Infrastructure is finally in. Washington’s politicians may struggle through the capital’s terrible traffic to an inbox of complaints about crumbling roads, dams, airports from their constituents, but the political will to do anything has been bogged down by arguments about how to pay for it. Until now, potentially.
Donald Trump campaigned on a pledge to rebuild America’s failing backbone and he doubled down on that pledge last week. This week he’ll be offered another chance to push for investment when the American Society of Civil Engineers (ASCE) release its latest report on the state of America’s infrastructure. It’s expected to be bad.
Trump seems to have a genuine passion for rebuilding America. “Crumbling infrastructure will be replaced with new roads, bridges, tunnels, airports and railways gleaming across our beautiful land,” Trump said in his speech before Congress last Tuesday as he renewed a campaign promise, vowing to ask Congress for a $1tn infrastructure investment package financed through public and private capital.
Whether he will get to fulfill his promise remains to be seen.
Perhaps nowhere is the plight of US infrastructure – and the issues with fixing them – more obvious than on its roads. ASCE calculates that 32% of America’s roads are in poor or mediocre condition and 25% of its bridges are structurally deficient or obsolete. Bad roads and bridges will cost each American family $3,400 per year through 2025 unless something is done to improve their condition, according to the ASCE’s 2016 Failure to Act report.
Those potholes, cracks and poor surfaces add up to a $4.3tn investment deficit, according to the ASCE. It calculates that by 2025, failing roads will cost the American economy more than $2.2tn in lost business sales.
Fixing the situation is not going to be a simple task, as is amply demonstrated by a quick look at how infrastructure financing landed in its current predicament.
Stuck in political gridlock over the last six years Congress has passed 33 short-term measures rather than funding transportation for the long term.
State highway departments rely upon different revenue sources for funding, but a quarter of it is supposed to come from the federal Highway Trust Fund (HTF), which in turn receives its money from a federal fuel excise tax. The HTF was established by federal law in 1956, at a time when highway funding was coming out of the government’s general fund. That fund will expire in July with no replacement currently in place.
Federal gasoline and diesel tax rates – which now stand at 18.4 cents and 24.4 cents per gallon, respectively – have not been raised since 1993. Since the beginning of the Great Recession in 2008, spending has outstripped the amount of money coming into the HTF. According to a report the Congressional Budget Office released last year, “lawmakers have transferred about $143bn from other sources to maintain a positive balance in the trust fund. Second, adjusted for changes in construction costs, total federal spending on highways buys less now than at any time since the early 1990s.”
Rocky Moretti, the policy director of Trip, a transportation research organization headquartered in Washington DC, said that post-recession economic recovery has brought increased vehicle travel, placing additional strain on roads – urban ones in particular. But a recent report by the Texas A&M Transportation Institute analyzing transportation in 471 urban areas showed that although vehicle miles had increased, fuel consumption had not risen above its pre-recession level by 2014, meaning fewer dollars had flowed into highway coffers.
According to the CBO since 2008, the federal government had transferred $65bn into the HTF from the US treasury’s general fund to cover the shortfall. Later that year, Barack Obama signed the Fixing America’s Surface Transportation (Fast) Act into law, buying time for the HTF by infusing an additional $70bn into it from the general fund. Joung Lee, the policy director for the American Association of State Highway and Transportation Officials, said the additional Fast Act funding is set to run out by 2020.
Fortunately, federal dollars don’t act alone on highway projects. State governments chip in about 40% and local agencies 35% to augment the federal government’s quarter share. Lee described highway funding as resembling a three-legged stool with federal, state and local legs.
“The state governments I’ve talked to say they still rely upon the federal leg when they’re funding a project,” he said. “States are raising revenue, but not to replace the federal portion of the investment.”
For the average commuter, these shortfalls in funding and the resulting deferred maintenance and upgrades translate into 34 hours of time lost to traffic delays each week, said Andrew Herrmann, who served as ASCE’s president in 2012. He also pointed out that 42% of America’s highways are congested, one in nine bridges are structurally deficient and that road conditions factor into a third of traffic fatalities.
With the post-2020 future of federal funding on shaky ground, the onus has fallen upon state and local governments to provide funding to repair and modernize highways and to provide missing links in critical economic development corridors.
“There’s a sense among state and local governments to stretch their funding as far as possible,” Moretti said. “The need for more costly repairs is coming due, so there’s a lot of pressure coming to bear on them to maintain the system.”
As a result, many state legislatures are at least discussing increasing gasoline and diesel taxes to raise revenue for highway projects. Carl Davis, the research director at the Institute on Taxation and Economic Policy (ITEP), calculates that 21 states currently have gas tax increases on the table. But according to the ITEP another 22 states have not raised fuel taxes in more than 10 years and 16 states have kept fuel taxes static for more than 20 years.
Even with gas taxes set to increase in some states, ITEP’s report noted some problems inherent in such a system of revenue collection. Not the least is that vehicles are, on average, 17% more fuel efficient than in 1990, cutting into fuel tax revenue.
Other funding mechanisms under consideration at the state and federal levels include mileage-based user fees, expanded tolling, congestion pricing and, on larger projects, public-private partnerships. The latest information from the Trump administration indicates the potential for heavy reliance upon private investment.
Like the gas tax, all of these funding methods have their limitations. Lee said public-private partnerships typically work best in high-density corridors, and on projects in which backers are likely to realize a strong return on their investments. They are not, in other words, a cure-all.
“The beauty of the fuel tax is efficiency,” Lee said, adding that the physical act of collecting tolls – whether by toll booth operator or electronically – usually eats 10 to 40% of the revenue. “With the federal gas tax, less than 1% of the revenue is spent on administration. We assume that a similar dynamic exists with the state fuel taxes.”
Another bonus to the fuel tax, he said, was that the gas tax is collected from fuel distributors, rather than individual motorists. Rather than having more than 260 million accounts to deal with – the number of vehicles on American roads in 2015 – the government can collect revenue directly from a few thousand fuel companies.
It’s clear that more creative methods will have to be employed to beef up highway funding in the future. But for now, increasing fuel taxes appears to be the most straightforward interim fix unless, or until, Trump manages to push through an infrastructure bill.
Such a bill is likely to face opposition from deficit hawks like Paul Ryan, speaker of the House. And although the president has said he planned to get the ball rolling on infrastructure soon, there are signs that the administration may wait until next year, when Democratic members of Congress are eager to support the sort of big projects voters tend to love.
In the meantime America’s roads are only going to get worse. In 2013, the last time ASCE released its report, US roads got a D+ grade. No one is expecting them to get a passing grade this week.