needs-based formulas
• Eliminate minimum set-aside rules for all highway and transit programs
• Make permanent the recent ban on explicit transportation earmarks and preclude legislative language that acts as earmarks
• Reform needs-based formulas to better account for the cost and relative share of funding needs

To be sure, every state has more need for repairs and improvement than they can make with current funding levels. But it’s also true that some states have more needs than others, particularly those states that are densely populated and critical to moving products from manufacturers to retailers. Instead of continuing to siphon federal dollars from high-need states such as California, New York, and Pennsylvania to support low-need states such as Alaska, it’s time lawmakers dedicated each federal dollar to the country’s most pressing highway and transit needs.

Donna Cooper is a Senior Fellow with the Economic Policy Team at the Center for American Progress. John Griffith is a Policy Analyst with the Economic Policy Team at the Center.