Roads' Toll

With scarce funds idling on troubled highway projects, the government could turn to a free market system to fix the nation's gridlock.

Every year, Americans waste 2.3 billion gallons of gas idling in traffic. At today's prices, that's a $6.2 billion wallop in the nation's pocketbook. Figure in 3.7 billion hours of lost productivity and the gridlock tab tops out at $65 billion. The average annual rush hour delay has tripled to 47 hours since 1982, researchers say. There now are 51 urban areas-10 times as many as 23 years ago-where the average motorist spends almost one day a year behind the wheel going nowhere.

The Texas Transportation Institute broke the bad news in May with the release of its 2005 Urban Mobility Report. To keep traffic from getting any more congested, the report said, the nation needs to build 5,002 new lane-miles of streets and freeways-unless 7.3 million commuters immediately park their cars and start riding mass transit.

The good news is the fixes can be funded without hiking fuel taxes, according to the federal government. How does the Bush administration spell relief? F-R-E-E M-A-R-K-E-T. A giant, long-term transportation bill making its way through Congress at the start of the summer driving season would help states keep pace with growing demand for transportation improvements by allowing them to take advantage of new tolling opportunities and other public-private partnerships.

"The most predominant problem we have today is capacity and congestion," says Federal Highway Administrator Mary E. Peters. "One of the ways to deal with that is to bring the . . . market-based economy into this equation and determine where the private sector may be willing to invest."

A two-year squabble over reauthorization of the 1998 Transportation Equity Act for the 21st Century highlights the difficulties of paying for badly needed highway construction and reconstruction. There isn't enough money, and it's taking too long to get the projects built.

The Transportation Department-particularly its Federal Highway Administration-is tightening fiscal controls and management oversight on projects that rely on federal aid. But transportation experts say the road to improvement is long, narrow and littered with obstacles. "Our nation's surface transportation system is broken and there are few signs it will soon be fixed," Robert Atkinson of the Washington-based Progressive Policy Institute wrote in a December 2002 report, "Getting Unstuck: Three Big Ideas to Get America Moving Again."

Financial Stewardship

Transportation Department Inspector General Kenneth Mead and Government Accountability Office auditors want the Federal Highway Administration to improve its stewardship over the $25 billion a year it provides to states to help pay for highway and bridge projects. As the IG and GAO regularly point out, the review and approval process for roadwork leaves a lot to be desired. In the past six years, investigators have uncovered hundreds of millions of dollars in idle funds that could be spent on active projects.

GAO reported recently that FHWA has improved its oversight but still lacks a comprehensive approach. According to an IG report, (PT-2005-008), the highway administration provides little oversight of the billions of dollars in grants to states and municipalities each year. What's more, Mead's office audited 45 grant projects in 2004 and found only four for which the highway administration assessed financial risks, reviewed payment processes and spot-checked payments for reasonableness. Fourteen highway administration division offices paid out $4 billion without any review. Fraud is another problem. As late as November, the IG was investigating 135 cases of alleged bribery, bid-rigging, kickbacks and false work claims on highway and transit projects in 37 states.

Then there are troubled projects, such as the Massachusetts Turnpike Authority's Interstate 93 Central Artery/Tunnel project, known as the Big Dig. The most expensive highway construction project in U.S. history, it entered its final stages last fall, seven years late and $12 billion over budget-and full of leaks, despite FHWA's oversight of waterproofing. Congress capped federal investment in the $14.6 billion Big Dig at $8.5 billion. FHWA was withholding its last $81 million until the IG finished an audit of the project.

The federal government raises most of its road money from taxes on fuel, tires, sales of trucks and trailers, and the use of heavy vehicles. The principal funding mechanism for federal highway programs comes from the Highway Trust Fund. It has two accounts, one for roads and the other for mass transit. Money is disbursed based on complicated formulas that account for factors such as geography, miles of pavement and number of vehicles. Not every state gets back as much as its citizens pay in, although the 1998 transportation act guarantees each state a return of at least 90.5 percent.

The Highway Trust Fund no longer is sufficient to meet demand. By 2015, it will fall short by $20 billion per year for highway and transit system maintenance and $43 billion per year for improvements, according to a U.S. Chamber of Commerce study released May 18. And it's not just the trust fund that's coming up empty. The report, "Future Highway and Public Transportation Finance," also notes there won't be enough state and local money to invest in maintaining and improving the nation's highways and transit systems during the next 10 years. If the prediction comes true, by 2015 there will be a $1 trillion gap between what the nation needs, $3.4 trillion, and what it has, $2.4 trillion.

The Highway Bill

The House and Senate have been trying to agree on a reauthorization of the 1998 highway and transit bill since it expired Sept. 30, 2003. A disagreement over tax equity and the rate of return states get on payments helped stymie a new bill last year. House and Senate conferees were back at the negotiating table in mid-June, trying to reach a compromise before an extension of the old bill expired at the end of the month. Earlier this year, President Bush vowed to veto any amount over $284 billion, a 42 percent increase over the 1998 legislation.

The House complied. But, according to nonpartisan spending watchdog Taxpayers for Common Sense, the House version of the new bill was loaded with $12.4 billion worth of pork. Among the 4,128 earmarks from lawmakers: funds for a Packard automobile museum in Ohio, a snowmobile trail in Vermont, horse trails in Virginia, graffiti elimination in Brooklyn and Queens, and a "bridge to nowhere" in Alaska. The group anticipated 7 percent of highway funding would be earmarked by the time the bill reached the president's desk. The House version also proposed withholding 2006 highway project money for 10 months unless Congress passes a law guaranteeing rates of return and minimum funding growth rates for the states.

On May 17, the Senate defiantly passed a version totaling $295 billion. Like the House, the Senate wanted to increase the states' guaranteed return to 92 percent. But it proposed to offset the additional spending with $7.9 billion of new income to the Highway Trust Fund. The money would come in part from ending refunds to some tax-exempt users, cracking down on excise tax cheats and expanding contract authority. Some would come from the Treasury's General Fund. The Senate version also proposed creating a nonprofit corporation to lend money for qualified transportation projects.

Transportation Secretary Norman Mineta called the Senate provisions "accounting gimmicks" designed to promise taxpayers more than they'll get. "If the Congress chooses to irresponsibly add billions to the cost of the bill, it is setting itself up to raise gas taxes or risk bankrupting the Highway Trust Fund in the very near future," Mineta said in a statement. In a June 7 letter to House Transportation and Infrastructure Committee Chairman Don Young, R-Alaska, Mineta reiterated Bush's promise to make the highway bill the first veto of his presidency if the conferees did not cut $11 billion.

Congress extended the old legislation for the seventh time at the end of May. The move gave highway programs $6.7 billion-an additional month's worth of obligation and contract authority-and the two chambers 30 more days to put together a conference agreement. The American Association of State Highway and Transportation Officials complained that the delays in passing a new bill created an uncertain funding stream that forced states to defer major projects and divert their own funds to shore up projects eligible for federal aid. "The states cannot afford to lose another construction season," AASHTO Executive Director John Horsley wrote in a May 24 letter to House and Senate leaders.

The House and Senate bills had major differences. Still uncertain at press time: whether the conference version would preserve administration proposals to expand public-private highway partnerships.

Public-Private Partnerships

The 1998 Transportation Infrastructure Finance and Innovation Act provides direct loans, loan guarantees and standby credit lines for surface transportation projects of national or regional significance costing $100 million or more. The Bush administration proposed making such credit easier to get and offering it for projects with price tags as small as $50 million. Both chambers agreed, but only the Senate included freight rail needs.

FHWA is identifying new approaches to project delivery through an experimental process. States interested in testing better ways to develop projects can get flexibility in contracting, environmental compliance, right-of-way acquisition and finance.

Other innovations are cutting project costs while accelerating construction work. Since 2002, FHWA has encouraged design-build contracting on projects costing more than $50 million. By traditional methods, not a shovelful of earth can be turned until a project is designed and put out for bids. Under the new approach, a contractor performs both functions, meaning construction can start long before the design is complete. The technique allows contractors to use equipment, schedules and labor more efficiently. The Bush administration proposed eliminating the price threshold so states can apply the design-build method to smaller federal-aid projects, which it says would encourage private sector participation.

Through its Value Pricing Pilot Program, FHWA supports market-based projects such as high-occupancy toll lanes to reduce congestion, improve transportation system performance and promote mobility.

Tolling

Interest in tolling is growing as states realize its potential to ease congestion and as road builders realize financing options are limited. An administration proposal would allow states to establish user fees on federal-aid highways, provided the charges are part of programs to improve congestion or air quality and revenues are reinvested in transportation.

The transportation bill could reverse a long-standing policy restricting state tolls on federally funded roads. States could be required, however, to equip vehicles with electronic transmitters that allow motorists to pay tolls without stopping.

Opponents see freeways turning totally toll, and worry about giving the states too much power. Backers of the plan say solo motorists have a choice: take a free ride on an interstate or pay for a faster trip in a parallel lane reserved for vehicles with two or more passengers.

Decision-makers in Washington have come to a fork in the road to improving the nation's transportation system. In "Liberating the Roads: Reforming U.S. Highway Policy," a policy analysis written for the Cato Institute in March, former World Bank transportation economist Gabriel Roth argues that since the interstate highway system has been completed, there is no longer any role for the federal government in the financing and construction of roads. Reform, Roth concludes, could include phasing down the federal fuel tax and returning full responsibility for highway programs to the states.

House and Senate versions of the transportation bill called for a national commission to study options, including relying heavily on private enterprise as road programs did long ago. "Should we continue to fund transportation projects in this nation almost predominantly from gas taxes, or should there be other methods? Should there be more or less federal em-phasis in the future?" asks Federal Highway Administrator Peters. "It's something we have to discuss as soon as we get the ink dry on this bill."