Transportation Policy Academy 2016—Panel Discussion on the Future of the Federal-State-Local Partnership on Transportation

The transportation policy roundtable during the 2016 CSG Transportation Leaders Policy Academy in Washington, D.C. wrapped up with a panel discussion on the future of the federal-state-local partnership on transportation. The panelists included Emil Frankel and Jeff Davis of the Eno Center for Transportation, Joe McAndrew of Transportation for America and Brigham McCown of the Alliance for Innovation & Infrastructure. They discussed what the Fixing America’s Surface Transportation (FAST) Act means for states, what happens after it expires in 2020, how states might be encouraged to innovate more on transportation funding, and why it’s important for federal and state governments to invest in better transportation projects in the future.

Emil Frankel, Senior Fellow, Eno Center for Transportation

On why passage of the FAST Act was both good news and bad news…

“Good news: The FAST Act is a five-year bill. It took them two years to get there with 20-some-odd temporary extensions. But nonetheless, it’s a five-year bill. So for states and local transit agencies and so forth, there is predictability and certainty of federal funding and what the federal role is. The bad news is that Congress once again did not deal really with the funding issues and so while the federal role remains very important in terms of capital investment in transportation infrastructure … federal funding has really stagnated for the last almost 10 years. … So effectively it’s important to think about an important federal role but a stagnant federal role while the need continues to grow substantially.”

On states stepping up to the plate in the face of stagnant federal funding…

“It means the financial burden on states and … localities … (and) regional transit agencies is greater. Just to maintain our transportation assets in a state of good repair requires states and regional agencies and so forth to do more themselves and that’s not easily done. … Some states recently have stepped up to the plate and have in fact enacted gasoline tax increases, toll increases, utilized public-private partnerships … but that’s just a delivery tool. That’s just a delivery, financial tool. It’s not a funding tool. You use a PPP to carry out a major project, that just means you have to enact some kind of state or local revenue stream to support the private investment or private financing, which makes that project deliverable.”

On the need to incentivize and reward states that do more…

“My view is one of the important things we should do at the federal government—and this was not addressed really at all in my opinion in the most recent (federal surface transportation bills) MAP-21 and the FAST Act … is to create incentives and bonuses for those states that do more on their own in creating revenue streams and investing more. I know when I was at USDOT, I was frequently asked whenever I met with a delegation from California but it could be true of other states… California has self-help legislation, which in the major counties like the Bay Area, Sacramento, Los Angeles has been utilized (to enact) a half-cent general sales tax increase dedicated to transportation. Los Angeles for example, has enacted three of those I believe. So this thing: we do more, why shouldn’t we get paid more? I never had a very good answer for that and the fact of the matter is I do think that states that do more should receive federal incentives and bonuses for doing that.”

On the need to remove hurdles to state innovation…

“Also, the burdens and the barriers that the federal government puts in front of states in terms of being innovative and developing new revenue streams should be eliminated. Specifically for example … the federal prohibition on tolling on federal aid highways, particularly the interstates, should be totally eliminated. We’ve got a bunch of pilot programs and exceptions but the fact of the matter is the prohibition is still there and you still have to do somersaults for a state to be able to toll an interstate highway. … If the burden is going to grow on the states, the federal government should get the hell out of the way. And I am amazed as a Republican that the Republican members of Congress are not unanimously in favor of what I regard as a major step towards greater federalism, greater role for the states. Instead many of them—not all but many of them—are against tolls so they won’t even allow the states permissibly to enact tolls if they want to do that, which seems for me as a Republican, at the heart of what I believe in. And I am amazed that there are members, particularly the more conservative elements of the Republican Party in the House and to some degree in the Senate, who oppose this consistently. That’s an important step that can be done at the federal level.”

On the importance of selecting the best projects in which to invest scarce resources…

“The fact of the matter is … we’re not going to come up with $2 trillion at any or all levels of government. The fact of the matter is we have to be able to make decisions, particularly at the state level and to some degree at the local or regional level, we have to make better decisions about how we invest public funds in infrastructure. We have to analyze projects better. They have to be part of comprehensive, strategic plans and capital investment programs. We need to target those projects and programs that will bring the greatest economic or environmental and social benefits. And we need to make a business case for the investments that we make with scarce resources and that burden is on … state legislators to make sure that the governance and capital programming, institutions and processes at the state level or at the metropolitan level are organized in this way. The federal government should put pressure on the states and reward those states again that carry out these governance reforms. That is again something that is not done. Federal transportation planning laws should be substantially amended. We have 425 or 450 (metropolitan planning organizations) in the country. We probably should have 125 or so given the nature of metropolitan regions. But that burden falls on you. The challenge of spending scarce resources and investing scarce resources more wisely depends on governance structures and capital programming processes and that’s really a question for governors and state legislators largely. So I challenge you with that in this changing environment at the federal level, in a changed and some might say reduced federal role, that these are the kind of things that really should occur at the state and local level. … For a (state) department of transportation to be able to carry out this kind of broader-based thinking about their projects requires the support of state legislatures. Ultimately the burden, I want to say, is on you. I cannot think of any part of American government that is more important to the reform of how we carry out transportation planning, programming and implementation than state legislatures. And that is something unrecognized for the most part and I know everybody in this room recognizes that but probably not all of your colleagues do because you have to step up and assert yourself in a positive way and I think that hopefully is one of the most important things to come out of the work of this organization.”

Jeff Davis, Senior Fellow and Eno Transportation Weekly Editor, Eno Center for Transportation

On how the FAST Act came about…

“The federal Highway Trust Fund was only bringing in $40 billion a year in excise tax receipts from gasoline and diesel fuel and the trucking industry and we’d been in the practice of starting $51 billion a year in new spending commitments going out the door of the trust fund. And Congress had clearly demonstrated they did not have the willingness to either reduce the number from $51 billion down or raise the number of $40 billion up in excise taxes. So filling the gap was the fundamental issue of reauthorization of MAP-21 and what we wound up doing thanks to a strange little accident almost at the (Senate) Banking Committee was someone figured out that there was $60 billion sitting around in the Federal Reserve that the Federal Reserve didn’t really need so why not basically transfer that to the Highway Trust Fund and then use another $10 billion or so of odds and ends to find $70 billion to fill that 40-to-51 gap for five years. That’s basically what we did: a one-time-only solution. And unless something drastic happens with gas supplies, that will be sufficient to fund the FAST Act through FY 2020 so we’ve got almost five years of breathing room.”

On what happens after 2020…

“Beyond that, the gap is going to continue to take place. The trust fund is still only going to take in $40 billion or so in real excise tax receipts from highway users every year for the next 10 years. It always frustrates me when different arms of the government—especially the federal government—work at cross purposes. Because the environmental and energy policy wing of Uncle Sam for a long time has said it is officially the policy of the United States to reduce petroleum consumption by forcing cars to be more fuel efficient. So first under (President George W. Bush) and then under President Obama we have mandated that the average fuel economy of new cars go up from 27 and a half miles per gallon to about 54 miles per gallon in 2025. So it is officially the environmental policy of Uncle Sam to reduce the number of taxable gallons of gasoline sold in America and it is officially the transportation policy of Uncle Sam to fund the highway system based almost solely on the number of gallons of diesel fuel and gasoline sold. So they are working completely at cross purposes but because the government is so vast and Congress reauthorizes things in different tracks, they’ve never been able to force themselves to focus on that fundamental dissonance and it is that dissonance that has basically capped the amount of Highway Trust Fund receipts at $40 billion. Because even as (vehicle miles traveled) can grow somewhat and the number of miles can increase somewhat, the scheduled increases in fuel efficiency of cars are more than compensating for that. So unless you fundamentally change the nature of the taxation or significantly increase the amount of the per gallon tax, which no one in Congress appears to have the willingness to do, you’ve got to make some fundamental decisions on (whether) the whole concept of user payment for this system reached its sell-by date. And because of the way the FAST Act was thrown together, Mr. McConnell, the Senate Majority Leader, worked very closely with Sen. Boxer from California, trying to get this done the way they wanted to do it and as a result there were basically no amendments allowed in the Senate at all—highly unusual for a bill of this size. And the House really didn’t have the heart to go ahead and debate the fundamental issues here either. But the whole purpose of what’s called the benefits model of taxation is that if you’re going to levy a special excise tax and put it in a special trust fund, then the proceeds of that tax should be used pretty much solely for programs that benefit the people that paid that tax. The gradual erosion of that over the last 40 years with people wanting mass transit to get part of the trust fund was a political calculus but it has somewhat eroded the value of that debate. But that whole annoying donor state vs. donee state we’ve had for decades over who has more right to get their proceeds of that specific excise tax they pay: neither highways nor mass transit nor infrastructure nor the man in the moon has any moral claim to any particular share of $60 billion we stole from the Federal Reserve. And the fact that we’re apparently continuing to make that kind of regular transfer from general revenues or borrowing from China or wherever else a fundamental recurring feature of this system has the potential to blow up a lot of the assumptions on which we’ve made a lot of these other decisions. There’s no reason in the world why dollars you take from the Federal Reserve Bank should be split 80 percent for highways, 20 percent for mass transit.”

Joe McAndrew, Policy Director, Transportation for America

On why it’s important to select the best projects in which to invest scarce resources…

“We’re never going to have enough money to fund (all) these projects so you’ve got to actually build the policies within your state within the context of what’s happening within your state to get the biggest bang for your buck. … It’s important that state legislators really start to understand how their programs operate. Your state (departments of transportation) are master builders I think is the best way to put it. They’ve come of age by-and-large in the day of excess federal funds to build out an interstate system. They know how to build. … DOT secretaries also know how to think about problems and how to solve them. But oftentimes they’ve had a limited number of solutions to solve them in the past. We need to start to think about how you build the policies to direct them towards priorities that are important.”

On the value of competitive grant programs to selecting better projects…

“We are big supporters of using discretionary grants, competition to drive better project selection, especially for capacity expansion projects. If you’re going to spend those dollars, you need to make sure that they’re being spent for the best project and that there’s great partnership between the state, the feds and the local government. Look no farther than TIGER. Talking about formula dollars, we go ahead and give 80 percent or more to a state government and there’s no incentive for them to go ahead and spend any more money to get those dollars. But TIGER, because the competition’s so fierce, whether or not we agree with whether there’s enough money or not but about 5 percent of all applicants receive funds and there’s about three non-federal dollars to each federal dollar coming through. So right there you get a better bang for the buck at the federal level. You can do the same at the state level. Oregon, while it’s not truly multi-modal in terms of roads, has got the Connect Oregon program, which has been around six or seven cycles now. (It’s) highly transparent, wide open for people to understand how projects are going to be selected. They know how to improve upon their projects for the next round. But those local governments in order to compete for those scarce dollars ultimately are able to come forward with more dollars than the traditional formula dollars.”

On states reforming project prioritization processes…

“Virginia just completely reformed their whole program last year and drove their capital construction budget towards a transparent, performance-driven, criteria-driven project selection process, where each project is going to be ranked against a core set of goals—environmental, economic development, safety, land use and accessibility. And they’re all ranked and scored in a transparent process. Each project gets a score and then each project’s scores run against the actual amount of funds that they’re asking for. So you’ve got both a good score and then you run it against how much money they’re asking for so you get the biggest bang for the buck again.”

On the need to re-evaluate older projects that are still in the works…

“How many of you are doing projects that were on the books over 20 years ago? … Most states you’ve got projects that have been there for 20 years. The engineers that designed them have been there for 20 years and did the (environmental impact statement) back in the day and they want to get that project done. We should at least re-evaluate what’s being done with those projects and it’s incumbent upon you to actually ask those tough questions. A lot’s happened in the last 20 years. Population shifts, cities have come down in population, driving trends have completely changed, cell phones are here changing the way that we’re moving. And we’re building for something that’s 20 years out of date expecting that we’re going to get the same projections 20 years from today. We need to ask the tough questions because those are really important dollars that we’re just mindlessly throwing after project solutions that were solved 20 years ago. The industry’s changed, the trends have changed and we’re asking for different things and I think it’s important for you guys to be asking those tough questions when we’re spending our limited, scarce resources.”

Brigham McCown, Chairman & Founder, Alliance for Innovation & Infrastructure

On the need to reduce inefficiency in the system…

“At both the state and federal level, to be innovative means you need to say ‘okay, well just because this is the way it’s always been done, is this the most efficient way to do it? Is this the best way to do it? And let’s challenge some of those assumptions and let’s talk to our colleagues in other states and in other places about their perspectives. I think you’ll find there’s a lot of inefficiency in the system out there that can be looked at. In the past it wasn’t necessary because we had money. … There are contracting principles that can be changed. There are ways to get more bang for the buck that are out there.”

Further Reading