Taking the Bypass on Transportation Funding

Increasingly unable to rely on Washington, states are coming up with new ways to pay for roads. But there are some principles they need to keep in mind.
by | August 14, 2014
 

As is usual when the weather's warm, the "Road Work Ahead" signs are everywhere. In Washington, though, not much of that kind of work has been going on, at least on Capitol Hill, with Congress again fumbling with how to provide money for transportation projects across the country.

Over the summer, the Highway Trust Fund, which is the source of federal funding for state highway projects, nearly went broke once again. As the end of the congressional session closed in, lawmakers did finally agree on a stopgap 10-month, $10.8 billion measure to avoid the job losses and other economic harm that would have resulted from stopping the flow of federal money during the height of road-construction season.

What happens when the latest temporary fix expires in May is anyone's guess, but with Congress paralyzed, states have grasped the reality that the days of the feds routinely paying for 80 percent of transportation infrastructure projects are over. Rather than just lamenting the loss, however, states are developing stable revenue sources to fund their transportation needs.

Five states have raised gas taxes, while others are funding transportation projects by borrowing money up front and then establishing a dedicated revenue stream to repay the loans. Still others are using creative public-private partnerships. One promising development is the use of "availability payments," under which private entities that design, build, operate and/or maintain assets such as highways are paid based on the achievement of specific project milestones or performance metrics such as number of lane closures or how well they manage accidents or other incidents.

As states continue to experiment with ways to fund their own transportation needs, they should be guided by three overall principles. First, they should strive to use funding mechanisms that are as close as possible to user fees; those who benefit the most from transportation infrastructure projects should bear most of the burden.

Second, incentives should be structured to encourage customer service. To the greatest degree possible, performance metrics should be ones such as average travel time that relate directly to the customer experience.

Finally, in developing these creative funding mechanisms, governments should calculate expenses based on an asset's lifecycle costs, not just the cost of construction. Doing so encourages smooth operation and the regular maintenance that both optimizes customers' experience and saves money over time.

Whatever shape these new mechanisms take, however, they're evidence anew of Supreme Court Justice Louis Brandeis' famous description of the states as "laboratories of democracy." And this response to Congress' inability to get its act together on transportation funding brings to mind another old saying: Necessity is the mother of invention.

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