Road hogs: will Congress cut back the transit pork? - budgeting for Intermodal Surface Transportation Efficiency Act of 1991

The House Committee on Transportation and Infrastructure recently expanded from 67 to 73 members, making it "the largest [congressional] committee in history," according to its chairman, Rep. Bud Shuster (R-Pa.).

What warrants placing one in six House members on a single committee? Except for a few intra-city projects, the Interstate highway system is finished. Transportation spending makes up no more than 2 percent of the $1.6 trillion federal budget. But that doesn't measure transportation's political importance. Entitlement programs eat up more and more of the budget, but they essentially run on autopilot. (They may be flying into a cliff, but it is on autopilot.) And representatives can't exactly promise to bring home more Medicare to their districts. Transportation is one of the last areas where individual congressmen can personally deliver federal dollars to constituents in a literally concrete way. Or as Rep. John Linder (R-Ga.) says, the Transportation Committee is the "last place for pork."

It takes on added significance this year because the Intermodal Surface Transportation Efficiency Act of 1991 is up for re-authorization. ISTEA (pronounced "ice tea") provides the money - $155 billion between 1992 and 1997 - to state and local governments for transportation projects, with the feds typically picking up 80 percent of project costs. ISTEA is funded by a 14-cents-per-gallon federal gas tax (an additional 4.3 cents goes to general revenues) and taxes on diesel fuel and truck tires.

First, Congress takes care of its own. Right off the top come members' demonstration projects - "high-priority" projects, insists House Transportation Committee aide Jeff Nelligan. ISTEA contained 538 projects costing $6.2 billion. And what "high-priority" needs do these projects meet? Well, Shuster's hometown of Altoona, Pennsylvania, once got a $30 million motorized sidewalk. Residents may not be getting too much use out of it, however, because they're too busy driving down the $286 million Bud Shuster Highway. And that was when he was only the ranking minority member on the Transportation Committee. As chairman, Shuster wants to build support for the overall bill. So earlier this year he sent a memo to his fellow House members reminding them to submit requests for demo projects in their districts.

Most ISTEA funds are distributed using a formula that takes into account a number of technical criteria, such as vehicle miles traveled, diesel fuel purchased, and state population. It sounds scientific, but Sen. John Warner (R-Va.) calls the formula for the 1991 ISTEA a "witch's brew." Among other things, the formula relied on the 1980 census for population estimates rather than the 1990 census, because the older data favored Northeastern states.

Debate over the formula in this year's transportation bill will be fierce.

Shuster has predicted there will be "blood on the floor, I'm sure, over the formula before we're done." There are three major proposals, each with decidedly different priorities:

* "ISTEA Works." Governors and representatives from many states, primarily in the Northeast, think the current program doesn't need a lot of changes. That's not surprising, because their states get back more money under ISTEA than they pay in. Cities like ISTEA because it gives municipal planning organizations more control over where federal money can be spent. Cities and many environmental groups also like ISTEA's dedicated funds for the Congestion Mitigation/Air Quality program and for "enhancements," which include bikeways, walkways, and other transportation-related projects. Their connection to transportation can be distant: One city used enhancement funds to build a day care center at a transit station.

* "STEP-21." The Streamlined Transportation Efficiency Program for the 21st Century is the mainstream alternative to the current system. STEP-21 guarantees states will get back at least 95 percent of the transportation dollars they put in. Majority Whip Tom DeLay (R-Tex.) and Gary Condit (D-Calif.) introduced the plan in the House, and Warner, chairman of the Environment and Public Works Transportation Subcommittee, which has jurisdiction over highways, is leading the Senate fight. STEP-21 is endorsed by representatives and governors from states that are big losers under ISTEA.

STEP-21 would provide states with more flexibility about where they could spend transportation funds, allocating 60 percent as a block grant. DeLay and seven House committee chairmen told Shuster in a letter that STEP-21 would address what they see as ISTEA's two central flaws: "An inequitable funding distribution system that falls to allocate funds based on prioritized needs; and an inefficient, inflexible program structure that erodes the transportation purchasing power of every state."

Critics of STEP-21 argue that funding should be allocated based on state needs, not contributions. "These are projects of national significance," says Maryland Gov. Parris Glendening. "Under a system that simply returns money to the states, they would not be properly funded." He says highways in the Northeast are more costly to maintain because they're older, used by more out-of-state drivers, and hit with colder weather. Cities are skeptical of block grants, because dedicated funding for enhancements, congestion, and air quality would be eliminated; states and local governments could, however, use general transportation funds for those purposes.

* "Turnback." The third and most dramatic proposal, sponsored by House Budget Chairman John Kasich (R-Ohio) and Sen. Connie Mack (R-Fla.), would keep two cents of the federal gas tax for maintaining the Interstate system and "turn back" the other 12 cents to the states. (The 4.3 cents going to general revenues would not be affected under the Kasich-Mack bill.) Kasich and Mack argue that since the Interstate system is complete, a federal role is no longer necessary or desirable. "If you let us keep our money, and get rid of all the federal bureaucracy and all the federal rules, we'll actually be able to have more highway construction. We'll be able to deal more effectively with the transportation needs in our own states," Kasich told the House Surface Transportation Subcommittee.

Devolution would end federal demo projects and the need to pay the federal highway bureaucracy. The Kasich-Mack bill would also eliminate the federal reviews, regulations, and mandates that come with ISTEA funds. A Reason Foundation study estimates that when these federal costs are taken into account, 33 states get back less than they put in, including big states such as Illinois, New Jersey, New York, Pennsylvania, and Virginia.

Turnback advocates also say that states would do a better job of choosing cost-effective projects if they have to come up with all the money. "It's no secret that 90 percent federal funding makes for some pretty screwy decisions," says David Luberoff, assistant director of the Taubman Center for State and Local Government at Harvard's Kennedy School of Government. Would Massachusetts have gone forward with the $10 billion, 1.5 mile underground highway under construction in Boston if it had to pick up the tab?

Critics of devolution made many of the same arguments used against STEP-21, but with greater force. Shuster says the proposal "makes no sense." He says the Interstate system is inherently a federal, not a state, responsibility. Or as Eric Federing, a Democratic staffer for the Transportation Committee puts it, "Highways don't end at the state line."

True, but states can and do work together to solve common transportation interests. The Port of New York-New Jersey has run smoothly for decades without federal intervention. Just recently five Northeastern states agreed on a common standard for electronic toll collection.

Carl Williams, deputy secretary of California's Business, Transportation, and Housing Agency, points out that over half the states have raised their gas tax in the past five years. He believes most states would have little difficulty convincing voters to replace the federal tax with the state tax. The Kasich-Mack plan also would lift the ban on tolls on Interstate highways. That could help states no longer subsidized by the rest of the country maintain their transportation networks and allow congested states like California to expand their highways.

State constitutions present another problem: Many state constitutions prohibit gas taxes from being used on anything but highways. Texas's constitution requires 25 percent of all revenues to be used for education, so the state would have to raise its gas tax (or other taxes) well above what it required for transportation. The Kasich-Mack bill gradually phases the federal gas tax out over a number of years to give states time to deal with the political and constitutional hurdles.

Republican governors from four states - Pete Wilson (Calif.), John Engler (Mich.), George Voinovich (Ohio), and David Beasley (S.C.) - have endorsed devolution. Kasich and Mack had hoped more lawmakers from donor states would swing over to their camp. That hasn't happened, perhaps because though turnback might be better for many states, those states' members of Congress would no longer get the credit from bringing home highway projects. Whatever the reason, Kasich concedes devolution is unlikely to pass this year.

The other major battle centers on how much Congress will allocate. The federal government currently spends about $20 billion on highways, with another $2 billion to $3 billion going for transit, congestion and air quality projects, and enhancements. Transportation boosters are looking for much more, which is why Shuster is eyeing the highway trust fund. The trust fund is supposed to be used only for transportation purposes, but it has built up to nearly $24 billion and is used to mask the size of the budget deficit.

Shuster wants to take the trust fund off-budget. "Americans pay steep transportation taxes and expect the money...to be used for critical infrastructure improvements, not to be hidden in some budgetary shell game," Shuster says. There is a strong philosophical argument that dedicated funds should be used only for the intended purpose, but taking the trust fund off-budget would make balancing the budget even more difficult. (The Clinton balanced budget plan calls for transportation spending to decline slightly in nominal dollars. No one appears to be taking this plan seriously - not even the Department of Transportation.) And turning de facto control of the trust fund over to Shuster would be a "license to steal," according to one transportation analyst.

Last Congress, the House passed Shuster's bill 284-143 over Kasich's strong objections, but the measure stalled in the Senate. The same scenario is likely to occur this year, so the issue won't be settled until it reaches the conference committee. Warner opposes putting the trust fund off-budget, but he and 58 other senators have asked Senate Budget Committee Chairman Pete Domenici (R-N.M.) to produce a budget plan that increases highway spending to $26 billion a year. New York Sens. Daniel Patrick Moynihan (D) and Al D'Amato (R) have asked Domenici for $5 billion for transit.

That would require drawing down the trust fund significantly, unless, of course, the 4.3 cents of the gas tax that currently go to general revenues are put into the trust fund. Shuster, a highway man to the core, has suggested dedicating a half cent to Amtrak - which, after 25 years and $13 billion in taxpayer subsidies, was finally scheduled to be zeroed out by 2002 - in exchange for having the remaining 3.8 cents go to the trust fund. Shuster hopes the offer will gain the support of Senate Finance Committee Chairman Bill Roth (R-Del.), a big Amtrak backer.

At this stage it's unclear how reauthorization will shake out, but most observers believe that the trust fund will not be taken off-budget and STEP-21 ultimately will be the basis for the final formula. If highway spending rises to around $26 billion, it will be relatively easy to make the formula more equitable for donor states without hurting donees. But if Kasich and other deficit hawks are successful in holding transportation spending to current levels, it becomes extremely difficult to achieve a consensus. In that scenario, it's possible turnback would suddenly gain support as a way to get more transportation bang for limited bucks. But more likely, devolution will serve the purpose of making STEP-21 look like a moderate reform.

On one level, STEP-21 doesn't represent fundamental change. It simply reworks the funding formula, this time to reflect the growing power of donor states. But while it maintains the federal role in transportation, STEP-21 may help undermine support for all federal programs.

"At the very crux of our union is the concept that resources are gathered, then distributed on need," said Rep. Susan Molinari (R-N.Y.) at a news conference endorsing the current system. It's an unusual historical perspective on our nation's founding principles - life, liberty, and the redistribution of wealth? - but it carries an important contemporary point. New York and other Northeastern states receive more transportation funding than they contribute, but overall they pay more federal taxes than they receive in federal benefits. If states get back roughly what they pay for transportation, Molinari warns, "New York and the other states represented here will demand the money back that we contribute for other programs."

If federal taxes were returned to states on a 1-to-1 basis, why include the middleman? Who would have thought that the common sense principle, you get what you pay for, could shake the federal government to its foundations?

Ed Carson (elcarson@aol.com) is REASON's staff reporter.

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