Making the next surface transportation reauthorization bill fiscally responsible

The federal government’s fiscal situation continues to go from bad to worse. Neither the White House nor Congress has proposed any measures toward a balanced annual budget or reducing the $36 trillion debt, increasing concerns about our government’s fiscal solvency.

A few recent warnings of what could be ahead caught my attention:

• In December 2024, David Walker, former Comptroller General of the United States from 1998 to 2008, told Congress he sees a 70% chance of a severe debt crisis by 2030.
• In January, the Congressional Budget Office (CBO) released its latest 10-year budget forecast, showing annual federal budget deficits totaling $21.1 trillion. This would increase the national debt from $36 trillion to $57 trillion by 2035.
• Also in January, Stanford University economist Hanno Lustig noted that “a fairly broad consensus seems to be developing among economists that the fiscal path we’re on is in fact not sustainable.”
• The Economist (Jan. 4 issue) noted bond-market concerns about unsustainable federal borrowing potentially leading to bond buyers demanding even higher interest rates on Treasury bonds—a “term premium.”

Congress must reauthorize the federal surface transportation program in 2026, and discussions are beginning. If key House and Senate members want to put transportation investment on a fiscally sound, sustainable basis—meaning no more unfunded programs based on irresponsible federal borrowing—what kind of measures could they consider?

One reform that has some congressional supporters is to abolish discretionary grant programs in favor of going forward only with formula funding for infrastructure projects. For some in the transportation industry and members of Congress, the reality has begun sinking in that such grants are essentially executive branch earmarks. Just as congressional earmarks should be banned, so should executive branch earmarks.

A second key change to transportation funding would be to make the federal Highway Trust Fund self-supporting, as it was until about a decade ago. That means the formula funding would be limited to revenue generated from federal user taxes.

In January, the CBO estimated that this would require increased revenue of $40 billion per year (or reduced spending of the same annual amount). Highway users should be paying for the highways they use rather than having the actual cost to build and maintain them disguised due to irresponsible federal borrowing.

Those are relatively modest changes to transportation funding, but I can imagine the concerns of state transportation departments and legislatures that have gotten used to federal funding. Many governments are hoping the 2021 bipartisan infrastructure bill, the Infrastructure Investment and Jobs Act, will be considered as the baseline level of funding in the next surface transportation bill, but that money was borrowed.

Congress should undoubtedly give states opportunities for significant increased transportation investment. One way to do that would be to expand funding mechanisms for large-scale public-private partnerships. For greenfield projects (e.g., replacing major bridges), removing the cap on private activity bonds (PABs) and expanding Transportation Infrastructure Finance and Innovation Act (TIFIA) loans would have minimal effects on the federal budget but could foster increased state and local use of public-private partnerships.

Another program change could be to liberalize the never-used Interstate System Reconstruction and Rehabilitation Pilot Program (ISRRPP) by opening it up to all 50 states and allowing them to use toll financing to rebuild any or all of their Interstates that need reconstruction. Where possible, gradually shifting Interstates from federal funding to toll funding would enable shrinking federal and state gas tax revenues to be reserved for non-Interstate roads and bridges.

My recent Reason Foundation policy brief suggests that liberalizing ISRRPP could lead to the first large-scale shift from fuel taxes to road user charges (RUCs). The Interstates and other limited-access highways handle about one-third of all U.S. vehicle miles of travel, so converting them to per-mile toll charges could be the first large-scale transition away from fuel tax dependence. Per-mile tolls cost far less to collect than any projected large-scale state RUC system now being considered.

With the future of the planned national road-user charge pilot project now unlikely during the Trump administration, the Interstate tolling alternative could be a feasible replacement, as individual states opt into it.

An underlying reality too often forgotten is that states own virtually all of this country’s highways. The Highway Trust Fund was created in 1956 to help states build their Interstate highways. It was never intended to be an ongoing federal aid program for highways and transit. It gradually morphed into that after most of the Interstates were built because Congress loved to have the then-growing pot of fuel-tax money to spend on an expanding array of transportation-related things.

A fiscally responsible 2026 surface transportation reauthorization bill could also convey a message to state legislatures and transportation departments: The federal government can no longer afford ever-expanding borrowing to support roads, highways, and bridges that states and metro areas should finance themselves as their owner-operators.

As the national debt and federal budget deficit continue to grow, states and metro areas must start planning for how to cope with a potential federal fiscal collapse within the next 10 years.

Unlike the federal government, states must balance their budgets each year. Relying more on their financing capabilities to issue revenue bonds and general obligation bonds—and with increased use of long-term public-private partnerships where feasible—states should be able to phase in state responsibility for their highways.

As for mass transit, California has long provided a model via its self-help counties. Every California county that includes one or more large metro areas has long embraced dedicated transit sales taxes, usually approved by local voters for several decades at a time. This approach localizes the funding instead of requiring rural and statewide residents to help pay for an urban area’s transit system they’ll likely never use.

The era of the federal government borrowing more money to send to cities and states for highways and transit should end. Most policymakers and transportation leaders have not accepted this yet. With the nation’s long-term fiscal reality in mind, Congress must craft the 2026 surface transportation reauthorization bill in a fiscally responsible way.

A version of this column first appeared in Public Works Financing.

The post Making the next surface transportation reauthorization bill fiscally responsible appeared first on Reason Foundation.

Source: https://reason.org/commentary/fiscally-responsible-highway-reauthorization-bill/