President Trump’s long-awaited infrastructure plan was released this week. The administration wants “to maximize investment in infrastructure.” The president clearly wants to build things.
There is, however, no discussion of the biggest problem facing our highway system: congestion. Before we start a building spree, we need to think about how we price highways.
{mosads}The plan correctly calls for ending the remaining restrictions on tolling interstates but makes no effort to explain why we should do it. Making the case is easy: Congestion is costly and variable tolls are the most effective way to reduce it.
Tolls also provide a sustainable source of revenue to fund maintenance and expansion, something our current fuel tax-based funding system is failing to do.
Unlike other kinds of taxes, highway tolls improve the operation of the economy by reducing congestion and making it easier to move people and goods.
On the bright side, the plan attempts to limit Washington’s share of funding projects to 20 percent in the proposed $100 billion “Infrastructure Incentives Program.” The remaining funding must come from state and local governments or the private sector. This is a step in the right direction.
In the past, federal funding could go as high as 80 percent. This often resulted in poor project selection. State and local officials would often roll the dice on questionable projects because they were responsible for such a small share of the cost.
Financing the bulk of the new project’s cost will create incentives for states and cities to go after more worthwhile projects, reducing the chances of another “bridge to nowhere.”
But then, the administration shoots itself in the foot on project selection. The federal evaluation process in this $100 billion program gives little weight to a project’s economic or social return. While these calculations are always difficult to carry out, they are key. Size doesn’t matter, economic impact does.
The president likes to say our highways and bridges are crumbling. They are not perfect, but they are not falling apart. The real problem is that highway surface and bridge conditions vary considerably across states.
Because legislators in Washington understandably want their own states or districts to get their share of limited highway spending, the federal government isn’t in the best position to choose projects without bias. The plan doesn’t really address this problem.
In order to reduce differences in highway quality across states, officials in Washington need to get out of the way. Stop recycling dollars through the Capitol. Reduce the federal fuel tax, and let states figure out their transportation needs and ways to fund it.
States can choose to increase their own fuel taxes, or better yet, replace the federal fuel tax with tolls on at least some highway lanes. Why not reduce congestion in addition to generating revenues to operate highway systems?
With a lower federal fuel tax, states will have the political room to adjust revenues to meet their own highway needs.
One truly bad idea is the $20 billion “Transformative Projects Program.” A committee headed by the secretary of Commerce would pick high-risk, groundbreaking ideas to fund. In other words, the president wants to set up a government-run venture capital operation in Washington.
Private venture capital firms often lose money when they risk their own funds, and risking other people’s money (that of taxpayers) is doomed to fail. How will the administration shelter the program from political interests?
There are some other useful reforms that would make private sector involvement easier and speed up project construction.
But it all misses the point. Until we reduce Washington’s role and price highways with a user-pays approach, much like water and electricity, we will lack the price signals to determine how much and where to spend limited highway funds.
Rather than focusing on more building, zero-in on using what we have better. We may not have to build as many roads as we think.
Robert Krol is a professor of economics at California State University, Northridge and senior affiliated scholar at the Mercatus Center at George Mason University. His research focuses on transportation issues.