The Federal Surface Transportation Program: The Next Four Years

Transportation policy often passes under the radar of political analysts and media commentators, overshadowed as it is by such major concerns as the fight against terrorism, the economy, the future of social security, and health care. This posture of benign neglect should not continue. Mobility is too important to the economic vitality of the nation to remain invisible in the policy dialogue.

Raising the profile of transportation is especially timely at this juncture, as the President prepares to shape the policy agenda for his next administration and Congress returns to the unfinished task of reauthorizing the federal surface transportation program.

To this end, we offer Planetizen readers a forward look at the federal surface transportation program and weigh the transportation choices facing the Administration and the Congress over the next four years. All four of us were members of President Bush's Transportation Policy Team and helped to frame the issues and develop policy positions that guided the first presidential campaign. Later, all of us went on to serve as members of the Bush-Cheney transportation transition team. Eighteen months ago, we revisited the Policy Team's work and assessed the status of the federal surface transportation program at the mid-point in the Administration's term of office. We were pleased to conclude at that time that the U.S. Department of Transportation had closely embraced the vision expressed in the Team's September 1999 recommendations.

Our purpose this time around is twofold. First, we wish to extend a "well done" to the policy team at the U.S. Department of Transportation. The Department's policy development process over the past four years has been marked by creativity and imagination and its senior team is to be congratulated for bringing fresh insights and innovative thinking to the management of the federal surface transportation program. Secondly, we wish to offer a few thoughts concerning the stewardship of the federal transportation program during the next four years. We believe creative ideas are needed to effectively address the Nation's transportation challenges as the Bush Administration embarks on its second term of office and the 109th Congress resumes work on the surface transportation reauthorization.

The Fiscal Dilemma

For the federal surface transportation program all signs point to continued fiscal stress. Deficit reduction and spending discipline will be the Administration's and GOP congressional leaders' top priorities during the next session of Congress. Discretionary spending for non-security programs is expected to rise only about one percent next year. In a letter to Congressional appropriators, OMB Director Josh Bolten hinted that the President might veto any bill that "exceeds the agreed upon spending limits or remains within the limits only through the use of unacceptable budgetary devices that mask the true level of discretionary spending." Similarly, incoming Senate Budget Committee Chairman Judd Gregg (R-NH) pledged that reducing the federal deficit will be a top congressional priority.

Contributing to the budgetary dilemma facing the federal transportation program is the fact that not all the "revenue enhancements" and budgetary offsets that were laboriously cobbled together during the last session of Congress to justify the Senate's proposed $318 billion surface transportation funding level will necessarily be available next year. The only revenue add-ons that can be counted upon so far are the congressionally approved transfers of ethanol excise taxes and credits from enforcement of anti-fuel tax evasion measures. They total $24 billion over six-years according to estimates by the Joint Committee on Taxation. These extra revenues, added to the currently projected Highway Trust Fund revenue over the next six years, will suffice to fund the core programs but not the thousands of "high priority projects" earmarked in the House version of the reauthorization bill (H.R. 3550) passed in the 108th Congress. (Revised revenue projections will be issued by the Treasury Department in January but they are not expected to differ appreciably from the current projections).

At the same time, the chances of augmenting the Highway Trust Fund with a fuel tax increase in the next Congress appear dim. The White House is expected to continue its firm opposition to a tax hike, and growing global demand for crude oil will continue to exert upward pressure on the price of motor fuel at the pump, making any congressional attempts to raise the gas tax highly unlikely.

Nor is it universally agreed that periodic increases in motor fuel taxes are the best way of meeting the escalating demands of the federal-aid highway program. The gasoline tax has been an efficient, time-tested method of raising transportation revenue and has served us well during the many years when the federal transportation program had a unifying national purpose and a well-defined objective - the construction of a national system of Interstate Highways. But once the Interstate System was completed, the rationale for relying solely on the federal gas tax and the Highway Trust Fund became less compelling. The post-interstate program no longer has a clear national purpose. Rather, it has come to resemble a vast public works program, whose benefits flow in large part to influential constituencies and special interests. Because of its revenue-sharing nature, the program has sparked fierce competition for funds between "donor" and "donee" states, a competition that would only be exacerbated if the federal motor fuel tax kept on rising. Given these circumstances, the time has come to diversify the transportation funding sources.

Diversifying Revenue Sources Through Tolling

We think the most logical way to supplement fuel tax revenue in the years ahead is with another user-based fee - highway tolls. Tolls could not only provide a steady and reliable source of additional revenue to help maintain and improve existing road facilities; they also could be used to back issuance of revenue bonds, enabling public and private authorities to build new road capacity in less time and with fewer procedural obstacles than using the traditional pay-as-you-go method of tax financing. Variable tolls can serve another important function, of helping to relieve congestion on the increasingly crowded urban and intercity road networks. New, variably-priced express toll lanes could offer motorists pressed for time a choice of more reliable, congestion-free travel.

To date, toll roads have been conceived as individual corridor-based projects. To magnify their financial leverage, the use of tolls would need to be expanded throughout the federal-aid highway system. To its credit, the U.S. Department of Transportation has recognized the need to move in that direction. Its policy team, lead by Undersecretary for Policy Jeff Shane, Assistant Secretary for Transportation Policy Emil Frankel, and Federal Highway Administrator Mary Peters, and assisted by FHWA General Counsel D.J. Gribbin and Deputy Assistant Secretary for Transportation Policy, Tyler Duval, has recommended removing all remaining federal restrictions on tolling. Under the DOT's SAFETEA reauthorization proposal, states would be permitted to impose tolls on any federal-aid highway and bridge facility, a position subsequently embraced in the Senate reauthorization bill (S. 1072). The Administration has also proposed to level the financial playing field by allowing private companies to issue tax-exempt toll revenue bonds on the same basis as public sector agencies in order to stimulate private investment and public-private partnerships in the construction of toll facilities.

To be sure, one must not ignore the opposition to tolling. Tolling existing Interstates, the trucking community alleges, would force truck traffic onto local roads where it would cause increased traffic congestion and disrupt local communities. Toll revenue, critics further argue, could be diverted to other programs and/or used to reduce existing state contributions. These objections are legitimate, but they could be obviated by prohibiting diversion of surplus revenues to other than highway (Title 23) purposes, requiring toll revenue to be spent in the corridors where it is collected and imposing a maintenance-of-effort requirement upon the states.

While we are of the opinion that tolling represents the best available option to supplement fuel tax revenue, we are mindful that a number of implications need to be considered in institutionalizing tolling as a national policy. These include the financing of interregional highway networks and intermodal facilities that transcend state interests and boundaries; the readjustment of federal-aid apportionments to minimize donor/donee concerns; state-level administration and procurement associated with mixed fuel tax/toll funding; and the lessening of federal influence over the nation's highway program. Above all, the trucking industry must be persuaded to drop its objections to tolling. It clearly has more to gain in safety and productivity improvements than to lose from an expanded network of congestion-free toll roads.

Many of the issues concerning the scale and nature of transportation funding derive from a seeming lack of direction in the federal program. We hope that the Bush Administration in its second term, as well as any commissions charged with studying alternative highway financing methods, will make consideration of the proper federal role an integral part of their study of future needs for surface transportation funding.

Institutionalizing a "Management & Operations" Mindset

Traffic congestion has reached a stage where it affects not only the lives of millions of people but the functioning and productivity of the entire national economy. Unpredictable delays caused by crashes, vehicle breakdowns, construction zones and other incidents contribute to an increasingly unreliable system that is both a source of frustration to individual travelers and costly to businesses, especially those that depend on just-in-time deliveries. Doing nothing is not an option. If we remain passive, the problem will only get worse.

Congestion mitigation must involve a two-pronged attack. We must selectively expand physical road capacity to improve access to intermodal facilities and eliminate major bottlenecks that reduce network capacity. Secondly, we must make existing roads work more efficiently through improved highway operations. While highway maintenance and operations has always been part of state and local transportation agencies' responsibilities, the U.S. Department of Transportation only recently has made improved "system performance" a declared objective of the federal-aid highway program.

Having wisely adopted Transportation Systems Management and Operations (TSM&O) as a new mission, the Department should seek over the next four years to institutionalize and mainstream the TSM&O concept throughout the federal-aid highway system. These efforts should include strengthening regional cooperation on incident management, accelerating deployment of advanced ITS technology, establishing appropriate performance measures and a sound statistical program to monitor trends in highway performance and, importantly, fostering a culture throughout the highway establishment that is focused on efficient management and operation, accountability and customer orientation.

Managing Demand for Rail New Starts

Serious fiscal constraints also face the federal transit program. The number of potential rail New Starts continues to expand rapidly, outpacing realistic federal funding capabilities. There are currently 27 projects with existing full funding grant agreements and another 38 projects in preliminary engineering, final design or otherwise proposed for funding. Collectively, these projects are seeking over $24 billion in federal funding. Even assuming that some of the 38 projects would extend beyond the term of the next authorization, it is clear that only a small fraction of them can expect to be funded with New Starts funds approved in the next reauthorization.

The House Appropriations Committee has urged the Federal Transit Administration to weed out marginally cost-effective rail projects by using its rating and evaluation process more effectively. We believe the agency should take the Committee's strictures to heart. Only a more disciplined and rigorous management of the New Starts selection process will restore the program's credibility in the eyes of its congressional overseers and engender congressional support for more generous transit funding in the next Congress.

Encouraging Bus Rapid Transit

Bus Rapid Transit is an innovative service concept that provides a level of service comparable to that of rail but at a much lower cost. Carving out a bigger role for this technology could substantially improve the return on federal investment in public transportation and allow more communities to enjoy the benefits of rapid transit. The Federal Transit Administration under Administrator Jennifer Dorn's leadership has wisely embraced this philosophy. To promote a wider use of BRT technology, the Administration has proposed widening the definition of "New Starts" to include "dedicated bus and high occupancy vehicle lanes... that would result in increased public transportation usage." While we believe that the intent of this provision was to place BRT projects on a level playing field with rail projects, the revised definition left it unclear whether BRT service on HOT or Express Toll Lanes would qualify for New Starts funding. We think the FTA should issue a clear-cut policy that BRT/HOT Lane projects are indeed eligible for New Starts funding if adequate lane capacity for BRT operation can be ensured through variable pricing.

Toward a 21st Century Highway Model

We have deliberately focused in this commentary on the next four years - the period coinciding with the second term of the Bush Administration and the 109th Congress. But the next four years also constitute a springboard to the more distant future. In these concluding paragraphs we will sketch our vision of how the management and financing of our highway system might evolve in the longer term.

The state of Texas may be a harbinger of this evolution. The Texas legislature, faced with rising transportation needs and uncertain prospects for more help from Washington, has passed a law (subsequently ratified by a constitutional amendment) authorizing conversion of existing state highways to toll facilities. If toll financing cannot provide 100 percent of the cost, the law permits using a mix of public and private funding. Urban jurisdictions are empowered to create regional mobility authorities which can act as toll agencies and can partner with the private sector, as can the state transportation and turnpike authorites. In addition, state transportation officials have been directed to evaluate all proposed and ongoing limited access highway projects (including lane additions) for potential toll operation. In Texas, tolls will eventually become the preferred mechanism for financing major freeway capacity expansion.

Support for road pricing is also rising in Maryland and Virginia, in Minnesota, Colorado, Florida and California. In all these states tolls are being considered to supplement existing revenue sources and are viewed as a politically more acceptable alternative than raising local gas taxes.

Concurrently, states are beginning to learn how to squeeze more capacity out of existing facilities by placing more emphasis on the active management and operation of their systems with the help of a variety of techniques employing intelligent transportation systems (ITS) technology.

What may eventually emerge is a network of roadways offering differential levels of service. A basic network of "free" highways built in the 20th century will continue to be supported with gas tax revenue. Superimposed upon the existing road system will be networks of new managed "premium" lanes offering a higher level of service in heavily traveled corridors for a fee. As existing tax-supported roads become saturated and travel on them becomes increasingly slower and less reliable, motorists and businesses are likely to switch to the premium priced lanes in sufficient numbers to ensure their political success and financial viability.

Still further in the future, it is possible to envision a transformation of these premium lane networks into utility-type commercial enterprises funded by private investors or public-private partnerships. Charging customers directly for the use of their facilities-just as electric, water supply and telecommunications companies do-these utility companies will likely be more responsive to customer demands for increased reliability and quality of service, and better able to attract investment capital for needed capacity expansion.

Many foreign countries have already embraced the utility model. In France, Italy and Spain, networks of modern toll roads, built in the last 30 years and operated by public and private utility companies under long-term franchises, provide a fast travel alternative to free but congested primary roads. The toll companies are profitable and enjoy robust growth.

The challenge ahead for national transportation policy is to facilitate change while preserving continuity. This means encouraging growth of market-driven utility-type entities responsible for operation of regional networks of premium toll facilities, while maintaining a federally-ensured basic level of service throughout the existing federal-aid highway system. A dedicated stream of fuel tax revenue will be needed to ensure the continued viability of the existing system of federal highways. On the other hand, the responsibility for raising investment capital for capacity expansion would be shifted to the utility companies, thus relieving some of the current pressure on the Highway Trust Fund.

An institutional transformation of this magnitude would take time. But steps taken in the next four years by Congress and the Bush Administration to mainstream variable road pricing and to institutionalize a "management & operations mindset" could ease the way for this transition- a transition that we believe would ultimately lead to a more productive, user-friendly and less congested highway system.

C. Kenneth Orski is editor and publisher of Innovation Briefs, now in its 15th year of publication. He served as Associate Administrator for Policy in the Urban Mass Transportation Administration in the Nixon and Ford Administrations and as an adviser to the Federal Transit Administrator in the Reagan Administrations. He has been active in the transportation profession for close to 40 years.

Stephen Lockwood is a Principal Consultant with PB Consult. A well-known expert on transportation policy and finance, he served as FHWA Associate Administrator for Policy in the Bush I Administration. He has held leadership positions in both public and private sectors during a career spanning over three decades.

Alan E. Pisarski is an independent consultant, and author of "Commuting in America" and "Commuting in America II." A nationally known expert on travel behavior and transportation data analysis, he has been professionally involved in transportation for 30 years.

Robert W. Poole Jr. is the founder of the Reason Foundation and Director of Transportation Studies at the Reason Public Policy Institute. A nationally known expert on privatization and transportation policy, he has counseled the White House and California state agencies on numerous occasions.