Editor’s note: This article originally appeared on The Equation and is republished with permission.
Contrary to popular belief, we do not have a user-pay model today for our infrastructure and have not for some decades. And that might not be a problem. Yet in one of his first official acts as Secretary of Transportation Sean Duffy delineated a set of principles governing DOT funding (to the extent there is any legal discretion). One of these principles was to state that DOT will prioritize “projects and goals that utilize user-pay models.”
The concept of users paying directly for transportation (i.e. the user-pay model) is one that monopolizes much of the conversation around funding our transportation system, and it dates back all the way to the early 19th century, when toll roads whose upkeep was funded by fees directly levied on travelers were the primary method of connecting towns in the early decades of the United States.
Below I walk through the modern history of funding our car-centric transportation system, and how we all pay to maintain a system that works for only some of us. Mobility is a public good, and the public is paying for it already—we need to make sure that the entire public benefits, not just drivers.
A century ago, funding for roads came predominantly from property taxes, with local bonds covering most of the remainder. The federal government contributed a small share of the overall expenditure, which was generally required to be matched by state expenditures and came entirely out of the general federal budget.
As detailed in our recent report, the early 20th century saw a number of laws establish regular funding for road development from the federal government, systematically doled out to the states. However, these funds required matching contributions from state governments. Because these laws required federally funded roads to be toll-free after years of toll roads operated by private investors, most states introduced fuel taxes to provide the revenue necessary to build the infrastructure required for the increasingly popular automobile, though at this time the federal government was only providing funding for rural, so-called “postal roads” running between cities rather than within them on urban roads.
In order to keep up the massive expansion of the highway system in the wake of the Great Depression, the federal government weakened matching requirements on states and bolstered spending out of the general treasury. It wasn’t until the construction of the Interstate Highway System and the establishment of a Highway Trust Fund in 1957, supported in large part by a federal fuel tax, that the US government attempted to develop a direct, sustained revenue source for the highway build out it had been supporting for decades.
Unlike the funding of roads, initially funded through property taxes but later subsidized heavily by the government, transit operations dating back to the early 19th century were largely run by private, non-governmental entities and paid for almost exclusively by their riders through public fares.
As transit services became more widespread and successful, there began a movement of consolidation of these services in cities, which enabled companies to act as monopolies. In some cases, cities desiring to remove confusion around transit routes even sought this consolidation. Of course, this inevitably led to a required increase in oversight and regulation by governments on these service providers.
In many cases, transit providers were contractually obligated not to raise fares(or at least not to raise them above a certain threshold). This limitation pushed cost-cutting measures to pack as many riders onto streetcars as possible or defer maintenance in order to maximize profits for the for-profit service providers. At the same time, these companies also developed sources of revenue beyond rider fares, including real estate speculation due to the “streetcar suburbs” enabled by newly developed service routes. Additionally, the advent of the electric streetcar led to an increasing share of transit service provided by the electric utilities.
While there was some public investment at the turn of the 20th century in transit, particularly of subway systems whose development was beyond the resources of a private company, transit services continued to be primarily run by private companies. A confluence of events led to a rash of bankruptcies of these service providers, including: competition with the private automobile, whose growth was subsidized by government road building; limits on fare revenue that set off a cost-cutting downward spiral that, in turn, further reduced ridership; and a loss of the investment revenue that had previously kept some companies afloat.
The resulting near-collapse of the streetcar industry led to the gutting of many transit systems, and direct government involvement for what remained, making publicly-owned transit authorities the primary operators.
Despite the federal government’s role in accelerating the collapse of private transit operation by subsidizing its primary competition (automobile use), even in the wake of government intervention federal support for transit was non-existent. This shifted in the 1960s, when the federal government began allocating capital grants, and this piecemeal approach continued until 1982, when a transit-specific fund was added to the Highway Trust Fund, establishing a consistent revenue source by dedicating 1 cent of the 5-cent gas tax increase employed that year to the Highway Trust Fund transit account.
Despite being designed as a “pay as you go” fund, the Highway Trust Fund almost immediately ran into solvency issues, with highway spending outpacing what came in from the newly established federal fuel tax. it took a surprisingly short three years for the “pay as you go” model envisioned by the Highway Trust Fund to first fail, with Congress having to inject cash into the Highway Trust Fund at the start of the 1960 fiscal year (though this money would be repaid by the end of the fiscal year).
The gas tax was then raised again three separate times over a ten-year period (1983-1993), each time envisioned as a revenue generator for general government spending and only afterwards being fully diverted to transportation spending. These increases in fuel taxes were able to keep the Highway Trust Fund solvent over the first five decades of its existence. However, the federal gas tax, the largest source of funding for the Highway Trust Fund, has not been raised from its value of 18.4 cents per gallon since 1993. Today, that tax rate, when accounting for inflation, is 45 percent less today per gallon than it was in 1957, while the costs of highway construction have tripled in the last two decades alone and total spending has more than doubled since 1977.
Every fiscal year since 1999, the Highway Trust Fund has spent more on surface transportation than it has taken in, repeatedly requiring infusions from the general treasury in order to fund its ever-increasing road-building budget. Over the past 25 years, over 20 percent of the money deposited into the Highway Account of the Highway Trust Fund has come from the General Fund of the US Treasury — and that contribution is projected to increase over time. Additionally, the fuel taxes themselves are not technically a permanent source of funding in the first place — every few years as part of the highway funding bill, Congress simply extends the deadline by which the taxes are set to expire by a few years, with most taxes used for the Highway Trust Fund currently slated to expire in fiscal year 2028.
The lack or failure of our current system to be a user-pay model is not inherently a problem—mobility is a public service that government should want to support. But the myth that roads pay for themselves perpetuates the lie that revenue generated from driving on roads must be spent on roads. We need to acknowledge the truth behind the public investment in our transportation system to ensure that it is working for the entire public, not just the driving public. Not everyone can or desires to drive—we need to invest in a system that will provide mobility options for all.
Increasingly funding highways from general revenue is not unique to the federal government—at the state and local level, road funding is even more dependent upon taxes levied on the general public. While taxes and fees levied on drivers at the federal, state, and local level remain a significant source of highway funding, more and more highway spending comes from the public in the form of the general budget, property taxes, and increasingly other taxes such as sales taxes. The share of road funding paid for directly by the users peaked in 1973 at 73.9 percent of highway spending, and today it remains just under half the annual share of highway funding.
In addition to the direct costs of highway infrastructure, however, the general public pays for other costs of our car-dependent system. The harmful climate-warming emissions of our car-dependent system is a growing crisis for communities around the country. It is the public writ large that must deal with the health expenditures resulting from all the pollution associated with cars and trucks, a burden borne disproportionately by the low-income and disadvantaged communities that can least afford it. Pedestrian deaths have reached historical highs over the past couple years, a cost felt immeasurably by the families of the roughly 7,500 individuals every year who’ve been killed by vehicles, and one that is growing annually as a share of road fatalities.
Drivers may think of the money spent supporting the current system every time they pull into a gas station, but they may not realize that drivers in the United States spend $1.7 billion annually to fund auto-dependency, the vast majority of which goes to automotive and oil and gas industries. It is in the highway lobby’s interest to propagate the myth that these costs cover all the impacts of driving, but that has never been true and is becoming ever less so.
The car-centric transportation system we have today is economically and environmentally unsustainable. The general public is already on the hook for its cost — it’s time we think harder about what it is we are paying for, for whom and why, and how we pay for it.
