Editor’s note: a version of this two-part article originally appeared on Brookings Metro and is republished with permission. Read part two here when it is published.
The axiom that “the user pays” is one of the central ideas to how the United States invests in its publicly owned roads. For decades, federal and state governments have charged road users — most notably through gasoline taxes — and then reinvested those revenues back into the transportation system. Policymakers then have the responsibility to match spending to physical need and relative contribution, particularly when state and local governments own different but interdependent portions of the national network. Such accountable spending is even more important for localities that don’t directly control the gas tax revenues.
Based on an assessment of national driving and spending patterns, it’s clear that local governments are not getting a fair deal.
While locally owned roads host 34 percent of all vehicle miles traveled in the United States — generating a significant sum of tax revenue — states spend only 16 percent of their total disbursements on local roads, whether those are spent directly or by sub-awarding money to local governments. Meanwhile, congressionally approved formulas overly prioritize state discretion around which federal gas tax revenues will reach locally owned road networks.
It’s little surprise, then, that physical conditions on local roadways are significantly worse than state roadways. For example, 49 percent of locally owned principal arterial mileage — America’s major roadways — are in poor condition, compared to 7 percent of mileage on similar state-owned roads.
These funding disparities break the user-pay promise, but they can be addressed.
Congress should adopt programming to directly allocate funds to localities and their regional partners. By our estimation, local governments can lay claim to $10 billion in annual federal funding simply as their portion of annual roadway distributions from the Highway Trust Fund.
Such funding amounts could have profound effects on addressing America’s backlog of roadway maintenance and make every driving trip more reliable.
How we got here
The federal gas tax is one of the country’s most streamlined and focused revenue instruments. Established in 1932, Congress assigns the Internal Revenue Service to collect the tax at the wholesale level from gasoline and diesel sellers.
This approach keeps administrative costs low for federal tax collectors, while retailers seamlessly pass the tax along to users for every gallon they consume. The U.S. Treasury Department then deposits the tax revenues into the Highway Trust Fund (HTF), where — alongside other deposits from truck use, registration, and tire purchases — the funds are exclusively used to invest in the nation’s transportation system. This closed loop ensures that all transportation-generated revenues are reinvested back into the same system enjoyed by all road users.
Yet the gas tax and related HTF revenue instruments are also imprecise. The funds deposited into the HTF can’t differentiate between where the gasoline and diesel were consumed; for example, whether it’s a local Main Street or an interstate highway.
It’s the same for heavy-vehicle use. The Treasury simply deposits all revenues — $43.5 billion in FY 2024 — into the HTF and then assigns over 85 percent of the revenues to the Highway Account to be reinvested into the nation’s roads. (The remaining 15 percent are deposited into the Mass Transit Account, which this analysis does not address.0 It’s then up to congressional lawmakers to determine how and where the HTF’s revenue will be spent.
For decades, federal lawmakers have made states the dominant recipients of transportation spending. The vast majority of HTF dollars are sent back to the states using formula apportionment programs, which deliver funds to achieve specific purposes such as interstate maintenance and flexible capital needs.
The exact formulas change over time and vary between each program, but their common feature is promoting equity among the states, with lawmakers going so far as to include that word in the title of two authorizing laws.
However, the formula system has a critical weakness: None of the current programs consider what kinds of roads generated revenue. Instead, the formula programs essentially give each state the authority to determine which capital projects should receive funding, with no requirements to further distribute funding down to the owners of local roads that also generate federal revenue.
In other words, federal formulas require equity between states, but not within them.
Fortunately, federal reporting makes it possible to compare where driving occurs and what entities own the roads where the driving takes place. The next three sections present data on how much driving occurs on locally owned roads (measured in vehicle miles traveled, or VMT), how that driving compares to states’ spending patterns, and the physical condition of state versus local roadways. Those findings inform a set of policy implications for federal and state officials, each of whom can return a fairer share of tax revenue to the local owners of our national roadway network.
This report relies on the Federal Highway Administration’s Highway Statistics Series, which has published annual data back to the 1940s. To expand on VMT reporting and road quality estimates by owner, we accessed specific data within the 2022 Highway Performance Monitoring System (HPMS), which is the underlying data that informs Highway Statistics Series reporting. See this report’s Appendix to read about our methodology in greater detail.
Locally owned roads host 34% of vehicle miles traveled, meaning their users contribute significant tax revenues to federal and state coffers
America’s local governments make the nation’s roadway transportation possible. Counties, cities, townships, and all the other local governments collectively own 3.2 million miles of roads, or 76 percent of all national mileage.
Localities also own almost half (44 percent) of the country’s federal-aid highway system, which comprises the roadways prequalified to receive federal assistance. Perhaps most importantly, apart from a handful of states where most local roads are owned by states themselves, almost every single vehicle trip relies on locally owned roads at some point, from using the tree-lined streets outside our homes to accessing the commercial corridors where people work, shop, and socialize.
All those trips and distances add up to major use. Looking across all 50 states (but excluding Washington D.C.), locally owned roads carried 34 percent of national VMT in 2022.
The shares can get much larger, such as in Arizona (49 percent) and Michigan (48 percent), where local governments own major arterials within their urban areas. Some states see lower VMT shares on local roads simply because the state owns most roads, such as in Delaware, North Carolina, Virginia, and West Virginia.
All those trips generate considerable gas tax revenue for the federal government.
While public federal statistics make it challenging to estimate the relative share of that revenue by different roadway owners, there is reason to believe tax revenues would hew closely to the VMT share. In this analysis, we use the same 34 percent statistic as a relative proxy for locally owned roads’ share of total HTF contributions.
While the major focus of this work is federal revenue and spending, every state collects its own gas taxes — most at an even higher rate than the federal government. States also rely on more diverse revenue sources, including general funds and registration fees for all vehicles.
Combined, there is no question that both the federal HTF and every state transportation department receives additional tax revenue beyond what state-owned roads alone generate. Locally owned roads are a major contributor.
Why local roads get the short end of the Highway Trust Fund stick
Localities may be major revenue contributors to federal and state transportation coffers, but they simply aren’t getting their fair share of those dollars back. Their shortfall is the consequence of two interrelated policies.
The first is the choice by congressional lawmakers to give states priority access to almost all federal formula funds for roadway projects. That means localities cannot directly access the gas tax revenues their roadways contribute to the HTF’s Highway Account.
Even when federal law does permit localities to directly access HTF funds — in this case, through the 2021 Infrastructure Investment and Jobs Act’s (IIJA) competitive grant programs — it’s only for a single project or even smaller planning grants. Such unpredictable and one-off funds are no substitute for guaranteed funding via annual formula distributions.
Second, there are few federal requirements for states to deliver (or “suballocate”) a certain amount of federal funds down to the local level.
Instead, state legislatures and transportation departments have the initial authority to determine how they want to divide state-controlled funding between their own network, direct spending on locally owned roads, or sub-awarding (aka “grants-in-aid”) to localities. For example, even though federal law gives larger metropolitan planning organizations (MPOs) certain project selection authorities, a state can maintain fiscal control by opting to spend all money on the National Highway System.
Said more plainly, states overly determine what localities get.
The net effect is sizable underinvestment in locally owned roads. Due to a public accounting gap, the U.S. Department of Transportation (USDOT) does not report what states did with federal funds. However, we can see how states spent their mix of federal plus own-source revenues. In 2022, states spent a total of $29.9 billion on local roads and streets, including $21.7 billion via grants-in-aid. That’s only 16 percent of the total $191.7 billion spent by states that same year—far less than the local VMT share of 34%.
All but three states have a shortfall between locally generated revenue and the funds invested back into the locally owned network. One is Maine, where local roads receive double the share of VMT they host (13%), or over a quarter of all the state’s federal funds. South Carolina and Virginia also spend a bit more on local roads, led in both states by significant grants-in-aid. While the more granular 2023 VMT data is still preliminary, Colorado is also poised to join this club. The state increased its grants-in-aid to local governments by 263% from 2022 to 2023.
Editor’s note: Tomorrow, we’ll look at how that inequity impacts really communities on the ground — and how it may be be holding them back from building things besides endless new highways.
