Primer on pro-growth, limited-government federal transportation policy published by the Club for Growth Foundation. (Commentary)
By Marc Scribner
The 2016 election of Donald Trump signaled to some on America’s political right that the Reagan-era consensus on free markets needed to be replaced with more-interventionist economic policies. These would be designed to deliver particular outcomes to favored political constituencies. With respect to infrastructure policy, this populism often took the familiar form of confusing project costs with benefits, such as championing the number of temporary construction jobs rather than the productivity improvements enabled by use of the completed project.
One notable group defending market-oriented conservatism is the Club for Growth Foundation, which in May released Freedom Forward, a “a pro-growth, limited government handbook for reigniting America’s economic engine.” They kindly invited me to write a chapter on reforming federal surface transportation policy, in which I argue for:
- Restoring the users-pay principle and refocusing the federal-aid program on nationally significant projects;
- Encouraging toll financing and public-private partnerships; and
- Eliminating federal regulatory barriers that increase costs.
I begin by explaining the virtues of the users-pay/users-benefit principle, which has five main advantages over conventional general fund appropriations: fairness, proportionality, self-limiting funding, predictability, and signaling investment. I then note that while the modern federal-aid highway program was designed around this principle to construct the Interstate Highway System, decades of mission creep have eroded the connection between highway user taxes and the infrastructure these taxes support.
The cracks in users-pay began to appear following enactment of the Federal-Aid Highway Act of 1973, which allowed states to “flex” highway funds to mass transit projects. This transit diversion was made automatic in 1983 when Congress created the Mass Transit Account within the Highway Trust Fund. The transit account now accounts for 16.6% of trust fund outlays. Yet despite steadily increasing subsidies, transit’s national passenger travel market share has fallen from 2.5% of person-trips in 1983 to 1.5% in 2022.
The original Highway Account within the Highway Trust Fund has also suffered from a loss of focus. Since the Intermodal Surface Transportation Efficiency Act (ISTEA) of 1991, the first “post-Interstate” highway bill, the share of funding dedicated to traditional highway projects has declined. Route miles eligible for federal aid have increased, which coincided with the rise of “flexible” programs such as the Surface Transportation Block Grant program that have allowed an increasing share of Highway Account dollars to be repurposed to support non-highway projects. As a result, just 60% of Highway Account apportionments were dedicated to core highway performance and safety programs in fiscal year 2024.
Program mission creep isn’t the only problem. On the revenue side, growth in vehicle-miles traveled has slowed from 4.5% per year during the 1950s through the 1970s to just 0.8% over the last two decades. Passenger vehicles today require about half the amount of fuel to drive the same distance as they did in the mid-1970s. Federal per-gallon fuel excise tax rates were last increased in 1993.
Together, these factors have created a large structural deficit in the Highway Trust Fund that has led to $275 billion in general fund bailouts since 2008. This problem is expected to worsen, with the Congressional Budget Office forecasting a cumulative Highway Trust Fund deficit of $280 billion by the end of its baseline budget window in 2034.
This dismal outlook calls for rethinking federal surface transportation policy. If the Highway Trust Fund ceased funding non-Interstate highways, mass transit, highway safety, and similar programs, expected cash flow is likely to be sufficient to cover Interstate Highway System rehabilitation and reconstruction needs over the next two decades.
But this would not include capacity expansions to maintain and improve system performance, let alone broader National Highway System federal-aid funding, safety programs, and transportation research activities that many desire and can be justified under the users-pay principle. At current highway user tax rates, this gap between needs and revenues would be at least $10 billion per year.
Reforms to the federal-aid highway program should be paired with expanded financing options for states, which own and manage the network. To encourage needed investment and reduce risk to taxpayers, I argue that policymakers should remove barriers to road pricing and private-sector infrastructure development. Following the recommendations of a 2013 Reason Foundation study, Congress should eliminate the remaining restrictions on Interstate tolling. Existing financing tools, such as private activity bonds and TIFIA loans, should be modernized to support much greater project volumes.
Finally, regulations that needlessly increase construction costs should be eliminated. One example is Davis-Bacon Act prevailing wage requirements, which limit construction labor competition and are especially costly in states with low union density. Another is Buy America domestic content requirements, which limit competition for construction materials such as steel, iron, and now manufactured products—and explicitly allow for up to 25% cost increases.
As debate begins on the next surface transportation reauthorization due by Sept. 2026, free-market conservatives should embrace reforms that prioritize highway performance above political patronage. That efficiency lodestar should be coupled with a clear connection to the national interest, reorienting federal policy to promote interstate commerce and international trade. This was the topline message of my chapter for the Club for Growth Foundation’s new policy handbook, and I hope lawmakers will consider such an approach.
Originally published by the Reason Foundation. Republished with permission.
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