When America was a young country, the federal government had a much more prominent role to play in transportation than it does today. Federal transportation programs were heavily involved in the collaboration among the states to ensure consistent standards, interconnectivity of facilities, and sufficient investments for a national infrastructure.
Today, the U.S. Department of Transportation has changed its focus, and now its priority is to promote non highway-centric policies such as environmental sustainability, economic expansion, and social welfare.
All levels of government have historically funded transportation. The federal government, via the federal gas tax, has funded approximately 25 percent of transportation costs while states and local governments fund the rest.
Some states, however, rely more heavily on the federal government than others. North Carolina’s Department of Transportation receives nearly $1.2 billion from the federal government, which makes up 27 percent of total funding in this state.
The money the federal government disburses for transportation comes primarily from the federal gas tax, yet two out of three programs funded are not highway programs. Due to per-person driving mileage decreasing, increased construction costs, and more efficient vehicles, the gas tax is no longer sufficient to pay for all of the Highway Fund’s transportation needs, especially if the money funds nonhighway transportation methods.
The federal gas tax rate has not increased since 1993, and some are arguing to increase the rate. Congress has decided not to increase the excise tax on motor fuel, and in 2012, the federal legislation authorizing spending on federal highway programs also approved a General Fund transfer to fill the gap left from inadequate fuel tax revenue.
In 2015, the U.S. Department of Transportation warned states that they would need to delay payments to prevent the account balance of the highway and transit accounts from dipping below a required threshold. This is particularly concerning for many states, as many highway construction projects are paid for by states and then reimbursed by the federal DOT.
According to Congressional Budget Office projections, the highway account will have a shortfall of $1 billion in 2016, and that shortfall will grow to $108 billion by 2025, with an additional shortfall of the transit account of $40 billion. This means the delay in payments to states should not be viewed as an anomaly; it has a strong likelihood of becoming an annual event.
Since 2012, 21 states have approved plans to raise their own additional transportation revenues, including North Carolina. During the 2015 legislative session, N.C. lawmakers changed the way the gas tax was calculated in an effort to make that revenue source more sustainable.
The gas tax rate was reduced from 37.5 cents to 34 cents per gallon by late 2016. However, due to a drop in fuel prices, the tax rate ultimately will be higher than it otherwise would have been before lawmakers changed the way the tax rate is calculated. Starting in January 2017, the gas tax will be adjusted automatically based on two factors: population increases (75 percent) and changes in the Consumer Price Index (25 percent).
In addition to the change in the gas tax, North Carolina made another important decision to hedge the risk against the federal government’s funding shortfall. During the last session, lawmakers ended a transfer from the Highway Fund into the General Fund that had been skimming hundreds of millions of dollars away from highway projects over the last few decades. Using transportation money solely for transportation-related projects is necessary if we as a state are to prepare for an eventual cut in our federal transportation allotment.
The long-term solution for transportation needs in America is to shift transportation decisions and funding away from the federal government and to the states. Over the last 30 years, states have increasingly been given more discretion over how they spend federal dollars and federal discretionary programs have declined as a portion of overall funding.
In the wake of Congress’ continual short-term funding continuations for the Highway Trust Fund, it only makes sense for states to take over their own transportation programs and increase their sovereignty when it comes to transportation.
Sarah Curry is Director of Fiscal Policy Studies for the John Locke Foundation.