Transportation, Federal Government
Falling Behind: A Crisis in Transportation Infrastructure Investment
Funding Future Mobility: Exit 1
January 10, 2012
This is our first stop in a thought leadership series that discusses the current state of transportation infrastructure and explores future funding solutions. In “Falling Behind,” we examine how today’s investments are not meeting the growing needs of the U.S. transportation system, creating a gap that will continue to grow if action isn’t taken.
Coming Up Short
Recognizing a growing problem with infrastructure investment, the last federal transportation authorization bill in 2005 enacted by the U.S. Congress established two independent commissions to address transportation policy and funding: the National Transportation Policy and Revenue Study Commission and the National Transportation Infrastructure Finance Commission.
Both commissions identified huge shortfalls in transportation funding at virtually every level of government. Assuming no improvement from current conditions over the next 25 years, the finance commission forecasted average federal needs for capital transportation investments at $78 billion per year and total investment at all government levels at $172 billion per year. Assuming reasonable improvements in the system, including capacity expansion, the finance commission estimates rose to $100 billion per year in federal dollars and $215 billion per year at all levels of government. The policy commission estimated even higher amounts will be needed.
Forecasts of revenue from current federal sources are expected to meet just 41 percent of needs without improvements to the system, and only 33 percent of the amount needed to improve the system. Similar shortfalls are shown at all levels of government. In short, the two commissions indicated that transportation funding needs to be increased between 175 and 240 percent over the next 25 years to maintain and improve transportation infrastructure.
Inflation Brings Gas Tax Deflation
Are these estimates realistic? A quick look at recent trends in the U.S. Highway Trust Fund (HTF) show they are. The HTF is the primary source of dedicated funding for transportation at the federal level. It was established with the advent of the federal gas tax in 1956 as a means to fund the interstate highway system. The current federal gas tax is $0.184 per gallon—slightly higher for diesel—and has not been increased in almost 20 years.
This chart shows recent HTF trends and forecasts provided by the American Association of State Highway and Transportation Officials (AASHTO). Revenue into the HTF had historically been close to outlays, but since 2008, outlays have significantly exceeded revenues. The HTF essentially went broke in 2008 and has required significant transfers of funding from the U.S. General Fund in each of the last 3 years. By 2015, just 3 years away, federal funding needs are expected to exceed revenues by $17 billion assuming no increase is made to the federal gas tax.
Over the long term, there have been increases in both the federal and state gas tax levels, but they have not kept up with inflation. As this chart shows, the total gas tax —including the federal and average state taxes—rose from $0.115 per gallon in 1963 to about $0.39 per gallon in 2009. After adjusting for inflation, the 2009 tax is equivalent to just $0.056 in 1963 dollars, a decrease of 50 percent in purchasing power in spite of several rate increases over 46 years.
But the real demand for transportation investment comes from vehicle miles of travel, not gallons of fuel consumed. Over the years, we have seen significant improvements in fuel efficiency, which further erode the effective funding capacity of the per-gallon tax. Fleet fuel efficiency standards for the future have been aggressively increased, which will further reduce the funding capacity by another 45 percent by 2016. Hybrid and electric vehicles are great for reducing greenhouse gas emissions and our dependency on foreign oil, but they will have a major negative impact on transportation funding.
The Cost of Falling Behind
The U.S. transportation system is aging rapidly and is in bad need of reconstruction and rehabilitation. Much of the interstate highway system is more than 50 years old, and reconstruction and expansion will cost 10 to 20 times its original cost.
There is a real cost to this underinvestment in transportation—a price paid every day by sitting in traffic, paying more for goods, and deteriorating competitiveness in an increasingly global economy. The American Society of Civil Engineers (ASCE) recently issued a report, entitled “Failure to Act,” which attempted to quantify the economic impact of underinvestment in infrastructure. It estimated that in 2010, the cost to businesses and households was nearly $130 billion, including increased operating costs, safety issues and travel time delays. It also projected that this will increase to more than $500 billion per year by2040, with a cumulative economic cost over the next 30 years of $3 trillion if current transportation investment levels continue.
These ASCE estimates may well be conservative. In a recent report, Building America’s Future— a bipartisan coalition of elected officials dedicated to increasing infrastructure investment—puts the annual cost of urban congestion alone at $115 billion, noting that Americans waste 4.8 billion hours per year sitting in traffic. If the costs of delays to freight movement are factored in, congestion costs reach $200 billion per year—about 1.6 percent of the U.S. gross domestic product. Without significant increases in investment, at levels which will not only maintain but increase capacity, we can look forward to exponential growth in congestion in U.S. cities.
Today, we see an increasingly global economy with a rapidly changing, competitive landscape. Never has mobility and transportation efficiency been more important to stay competitive in world markets. Thankfully, the United States has always led the world in transportation investment and innovations. At least until now. According to Building America’s Future, U.S. infrastructure was ranked first globally by the World Economic Forum’s 2005 index. In 2010, that number dropped to 15th.
It is clear that the United States is facing an uphill battle to improve funding systems and bridge the widening gap between its current transportation system and the worldwide norm. In our next series installment, we will explore how much investment is actually being made in this vital system.
Ed Regan is a CDM Smith senior vice president based in Columbia, South Carolina, USA, and a preeminent thought leader on transportation finance and planning. Nearly 4 decades of dedication to the toll industry have fed his passion to advocate sustainable solutions for funding transportation infrastructure today and in the future.