Insights into Devolving Federal Transportation

Learn more about reducing the federal role in transportation issues.

Most transportation interests dismiss the idea of devolving the federal transportation program to states as crazy talk, unworthy of study. Devolution is the type of sea change idea that many find hard to take seriously and analyze, and easy to dismiss. But like most sea change ideas, devolution is backed by some pretty smart and thoughtful people. That doesn’t mean they’re right, but it could mean we should pay some attention to the arguments – if only to better prepare the counter arguments.

Here are some insights into the devolution arguments, with links to learn more if you’re interested. Also, some regions aren’t waiting for the debate to be settled, they are addressing funding challenges on their own.  See the bottom half of our story, Should Feds End Role in Transportation Funding and Policy?

A “green” argument for devolution
It won’t surprise you that the strongest proponents of devolution are libertarian and right-of-center writers and think tanks. It probably would surprise you to learn that a prominent “greenie” is also talking up devolution. Rohit Aggarwala has led the development and implementation of PlaNYC, New York’s long-term sustainability plan, and also advises the C40 Cities Climate Leadership Group, an organization of the mayors of world’s largest cities working on combating and adapting to climate change.

Aggarwala recently wrote “Want Better Roads? Kill the Gas Tax,” for Bloomberg.com. He argues:

“A strong, smart, well-funded federal program would be great. But if Congress can’t pass one now, it should just get itself out of the way, by eliminating the federal gas tax entirely and cutting Washington’s role in surface transportation. It would be a big change, but it would streamline government. And it would probably lead to more investment in infrastructure and greener transportation policies.

“. . . .The basic reason the present system isn’t working is that there is no longer a consensus in Congress on what a national transportation program should be. . . . Absent a grand policy, earmarks kept every congressman invested in a big transportation bill; but these are no more.

“. . . .Eliminating the federal role would enhance state autonomy and streamline decision making. What’s more exciting is that it would also lead to more and better spending on transportation.

“. . . .Getting rid of the tax would force a serious discussion in each state about how, and how much, to fund roads and transit. States could choose to reimpose the same tax, or they could set a different rate based on their desired level of transportation spending. They could choose to raise other kinds of revenue to pay for roads and transit — such as sales taxes, property taxes, local taxes or tolls. Or they could simply reduce their transportation spending.

Aggarwala suggests devolution could be fairly easy, and offers one of the most detailed blueprint to devolution yet:

“The gas tax and all programs it funds would sunset, perhaps after a few years to allow states time to adjust. This would amount to a $29 billion annual federal tax cut, plus a reduction in the federal deficit of roughly $10 billion per year, because the trust funds would stop overspending. Some 4,000 federal jobs could be trimmed.” **

And it could be good politics for the Obama administration. The President could take a page from Ronald Reagan’s “new federalism” which supports “tax cuts, deficit reductions and smaller government — when these things make sense. It would force 30 Republican governors to wrestle with the question of how to fund their own highway spending. And it would be good policy, consistent with Obama’s support for the environment and for rebuilding U.S. infrastructure.”

Initially, I was skeptical of Aggarwala’s notion that devolution might lead to increased investment and greener transportation. Many of the investment decisions would be made by state legislatures, which in most states mirror Congressional attitudes (and political deadlock) about transportation investment and modes. But the more I think about it, his notion may work in a number of states. In fact, there are perhaps a record number of states considering transportation investment proposals this year. Many proposals are focused on highway maintenance and operations. The degree to which the proposals address transit, bike-ped and complete streets programs and projects is debatable.

What do market-based thinkers, libertarians and conservatives argue?

One of the most frequent criticisms is that federal labor and environmental regulations increase project costs beyond the value of the federal funds. A second frequent complaint is that federal regulations also impose one-size-fits-all solutions on the states, even though the states have diverse needs.

Perhaps the best and shortest argument comes from Gabriel Roth (bio) of The Independent Institute. Responding to a May 2012 National Journal Q & A about the federal role in transportation, Roth wrote:

“1. The purpose of federal financing — completion of the Interstate Highway System — has been virtually achieved, and it is difficult to identify other advantages from federal financing.

2. The disadvantages of federal financing — increased costs and intrusive regulation — are evident and substantial.

3. Congress, unable to increase the taxes dedicated to roads, seeks to use general funds to finance some of the transportation expenditures it considers necessary, thus abandoning the US traditional “user pays” principle for roads.

4. Congress keeps deferring long-term road legislation and substituting short-term-extensions of previous (2005) legislation, thus hindering long-term planning of transportation projects.

5. New methods to pay for road use — such as mileage-based user fees to replace fuel taxes — are more likely to succeed as a result of innovations sought by different states, than if imposed by a federal government seeking a “one size fits all” solution.” (Click here for Roth’s complete response).

Without getting into a detailed rebuttal, I’ll just note that Roth’s arguments ignore the federal government’s interest in maintaining the Interstate Highway System, and in facilitating interstate commerce. One of the best briefing papers I’ve seen on this issue is “Fix It First, Expand It Second, Reward It Third: A New Strategy for America’s Highways,” from Brookings’ Matthew Kahn and David Levinson. They propose reforming, not devolving, the federal program. And it’s a fairly realistic proposal as well.

Chris Edwards of the Cato Institute recently published “Infrastructure Investment: A State, Local, and Private Responsibility.” Before I get to a few quibbles I have with Edward’s paper, let’s cut to the chase and learn more about his devolution proposal:

“The best way forward is for the federal government to cut subsidies and reduce its control over the nation’s infrastructure. At the same time, the states should innovate with privatization and PPPs to the full extent possible. State governments would be more likely to make sound infrastructure decisions if they were free of the distortions created by federal spending programs and regulations.

“Privatization holds great promise. Consider, for example, that U.S. airports and seaports are generally owned by governments, but many foreign airports and seaports have been partly or fully privatized. The World Economic Forum rates America’s seaports only 19th in the world, but the world’s second- and third-best seaports— in Singapore and Hong Kong—are private.45

“In sum, rather than increasing federal infrastructure spending—as some policymakers are proposing—we should begin devolving federal infrastructure activities to the states. The states should then unleash businesses and entrepreneurs to help America solve its mobility and congestion challenges.”

Edwards begins by acknowledging the need for infrastructure but says the

“important policy issue, however, is who can deliver it most efficiently—the federal government, state and local governments, or the private sector. . . . decades of experience show that when the federal government gets involved in infrastructure, investment often gets bogged down in politics, mismanagement, and cost overruns.”

I’ll quibble with the description of “often.” I think critics on both sides of the political aisle typically find a few truly bad projects and practices, and suddenly “few” becomes “many” or “often.” Edwards’ comments also overlooks the fact that most transportation projects are delivered by private contractors, not government employees. Edwards’ point may be more valid for big, expensive projects – which typically includes federal involvement and can get complicated quickly – than for small and medium size projects.

Edwards notes how other countries are turning to privatization in transportation, and suggests this is where the U.S. should be looking:

“Since 1990 about $900 billion of state-owned assets have been sold in OECD countries, and about 63 percent of the total has been infrastructure assets.

. . . .More than one fifth of infrastructure spending in Britain and Portugal is now through the PPP process, so this has become a normal way of doing business in some countries. Canada is also a leader in using PPP for major infrastructure projects.

. . . .The industry reference guide for infrastructure PPP and privatization is the newsletter Public Works Financing. According to that source, only 1 of the top 38 firms doing transportation PPP and privatization around the world are American. Of 726 transportation projects currently listed in the newsletter, only 28 are in the United States. Canada—a country with one-tenth of our population—has about the same number of PPP deals as we do. In Canada, PPPs account for 10 to 20 percent of all public infrastructure spending.

Nonetheless, a number of U.S. states have moved ahead with PPP and privatization.”

Edwards explains the advantages of privatization:

“a big advantage of devolving infrastructure activities to the states and bringing in private funding is that it would decentralize decisionmaking. When state governments and private firms are spending their own money, they are more likely to make cost-efficient decisions than officials and politicians in Washington, D.C.”

“Another advantage of infrastructure PPP and privatization is the greater efficiency of construction. U.S. and foreign experience indicate that PPP projects are more likely to be completed on-time and on-budget than traditional government contracts. A 2007 Australian study compared 21 PPP projects with 33 traditional projects and found: “PPPs demonstrate clearly superior cost efficiency over traditional procurement . . . PPPs provide superior performance in both the cost and time dimensions, and . . . the PPP advantage increases (in absolute terms) with the size and complexity of projects.”  Studies of  British and U.S. PPPs have found similar positive results.”

Edwards disputes the conventional wisdom that the feds aren’t investing enough, observing that the number of bridges and roads in poor condition is actually declining. My quibble is that results in part from federal and state investment being channeled more towards maintenance and preservation in recent years. It also is counter to a number of reports showing that investment in coming years won’t keep up with the projected costs of projected bridge and road maintenance.

Edwards also notes “the level of federal infrastructure spending tells us nothing about the quality of the spending.” True – but in recent years Congress has eliminated the earmarking system which often funded lower-priority and sometimes unneeded project.  Edwards notes that federal spending is “often far removed from local demands” – yet most earmarks were, for better or worse, designated in direct response to local community requests.

Edwards also notes that “that federal spending is often designed to aid private interests, not the general public interests,” I think “occasionally designed” is probably more accurate than “often” designed.  Critics on either side of the political spectrum typically find a few truly bad projects and practices, and suddenly “few” becomes “many” or “often.” Edwards also notes that “that political power, not sound economics, dominates policy in Washington.” Devolution may limit but won’t solve these two issues. They come into play at the state, regional local level and probably always will.  Moving to a more transparent, performance-based funding system will have the most impact.

 

** Back in 2007 U.S. Senator Jim DeMint introduced legislation (S. 2823) that would phase-out most of the federal transportation taxes over five years; preserve federal responsibility for interstate highways, transportation facilities on public lands, national transportation research and safety programs, and emergency transportation assistance; and devolve most other surface transportation programs to states.