Report: The Past, Present & Future of Federal Highway Funding

Each year, more than $45B in Federal highway funding is distributed to states but changing conditions like deteriorating roads or population increases won't increase funding. The Eno Center for Transportation reports how to disrupt this funding model.

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This year, the federal government gave $45.6 billion in highway “formula” funding to the 50 states and the District of Columbia. The state-by-state distribution of this money was based almost entirely on how the states fared on a variety of real-world metrics back in calendar year 2007, adjusted at the time for the need to keep certain states happy at the percentages of total formula funding they received in the 1980s and 1990s, and how well each state’s Congressional delegation did in securing home-state earmarks in the 2005 SAFETEA-LU pork-barrel bonanza. The only factor that is allowed to change with the times is a requirement for each to get back 95 percent of the dollars they paid in federal gasoline, diesel and trucking excise taxes in the most recent prior year, which currently only benefits Texas. 

Congress ordered the establishment of the first-ever national performance standards and measures for highways and bridges in 2012. Congress said the purpose of those standards and measures was to “transform the Federal-aid highway program and provide a means to the most efficient investment of Federal transportation funds by refocusing on national transportation goals, increasing the accountability and transparency of the Federal-aid highway program, and improving project decision-making through performance-based planning and programming.” But seven years later, those performance measures and standards have nothing at all to do with how the federal government distributes highway funding.

Can we do better?

This paper examines the past, present, and possible future of the distribution of Federal-aid highway funding to states. For the first seven decades of the Federal-aid highway program, while the apportionment formulas were always set by Congress and involved political compromises, the formulas were based on constantly updated real-world factors like state population, lane-miles, miles-traveled on the various highway systems, fuel usage and tax payments, and local air quality. Construction of the Interstate System was distributed based on the periodically updated cost estimate for completion of each state’s roads on the Interstate map.

But starting in the 1980s, as construction of the Interstate System wound down, states and their Congressional delegations seemed to lose sight of the shared sacrifice inherent in the Interstate program and instead focused more and more on increasing their state’s share of total funding in each successive authorization bill at the expense of other states. Naked political muscle replaced objective metrics, until “minimum guarantees,” “hold harmless” provisions, and an ever-increasing number of earmarks dominated the old program in the 2005 SAFETEA-LU law.

Refreshing The Status Quo: Federal Highway Programs and Funding Distribution

Since then, Congress has been unable or unwilling to revisit the state-by-state shares of total highway funding from the last year of SAFETEA-LU and have simply continued those shares in successive authorization laws.

Taking lessons from other federal and local grant programs, both in and out of the transportation field, this paper evaluates eight scenarios for alternative federal highway funding distribution. Each takes the $41.4 billion in highway contract authority apportioned to states via formula for fiscal year 2018 and creates new factors, and in some cases new formulas, to distribute highway money to each state. The analysis makes assumptions about state minimum apportionments (usually ½ of 1 percent, as in current law) and whether or not to cap the percentage change in a state’s total apportionment for each program from the old system to the new system.

The eight scenarios evaluate different possibilities and strategies for redesigning federal highway programs and their funding streams. The first two examine how much has changed since the original 1916 Highway Act and the SAFETEA-LU era apportionments. The others test how states would fare under various needs-based and incentive-based apportionments. The final two scenarios examine restructuring of the federal program structure and matching metrics to goals.

The scenarios show how far off the current distribution from any tangible metric. They also show how the upcoming reauthorization presents an opportunity to reshape programs and target limited federal funds. It seems odd that the federal government is forcing states to spend so much time and money reporting the conditions and performance of their highways and bridges only to not use that collected information. Congress stated that those measures were intended to be used to refocus federal transportation investment on national goals. The scenarios offer insights into how Congress can target funds to areas that have the greatest need while also incentivizing better outcomes.

The analysis reveals two significant challenges with creating new formula factors. The first is with data. Readers will note that the factors in the analysis are often incomplete or out of date. If they are to be used to fairly allocate billions of dollars, data would need to be more robust in its accuracy and timeliness.

But the largest and most obvious problem with reforming the highway funding programs and their allocation is political. Each scenario results in significant changes to the amounts that states receive in annual highway funding. This alone is a nonstarter in Congress unless a dramatic increase in funding accompanies such a change. While the transportation industry continues its call for increased federal investment in transportation, perhaps it should be coupled with calls to reform how that new money will be distributed.

Download the full report below for full analysis from the authors. 

Authors:
Paul Lewis, Vice President of Policy and Finance
Jeff Davis, Senior Fellow and Editor, Eno Transportation Weekly
Alice Grossman, Senior Policy Analyst
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