Four Timely Takeaways About Transportation Funding Challenges

On May 23, 2015, Congress passed a two-month extension of funding for transportation projects—the 33rd short-term transportation measure enacted in the past six years. The persistent lack of long-term federal funding was one of the many transportation challenges discussed at an event hosted by The Pew Charitable Trusts on April 17, 2015. U.S. Secretary of Transportation Anthony Foxx provided opening remarks, and a panel of state and local transportation officials shared their ideas and experiences.

The key takeaways are:

1. Federal funding is critical to the stability of highway and transit systems across the country. Although federal funding accounted for only one-quarter of total annual surface transportation spending on average from 2008 through 2012, those contributions are an integral component of each state’s transportation budget. For example, just 28 percent of Virginia’s total annual highway and transit spending came from federal sources during that period, but those dollars funded more than half of the state’s construction program, according to Nick Donohue, deputy secretary of the Virginia Department of Transportation. Donohue also noted that the state’s transit agencies, particularly in rural areas, are even more reliant on federal resources; he said 44 rural transit systems would probably shut down within several months if they lost federal funding.  
2. Uncertainty in federal funding is a significant challenge for states and localities as they plan for transportation maintenance and investments. Absent long-term federal funding, state and local governments continue to face difficulties in making investments because of the risk that shortfalls in the federal highway fund could delay or reduce their available federal money. The impact of this uncertainty is not easily quantifiable, but District of Columbia Department of Transportation Director Leif Dormsjo emphasized that some of the potential effects could be costly, including postponement of major transportation investments and heightened borrowing costs because bonds backed by anticipated federal revenue are associated with greater risk. He added that, in some cases, states could choose not to use any federal dollars, a decision that would eliminate uncertainty about receiving the full federal match for projects but would also deny them the project oversight and technical assistance that usually comes with such funding.
3. States are responding to declines in the revenue sources they use for transportation investments. Combined federal, state, and local government spending for surface transportation fell by $29 billion in real terms from 2002 to 2012. And with gas tax revenue not keeping pace with inflation over the past decade, many states are seeking alternative methods to raise revenue. About a quarter of the states raised or reformed their gas taxes since 2013, and many are considering similar measures or developing nontraditional revenue sources, such as taxes on vehicle miles traveled. Dormsjo, who formerly served as deputy secretary of the Maryland Department of Transportation, discussed that state’s experience in passing a “historic transportation initiative” in 2013, which was projected to raise more than $4 billion over six years due largely to a phased-in gas tax increase. He described how proponents built support for the change by citing concrete examples of large-scale projects that would benefit from the added revenue and identifying how the reform would leverage additional federal funds.
4. States are collaborating to address funding challenges and make investments. Panelists discussed ways that states can partner with one another and with the federal government to achieve efficiencies in surface transportation projects that provide regional economic advantages. Iowa Department of Transportation Director Paul Trombino III described how Iowa and four other Midwestern states came together to share the costs of planning and designing a project that they identified as a vital investment in the region’s economic competitiveness. This collaboration allowed them to jointly pursue grant funding for implementing the project from the Transportation Investment Generating Economic Recovery, commonly known as TIGER, program of the U.S. Department of Transportation.

Pew seeks to provide clear, data-driven explanations of how the state federal fiscal relationship works to enrich policy debates about long-term fiscal stability at all levels of government.

Information on the April 17th panel discussion; Pew’s September 2014 report, Intergovernmental Challenges in Surface Transportation Funding; and additional publications are available here.