We have a guest post from Alan Pisarski, an independent consultant in transportation policy and travel behavior and the author of the "Commuting in America" series:

There has been a lot of discussion and criticism lately about the Highway Trust Fund suggesting it is outmoded – no longer relevant to present needs – somehow a relic of a bygone era. The criticisms seem to wander about a bit both in terms of the basis of the criticisms and in many cases really miss the point of the trust fund. The criticisms seem to come from several directions and are somehow conflated into a general pejorative assessment. Let’s look at them.

The first criticism launched at the HTF is that the gas tax is dead – or soon to be – so the trust fund just doesn’t matter anymore. Well, first of all the end of the gas tax era is not quite yet. There are those who would love to see it go so that something “better” can be put in place. They bear an immense burden of proof that their something better is viable and doable without massive costs and risk. The gas tax still generates about $1.7 billion per penny of tax, which doesn’t quite indicate it’s defunct. While transport economists might like to see it go, there are many sectors of the economy that would be happy to take it off our hands. The arguments against the continuation of the gas tax are many but not particularly important, certainly not game changing.

· Congress won't raise the tax to meet needs – that would just as certainly apply to any other tax, a VMT tax, tolls, or whatever. The political pressures are the same so the gas tax is no different than other alternatives.

· Inflation has eaten up the benefits of the tax – again this failure would be common to all approaches. Indexing of the gas tax would be just as easy as indexing anything else.

· New non-petroleum vehicles will end the viability of the tax. Some validity here but a long way off. The inflation factor has been far more significant in affecting the revenues generated. For a while it might be acceptable to permit a partial subsidy of electrics via forgiveness of the electric portion of their travel on roads, but at this stage no more of concern than a shift to motorbikes.

· Almost all of these concerns are addressable by appropriate indexing including an index keyed to the average fuel economy of the vehicle fleet. In short the gas tax is still a very viable mechanism acting as a surrogate for miles traveled. Some have noted that it is a better surrogate than a VMT tax which charges a Hummer and a Prius the same per mile.

· The central reality is that the HTF can be totally distinct from the revenue raising mechanism. A trust fund would work just fine as a repository of revenues with the commitment of a VMT tax or any other revenue mechanism, even tolls.

The second criticism of the HTF is that it doesn’t generate enough revenue for the program. This is answerable from several vantage points.

· The obvious point is that this brings us right back to raising the fuel user fees or indexing them. It is certainly not the fault of the fund concept that the revenues are inadequate. In the past, when the revenue was inadequate we raised the fee – we didn’t blame the trust fund.

· A not small point is that maybe the revenue isn’t inadequate to highway needs, but just inadequate to all the myriad things we have hung on the program for the gas tax to fund. A small analytical exercise might be worth the effort; if we agree that the uses of the Trust Fund for purposes outside of highways ranges from 20% to 35% of the revenue, then we might establish whether with the retention of those funds for roads the HTF might be quite solvent and fund a very viable highway program.

· At present we are in the tragic-comic activity of supplementing the HTF with infusions of general revenue while at the same time drawing down the fund for applications to non-highway purposes that should probably be funded from general revenue. Why not get the fund out of the middle of this game and fund those other activities directly without the constraint of the funds balance?

· An alternative approach that avoids raising the gas tax would be for Congress to make reimbursements to the Trust Fund out of general revenue for those non-highway expenditures required by legislation. If the point is raised that general revenue is now in a very big squeeze then such an approach might advance a more serious consideration of the benefits of those program in competition with other programs funded in that way.

· Certainly one reason that the idea of gas tax increases falls on deaf ears is the constant expansion of eligibility in the fund for other people’s ideas of good things to do that have little or no relationship to the benefit of road users. Maybe our big tent, which is really just bribing the gate keepers to let the program work has gotten to be too big a tent.

· A very simple rule would be that if an alternative could show greater benefits to road users than the best highway investment it should be funded.

· Some disparage the Trust Fund concept because highway users don’t pay the full amount of their costs. This is certainly not the fault of users. At the federal level users pay more than their costs, and in many states as well. At the local level it is just easier to collect road user fees through the property tax than through the gas pump. It would be easily doable but probably at some increase in cost of collection with no particular reward other than to be able to say that the full bill is paid for. Some municipalities do charge property fees based on road frontage which is a very reasonable basis for the user fee. It is very much worth noting that the AAA, the ATA and AHUA have all supported increases in the fund from increased user fees, even with the existing diffusion of spending to other purposes. The willingness of users to pay for what they want must be seen as a central reality of the program. Not too many other federal programs can say they have the beneficiaries clamoring for more fees to pay their way fully.

The third argument stems from the present fascination with congestion pricing that suggest that the present tax is not a valid user fee because it prices road use at the average cost of use and does not charge users for the explicit road they are on at the explicit time they are on it and the explicit direction they are going.

· This again mixes up the purposes of the trust fund with some of the present goals of some theoreticians. The trust fund certainly could still be the identical repository of the revenues from those road pricing funds. But because often the theoreticians have other plans for those funds the trust fund could be an impediment to their intentions.

· This applies to tolls as well. The European transport policy people have been arguing about whether toll revenues shouldn’t just be treated as general revenue -- the cash-cow-ification of tolls. One could foresee the same goals arising here.

· In both cases of general tolls and pricing charges the issue is who gets the money and for what. Are we just raising the fees so we can fund other competing projects like rail, and hoping that the increased fees will discourage road use and help drive fee payers to the alternative mode. Not too many of course because we will still need road users to continue to drive and pay.

· There is an immense clash here between the theoretical and the real. Do we really think that the economists will be allowed to set the fees and allocate the funds on sound grounds, or might some political process have a say in that activity?

· One would think that a big part of the solution would be to privatize the toll road process but that doesn’t seem to work either. Many new toll facilities have had to agree to pay for transit and other community needs in order to get agreement for their projects.

DEFENSE OF CONCEPT USER PAYS

The concept of a user charge compact that is so fundamental to the basis for the Highway Trust Fund, is a very viable mechanism, applicable to many government services in and out of transportation. Shouldn’t the National Parks be run on such a basis? More and more parks charge visitor fees and those fees should cover all or at least the appropriate share for users based on cost allocation studies such as are done for air, water and highways. But, importantly, to be done with the fees paid by users placed in a trust fund to be allocated only to the parks that generated the fees. Many users will try to argue that the benefits generated are more general benefits allocable to the public at large rather than just users. This can be and has been established by well-conceived cost allocation studies. This provides a very viable relationship between users and providers where the model can be simply stated as follows:

The users should be happy to pay for the services they require, and, the service providers should be happy to provide the services demanded and paid for.

This establishes a very attractive virtuous circle in which the providers must be sensitive to the needs and interest of the users and the users will police the spending of the providers to assure that work is done on the right things and in the right way. In some cases one might add in bond holders to the circle but that would only add to the virtuous checks and balances of the relationship.

It is clear in such a relationship that the provider, in many cases government, cannot charge based on user costs exerted on the system and then not spend those funds in ways that minimize the costs generated by the users who are paying the bill. The best example of this would be the situation where trucks are charged based on cost allocation studies of their impacts on roads, but then governments continue to design facilities, inadequate pavements etc., that would not minimize these costs, on a life cycle basis.

Perhaps the strongest additional argument for the dedication of user fees to the HTF is that it sets an upper limit on the amount of taxation. It is not that somehow road users get more funding by this route. One could argue that more money would be available to road needs from general revenue if the HTF didn’t exist. It is clear that European spending on roads doesn’t suffer from lack of dedication of tax revenues. On a percent of GDP basis highway transportation funding does about as well in Europe as in America. In fact, it was observed in the fifties that many legislators were relieved to see road spending taken out of general revenue and set aside in a fixed relationship with gas taxes because that minimized the very effective competition of roads for general revenue support.

The real difference with Europe is not the spending but the revenue. Many European nations charge users four and five times the amount in gas taxes that they spend on roads. Gas tax revenues are a far more major part of national government revenues than in the US. They are easier to collect with less opportunity for fraud than income taxes or VAT taxes. They also are an easier way to obtain revenues from visitors from other countries. They are also a great way to strangle an economy.

The unfortunate reality of the present situation is that all levels of government at this time are starved for revenues from any source under any rationale. The rationalizations for revenue-raising will become more and more creative and shameless. It would be tragic to destroy one of the few effective and sound revenue mechanisms government has in order to satiate the hunger for so many other needs, real and perceived.

Thank you Deron for reminding us how, in 1926, Winston Churchill, then Chancellor of the Exchequer, brought UK road financing directly under the control of the Treasury.

It is difficult to refute the point made by Churchill — and now by Deron — that road users, in addition to paying for roads, should not be exempt from paying taxes into general revenues. But Churchill went further, and abolished separate road funding. Separate funds are disliked by Treasury officials, one of whom famously asked whether revenues from taxes on spirits should be dedicated to rest homes for alcoholics.

Even if Churchill were right in 1926, would he have made the same decision now? In both the UK and the US, governments try to tax the use of roads, and to subsidize passenger rail. Are these policies “sustainable” for governments facing critical financial deficits?

Would it not be more rational for the US federal government to stop financing transport facilities altogether? To devise arrangements to enable travelers to finance all the facilities they need? And to tax all transport use on a similar basis?

Congratulations to President Obama for being the first president since Dwight Eisenhower to discuss the importance of transportation infrastructure investment to the growth and prosperity of the nation. His proposal to create a transportation trust fund with separate accounts for highway, public transit, rail and an infrastructure bank is a good one. While many details remain to be worked out, his proposal should be strongly supported by all who care about the nation’s transportation infrastructure.

The highway trust fund is a proven mechanism for financing public transit and highway projects. The Administration’s proposal ensures that the existing user fees paid for highways and transit will continue to be used for those purposes. If adequate new revenue sources can be found, then creating two new accounts for rail and large projects of national and regional significance regardless of mode could provide the long term stable funding mechanism necessary to make progress in these areas.

But as several policy commissions, others on this blog and the President himself have stated, the Highway Trust Fund will not support even current levels of investments for the transit and highway program, let alone an expansion. Simply put, there is not enough money to meet the nation’s needs.

We strongly urge Congress to work with the President to create a predictable long-term stable funding to invest in highways, public transportation, freight and passenger rail. The creation of a transportation trust fund is an integral part of that effort to “win the future.”

Transportation spending in the foreseeable future, we are told by congressional leaders, will be limited to the tax receipts deposited into the Highway Trust Fund. The President’s Budget submission said the same in so many words when it pledged that funding for surface transportation will be "paid for fully without increasing the deficit."

Trust Fund receipts will amount to $36.8 billion in FY 1012, or about seven percent less than was spent in FY 2010 ( $39.4 billion), according to the latest figures from the Congressional Budget Office. During the next six years CBO projects tax receipts of $230 billion. Rep. Peter De Fazio (D-OR) is somewhat more generous and estimates the next six-year authorization at $260 billion. That sum is supposed to cover outlays for Highways, Transit and two new accounts in the proposed unified Transportation Trust Fund — one for high-speed passenger rail and another for the National Infrastructure Bank. How would the money be allocated as between these four accounts? I wish somebody in the Administration had the courage to respond to this simple question.

One of the best arguments for adopting the name “transportation trust fund” came from House Transportation and Infrastructure Committee Chairman John Mica. During a recent field hearing on reauthorization, the Florida Republican noted that while many refer to the legislation as a “highway bill,” calling it a transportation bill is “more accurate since it’s a multimodal policy-setting bill.”

Mica’s remark speaks to the growing recognition that federal investment is needed in all travel modes, that we generally need many more tools in the toolbox and perhaps most importantly, we need to use this greater breadth of tools far more effectively. The President’s budget recognizes and builds upon these linkages. When a new transit project makes it easier for people to get to work, that’s a good thing both for those who use the system and those who continue driving with less cars on the road. When bicycling and pedestrian paths help kids get outside and walk and bike to school and relieve the twenty percent of morning traffic that comes from school commutes, everyone benefits.

A highway trust fund made sense when the core function of the federal transportation program was the completion of the Interstates. But the label is outdated both substantively and stylistically. That’s why, during another of the House committee’s field hearings, West Virginia's highway chief cited the transit needs of his state’s rural residents who “utilize these services to get to work, the doctor and to take care of the necessities of life.”

As the prompt notes, the shift to a transportation trust fund is also consistent with the Obama Administration’s commitment to consolidating programs. With an interconnected transportation system and a diverse set of needs at the state level, rationalizing programs will both save money and make the process more accountable. Many states are already pursuing innovative and multimodal projects, yet have difficulty securing federal funding under the current process.

It may only be a change in name, but this shift says a lot about what our transportation system has become – and where it must go to meet the nation’s needs in the coming years. If we continue to silo ourselves into separate modal trust funds, we will not only exacerbate the inefficiencies in the existing system, but we'll also further inhibit the multimodal investments our nation needs to compete in the 21st century global economy.

The move from a Highway Trust Fund to a Transportation Trust Fund is far from radical. In fact, it’s just the opposite: it’s a recognition of the reality that highways are just one piece of our national transportation puzzle. Americans took 10.2 billion rides on public transportation in 2009. Public transportation has been an indispensible economic engine in America, especially in our metropolitan regions, the top 100 of which account for ¾ of the U.S. population and 2/3 of our GDP. The Obama transportation budget would shift the 80/20 federal funding split between highways and transit to 74/26, which is a big step in the right direction.

There’s an odd unspoken assumption underlying many of these debates, which is that highway-centrism and auto-dependency are somehow natural phenomena. They’re not. The construction of the interstate highway system didn’t just “happen.” It was not a force of nature. It was a result of conscious choices that added up to the largest public works project in human history. It allowed the creation of great amounts of middle-class wealth through the suburban housing boom, but it also had hugely destructive impacts. It wrecked low-income communities and communities of color. It created waste, isolation, and ecological destruction through suburban sprawl. It left us shackled by ever-deepening oil dependency. But we made the choices that brought us here, and we can make different ones. Our future as a nation depends on it.

Creating a unified transportation trust fund is something our allies at Transportation for America have long supported, and we stand with them on it. As their platform states, “a Unified Transportation Trust Fund … would allow greater integration of surface transportation systems and help to balance allocations of federal dollars in a broader portfolio of investments in rail, freight, highways, bus, and non-motorized transportation.”

The USDOT’s recognition of this is one of many recent steps they’ve made toward a more conscious, sensible, forward-looking national transportation policy. Another is the new guidance the Federal Transit Administration released last week on using project labor agreements to make sure major transit projects are executed quickly, smoothly, and efficiently.

Too much of our thinking and policy around transportation has been mired in the reality of half a century ago. It’s time to move toward a 21st-century transportation system. It’ll take time, and we may not get every piece right the first time. But if we don’t make the effort, we all stay stuck in the past.

Working with transportation exposes you to some very strong feelings about trust funds. On the one hand, there are those who espouse a strict doctrine of "highways-only" when delimiting investments from the fund since federal gas tax receipts ("user fees") fill the fund (and who appear to assume that such users derive little or no benefit from other components of the transportation system). At the other extreme are those who agree with Winston Churchill, who argued that gas taxes should be treated as "general revenue" during a debate in 1926: "Entertainments can be taxed; public houses may be taxed; racehorses may be taxed...and the yield devoted to general revenue. But motorists are to be privileged for all time to have the whole yield of the tax on motors devoted to roads? Obviously this is all nonsense...such contentions are absurd, and constitute an outrage upon the sovereignty of Parliament and on common sense."

As you can tell by my quoting him at length, my sympathies lie more with Churchill. Trust funds aren't holy writ. Having said this, it's indisputable that they are one of the more clever policy inventions of the past century. As Eric Patashnik writes in his excellent history of trust funds, as of 1995 there were more than 150 trust funds comprising nearly 40 percent of federal revenues, including of course the highway trust fund or, as the Administration proposes, the "Transportation Trust Fund." He notes there are "four main reasons for creating trust funds: (1) to make users pay; (2) to maximize agency budgets; (3) to reduce uncertainty; and (4) to safeguard the Treasury." These functions make trust funds exceedinlgy useful policy tools.

I think what the Administration proposes could split the difference neatly between what Churchill preferred, a model adopted by other industrialized nations, and the too-narrow, non-systemic doctrinal stringency of "highways-only." I say "could" because as Greg notes we need more details about how this new version of the trust fund would work. But even without these details, conceptually it seems sound -- expand the trust fund to benefit the functioning of the whole transportation system, not just one mode, but don't expand it too far and instead keep it in the "transportation system users" camp.

One thing I do object to in Fawn's framing, because I think it puts words in the President mouth, is that the Administration would "wean" the country from the automobile. I agree with Gabe that this is not within the government's power, and as one of the nation's millions of drivers I also don't see it as desirable.

Last but not least, I think simplification of a program that has become too cumbersome and too bureaucratic with its 100+ programs is all to the good.

As Fawn Johnson’s introduction suggests, the Administration’s proposed expansion of the programs to be funded from the Highway Trust Fund is probably intended to be a first step in encouraging the funding of alternatives to automobile travel. It should be emphasized that this is only a first step. Of even greater importance will be the subsequent legislative decisions on how much funding will be made available for each mode of transportation covered by the Fund.

Currently the Trust Fund covers most federal programs for highways, transit, motor carrier safety, and highway safety. The budget proposes adding a number of programs, most significantly Amtrak, high-speed rail, and an infrastructure fund. The proposal does not appear to contemplate anything approaching unlimited discretion for the Administration to allocate the fund’s revenues to different modes. Rather, the proposal appears to contemplate continuation of the current Trust Fund structure in which spending from the fund must be within the context of a specific program established by the fund such as the National Highway System program or the Urbanized Area Formula program for transit. Most of these programs are limited to one mode, and use formulas to determine how much of the funding goes to each State. Another feature of the current system is that the States are given some discretion to “flex” their formula funding from one program to another (including flexing some funds between highway and transit programs).

In the existing structure there are only few programs in which the Administration has discretion to decide which mode will be funded. The budget proposes adding one new program in which there will be discretion to choose between modes, but it is only a small portion of the overall trust fund programs. Specifically, the Administration budget proposal contemplates giving the Administration discretion to decide which modes will be funded in a new Infrastructure Fund program. This program would be authorized at about $5 Billion a year in an overall program of more than $60 Billion.

It is not clear whether the Administration will also propose that the States be given any discretion to “flex” rail funding to highways or transit, or to flex highway or transit funds to rail.

Another major unknown is whether adding rail to the Trust Fund is likely to change the funding which rail, highway and transit would have received if the current system had been continued. Under the current system, overall funding for highways and transit is set at a level that falls within the revenues the Trust Fund will receive from the user fees supporting the fund. A number of factors go into the allocation of funds between highways and transit, including giving transit a “fair share” of total revenues, and having highways and transit grow at the same rate (or in today’s context, being reduced at the same rate). Under the existing system, rail is funded as part of a general transportation appropriation bill, based on general budget policies and the funding available for all transportation programs in the bill. Funding for rail is not tied to any particular revenue stream, or by the general relationship to funding for highways and transit.

If rail is moved to the Trust Fund, its funding will be determined by the available revenues and decisions on how they should be allocated between highways, transit and rail. The effects of this change seem unpredictable until we know the level and composition of the fund’s revenues. Until recently the user fees supporting the fund have been adequate to cover growing highway and transit programs. This is no longer the case. The existing fees will not even cover existing programs, much less a new rail program. The Administration is opposed to increasing the current user fees. If the new revenues are not user fees and cannot be tied to any mode, we can expect major disputes on how the new revenues should be divided. It will be a zero sum game in which a dollar going to one mode will not be available for the other two. It’s anybody’s guess what the end result will be, and how it will compare to what would have occurred if rail was not moved to the Trust Fund.

Finally, bringing new programs into the Trust Fund could leave the Fund more vulnerable to deficit reduction measures designed to cut Trust Fund spending below the revenues put into the fund. Since TEA-21 in 1998 the Trust Fund has been able to resist proposals to cut spending below revenues. Supporters of the fund have been able to argue convincingly that the fund’s revenues are contributed by users (mainly through the gasoline tax) and that the users are entitled to have the funds they contributed spent. Bringing rail into the fund will require new revenue sources for the fund, and as discussed these new funds are not likely to be user fees. If this occurs, the arguments for full spending of revenues will be weakened significantly.

The TTF doesn't seem to be a workable proposal at this time. Trust-funded programs must be supplied with at least 90% dedicated revenue from user fees or excise taxes. I don’t see how the Administration gets there but I look forward to learning more about the revenue proposals they plan to work on with Congress. I hope we learn more about them soon in an Administration reauthorization proposal. I sympathize with all involved in figuring out how to come up with $230 billion in new revenue so the TTF can function as proposed.

A transportation trust fund might make sense if all of the accounts in the fund are supplied with revenue from dedicated user fees. The highway account can be funded with highway user fees, which most of us agree are currently inadequate. But at least we can envision an affordable highway user fee that could be dedicated to that account and cover the Administration’s proposed funding increases for highway programs. But under the Administration's proposal, some of the FHWA-administered programs might be more reasonably funded with general funds in the way that transit is split-funded today.

It’s harder to see how the non-highway accounts get funded in the TTF. Currently, the transit account is funded with highway user fees but the general fund component is a critical supplement. We’ve been strong supporters of guaranteeing it as it was from 1998-2010. Under the Administration’s proposal, where does the supplemental money come for transit if not from the general fund?

What kind of dedicated user fee would be needed to support the proposed rail account – particularly to support the $53 billion proposed for high speed rail? How much would that cost in ticket taxes per passenger? Under the stimulus bill, this was all general fund.

And how would we capitalize the account for the Infrastructure Bank?

Regarding freight rail, not too long ago freight railroads paid a 4.3-cent excise tax which went to general funds. Former Congressman Bill Lipinski (D-IL) proposed dedicating that money to a railroad trust fund but the railroads preferred (and got) a repeal of the tax. I don’t see that decision being reversed anytime soon.

So there are a lot of hurdles. Fawn asks if a streamlined government makes it easier for states and cities to navigate the funding process. Of course. But consolidating funding pots can only go so far without actual new money. One thing that can be streamlined, with or without more money, is the bureaucracy associated with project approvals. That should actually save money too!

President Obama's Fiscal Year 12 transportation budget proposal includes the creation of a Transportation Trust Fund which could help to reshape federal, state and local decisions on how to spend precious transportation dollars. Providing more flexibility to the Department of Transportation when it comes to funding decisions is also a positive development. Both of those policy proposals appear to be a good development for WMATA and the transit industry. I look forward to more details from the Administration on how exactly the program will work and where and how the much needed additional revenue will be raised.

A federal "Transportation Trust Fund" seems a bad idea:

First, it would force road users to fund non-road projects.

Second, it would give federal officials, including the ones seeking "High-Speed Rail", discretion to direct road-use payment in accordance with their whims. Is this not substituting "government of men" (or "of women") for "government of laws"?

Third, who gave the federal government the power, or the incentive, "to wean the country away from the automobile"?

Fourth, it could support an “Infrastructure Bank” to enable politicians to fund unviable projects at road users’ expense.

Fifth, Electronic tolling enables roads to be priced as easily as cell-phone calls, without violating the privacy of road users. Roads can now be funded by those who use them, with the fees being routed directly to road providers, be they public or private entities. “Trust funds” to fund roads, and even federal or state financing for roads, will soon not be needed.

Should not those seeking rationality in transport financing resist such “transportation funds”?