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Monday, Jan 30, 2023

Time to Stop Dodging Infrastructure Funding Question

The National Surface Transportation and Revenue Study Commission, a bipartisan federal effort to study the future of transportation funding, released its findings recently and the results are neither pretty nor surprising.

In a nutshell, the Highway Trust Fund, the politically created lockbox in which the government salts away money to pay for future transportation needs, is empty and current revenues won’t fill it back up.

This will come as no surprise to anyone with even a passing knowledge of how the federal government funds the transportation system.

For every gallon of gasoline or diesel fuel sold for highway use, the government collects 18.4 and 24.4 cents, respectively.

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These rates have been static for almost 15 years despite the fact that construction costs have more than doubled during that period.

Closing The Gap

The members of the commission were of two minds about what to do to close the gap. As an immediate fix, the majority view was to increase the fuel tax by 25 to 40 cents per gallon during the next five years and then to index future increases to inflation.

The minority view, led by Transportation Secretary Mary Peters, was that arrangements known as public-private partnerships could better address the problem by means of revenue-supported (read tolls) roads financed, constructed, maintained and operated by private sector companies, as is now done around the globe and, to a limited extent, in the United States.

The governor recently released his initiative for a performance-based infrastructure, which is the Bush administration’s proposal to make widespread use of PPP to address the estimated $500 billion in infrastructure deficit the state faces in the next 20 to 25 years.

Despite the incorrect claims that these arrangements are “proven failures,” PPP could be an ideal solution to address the state’s needs for some projects, under some conditions.

More Revenues Needed

A recent financial planning “charrette” convened by the Keston Institute for Public Finance and Infrastructure Policy at the University of Southern California confirmed that the estimated cost, use and projected tolls could produce a self-supporting revenue stream. However, even the most optimistic proponents of performance-based infrastructure recognize that substantial additional revenues will be needed to address the state’s infrastructure deficit.

In California, revenue to support the highway system is generated by the state gas tax (which hasn’t been increased since 1994), state and local sales taxes, and our share of the Highway Trust Fund.

Converting lanes on existing freeways to toll lanes and tolling any new highway capacity is an option, albeit one that would not likely prove very popular. Alternatives include raising the state gas tax (20 cents per gallon would generate $3.5 billion annually) or further increasing local sales taxes dedicated to transportation.

Absent aggressive and courageous action to address these revenue shortfalls across a broad front, the argument for private versus public provision is a bit of a red herring.

The more pressing question is not how we build it, but how will we pay for it.

Richard G. Little is the director of the Keston Institute for Public Finance and Infrastructure Policy at the University of Southern California, a nonpartisan research center.


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