Funding and Financing Highways and
Public Transportation
Robert S. Kirk
Specialist in Transportation Policy
William J. Mallett
Specialist in Transportation Policy
September 23, 2013
Congressional Research Service
7-5700
www.crs.gov
R42877
Funding and Financing Highways and Public Transportation
Summary
Federal surface transportation programs are currently funded primarily through taxes on motor
fuels that are deposited in the highway trust fund. Although there has been some modification to
the tax system, the tax rates, which are fixed in terms of cents per gallon, have not been increased
at the federal level since 1993. Prior to the recession that began in 2007, annual increases in
driving, with a concomitant increase in fuel use, were sufficient to keep revenues rising steadily.
This is no longer the case. Future increases in fuel economy standards are expected to suppress
motor fuel consumption in the years ahead even if annual increases in vehicle mileage resume.
Congress has yet to address the surface transportation program’s fundamental revenue issues, and
has not given serious consideration to raising fuel taxes in recent years. Instead, Congress has
financed the federal surface transportation program by supplementing fuel tax revenues with
transfers from the U.S. Treasury general fund. The most recent reauthorization act, the Moving
Ahead for Progress in the 21st Century Act (MAP-21; P.L. 112-141), signed by President Barack
Obama on July 6, 2012, authorized spending on federal highway and public transportation
programs through September 30, 2014 and provided for general fund transfers to finance the
programs. MAP-21 did not address concerns about funding of surface transportation programs
over the longer term.
This report begins with a discussion of the problems associated with the trust fund financing
system (which supports both federal highway and public transportation programs) and then
explores possible options for financing surface transportation infrastructure. Among the key
points:
• Raising motor fuel taxes could provide the highway trust fund with sufficient
revenue to fully fund the program in the near term, but it may not be a viable
long-term solution due to expected future declines in fuel consumption.
• Replacing current motor fuel taxes with a fuel sales tax or a fee based on vehicle
miles traveled (VMT) raise a variety of financial and administrative concerns.
• The political difficulty of adequately financing the highway trust fund could lead
Congress to consider the desirability of changes to maintain the trust fund system
or eliminating it altogether. Such changes might involve a reallocation of
responsibilities and obligations among federal, state, and local governments.
• Interest in improving transportation infrastructure with private and non-grant
funding sources, such as tolls, public-private partnerships (PPPs), and federal
loan programs is increasing, but many projects may not be well suited to
alternative financing.
Congressional Research Service
Funding and Financing Highways and Public Transportation
Contents
Introduction ...................................................................................................................................... 1
The Highway Trust Fund Financing Dilemma ................................................................................ 1
What Congress Faces in FY2015 .............................................................................................. 2
Existing Highway Fuel Taxes .......................................................................................................... 4
How the Rates Have Been Raised Since 1983 .......................................................................... 5
The “Great Compromise” and the “Highway User Fee,”
the Surface Transportation Assistance Act of 1982 (STAA; P.L. 97-424, Title V) .......... 5
50/50 Share: Deficit Reduction/Highway Trust Fund; the Omnibus Budget
Reconciliation Act of 1990 (OBRA90; P.L. 101-508) ..................................................... 5
More for Deficit Reduction; the Omnibus Budget Reconciliation Act of 1993
(OBRA93; P.L. 103-66) ................................................................................................... 6
Alternatives for HTF Financing ....................................................................................................... 7
Sales Taxes ................................................................................................................................ 7
Reforms to the Current Fuel-Tax Structure ............................................................................... 8
Distance-Based (VMT) Charges ............................................................................................... 8
Privacy Issues .................................................................................................................... 10
Pricing ............................................................................................................................... 10
Transition Costs/Complexity ............................................................................................. 11
VMT and Non-highway Programs .................................................................................... 12
Other Options to Preserve the Highway Trust Fund ................................................................ 12
The Future of the Trust Fund ......................................................................................................... 13
Toll Financing of Federal-Aid System Highways ......................................................................... 15
Options for Expanded Use of Tolling ...................................................................................... 17
Obstacles to the Expanded Use of Tolling ........................................................................ 18
Views on the Potential of Toll Financing .......................................................................... 19
Value Capture ................................................................................................................................. 20
Public-Private Partnerships (PPPs) ................................................................................................ 21
Private Financing ..................................................................................................................... 22
Other Resource Benefits of PPPs ............................................................................................ 24
TIFIA Financing ............................................................................................................................ 25
National Infrastructure Bank ......................................................................................................... 26
National Infrastructure Innovation and Finance Fund ............................................................. 28
State Infrastructure Banks .............................................................................................................. 29
Figures
Figure 1. Revenue Options for Consideration ............................................................................... 13
Congressional Research Service
Funding and Financing Highways and Public Transportation
Tables
Table 1. HTF Sufficiency Under a Baseline Six-Year Surface Transportation Act:
FY2015-FY2020 ........................................................................................................................... 3
Table 2. Active Federal Tolling Programs ..................................................................................... 17
Contacts
Author Contact Information........................................................................................................... 29
Acknowledgments ......................................................................................................................... 29
Congressional Research Service
Funding and Financing Highways and Public Transportation
Introduction
Almost every conversation about surface transportation finance begins with a two-part question:
what are the “needs” of the national transportation system and how does the nation pay for them?
This report is aimed almost entirely at discussing the “how to pay for them” question. Since 1956,
federal surface transportation programs have been funded largely by taxes on motor fuels that
flow into the highway trust fund (HTF). A steady increase in the revenues flowing into the HTF,
due to increased motor vehicle use and occasional increases in federal fuel taxes, has
accommodated growth in surface transportation spending over several decades. The growth in
trust fund revenues, however, came to an end in 2008. Over the past five years there has been a
large gap between the highway tax revenues and interest flowing into the HTF and funding of
surface transportation authorized by Congress.
This gap was not totally unexpected. The authors of the Safe, Accountable, Flexible, Efficient
Transportation Equity Act: A Legacy for Users (SAFETEA, FY2005-FY2009; P.L. 109-59) set
up two commissions to advise Congress on changes to the surface transportation program and its
funding mechanisms. To date, however, Congress has made no major changes in transportation
financing, aside from authorizing transfers of money from the Treasury general fund to the HTF.
The Moving Ahead for Progress in the 21st Century Act (MAP-21; P.L. 112-141), signed July 6,
2012,1 authorized spending on federal highway and public transportation programs through
September 30, 2014 and provided for extensive transfers from the general fund to the HTF. The
mismatch between the desired surface transportation program and the revenues generated by
motor fuels taxes persists, and is likely to emerge as a major issue as Congress considers options
for reauthorizing the program beyond 2014.
The Highway Trust Fund Financing Dilemma
The highway trust fund comprises two separate accounts—highways and mass transit. The
primary revenue sources for these accounts are an 18.4-cent-per-gallon federal tax on gasoline
and a 24.4-cent-per-gallon federal tax on diesel fuel. Although the HTF has other sources of
revenue, such as truck registration fees and a truck tire tax, and is also credited with interest paid
on the fund balances held by the U.S. Treasury, fuel taxes provide about 90% of the income to the
fund. The transit account receives 2.86 cents per gallon of fuel taxes, with the remainder of the
tax revenue flowing into the highway account. Separately, there is a 0.1-cent-per-gallon fuel tax
reserved for the leaking underground storage tank (LUST) fund, which is not part of the
transportation program.
Since the trust fund was created in 1956, motor fuels taxes have increased four times, in 1959,
1982, 1990, and 1993. The last two increases were initially partially reserved for deficit reduction
purposes, with significant sums being deposited in the Treasury general fund account. By
FY1998, following several years of congressional debate, all fuel tax collections were again being
deposited into the trust fund.
1 CRS Report R42762, Surface Transportation Funding and Programs Under MAP-21: Moving Ahead for Progress in
the 21st Century Act (P.L. 112-141), coordinated by Robert S. Kirk.
Congressional Research Service
1
Funding and Financing Highways and Public Transportation
Since the 1993 tax increase, additional changes to the taxation structure have modestly increased
trust fund revenues. The American Jobs Creation Act of 2004 (P.L. 108-357), for example,
provided the trust fund with increased future income by changing elements of federal “gasohol”
taxation. In 2005, the finance title of SAFETEA included a number of tax and other revenue-
raising changes designed to bolster the trust fund, mainly by addressing tax fraud. SAFETEA also
provided for the transfer of some general fund revenues associated with transportation-related
activities to the trust fund. It was believed at the time of SAFETEA’s passage that the tax
changes, a $12.5 billion unexpended balance in the trust fund, and, most important, expected
economic growth would be sufficient to finance the program through its expiration at the end of
FY2009. This prediction proved to be significantly off the mark.
The shortfalls resulting from the overly optimistic forecasts associated with SAFETEA were
rectified by general fund contributions. Congress directed an $8 billion transfer from the general
fund to the highway account in FY2008 (P.L. 110-318). In FY2009, it provided for a $7 billion
transfer (P.L. 111-46). The Hiring Incentives to Restore Employment (HIRE) Act (P.L. 111-
147) provided $14.7 billion in general fund monies to the highway account and, for the first time,
a general fund transfer of $4.8 billion to the transit account.
MAP-21 provides for general fund transfers of $6.2 billion and $12.6 billion for FY2013 and
FY2014, respectively.2 Also, $2.4 billion of the accrued balance of the LUST fund was
transferred to the HTF for FY2012. According to Congressional Budget Office (CBO) estimates,
the highway account of the HTF will retain a prudent end-of-year balance of $4.0 billion at the
end of MAP-21 in September 2014. The mass transit account is expected to have a balance of $2
billion.3
What Congress Faces in FY2015
CBO projections indicate that HTF revenues will continue to be inadequate to support baseline
spending on surface transportation programs after FY2014, with balances in both the highway
account and the mass transit account approaching zero in FY2015.4 Although the HTF cannot run
negative balances under current law, CBO projects a cumulative shortfall (assuming continued
spending based on baseline funding plus inflation) of $82 billion through FY2020. If Congress
were to pass a six-year reauthorization bill to follow MAP-21 that increases spending on surface
transportation programs in line with inflation, it would need to fill a nearly $80 billion gap
between planned spending (obligation limitations) and projected HTF revenues, as detailed in
2 Joint Committee on Taxation, Estimated General Fund and Trust Fund Effects of the Conference Agreement for the
Revenue Provisions Contained in Division D of MAP-21, committee print, 112th Cong., 2nd sess., June 28, 2012, JCX-
58-12, pp. 1-3.
3 Congressional Budget Office, Highway Trust Fund Projections: CBO May FY2013 Baseline 2012-2023, May 22,
2013. Because requests for reimbursement from the HTF may occur at any time and because Treasury transfers to the
HTF occur only twice each month and requests for reimbursement from the states can vary from month to month,
FHWA deems it prudent to maintain a $4 billion minimum in the highway account to prevent having to delay payments
to states due to insufficient funds. The equivalent prudent balance for the mass transit account is $1 billion.
4 See also Sarah Puro, Statement for the Record: Status of the Highway Trust Fund for the Committee on the Budget,
House of Representatives, Washington, Congressional Budget Office, April 24, 2013, 4 p., http://cbo.gov/publication/
44093.
Congressional Research Service
2
Funding and Financing Highways and Public Transportation
Table 1.5 The difference between projected HTF outlays and projected revenues is even larger,
$85 billion.
Table 1. HTF Sufficiency Under a Baseline Six-Year Surface Transportation Act:
FY2015-FY2020
Billions of Dollars
Obligation Limitations
Outlays
Fiscal Year
HTF Revenue
Amount
Difference
Amount
Difference
2015 39
51
-12
53
-14
2016 40
52
-12
53
-13
2017 40
53
-13
55
-15
2018 41
54
-13
55
-14
2019 41
56
-15
55
-14
2020 41
56
-15
56
-15
Six-Year Total
242
322
-80
327
-85
Annual Average
40
54
-13
55
-14
Source: CRS based on CBO, Highway Trust Fund Projections: May FY2013 Baseline 2012-2023, May 15, 2013.
Notes: Includes combined figures from both the highway account and the mass transit account. The HTF is
projected to have an unexpended balance of $6 billion at the beginning of FY2015. The HTF Revenue column
includes interest on the HTF balances.
Consequently, for the HTF to fund baseline spending over FY2015-FY2020 would require
finding roughly $85 billion in new revenue, a 33% increase from the level currently projected by
CBO. The current motor fuels taxes are unlikely to produce such a large amount of additional
revenue. Congress could transfer a like amount of Treasury general fund revenue to shore up the
trust fund, but this could have significant budget deficit implications.
The era of automatic trust fund growth appears to be over, because annual vehicle miles traveled
(VMT) are no longer increasing at the 2% average rate experienced from 1960s until 2008. The
main immediate cause of stagnation in VMT was the sluggish economy, which has suppressed
growth in personal incomes (reducing leisure travel), reduced work-related driving, and also
weakened demand for freight shipments. Over the longer term, other forces are conspiring against
the trust fund mechanism. Most important, recent policy changes are weakening the link between
driving activity and motor fuel tax revenues. On August 28, 2012, the Obama Administration
issued new passenger vehicle fuel economy standards for vehicle model years 2017-2025. Under
these standards combined new passenger car and light truck Corporate Average Fuel Economy
(CAFE) standards are expected to rise to as high as 41.0 miles per gallon in model year 2021 and
49.7 miles per gallon in model year 2025.6 Meanwhile, the expanding fleet of hybrid and electric
vehicles will pay little or nothing by way of fuel taxes.7
5 CBO, May 2013 Baseline. The limitation on obligations (or ObLim) is used to control annual spending in place of an
appropriation. The ObLim sets a limit on the total amount of contract authority that can be obligated in a single fiscal
year. For practical purposes the ObLim is analogous to an appropriation.
6 CRS Report R42721, Automobile and Truck Fuel Economy (CAFE) and Greenhouse Gas Standards, by Brent D.
(continued...)
Congressional Research Service
3
Funding and Financing Highways and Public Transportation
An increase in the existing fuel tax rates would provide immediate relief to the trust fund. As a
rule of thumb, adding a penny to federal motor fuels taxes provides the trust fund with between
$1.6 billion and $1.8 billion in new annual revenue.8 The prospect of reduced motor fuel
consumption, however, casts doubt on the ability of the motor fuels taxes to support increased
surface transportation spending beyond the next decade even with modest increases in tax rates.
In considering reauthorization of MAP-21, therefore, Congress would face a choice between
finding new sources of income for the surface transportation program or settling for a smaller
program, which might look very different from the one currently in place.
A smaller program might not provide immediate relief from the demands on the HTF. Because of
the multiyear nature of the highway and public transportation programs and the multiyear
availability of the contract authority that supports them, both programs have ongoing existing
commitments. For FY2013, unspent contract authority for highway programs is expected to total
roughly $67 billion in unpaid obligated balances and $30 billion in unobligated contract authority.
For the public transportation programs these figures are roughly $13 billion in unpaid obligations
and $8 billion in unobligated contract authority.9 These obligations have been incurred by the
federal government (under binding agreements such as highway project agreements) and must be
paid.10
Existing Highway Fuel Taxes11
The first federal tax on gasoline (1 cent per gallon) was imposed in 1932, during the Hoover
Administration, as a deficit-reduction measure following the depression-induced fall in general
revenues. The rate was raised to help pay for World War II (to 1.5 cents per gallon) and raised
again during the Korean War (to 2 cents per gallon). The rate was raised in 1956 (to 3 cents per
gallon) and 1959 (to 4 cents per gallon) to establish the HTF and fund it to pay for the
construction of the Interstate Highway system. The gasoline tax remained at 4 cents from October
1, 1959 until March 31, 1983.
One of the attractive attributes of highway fuel taxes to policy makers during much of the history
of the HTF was that revenues grew automatically from year to year, so long as vehicle miles
(...continued)
Yacobucci, Bill Canis, and Richard K. Lattanzio.
7 Congressional Budget Office, How Would Proposed Fuel Economy Standards Affect the Highway Trust Fund?,
Washington, DC, May 2012, http://cbo.gov/sites/default/files/cbofiles/attachments/05-02-CAFE_brief.pdf.
8 Two commissions established in SAFETEA, the National Surface Transportation Policy and Revenue Study
Commission and the National Surface Transportation Infrastructure Financing Commission, called for increases in
federal fuels taxes; the latter also urged indexing of fuels taxes for inflation and a shift to a financing system based on
vehicle miles traveled. See http://www.transportationfortomorrow.com/final_report/index.htm and
http://financecommission.dot.gov/Documents/NSTIF_Commission_Final_Report_Mar09FNL.pdf. MAP-21 did not
call for additional studies on this subject.
9 Office of Management and Budget, Budget of the U.S. Government: Appendix, Washington, DC, 2013, pp. 921, 952.
10 CRS Report 98-720, Manual on the Federal Budget Process, by Robert Keith and Allen Schick (pdf), 181.
11 This discussion tracks the changes in the rate of the gasoline tax. Over time other fuels such as diesel have been
taxed at different rates. For instance, the current tax on diesel fuel is six cents higher than the gasoline tax. For a tabular
history of the rates of the various federal fuel taxes see Federal Highway Administration, Highway Statistics: Table
FE101-A, http://www.fhwa.dot.gov/policyinformation/statistics/2009/fe101a.cfm.
Congressional Research Service
4
Funding and Financing Highways and Public Transportation
traveled grew.12 Despite this, since 1983 lawmakers have passed legislation raising the tax rates
on highway fuel use three times. Although infrequent, these rate increases were quite large in a
proportional sense. The gasoline tax was raised on April 1, 1983 from 4 to 9 cents per gallon, a
125% increase; on September 1, 1990 from 9 to 14 (not counting the additional 0.1 cent for
LUST), or 55%, and on October 1, 1993 from 14 to 18.3 cents, or 30%.
How the Rates Have Been Raised Since 1983
Increasing the rate of the fuel taxes has never been popular. The last three increases were
accomplished with difficulty and were influenced by the broader budgetary environment and the
practical politics of the time.13
The “Great Compromise” and the “Highway User Fee,”
the Surface Transportation Assistance Act of 1982 (STAA; P.L. 97-424, Title V)
The increase in the fuels tax rate under STAA occurred in the lame duck session of the 97th
Congress. Supporters of increased highway spending had come to an agreement with transit
supporters (mostly from the Northeast) that a penny of a proposed 5-cents-per-gallon increase
would be dedicated to a new mass transit account within the HTF. This meant that support for the
bill during the lame duck session was widespread and bipartisan. During the congressional
elections of 1982 the Democrats had picked up 26 seats in the House of Representatives. The
economy was experiencing a major recession and some argued that increased highway spending
would stimulate the economy. President Reagan’s opposition to an increase in the “gas tax”
softened during the lame duck session. On November 23, 1982, President Reagan announced that
he would support passage of STAA, even though it would “mean an increase in the highway user
fee, or gas tax, of 5 cents a gallon ... Our country’s outstanding highway system was built on the
user fee principle—that those who benefit from a use should share in its cost.”14 Nonetheless, the
bill faced a series of filibusters in the Senate, which were eventually overcome by four cloture
votes. The conference report was again filibustered, and President Reagan helped secure the votes
needed for cloture. President Reagan signed STAA into law on January 6, 1983, more than
doubling the highway fuels tax to 9 cents per gallon.
50/50 Share: Deficit Reduction/Highway Trust Fund; the Omnibus Budget
Reconciliation Act of 1990 (OBRA90; P.L. 101-508)
OBRA90, enacted November 5, 1990, was passed under the pressure of impending final FY1991
sequestration orders issued by President George H.W. Bush under Title II of P.L. 99-177, the
Balanced Budget and Emergency Deficit Control Act of 1985, known as the Gramm-Rudman-
Hollings Act (GRH). OBRA90 included budget cuts, tax changes, and the Budget Enforcement
Act (P.L. 101-508), which rescinded the FY1991 sequestration orders. OBRA90 also raised the
12 See CRS Report RL30304, The Federal Excise Tax on Gasoline and the Highway Trust Fund: A Short History, by
James M. Bickley.
13 Federal Highway Administration, Financing Federal-aid Highways; Appendix M, Federal Excise Taxes on Highway
Motor Fuel, http://www.fhwa.dot.gov/reports/fifahiwy/ffahappm.htm.
14 U.S. President (Reagan), “Remarks to Reporters Announcing the Administration’s Proposal for a Highway and
Bridge Repair program: Nov. 23, 1982,” The American Presidency Project; Public Papers.
Congressional Research Service
5
Funding and Financing Highways and Public Transportation
tax on gasoline by 5 cents per gallon to 14 cents. Half the increase went to the HTF (2 cents to the
highway account and 0.5 cents to the mass transit account), with the other 2.5 cents per gallon to
be deposited in the general fund for deficit reduction. This was the first time since 1957 the motor
fuels tax had been used as a source of general revenue. Section 9001 expressed the sense of
Congress that all motor fuel taxes should be directed to the HTF as soon as possible.
More for Deficit Reduction; the Omnibus Budget Reconciliation Act of 1993
(OBRA93; P.L. 103-66)
OBRA93 Section 13241(a) made further changes in regard to fuels taxes:
• The 2.5-cents-per-gallon fuels tax dedicated to deficit reduction in OBRA90 was
redirected to the HTF beginning October 1, 1995 and its authorization was
extended to September 30, 1999.
• The highway account received 2 cents per gallon and the mass transit account 0.5
cents per gallon of the rededicated amount.
• An additional permanent 4.3 cents per gallon fuel tax took effect in October 1993
and was dedicated to deficit reduction.
This brought the gasoline tax to 18.3 cents per gallon, although for two years (October 1,
1993 to October 1, 1995) 6.8 cents per gallon of this was deposited in the general fund,
dedicated to deficit reduction. On October 1, 1995, the amount going to the general fund
dropped to 4.3 cents per gallon and the amount dedicated to the HTF increased to 14
cents per gallon.
Redirection of the Deficit Reduction Tax to the HTF
During 1996, Congress debated whether the permanent 4.3-cents-per-gallon federal excise tax on
highway fuel should be repealed to reduce fuel prices at the pump or retained for deficit
reduction. However, the Taxpayer Relief Act of 1997 (P.L. 105-34) redirected the entire amount
to the HTF (3.45 cents to the highway account and 0.85 cents to the mass transit account). Since
October 1, 1997, all revenue from the 18.3-cents-per-gallon gasoline tax has been dedicated to the
HTF. (The LUST fund continues to receive the revenue from an additional 0.1 cents per gallon
tax.)
Despite the redirection of the 4.3-cent fuel tax increase to the HTF in October 1997 and modest
growth in annual vehicle miles traveled, beginning in FY2001 and continuing through FY2005,
outlays from the HTF exceeded the revenues and interest credited to the fund. In part, this
reflected a policy of spending down the unexpended balances that had built up in the HTF over
the years. Revenue, however, had also not met expectations.15
Growth in HTF revenue has lagged inflation in most years since 2007. In some years, HTF
revenue has declined even in nominal terms due to reduced vehicle travel. Because of the fixed
nature of the cents-per-gallon gasoline and diesel taxes, the only way the taxes can generate
15 See Congressional Budget Office, How Would Proposed Fuel Economy Standards Affect the Highway Trust Fund?,
Washington, CBO, May 2012, p. 3. A drop in outlays in FY2006 helped bring the HTF briefly into balance in FY2006-
FY2007.
Congressional Research Service
6
Funding and Financing Highways and Public Transportation
additional revenue for the HTF is if motor-fuel consumption rises.16 However, according to the
Energy Information Administration, retail gasoline sales have declined for six consecutive years,
and diesel fuel use by highway vehicles peaked in 2007.17
Alternatives for HTF Financing
Because motor fuels taxes are fixed in terms of cents per gallon at a time when drivers are
consuming less fuel, the revenues flowing into the HTF are not rising in line with the cost of
constructing highway and transit projects. CBO estimates that revenue from the current motor
fuels taxes will increase less than 1% per year through 2023, with all the growth coming from
truckers’ use of diesel fuel.18 The political difficulty of increasing motor fuels taxes has led to
interest in alternative approaches for supporting the HTF. These involve tying motor fuel tax rates
to the price of fuel, changing the structure of the current fuel taxes, and charging drivers for the
distance they drive rather than the fuel they consume.
Sales Taxes
Under the sales tax concept, the federal motor fuels tax would be assessed as a percentage of the
retail price of fuel rather than as a fixed amount per gallon. Some states already levy taxes on
motor fuels in this way, either alongside or in place of fixed cents-per-gallon taxes on motor fuel
purchases
The American Association of State Highway and Transportation Officials (AASHTO) estimated
in 2011 that an 8.4% tax on gasoline sales and a 10.6% tax on diesel sales would produce revenue
roughly equivalent to current excise tax collections. If fuel prices rise in the future, as forecast by
the Energy Information Administration of the U.S. Department of Energy, sales tax revenues
could rise from year to year even if consumption does not increase. The sales tax rates could be
adjusted in future years, if necessary, to keep up with inflation in construction costs.
Conversely, however, a decline in motor fuels prices could lead to a drop in sales tax revenue.
Many states which tied fuel taxes to prices after the price shocks of the 1970s encountered
revenue shortfalls in the 1980s, when fuel prices fell dramatically. Over a 20-year period, most of
these variable state fuel taxes disappeared.19 Recently, however, Virginia eliminated its cents-per-
gallon fuel taxes in favor of a sales tax on fuel and a general sales tax increase that was dedicated
to transportation purposes.
16 In 2013, CBO estimated that if the 18.4-cent excise tax on gasoline and the 24.4-cent tax on diesel fuels had been
indexed to the CPI, the “tax on gasoline today would be about 29 cents per gallon and the tax on diesel fuels would be
about 39 cents per gallon.” CBO, Statement for the Record: Status of the Highway Trust Fund, p. 3.
17 Energy Information Administration, United States Product Supplied of Finished Petroleum Products,
http://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=pet&s=mtpupus1&f=a.
18 Kim P. Cawley, Testimony: Status of the Highway Trust Fund, Congressional Budget Office, Washington, July 23,
2013, p. 3, http://www.cbo.gov/sites/default/files/cbofiles/attachments/44434-HighwayTrustFund_Testimony.pdf.
19 Jeffrey Ang-Olson, Martin Wachs, and Brian D. Taylor, Variable-Rate State Gasoline Taxes, Institute of
Transportation Studies, University of California, Berkeley, Working Paper, UCB-ITS-WP-99-3, Berkeley, CA, July
1999.
Congressional Research Service
7
Funding and Financing Highways and Public Transportation
A sales tax would likely be at best an interim solution to the long-term problem of financing
transportation infrastructure because, like the current motor fuels tax, it relies on fuel
consumption to fund transportation programs. To the extent that improved vehicle efficiency or
adoption of hybrid or electric vehicles leads to long-term declines in fuel usage, a sales tax on
fuel may not lead to increases in trust fund revenues. In addition, a sales tax calibrated to produce
a desired amount of revenue in an environment of high motor fuel prices could significantly
underperform if fuel prices were to be lower than anticipated.
Reforms to the Current Fuel-Tax Structure
Several possible changes in the structure of the current fuel tax could increase its ability to raise
revenue without shifting to a sales tax. One would take advantage of movements in fuel prices to
make tax increases seem less burdensome to highway users, such as providing a tax increase to
take effect only when the price of gasoline falls below a specified threshold. Another option
would increase all highway taxes, not just the fuels taxes, so that the package could be presented
as an increase in highway user charges rather than simply a hike in the gasoline tax. A third
possibility would be to index the existing fuel taxes to some measure of inflation. A variant of the
indexing option would be to adjust the fuel tax rates to restore the 1993 purchasing value of the
fuel taxes and then perhaps also provide for annual inflation indexing of the rates.20
Distance-Based (VMT) Charges
Both of the study commissions created by SAFETEA recommended charging drivers based on
vehicle miles traveled to fund federal surface transportation activities. The Financing
Commission supported its recommendation for VMT charges as follows:
The Commission ... concluded that indeed the most viable approach to efficiently fund
federal investment in surface transportation in the medium to long run will be a user charge
system based more directly on miles driven (and potentially on factors such as time of day,
type of road, and vehicle weight and fuel economy) rather than indirectly on fuel consumed.
At the same time, this choice for the federal system provides a foundation for state and local
governments that choose to use it to develop their own mileage-based systems that piggy-
back on the federal system in order to raise their share on needed revenues in ways that spur
more efficient use of the system. The Commission believes that such a system can and
should be designed in ways that protect users’ privacy and civil liberties, that incorporate any
necessary cross-subsidies (for instance, to benefit the national network or to meet social
equity objectives), that do not interfere with interstate commerce, and that support goals for
carbon reduction. Moreover, greater use of pricing mechanisms, including both targeted
tolling and broad-based VMT pricing systems, may spur more efficient use of our highway
network and, by shifting demand to less congested periods of the day or to other modes, may
in turn enable more efficient investment, thus reducing the additional capacity that needs to
be built.21
20 There are many indexes that could be used, and which one is most appropriate might become an issue of controversy.
The most commonly used index is the U.S. Bureau of Labor Statistics’ consumer price index (CPI), which, for
example, is used to adjust certain aviation user fees. CPI-adjusting the 18.3 cents per gallon that supports the trust fund
would calculate to roughly 29 or 30 cents per gallon today.
21 Finance Commission. p. 5. http://financecommission.dot.gov/Documents/
NSTIF_Commission_Final_Report_Exec_Summary_Feb09.pdf.
Congressional Research Service
8
Funding and Financing Highways and Public Transportation
Fees based on vehicle miles traveled have been discussed in the transportation world for years,
and have been the subject of extensive study by the Transportation Research Board (TRB)22 and
other groups. The conclusions reached by these studies almost universally suggest that a
transition to a VMT system of financing is desirable and feasible. These same studies,
nonetheless, suggest that transition to a VMT system would take time, and they identify
numerous obstacles to implementation. The most common recommendation is that the transition
process begin on a pilot basis, to gain experience prior to potential national adoption.
Federal VMT charges could be used to provide revenue to the HTF, either in place of or alongside
federal motor fuel taxes. Certain classes of vehicles might remain subject to fuel taxes even after
a VMT charge is put into place. It is also possible that a VMT charge might be used in addition to
other revenue-raising measures.
Distance charges are viewed by economists as being a superior form of user charge. Although the
fuel tax is often referred to as a user fee, it is better understood as a proxy for a user fee because
fuel use does not directly correspond to the quantity (miles) of infrastructure consumed. A Toyota
Prius hybrid and a gasoline-powered sport utility vehicle making the same trip, for example, use
the same amount of infrastructure (highway miles), but pay different taxes based on the fuel
efficiency of the vehicles. With a VMT charge, by contrast, the amount paid would be directly
related to the amount of road miles used. Adding vehicle weight into the equation might result in
a charge that more fully incorporates infrastructure use by reflecting the pavement wear
attributable to the vehicle as well.23
VMT charges have two particular attractions. One is that all road users would have to pay,
whereas current drivers of vehicles powered by batteries, fuel cells, or other alternative
technologies are able to use public roads without paying the fuel taxes used to improve them. The
other is that a VMT charge can be adjusted to reflect the full costs of using a particular segment
of infrastructure. For example, it can be set at a higher level on a heavily used urban highway
than on a lightly used rural road. It can be varied by time, traffic level, or some other measure to
reflect congestion on a road segment as it occurs, giving drivers price signals that might
encourage them to change their driving patterns to avoid crowded roads or rush hours, perhaps
even precluding the need for new construction or highway improvements.
Distance-related charges have a long history in the transportation sector. A few states impose
weight and distance taxes on trucks, and many toll roads base their toll structure on miles traveled
and the number of axles on a vehicle, which is used as a proxy for weight. The barrier to
implementing distance-based fees on road users has always been finding an efficient means of
measuring usage and collecting the corresponding fees.
The technology to assess and collect VMT charges already exists thanks to the widespread
adoption of high-capacity electronics in new vehicles, combined with cellular communications
technologies and integrated global positioning systems (GPS). Implementing a VMT system in
the United States, however, would require a clear set of technical standards to enable the
22 Transportation Research Board, National Cooperative Highway Research Program, Implementable Strategies for
Shifting to Direct Usage-Based Charges for Transportation Funding, NCHRP Project 20-24(69). Web-Only Document
143. October 2009. http://onlinepubs.trb.org/onlinepubs/nchrp/nchrp_w143.pdf.
23 Congressional Budget Office, Alternative Approaches to Funding Highways, March 2011, p. 38, http://cbo.gov/sites/
default/files/cbofiles/ftpdocs/121xx/doc12101/03-23-highwayfunding.pdf.
Congressional Research Service
9
Funding and Financing Highways and Public Transportation
collection and processing of the information generated by this technology on a uniform basis.
There are also privacy, cost, and administrative hurdles that would need to be addressed.
Privacy Issues
The same technology that makes VMT charges possible is probably the major barrier to
implementation. As a Florida newspaper editorialized,
It’s not the government’s business to know about everyone’s whereabouts. A VMT pilot
program in South Florida will use a tracking device to log drivers’ mileage. Impose the
VMT, and Big Brother, for all intents and purposes, will be in the back seat. Tracking your
comings and goings isn’t akin to installing cameras at intersections to catch red-light-runners
who threaten anyone’s safety, an effective measure we heartily endorse that saves lives. It’s
a gratuitous intrusion into drivers’ lives. And an intrusion that policymakers need to steer
clear of.24
Research suggests that it is the GPS tracking involved in some proposed collection schemes that
causes the most unease.25 Alternative technologies would allow tracking of vehicle mileage
without the use of GPS. A well-known pilot study in Oregon relied on a periodic odometer
reading of each vehicle, which could be done at some fixed interval by visiting a special facility,
or else during refueling at a gas station equipped to record an electronically transmitted odometer
reading. Another approach would use cellular-linked technology, such as a weekly automated
contact between a vehicle and a collection center, to collect mileage information without
disclosing details about individual travel. These less sophisticated reporting systems, however,
would not be well suited to implementing variable pricing mechanisms.
Depending on the collection technology required for a VMT system, drivers of older vehicles
could face the need to install potentially costly equipment. A VMT system could avoid this
problem by allowing owners of older vehicles to continue to pay fuel taxes until they replace their
vehicles. This, however, would increase the complexity and administrative cost of the system.
Pricing
In principle, a VMT system could be revenue neutral; that is, the rate charged per mile could be
set to equal the fuel tax paid by an average driver in the course of driving one mile. According to
some studies, this would probably mean a fee of around 1 cent per mile initially.26
Individual drivers, however, do not necessarily pay “average” fuel taxes. While a VMT charge of
around 1 cent per mile may be revenue neutral across the universe of American drivers, it may be
more or less costly than the current motor fuels taxes for an individual driver. Some vehicle
24 “Kick mileage tax to the curb before it gets any further,” Sun-Sentinel, Fort Lauderdale, September 18, 2009.
25 Martin Wachs, “After the Motor Fuel Tax: Reshaping Transportation Financing,” Issues in Science and Technology,
Summer 2009, pp. 85-89; Paul Sorensen, Liisa Ecola, and Martin Wachs, et al., Implementable Strategies for Shifting
to Direct Usage-Based Charges for Transportation Funding, National Cooperative Highway Research Program,
Transportation Research Board, NCHRP Web-Only Document 143, Washington, DC, June 2009,
http://onlinepubs.trb.org/onlinepubs/nchrp/nchrp_w143.pdf.
26 Miller Center of Public Affairs, University of Virginia, Well Within Reach: America’s New Transportation Agenda,
Conference Report, Charlottesville, VA, October 10, 2010, http://web1.millercenter.org/conferences/report/
conf_2009_transportation.pdf.
Congressional Research Service
10
Funding and Financing Highways and Public Transportation
owners, such as those who have paid a premium to buy a hybrid vehicle that uses little fuel, may
face higher costs with a VMT system—and may object to paying the same charges as an
individual driving a fuel-inefficient SUV.
Such concerns introduce issues of social equity into the VMT rate-setting process. In theory,
economists generally agree that drivers should pay the full “social cost” of their vehicles, but
there is little agreement about what those costs are. Attempting to reward certain classes of
vehicles with lower charges might raise further barriers to public acceptance of VMT charges.
Setting initial charges at the revenue-neutral level would pose a further problem. One argument
for moving to VMT charges is that fuel taxes are providing insufficient funds for transportation
infrastructure. If a VMT charge is to provide additional revenue, then by definition it cannot be
revenue neutral, and would initially need to be higher than 1 cent per mile. Nor would raising a
VMT rate on a periodic basis be easier politically than raising the fuel taxes has been. The
obvious solution for this problem would be to index a VMT charge to some inflation measure, but
this would have the same political issues as indexation of the existing fuel taxes, an idea that has
not been enacted by Congress.
Transition Costs/Complexity
A major advantage of the federal fuel tax system is its low cost of collection. Less than 1% of
revenue is devoted to collection. In part this is due to the relatively small number of places where
the fuel tax is collected: it is paid not at the fuel pump, but at the so-called “first point of
distribution,” normally a refinery or a tank farm. This collection system reduces the opportunity
for fraud and theft and also saves money, because it is much easier administratively to collect
taxes from a few rather than many locations and firms.27
A VMT charge portends a far broader collection system. Depending on the technology employed,
the number of collection locations could be extremely large. Experience in Germany, where
trucks using the autobahns pay VMT charges, suggests that the cost of collecting a VMT charge
could be 6% or more of collections, although that might decline over time.28 Billing could be a
major administrative challenge. There are 246 million privately owned vehicles in the United
States in 2010.29 Each of these vehicles is a potential tax collection point.
Obviously the transition from a tax collected at a few places to a fee collected at many places
creates efficiency issues. Also relevant in this context are questions about a possible rise in
avoidance and fraud, both of which, in the history of fuel tax collection, occurred more frequently
when more collection points existed. These complexities would need to be overcome for a VMT
charge to become an efficient source of revenue.
27 This 1% cost of collection figure has recently been challenged; see Daryl S. Fleming, Dispelling the Myths: Toll and
Fuel Tax Collection Costs in the 21st Century, Reason Foundation, Culver City, CA, November 2012, http://reason.org/
files/dispelling_toll_and_gas_tax_collection_myths.pdf.
28 Estimates of the administrative costs that could be associated with a national VMT fee collection system vary
dramatically. In part this is due to the lack of experience with VMT charge collection. A tax imposed on trucks using
the German autobahn system is perhaps the closest example of a currently operating system VMT system. In scale and
scope, however, it is much different from the national system under discussion in this CRS report:
http://utcm.tamu.edu/mbuf/2010/proceedings/US-deployment-panel.stm.
29 http://www.fhwa.dot.gov/policyinformation/statistics/2010/mv1.cfm.
Congressional Research Service
11
Funding and Financing Highways and Public Transportation
VMT and Non-highway Programs
Since 1982, when the transit account within the highway trust fund was established, there has
been an unwritten truce between highway and other transportation interests not to reopen the
debate over funding non-highway programs from the trust fund. The move to a VMT charge
would reopen this debate. If the VMT charge were collected strictly from motorists and applied
only to highway financing, it might reasonably be characterized as a user fee, even if, as noted
above, the amount paid by each individual driver would be unlikely to correspond precisely to the
social cost of that user’s driving. If instead the amounts collected by a VMT charge were
distributed among various transportation modes, the charge might appear more as a tax.
From a policy perspective, the question of whether a VMT charge is perceived as a user fee or a
tax is an important question. Transit, bikeways, and a wide range of alternative transportation
activities have had growing access to federal funds collected from highway users over the last
three decades. If revenue from the VMT charge were to be limited to highway uses, Congress
would face consideration of the future of non-highway programs now financed through the HTF.
Other Options to Preserve the Highway Trust Fund
In addition to options discussed above, a wide range of additional proposals has been suggested to
generate revenue for the highway trust fund. These proposals largely originated from the work of
the two SAFETEA congressional commissions and of groups such as AASHTO and TRB.30
Among them are freight-related taxes or fees such as a freight waybill tax, container fee, or
terminal facility charge; the dedication of some portion of customs duties, which are deposited in
the general fund, to freight-related port-of-entry infrastructure; a broad-based carbon tax; and
many smaller fees and surcharges.
An AASHTO table showing estimates of the amounts various sources could produce for surface
transportation over a six-year period is reproduced in Figure 1. It should be emphasized that the
estimates are suggestive rather than precise forecasts. Also, there are variables attached to each
estimate that are not delineated. For example, the number of annual auto registrations could turn
out to be higher or lower than AASHTO assumed for purposes of revenue estimation.
30 The Transportation Research Board, through its research programs, has prepared several reports on future surface
transportation finance that discuss VMT and other options, including National Cooperative Highway Research Program
(NCHRP), “Future Financing Options to Meet Highway and Transit Needs,” NCHRP Project 20-24, Web-Only
Document 102, December 2006, available at http://onlinepubs.trb.org/onlinepubs/nchrp/nchrp_w102.pdf; and
Transportation Research Board, The Fuel Tax and Alternatives for Transportation Funding, Special Report 285,
January 2006, available at http://onlinepubs.trb.org/onlinepubs/sr/sr285.pdf.
Congressional Research Service
12
Funding and Financing Highways and Public Transportation
Figure 1. Revenue Options for Consideration
Source: Provided by AASHTO.
The Future of the Trust Fund
If Congress chooses not to impose new taxes and fees dedicated to the highway trust fund, it
could still maintain or expand the surface transportation program with general fund monies. Any
of the financing options discussed above could be used to sustain the existing federal financing
mechanism, the highway trust fund, but could also be used to support the general fund if
Congress wishes to consider alternatives to the trust fund financing model. This would be a
significant departure from past practice, and would weaken the historic link between the taxes
and fees paid by highway users and spending on the nation’s highways and bridges.
The trust fund was set up as a temporary device that was supposed to disappear when the
interstate system was finished. It has endured, and its breadth of financing has expanded well
beyond the interstates. But it is certainly not essential to a federal role in transportation finance.
Congress routinely funds large infrastructure projects, such as those constructed by the Army
Congressional Research Service
13
Funding and Financing Highways and Public Transportation
Corps of Engineers, from general fund appropriations. Before 1956, it funded highway and other
transportation projects using annual appropriations. As recently as the 1990s, significant highway
programs such as the Appalachian Highway System were funded from the general fund.
One alternative would be to devote the trust fund to highway-related programs integral to the
national network, such as the Interstate Highways, the national highway system, key bridge
infrastructure, and the Federal Lands Highway Program. This would leave transit and other
surface transportation programs to be funded exclusively by annual appropriations of general
funds. On February 9, 2012, such a proposal was reported out of the House Committee on Ways
and Means in the American Energy and Infrastructure Jobs Financing Act of 2012 (H.R. 7). The
bill would have dedicated all highway tax revenue to highways. Transit would have been funded
via an alternative transportation account with general fund monies. This change was met by
strong opposition and was not included in MAP-21.
Restricting trust fund spending to highways would have political implications. Since the early
1990s, transit and cycling advocates, environmentalists, and a wide range of other groups have
become full-fledged supporters of the surface transportation program, as it has benefited their
interests. The expanded coalition supporting the surface transportation program played an
important role in the hard-fought political battles of the mid-1990s that gave the trust fund
accounts special status as separate accounts in the budget. This special status broadened support
for large spending increases in each of the last two reauthorization bills that preceded MAP-21.
The desire for increased spending included support for keeping unexpended balances in the HTF
as low as possible.
The 1998 budget changes, which gave the highway account and the transit account special status
within the budget similar to that enjoyed by the Social Security trust fund, occurred over
objections by the appropriations and budget committees, which had previously exerted far more
control over transportation spending than they do today. MAP-21 did not continue these special
status provisions and appropriators have regained the influence they had previously. Eliminating
the HTF would reduce the influence of the authorizing committees and increase the influence of
the appropriations committees over surface transportation.
Another alternative would be to eliminate the trust fund structure, thereby doing away with its
complicated budget framework of contract authority, obligations, and apportionments.31
Eliminating the trust fund would force surface transportation to compete with other federal
programs for funding each year, possibly leading to less spending on transportation. The general
fund transfers to the HTF since FY2008 and the additional infrastructure funding provided by the
American Recovery and Reinvestment Act of 2009 (ARRA; P.L. 111-5), however, suggest that
Congress is willing to spend money on surface transportation regardless of the revenue source.
There could be advantages to moving away from trust fund financing of surface transportation.
One of the most intractable arguments in nearly every reauthorization debate concerns which
states are “donors” to transportation programs and which are “donees.” The donor-donee dispute
is unique to the federal highway program, and occurs only because of the ability to track federal
fuel tax revenues by state. This issue would likely disappear if transportation-related taxes were
31 Joshua Schank and Nikki Rudnick-Thorpe, End of the Highway Trust Fund? Long-Term Options for Funding
Federal Surface Transportation, Bipartisan Policy Center, Washington, DC, November 10, 2010,
http://amonline.trb.org/12l3f1/12l3f1/1.
Congressional Research Service
14
Funding and Financing Highways and Public Transportation
deposited into the general fund instead of the trust fund. Treating fuel taxes as just another source
of federal revenue would also dampen the long-standing link between road user charges and
program spending. This would provide Congress with greater flexibility to allocate funding
among various transportation modes and between transportation and non-transportation uses.
Eliminating the trust fund might also focus more attention on the costs and benefits of individual
surface transportation programs. Most trust-fund outlays take the form of formula grants over
which states have a great deal of spending discretion. Especially within the highway program,
money can be transferred among projects relatively easily. While there are numerous federal
requirements attached to trust fund expenditures, there have been until recently relatively few
performance-oriented goals that the states are required to meet in selecting projects to be
undertaken with federal monies. MAP-21 included a requirement for the use of performance
management throughout the planning process, and this might be easier to implement without
formula programs that automatically apportion funding to the states.
Eliminating the trust fund might also allow for creativity in thinking about the provision of
transportation infrastructure across the modal boundaries that now define much of federal
transportation spending. Historically, important parts of the U.S. transportation infrastructure,
such as the transcontinental railroads and the Panama Canal, were authorized by specific
congressional enactments rather than grant programs. Reconsidering the trust fund structure
might give Congress and the President the opportunity to come up with a new way to fund
infrastructure needs.
Toll Financing of Federal-Aid System Highways
During much of the history of federal aid to highways, toll financing was prohibited, discouraged,
or relegated to a minor role.32 Given this, the small share (4.83% in 2010)33 of overall highway
finance provided by tolling is not surprising. The Federal-Aid Highway and Federal Highway
Revenue Acts of 1956 (70 Stat. 374; P.L. 84-627), which provided for the construction and
financing of the Interstate Highway system, reaffirmed the prohibition of tolling of federal-aid
highways. Thirty-five years later, however, the Intermodal Surface Transportation Efficiency Act
of 1991 (ISTEA; P.L. 102-240) opened non-interstate system highways to tolling, subject to
certain limitations (including requiring public jurisdiction over privately owned toll facilities).
Both the 1998 Transportation Equity Act for the 21st Century (TEA-21; P.L. 105-178, as
amended by P.L. 105-206) and SAFETEA included provisions allowing tolling of some high-
occupancy vehicle (HOV) lanes, establishing pilot projects for tolling interstate system routes,
and permitting the use of congestion pricing in some instances.
MAP-21 allows for the tolling of new roads, including new Interstate Highway system roads and
extensions. It allows for the reconstruction of existing roads and addition of new capacity lanes
(on both Interstate Highways and non-interstate roads) and their conversion to toll facilities, as
32 The post-World War II toll road construction, most of which was “grandfathered” in to the interstate system, was
done on the initiative of the states. Prior to the passage of the 1956 act, the states were far more active in road
construction and spending on roads, spending nearly six times what the federal government did in 1955.
33 Federal Highway Administration, Highway Statistics 2011: Funding for Highways and Disposition of Highway-User
Revenues, All Units of Government, 2011, Table HF-10, Washington, DC, March 2013, http://www.fhwa.dot.gov/
policyinformation/statistics/2011/hf10.cfm.
Congressional Research Service
15
Funding and Financing Highways and Public Transportation
long as the total number of “free” lanes is not reduced.34 The act eliminated the long-standing
requirement that a toll agreement be executed with the FHWA prior to tolling a facility under the
mainstream (Section 129) tolling program. Despite these changes, MAP-21 retains most of the
prior restrictions on the use of toll revenues. Essentially MAP-21’s changes fit well with the
support in both Congress and in the Obama Administration for the expanded use of congestion
pricing.
Significant growth of nationwide toll revenues would require the building of more tolled
facilities, conversion of free roads and bridges to toll roads, increases in toll rates on existing toll
facilities, or increases in traffic. Augmenting toll road mileage is difficult to accomplish: FHWA
statistics identify 5,540 tolled miles of roads, bridges, and tunnels as of January 1, 2011,35 a net
increase of 819 toll road miles, or 17%, since 1990, despite the relaxed federal tolling
prohibitions.36 Nor have the changes in the last three authorization bills led to an increase in toll
receipts as a share of total revenues. Although toll revenues grew in nominal terms, from $7.75
billion in FY2005 to $9.98 billion in FY2011, they continued to account for approximately 5% of
total funds available in each of the last six fiscal years.37 This is similar to annual average since
FY1955.38
Expanded ability of state and local governments to impose tolls on federal-aid highways could
make it easier for them to build projects that might otherwise be delayed. Another advantage of
tolls is that they can provide the cash flow necessary to attract private financing of road projects
or to support public-private partnerships (PPPs) and other innovative financing techniques (such
as those discussed later in this report). Unlike VMT charges, tolls are broadly familiar to the
driving public. (Currently, 31 states have at least one toll road, bridge, or tunnel.) Variable tolls
designed to keep traffic in the toll facility flowing freely are already in use on a number of roads,
including lanes recently constructed on the Washington Capital Beltway (I-495) in Virginia.
Table 2 briefly describes the provisions of U.S. Code Title 23 that now govern the tolling of
federal-aid highways.
34 This loosens the restrictions on the tolling of interstate highways but tightens them on the non-interstate roads.
35 Federal Highway Administration, Toll Facilities of the United States 2011, “FHWA-PL-11-032,” Washington, DC,
July 2011, http://www.fhwa.dot.gov/policyinformation/tollpage/index.cfm. The 5,540 miles of toll roads, bridges, and
tunnels compare with the total federal-aid highway eligible road length of 999,689 miles.
36 Federal Highway Administration, Toll Facilities in the United States: Bridges-Roads-Tunnels-Ferries, “Publication
No: FHWA-PL-91-009,” Washington, DC, 1991, p. v.
37 “Figure 6-6: Toll Facility Revenue: 1993-2008,” Our Nation’s Highways: 2010, http://www.fhwa.dot.gov/
policyinformation/pubs/pl10023/fig6_6.cfm. Also, Table HF-10 from Highway Statistics2010.
38 Federal Highway Administration, Highway Statistics: Summary to 1975, Table HF-211, Washington, DC, 1977, pp.
107-136. Also Highway Statistics: Summary to 1995, Table SF-210 and Highway Statistics, various years, Tables SF-
21, HF-10 and HF-10a. Also “Figure 6-6: Toll Facility Revenue: 1993-2008,” Our Nation’s Highways: 2010,
http://www.fhwa.dot.gov/policyinformation/pubs/pl10023/fig6_6.cfm. Toll revenues grew during FY1993-FY2008 at
an average annual rate approaching 8%.
Congressional Research Service
16
Funding and Financing Highways and Public Transportation
Table 2. Active Federal Tolling Programs
Program Intent
Section 129 Exceptions to the Freedom from
Authorizes up to 80% federal participation in the initial
Tolls Provision
construction of a tol road, bridge, tunnel, or ferry (both
interstate system and non-interstate roads); reconstruction
of existing tol facilities; reconstruction of a tol -free federal-
aid highway (interstate or non-interstate) and conversion to
a toll facility so long as the facility has the same number of
tol -free lanes after construction as it did before; and
preliminary studies to determine toll facility feasibility.
Facility must be publicly owned or, if privately owned, under
contract to a public authority.
High Occupancy Vehicle (HOV) Facilities
Section 166 of Title 23 al ows states to charge tol s on
vehicles that do not meet the occupancy requirements for
HOV use (including HOVs on the interstate system).
Interstate System Reconstruction and Rehabilitation
Allows tolls on three pilot projects in different states to
Toll Pilot Program
reconstruct an existing interstate system highway and
convert it to a tolled facility. Originally passed in 1998.
Value Pricing Pilot Program
Provides funds for local transportation programs to try the
value pricing approaches to managing congestion, including
use of tolling. No dedicated funding under MAP-21.
Source: FHWA. Title 23 U.S.C. §129, 166, 301. P.L. 112-141.
Options for Expanded Use of Tolling
Congress would have numerous options if it wished to expand the role of tolling in surface
transportation finance. Among them:
• It might require that most or all new construction on the federal-aid system be
toll-financed. This would relieve the demands on the HTF or the general fund as
sources of revenue for highway construction.39
• It could consider making all interstate system highways eligible for conversion to
toll roads. The Interstates carry high traffic volumes relative to other roads and
likely make up much of the road mileage that could generate sufficient toll
revenues to support toll finance. In addition, in urban areas, increased tolling
could have the added benefit of reducing congestion. Only 7% of urban
Interstates are tolled. Allowing tolls on existing Interstates would overturn the
“freedom from tolls” provision of the Federal-Aid Highway Act of 1956, and
might be open to criticism that tolling of roads that were built or improved with
highway trust fund revenues is double taxation.40
39 According to FHWA, 60% to 70% of toll project revenues are used to pay for new highway, bridge, and tunnel
capacity, compared with 20% of total highway revenues. See Current Toll Road Activity in the U.S.: a Survey and
Analysis, by Benjamin Perez and Steve Lockwood, Washington, DC, Federal Highway Administration, January 2009,
p. 21.
40 Robert W. Poole, Jr., Interstate 2.0: Modernizing the Interstate Highway System via Toll Finance, Reason
Foundation, Policy Study 423, Los Angeles, CA, September 2013, 44 p. The report suggests the gradual conversion of
interstate system highways to toll facilities as its roads and bridges are reconstructed.
Congressional Research Service
17
Funding and Financing Highways and Public Transportation
• An even broader alternative would be to allow states to toll any federal-aid
highway. Such authorizations might, or might not, encourage further use of tolls
that vary by time of day or by degree of congestion.
• Legislation could further encourage private entities to pursue toll road projects on
the federal-aid highway system, presumably by constructing additional lanes or
interchanges.
One issue in the expansion of tolling is the extent to which state and local governments could
use increased toll revenues to substitute for other spending, reducing the net impact of more
expansive federal tolling policy. If the aim of a policy of expanded use of tolling is to increase
total spending on transportation infrastructure, it would be necessary to ensure that state and local
governments not simply use revenues from tolls on federal-aid highways to replace current
transportation outlays.
Obstacles to the Expanded Use of Tolling
Greater reliance on tolls as a source of federal highway funding faces significant obstacles, not
least the general public hostility to tolls. Title 23 (Highways) of the U.S. Code imposes certain
limitations on the use of toll revenues but FHWA has no authority to oversee toll rates, either on
roads or bridges, and thus has little direct influence over the amount of money raised.
Some states already rely on tolls as an important source of income. Florida, New Jersey, New
York, Pennsylvania, and Illinois receive over 10% of their annual highway revenues from tolls.41
On the other hand, there are 19 states that have no toll facilities and others that have only bridge
or tunnel tolls. Because toll facilities by their very nature are local, public acceptance of tolling
can vary by location. The fact that decisions about tolling are made locally may limit the impact
of changes in federal policy.
At the local level, expanded use of tolling faces a number of challenges beyond general public
hostility.42 Revenue projections from planned toll facilities generally do not cover project costs,
and some states find it hard to garner public support for toll projects that also require public
subsidization. For toll projects with private partners, often either a public subsidy is needed or
competing free facilities must be converted to toll facilities for the projects to make business
sense. In some cases, proposed toll projects have raised public concerns about diversion of traffic,
especially trucks, from the tolled roads to adjacent free roads. In addition, revenues do not always
meet projections potentially leaving financial burdens on local governments.43
Trucking interests generally oppose tolling.44 Major trucking companies have expressed a
preference for raising fuels taxes but requiring that the increased revenues go exclusively for
41 Benjamin Perez and Steve Lockwood, Current Toll Road Activity in the U.S.: A Survey and Analysis, Federal
Highway Administration, Washington, DC, January 2009, pp. 2-3, http://www.fhwa.dot.gov/ipd/pdfs/
2008_toll_activity_white_paper.pdf.
42 U.S. Government Accountability Office, Highway Finance: States’ Expanding use of Tolling Illustrates Diverse
Challenges and Strategies, GAO-06-554, June 2006, pp. 32-42, http://www.gao.gov/new.items/d06554.pdf. See also
GAO, Highways and Transit: Private Sector Sponsorship of and Investment in Major Projects Has Been Limited,
GAO-04-419, Washington, DC, March 2004, pp. 20-24, http://www.gao.gov/new.items/d04419.pdf.
43 Dan Weikel, “State probes fiscal health of O.C. Toll Roads,” Los Angeles Times, December 12, 2012.
44 American Trucking Association, Issue: Tolls on the Interstate System, http://www.trucking.org/AdvIssues/
(continued...)
Congressional Research Service
18
Funding and Financing Highways and Public Transportation
highway improvement. Independent truckers generally prefer the status quo, but also view federal
fuel tax increases as preferable to tolls.45 One reason for the preference for fuel taxes is that
studies have concluded that funding highways with motor fuels taxes provide trucks a cross-
subsidy from automobile users’ gas tax payments.46 Also, since toll rates are controlled locally,
trucking interests are concerned that local officials may find it an attractive option to set high
rates on trucks, whose shipments are often not local, and low rates on cars.
Views on the Potential of Toll Financing
There have been few systematic estimates of the potential for tolls to generate revenues for
highway construction. A 2006 TRB report, Future Financing Options to Meet Highway and
Transit Needs, estimated that aggressive use of the tolling and pricing opportunities in SAFETEA
had the potential to generate an average additional $1.1 billion in revenue per year during 2010 to
2017, reaching an additional $2.4 billion in 2017.47 Another TRB publication from 2006, The
Fuel Tax and Alternatives for Transportation Funding, argued that an aggressive program of “toll
conversion and new toll road development following the models of the HOT networks and FAST
lanes proposals might raise additional revenue equal to the tolls already being collected on U.S.
highways (that is about $10 billion per year or less).”48
Some more recent commentaries, however, have expressed caution in projecting revenues from
high-occupancy toll (HOT) lanes and other tolled express lanes, warning that “HOT lanes are not
necessarily big generators of revenue ... most projects—particularly HOV-to-HOT expansion
projects—barely cover ongoing expenses for management and operations, much less offset the
capital costs.”49 Another article examining the value pricing experience of I-15 in San Diego
found that it generated only enough revenue to cover operating costs, pay for the California
Highway Patrol to enforce vehicle occupancy rules, and provide a small amount to support bus
services on I-15.50 In 2008, AASHTO president Pete Rahn testified before the House
Transportation and Infrastructure Committee that “[e]ven the most optimistic forecasts project
(...continued)
HighwayInf_Fund/Tolls/Issue%20Paper%20-%20Tolls%20on%20the%20Interstate%20System.pdf. See also:
“Trucking Industry Still Prefers Gas Tax over Tolling for Highway Repair Funding,” Daily Report for Executives,
September 8, 2006.
45 Owner-Operator Independent Drivers Association, http://www.ooida.com/.
46 For the relative costs to the road network of use by different classes of vehicles see http://www.fhwa.dot.gov/policy/
hcas/summary/sum2.html.
47 Alan E. Pisarski and Martin Wachs, Future Financing Options to Meet Highway and Transit Needs, National
Cooperative Highway Research Program, Transportation Research Board, NCHRP Web-Only Document 102,
Washington, DC, December 2006, pp. ES-8, F-9, http://onlinepubs.trb.org/onlinepubs/nchrp/nchrp_w102.pdf. The
National Surface Transportation Policy and Revenue Study Commission, Final Report, used the NCHRP estimates.
48 Transportation Research Board, Fuel Tax and Alternatives for Transportation Funding, Special Report 285,
Washington, DC, 2006, p. 154, http://onlinepubs.trb.org/onlinepubs/sr/sr285.pdf. “Fast Lanes” are electronically tolled
express lanes with tolls set to limit traffic to the free-flowing maximum; the regular adjoining lanes would be free. The
Express Lanes Demonstration Program enacted in SAFETEA is a version of the Fast Lanes proposal.
49 Ginger Goodin and Chuck Fuhs, “Tolled Managed Lanes: Lessons Learned and Challenges to Meet,” TR News, no.
263 (July-August 2009), pp. 20-21.
50 Derek Toups, “What’s in Store for Second-Generation Express Lanes in San Diego?,” TR News, no. 263 (July-
August 2009), p. 24.
Congressional Research Service
19
Funding and Financing Highways and Public Transportation
that this revenue source [tolls] would only meet seven to nine percent of investment needs
nationally in the future.”51
Since most planned tolling projects in the United States would use express toll lanes that parallel
“free” regular lanes, the revenue question is an important issue for federal policymakers. Annual
national toll revenues totaled $9.98 billion for FY2011, up from $6.6 billion in FY2004. The
revenue increase appears to have been due more to traffic growth and increases in the rates
charged by toll authorities than to increased miles or lanes of tolled roads. The big generators of
revenue continue to be the long-standing toll facilities. The Fuel Tax special study also concluded
that adding tolls to all lanes of selected heavily traveled intercity routes could raise revenue, but
would raise less than anticipated because public opposition would lead state legislatures to adjust
other fees to partially offset the tolls.52
Using tolling to reduce the need for HTF resources and to avoid revenue increases or program
reductions would likely require a major expansion of tolling. Examples of three scenarios that
could do this include the following. First, there could be further expansion of leveraging
programs as a major source of building new roads and bridges. This could lead to an increase in
toll roads because leveraging programs generally require a revenue stream to support the debt that
the program incurs, and tolls are a common choice of repayment mechanism. For example, the
Transportation Infrastructure Finance and Innovation Act (TIFIA) program, discussed in detail
later in this report, might be expanded. Appropriations, however, would be needed to cover the
federal subsidy costs of such programs. Second, Congress might direct that all interstate system
highways be converted to toll roads over time as the system is expanded or reconstructed. This
change alone would eventually shift roughly a fourth of the nation’s vehicle miles traveled to a
toll-based system. However, assuming users would continue to pay fuel taxes, the issue of double
taxation could arise unless fuel taxes used on the Interstate highways are rebated.53 This policy
might be difficult to develop by September 2014, when MAP-21 expires, but it could be
considered as part of a longer-term solution to funding needs. Finally, the weight distance charges
commonly used in tolling are very similar to those of a VMT charge. Therefore, a VMT charge
could be considered a toll by another name.
Value Capture
Value capture represents an attempt to cover part or all of the cost of transportation improvements
from landowners or developers who benefit from the resulting increase in the value of real
property. Value capture revenue mechanisms include tax increment financing, special
assessments, development impact fees, negotiated exactions, and joint development.54 The federal
51 U.S. Congress, House Committee on Transportation and Infrastructure, Hearing on State Perspectives on
Transportation for Tomorrow, Recommendations of the National Surface Transportation Policy and Revenue Study
Commission, Testimony by Pete Rahn, 110th Cong., 2nd sess., February 13, 2008, http://transportation.house.gov/
Media/File/Highways/20080213/Pete%20Rahn%20Testimony.pdf.
52 Growth in nationwide toll revenues alone is not an ideal metric for the provision of increased mobility or new
infrastructure because the revenue growth can, in some years, be a reflection of rate increases at existing toll facilities.
53 Robert W. Poole, Jr., Interstate 2.0: Modernizing the Interstate Highway System via Toll Finance, Reason
Foundation, Policy Study 423, Los Angeles, CA, September 2013, p. 44 p.
54 Adeel Lari, David Levinson, and Zhirong Zhao, et al., Value Capture for Transportation Finance: Technical
Research Report, Center for Transportation Studies, University of Minnesota, June 2009, http://www.cts.umn.edu/
Research/Featured/ValueCapture/index.html.
Congressional Research Service
20
Funding and Financing Highways and Public Transportation
role in value capture strategies may be limited, as the Government Accountability Office (GAO)
has noted,55 but it is worth describing these strategies to provide a fuller picture of the ways in
which they might supplement or supplant more commonly used funding and financing
mechanisms.
Value capture is not a new idea. Land developers built and operated streetcar systems in the late
19th century as a way to sell houses on the urban fringe, for example. Much of the recent
experience with value capture has been associated with public transit. GAO found that the most
widely used mechanism is joint development, in which a real estate project at or near a transit
station is pursued cooperatively between the public and private sectors. An example might
involve a transit agency leasing air rights over a station to a developer in exchange for a regular
payment.
GAO found that joint development has generated relatively small amounts of money for transit
agencies.56 For example, the Metropolitan Atlanta Rapid Transit Authority expected about $4
million from such deals in FY2008, about 1% of its $374 million operating budget. However, less
widely used strategies, such as special assessment districts, are estimated to generate significant
amounts of funding for specific projects. A special assessment district in Seattle produced $25
million of the $53 million (47%) needed to fund the South Lake Union streetcar project.57
There has been less use of value capture in highway projects, but this appears to be changing.
Texas, for example, has authorized the creation of transportation reinvestment zones to help fund
highway projects.58 Special assessment districts have been set up in several states, including
Florida and Virginia, to fund highway projects. In Virginia a special assessment district was used
to help fund the expansion of Route 28 near Washington Dulles International Airport beginning in
the late 1980s.59
Public-Private Partnerships (PPPs)
Growing demands on the transportation system and constraints on public resources have led to
calls for more private-sector involvement in the provision of highway and transit infrastructure
through “public-private partnerships” (PPPs), which can be designed to lessen demands on
public-sector funding. Private involvement can take a variety of forms, including design-build
and design-build-finance-operate agreements. The opportunity to own or lease assets that could
have the potential for generating stable, medium-level revenues over the long term has attracted
private-sector interest. Typically the “public” in public-private partnerships refers to a state
government, local government, or transit agency. The federal government, nevertheless, exerts
55 Government Accountability Office, Public Transportation: Federal Role in Value Capture Strategies for Transit Is
Limited, but Additional Guidance Could Help Clarify Policies, GAO-10-781 (Washington, DC, July 2010),
http://www.gao.gov/new.items/d10781.pdf.
56 Ibid., p. 16.
57 Ibid., p. 20.
58 Sharada Vadali, Rafael Manuel-Aldrete, and Arturo Bujanda, et al., Transportation Reinvestment Zone Handbook,
Texas Transportation Institute, College Station, TX, 2011, http://ntl.bts.gov/lib/37000/37800/37821/0-6538-
P1_Handbook_resub_editjd_sv.pdf.
59 For more information, see http://www.28freeway.com/index.html.
Congressional Research Service
21
Funding and Financing Highways and Public Transportation
influence over the prevalence and structure of PPPs through its transportation programs, funding,
and regulatory oversight.
Private Financing
To be viable, PPPs involving private financing typically require an anticipated project-related
revenue stream from a source such as vehicle tolls, container fees, or, in the case of transit station
development, building rents. Private-sector resources may come from an initial payment to lease
an existing asset in exchange for future revenue, as with the Indiana Toll Road and Chicago
Skyway, or they may arise from a newly developed asset that creates a new revenue stream.
Either way, a facility user fee is often the key to unlocking private-sector participation and
resources.
In some cases, private-sector financing is backed by “availability payments,” regular payments
made by government to the private entity based on negotiated quality and performance standards
of the facility. For example, major improvements to I-595 near Fort Lauderdale, FL, are being
made by a private company that is to design, build, finance, operate, and maintain the facility for
35 years with availability payments made by the Florida Department of Transportation (FDOT).
Toll rates on the new express lanes will be set by FDOT, and revenue collected will be retained by
the state.60 The financing includes a federal TIFIA loan (see discussion below) and state funds.
Tolled highways are particularly attractive assets for private financing. Of course, the public
sector can build toll roads, raise tolls on existing facilities, or, in some cases, even institute tolls
on existing “free” roads, bridges, and tunnels. Two factors purportedly enable PPPs to attract
more capital to highways than the public sector alone can muster.61
First, a privately operated toll road can be financed with both debt (bond) and equity financing.
Because equity investors have an opportunity to share in the profits, they may be less
conservative than traditional municipal bond investors in selecting which projects to finance.
Private concessions are often for terms longer than traditional municipal bond maturities of 25,
30, or 40 years, and with an assured income stream over a longer period the concessionaire may
be able to raise additional capital. One estimate suggests that, under public control, the Chicago
Skyway would have supported at most $800 million in traditional revenue-bond financing,
compared with the $1.83 billion received by the city for the 99-year concession.62
Second, toll facilities are thought to be more successful when operated privately because tolls can
be raised in line with costs and demand. Due to political pressures, public agencies often have
difficulty raising tolls, a factor that not only reduces revenues, but also affects an agency’s ability
to borrow money to initiate construction. The private sector would be more able to generate
funding if lenders think it more likely that decisions about toll rates will be based primarily on
business considerations. The private operator usually does not have complete freedom to set tolls
because toll rates are often regulated under leasing agreements. Nevertheless, proponents of
60 Florida Department of Transportation, I-595 Improvements, District 4, Project Overview, November 1, 2012,
http://www.i-595.com/documents/PressRoom/Newsletters/Archived-Overviews/2012-11-01_I-
595_Project_Summary.pdf.
61 Peter Samuel, “The Role of Tolls in Financing 21st Century Highways,” Reason Foundation Policy Study 359, May
2007, http://reason.org/files/7227d934ecfa04d5db576c126f0385a6.pdf.
62 Ibid., p. 29.
Congressional Research Service
22
Funding and Financing Highways and Public Transportation
private-sector involvement argue “long-term toll road concessions ... are not simply a private-
sector version of a public-sector toll agency. They are a new and important innovation in U.S.
highway finance.”63
It is widely believed that there are hundreds of billions of dollars of private monies available
globally for infrastructure investment, such as surface transportation. 64 To date, however, private
investment in U.S. highways and transit has been modest in comparison to spending by all levels
of government. According to one study, from 1989 through early 2011 there were 96
transportation PPPs worth a total of $54.3 billion in the United States; 11 of these projects,
totaling $12.4 billion, included a private financing component.65
It is quite possible that private investment will grow in the future. In this regard, the seven-fold
increase in TIFIA program resources is likely to make some difference. But many impediments
remain. Some of the major ones include the relative attractiveness of the tax-exempt financing
available to state and local government, political opposition to tolling and privatization, and
difficulties associated with project development.66 On balance, therefore, it may be unrealistic to
expect PPPs to generate more than 7% to 9% of the future needs of highway and transit
infrastructure nationally. Private-sector financing generated through PPPs probably ought to be
seen as a supplement to traditional public-sector funding rather than as a substitute.
State and local governments have significant demands for funding in many different areas, and
there is no assurance that the resources generated from transportation PPPs will be reinvested to
finance transportation infrastructure needs. Asset leases, in particular, provide a mechanism to
generate large sums of money that could be used to fund a wide range of social or other
governmental services.67 Some evidence on this point comes from a GAO study of the effect of
federal highway funding increases on state highway funding between 1982 and 2002. GAO
observed a substitution effect, particularly between 1998 and 2002, when a 40% increase in
federal capital spending was accompanied by a 4% drop in state and local capital spending.68 This
suggests that higher private spending on transportation through PPPs could be accompanied by
reduced public spending at the state or local levels.
63 Robert W. Poole, “Tolling and Public-Private Partnerships in Texas: Separating Myth from Fact,” Reason
Foundation Working Paper, May 2007, http://reason.org/files/f4b3060c451c35f004519f3971d05fb3.pdf., p. 5. An
exception to the difference between the public and private sector in setting toll rates is the use of dynamic tolling in
congestion pricing schemes in which the toll is adjusted up and down to maintain “free-flowing” traffic. In such cases,
traffic demand determines the price. An exception to the difference between the public and private sector in setting toll
rates is the use of dynamic tolling in congestion pricing schemes in which the toll is adjusted up and down to maintain
“free-flowing” traffic. In such cases, traffic demand determines the price.
64 U.S. Department of Transportation, “Over $400 Billion Available Today for Road, Bridge and Transit Projects U.S.
Secretary of Transportation Mary E. Peters Announces,” Press Release, DOT 43-08, Wednesday, March 26, 2008; Ken
Orski, “A $400 Billion Solution,” Innovation Briefs, Vol. 19, No. 8, March 10, 2008.
65 William Reinhardt, The Role of Private Investment in Meeting U.S. Transportation Infrastructure Needs, The
American Road & Transportation Builders Association Transportation Development Foundation, Washington, DC,
May 2011, http://www.artba.org/mediafiles/transportationp3whitepaper.pdf.
66 Ibid., pp. 33-37.
67 Steve A. Steckler, “Squeezing Cash from Concrete: Navigating the Perils of Turnpike Privatization,” Infrastructure
Management Group, http://www.imggroup.com/transportation/documents/PennsylvaniaTollwayLeasing.pdf.
68 Government Accountability Office, Federal-Aid Highways: Trends, Effect on State Spending, and Options for
Future Program Design, GAO-04-802 (Washington, DC, 2004), http://www.gao.gov/new.items/d04802.pdf.
Congressional Research Service
23
Funding and Financing Highways and Public Transportation
This concern has been realized in the case of the Chicago Skyway, as some of the lease payment
has been used for non-transportation purposes. The city of Chicago contends, however, that it has
created a reserve fund that generates in annual interest revenue as much as the road did in toll
revenue, and notes that excess toll revenues from the Skyway were previously directed to the
city’s general fund.69 GAO has stated that the city’s credit rating improved when it reduced its
general obligation debt using lease revenues, thereby reducing the future cost of borrowing.70 The
possibility remains, nevertheless, that future facility users may face higher tolls if the money
generated by asset leases is used for non-transportation needs.71
Nearly all toll road privatization discussions face the issue of paying back federal funding spent
to build or improve the facility that is up for lease. In the cases of the Indiana Toll Road and
Chicago Skyway, toll facilities that were leased to private investors, this was not an issue, as the
facilities were not built with federal funds. Many existing toll facilities, however, were built with
federal aid. Congress could allow waiver of the payback provisions under certain circumstances,
but careful scrutiny may be needed to ensure that privatization does not give the private investor a
windfall thanks to earlier government investment.
Other Resource Benefits of PPPs
In addition to attracting private capital, PPPs may generate new resources for highway and transit
infrastructure in at least two ways. First, PPPs may improve efficiency through better
management and innovation in construction, maintenance, and operation, in effect providing
more infrastructure for the same price. Private companies may be more able to examine the full
life-cycle cost of investments, whereas public agency decisions are often tied to short-term budget
cycles. In the case of the Hudson-Bergen Light Rail in New Jersey, procured under a design-
build-operate-maintain contract, the U.S. Department of Transportation (DOT) estimates saving
of 30%, or about $345 million, over the more traditional design-bid-build procurement method.72
Such cost reductions may not materialize, however, if the public sector has to spend a substantial
amount of time on procurement, oversight, dispute resolution, and litigation. For example, the
California Department of Transportation has had a number of costly disputes with its private
partners.73 GAO argues that most state governments lack the capacity to manage PPP contracts.74
Second, PPPs are meant to reduce government agencies’ costs by transferring the financial risks
of building, maintaining, and operating infrastructure to private investors. These risks include
69 John Schmidt, “The Pros and Cons of Toll Road Leasing,” Public Works Financing, Vol. 2005, May 2006, p. 9.
70 Government Accountability Office, Highway Public-Private Partnerships: More Rigorous Up-front Analysis Could
Better Secure Potential Benefits and Protect the Public Interest, GAO-08-44 (Washington, DC, February 2008), p. 21,
http://www.gao.gov/new.items/d0844.pdf.
71 Ibid., p. 34.
72 U.S. Department of Transportation, Report to Congress on Public-Private Partnerships (Washington, DC, 2004), pp.
38-39, http://www.fhwa.dot.gov/reports/pppdec2004/pppdec2004.pdf.
73 Testimony of Alan Lowenthal, Chair, California Senate Transportation and Housing Committee, in U.S. Congress,
House Committee on Transportation and Infrastructure, Subcommittee on Highways and Transit, Hearing on Public-
Private Partnerships: State and User Perspectives, May 24, 2007, http://transportation.house.gov/Media/File/
Highways/20070524/Cal%20State%20Senate%20Lowenthal%20testimony.pdf.
74 Government Accountability Office, Federal-Aid Highways: Increased Reliance on Contractors Can Pose Oversight
Challenges for Federal and State Officials, GAO-08-198 (Washington, DC, 2008), http://www.gao.gov/new.items/
d08198.pdf.
Congressional Research Service
24
Funding and Financing Highways and Public Transportation
construction delays, unexpectedly high maintenance costs, and the possibility that demand will be
less than forecast. There is a danger, however, this transfer of risk may prove illusory if major
miscalculations force the public agency to renegotiate contracts or provide financial guarantees.75
Moreover, as GAO points out, not all the risks can or should be shifted to the private sector. For
instance, private investors are unlikely to accept the risk of higher construction costs due to
delays in the environmental review process.76
TIFIA Financing
An existing federal mechanism for providing credit assistance to relatively large transportation
infrastructure projects is financing under TIFIA, enacted in 1998 as part of TEA-21.77 TIFIA
provides federal credit assistance in the form of secured loans, loan guarantees, and lines of
credit.
Federal credit assistance provides funds at a relatively low rate and lowers project risk, thereby
helping to secure other financing at rates lower than would otherwise be possible. Another
purpose of TIFIA funding is to leverage non-federal funding, including investment from the
private sector. Loans must be repaid with a dedicated revenue stream, typically a project-related
user fee but sometimes also including dedicated tax revenue. As of August 26, 2013, according to
FHWA, TIFIA since enactment in 1998 had provided assistance of $11.3 billion to 34 projects.
The overall cost of the projects supported is estimated to be $44.7 billion.78
MAP-21 greatly enlarged TIFIA by increasing its funding from $122 million annually to $750
million in FY2013 and $1 billion in FY2014. DOT estimates that after administrative costs and
application of the obligation limitation it will have $690 million for credit subsidy support in
FY2013 and $920 million in FY2014.79 Assuming an average subsidy cost of 10%, this may
provide DOT with the capacity to lend $6.9 billion in FY2013 and $9.2 billion in FY2014.80 A
major reason for the large increase in TIFIA program funding was the great demand for financing.
In FY2012, for instance, there were requests for $13 billion in TIFIA credit assistance, according
to DOT, much more than the approximately $1.1 billion available.81 One open question is
whether the increase in TIFIA’s share of project costs to 49% will reduce the non-federal share of
project costs and possibly also “crowd out” private financing.
75 Engel, E., R. Fischer, and A. Galetovic, “Privatizing Highways in the United States,” Review of Industrial
Organization, 2006, Vol. 29, pp. 27-53.
76 Government Accountability Office, Highway Public-Private Partnerships, February 2008.
77 23 U.S.C. §601 et seq.
78 U.S. Department of Transportation, Federal Highway Administration, “TIFIA Portfolio,” http://www.fhwa.dot.gov/
ipd/tifia/projects_project_profiles/tifia_portfolio.htm.
79 Department of Transportation, “Letters of Interest for Credit Assistance Under the Transportation Infrastructure
Finance and Innovation Act (TIFIA) Program,” 77 Federal Register 45411-45415, July 31, 2012,
http://www.fhwa.dot.gov/ipd/pdfs/tifia/fy2013_tifia_nofa_073112.pdf.
80 The subsidy cost is “the estimated long-term cost to the government of a direct loan or a loan guarantee, calculated
on a net present value basis, excluding administrative costs,” Federal Credit Reform Act of 1990 (FCRA), §502 (5A).
81 Federal Highway Administration, “FY2012 TIFIA Letters of Interest Submitted,” http://www.fhwa.dot.gov/ipd/tifia/
letters_interest_applications/letters_submitted_2012.htm; Department of Transportation, “Letters of Interest for Credit
Assistance under the Transportation Infrastructure Finance and Innovation Act (TIFIA) Program,” 76 Federal Register
68257-68260, November 3, 2011, http://www.fhwa.dot.gov/ipd/pdfs/tifia/NOFA_Published_110311.pdf.
Congressional Research Service
25
Funding and Financing Highways and Public Transportation
Another change made by MAP-21 is permitting TIFIA credit assistance to be provided for a
program of projects secured by a common security pledge. This would be accomplished through a
“master credit agreement.” Prior to MAP-21, TIFIA only allowed agreements on a project-by-
project basis. The Los Angeles County Metropolitan Transportation Authority (Metro), for one,
has sought this change to accelerate the financing of 12 transit projects (known as the 30/10
Initiative).82 The master credit agreement also establishes a way to make a commitment of future
credit assistance contingent on the availability of funds.
The threshold project cost to be eligible for TIFIA assistance remains $50 million, or $15 million
for intelligent transportation system projects, except that MAP-21 includes a threshold of $25
million for rural infrastructure projects.83 MAP-21 also sets aside 10% of program funds to assist
rural projects. Additionally, whereas loans for urban projects must be charged interest not less
than the Treasury rate, rural projects that are assisted by the rural setaside are to be offered loans
at half the Treasury rate. Rural projects are defined very expansively to include any project in an
area other than a city with 250,000 or more inhabitants. MAP-21 also increases the maximum
share of project costs that TIFIA may provide from 33% to 49%, probably lowering the share of
nonfederal resources leveraged with federal loans.
Prior to MAP-21, projects seeking TIFIA assistance were evaluated by DOT on eight criteria.84
MAP-21 eliminates these selection criteria and now permits TIFIA assistance for any eligible
project. One of the key eligibility criteria is creditworthiness. To be eligible, a project’s senior
debt obligations and the borrower’s ability to repay the federal credit instrument must receive
investment-grade ratings from at least one nationally recognized credit rating agency. The TIFIA
assistance must also be determined to have several beneficial effects: fostering a public-private
partnership, if appropriate; enabling the project to proceed more quickly; and reducing the
contribution of federal grant funding. Other eligibility criteria include satisfying planning and
environmental review requirements and being ready to contract out construction within 90 days
after the obligation of assistance. Applications for assistance must be accepted by DOT on a
rolling basis.
National Infrastructure Bank
Congress has considered several proposals to create a national infrastructure bank (I-bank) to help
finance infrastructure projects.85 Three I-bank proposals that have been introduced in the 113th
Congress are the National Infrastructure Development Bank Act (H.R. 2553), by Representative
DeLauro, the American Infrastructure Investment Fund Act (S. 387), by Senators Rockefeller and
Lautenberg, and the Partnership to Build America Act (H.R. 2084), by Representative Delaney.
82 Los Angeles County Metropolitan Transportation Authority (Metro), Metro’s 30/10 Initiative,
http://libraryarchives.metro.net/DB_Attachments/100524_30_10_Initiative.pdf.
83 The law also provides eligibility for projects whose total expected costs are 33.3% of the amount of federal highway
assistance apportioned in the most recent fiscal year to the state in which the project is located. This is unchanged in
MAP-21.
84 These were the amount of private participation; environmental impact; national or regional significance; project
acceleration; creditworthiness; use of new technologies; reduced federal grant assistance; and consumption of budget
authority.
85 For legislation introduced through the 112th Congress, see CRS Report R42115, National Infrastructure Bank:
Overview and Current Legislation, by William J. Mallett, Steven Maguire, and Kevin R. Kosar.
Congressional Research Service
26
Funding and Financing Highways and Public Transportation
The Partnership to Build America Act (H.R. 2084) proposes to create the American Infrastructure
Fund (AIF) as a wholly owned government corporation. The AIF would be funded with $50
billion using repatriated foreign earnings. The companies repatriating the earnings would receive
tax benefits in return for investing a certain share of the repatriated earnings in 50-year bonds
paying 1%. Transportation facilities would be only one of a number of infrastructure sectors
eligible for help from the AIF. Other sectors would be energy, water, communications, and
education. Like many I-bank proposals, the AIF would be authorized to make loans and loan
guarantees to eligible projects. In addition, H.R. 2084 also permits the AIF to make equity
investments (i.e., an ownership stake) up to a maximum of 20% of project costs.
The American Infrastructure Investment Fund Act (S. 387) proposes to create the American
Infrastructure Investment Fund that would be a part of the Department of Transportation. Only
transportation projects would be eligible for assistance. Financial assistance to projects would be
limited to loans and loan guarantees. The act would authorize an appropriation of $5 billion in
FY2013 and FY2014.
The National Infrastructure Development Bank Act (H.R. 2553) proposes to create the National
Infrastructure Development Bank (NIDB) as a wholly owned government corporation. The NIDB
would be authorized to aid transportation, energy, environmental, and telecommunications
infrastructure projects. In addition to providing loans and loan guarantees, the NIDB would be
permitted to subsidize the interest on a new type of taxable bond called an American
Infrastructure Bond (AIB). AIBs could be issued by eligible infrastructure project sponsors. An
amount equivalent to the federal taxes paid by AIB holders would be credited to the NDIB for
assisting other eligible infrastructure projects.
One purported advantage of an I-bank over other loan programs, such as TIFIA, is that it would
have more independence in its operation, such as in project selection, and have greater expertise
at its disposal. Additionally, an I-bank is typically set up to help a much wider range of
infrastructure projects than a TIFIA program, such as water, energy, and telecommunications
infrastructure. Proponents hope the best projects, at least those that are the most financially
viable, would be selected from across these sectors.
In many formulations, capitalization of the I-bank comes from an appropriation, but in others an
I-bank is authorized to raise its own capital through bond issuance. By issuing non-tax-exempt
securities, it could tap pools of private capital that do not invest in tax-exempt bonds, the
traditional source of much project finance. Tax-exempt municipal securities are unattractive to
some investors, either because individual issues are too small to interest them or because the
investors do not benefit from the tax preference. Taxable bonds with long maturities might be
attractive to such investors, such as pension funds and foreign citizens.86 An infrastructure bank
86 U.S. Congress, Senate Committee on Banking, Housing, and Urban Affairs, Testimony of Felix Rohatyn, Co-Chair
of the Commission on Public Infrastructure, Hearing on Condition of Our Nation’s Infrastructure and Proposals for
Needed Improvement, 110th Cong., 2nd Sess., March 11, 2008, http://banking.senate.gov/public/index.cfm?FuseAction=
Hearings.Hearing&Hearing_ID=9ddc8203-a3d1-448d-946e-3b1f671fda8a; U.S. Congress, House Committee on
Transportation and Infrastructure, Testimony of Bernard Schwartz, President and CEO, BLS Investments, Hearing on
Financing Infrastructure Investments, 110th Cong., 2nd Sess., June 10, 2008, http://transportation.house.gov/Media/File/
Full%20Committee/20080610/Schwartz%20Testimony_6-10-08.pdf. The Public Infrastructure Commission, Center for
Strategic and International Studies, co-chaired by Felix Rohatyn, proposed the creation of a national infrastructure
financing agency; see Ehrlich, Everett and Benjamin Landy, Public Works, Public Wealth: New Directions for
America’s Infrastructure, Center for Strategic and International Studies, November 2005.
Congressional Research Service
27
Funding and Financing Highways and Public Transportation
also might reduce the federal government’s share of project costs with greater reliance on non-
federal capital and user fees.
Most infrastructure bank proposals assume the bank would improve the allocation of public
resources by funding projects with the highest economic returns regardless of infrastructure
system or type. Selection of the projects with the highest returns, however, might conflict with the
traditional desire of Congress to assure funding for various purposes. In the extreme case, many
transportation projects might not be funded if the bank were to exhaust its lending authority on
water or energy projects offering higher returns.
Limitations of an I-bank include its duplication of existing programs like TIFIA and the
Wastewater and Drinking Water State Revolving Funds. An infrastructure bank may not be the
lowest-cost means of increasing infrastructure spending. CBO has pointed out that a special entity
that issues its own debt would not be able to match the lower interest and issuance costs of the
U.S. Treasury.87 In some formulations, a national infrastructure bank exposes the federal
government to the risk of default.88 Others have argued that a national infrastructure bank would
be an unnecessary centralization of authority from the state and local level to the federal level. An
alternative would be to enhance the operation of state infrastructure banks.
National Infrastructure Innovation and Finance Fund
After including a $5 billion request for an I-bank in its FY2010 budget request,89 contingent on its
subsequent creation, the Obama Administration dropped this idea from its FY2011 budget in
favor of $4 billion for a National Infrastructure Innovation and Finance Fund. The Administration
envisioned this $4 billion as the first installment of five to eventually capitalize the fund with $25
billion.90 The fund would be set up as an operational unit of DOT and would provide loans and
grants to leverage non-federal funding, including private-sector capital. Projects of national and
regional significance would be chosen through some sort of merit-based analysis. In the FY2012
budget request, the Administration again proposed the creation of a $5 billion I-bank.91 The
appropriations committees stated that they did not support the idea of an infrastructure fund, and
neither it nor a national infrastructure bank was included in MAP-21.92
87 U.S. Congress, House Committee of the Budget and Committee on Transportation and Infrastructure, Testimony of
Peter R. Orszag, Director, Congressional Budget Office, Hearing on Financing Infrastructure Investment, 110th Cong.,
2nd Sess., May 8, 2008, http://transportation.house.gov/Media/File/Full%20Committee/20080508/05-08-
Infrastructure_Testimony.pdf.
88 U.S. Congress, House Committee on Ways and Means, Subcommittee on Select Revenue Measures, Testimony of
Samuel Staley, Hearing on the National Infrastructure Banks, 111th Cong., 2nd sess., May 13, 2010,
http://waysandmeans.house.gov/media/pdf/111/2010May13_Staley_Testimony.pdf.
89 Office of Management and Budget, Budget of the U.S. Government, FY2010: Analytical Perspectives, Washington,
DC, 2009, table 6-2, http://www.gpoaccess.gov/usbudget/fy10/pdf/spec.pdf.
90 U.S. Congress, House Committee on Transportation and Infrastructure, Subcommittee on Highways and Transit,
Testimony of Christopher Bertram, Assistant Secretary for Budget and Programs and Chief Financial Officer, U.S.
Department of Transportation, Hearing on Using Innovative Financing to Deliver Highway and Transit Projects, 111th
Cong., 2nd sess., April 14, 2010, http://republicans.transportation.house.gov/Media/file/TestimonyHighways/2010-04-
14-Bertram.pdf.
91 U.S. Department of Transportation, Budget Estimates, FY2012, National Infrastructure Bank, http://www.dot.gov/
sites/dot.dev/files/docs/CFO_FINANCING_IBank_FY2012_CJ.pdf.
92 H.Rept. 111-564, p. 20; S.Rept. 111-230, pp. 16-17.
Congressional Research Service
28
Funding and Financing Highways and Public Transportation
State Infrastructure Banks
Instead of creating a national infrastructure bank or fund, it has been suggested that something be
done to enhance state infrastructure banks (SIBs) that already exist in many states. Most of these
were created in response to a federal state infrastructure bank (SIB) program originally
established in surface transportation law in 1995 (P.L. 104-59). According to a recent survey, 32
states had established federally authorized SIBs in 2012. Several states, among them California,
Florida, Georgia, Kansas, Ohio, and Virginia, have SIBs that are unconnected to the federal
program.93 Local governments have also begun to embrace the idea. For example, the city of
Chicago has established a nonprofit organization, the Chicago Infrastructure Trust, as a way to
attract private investment for public works projects.94 Another example is Dauphin County, PA,
which has established an infrastructure bank to make loans to the 40 municipalities and private
project sponsors within its borders. Funds for the loans are derived from a state tax on liquid
fuels.95
One of the one of the biggest stumbling blocks to federally authorized SIBs has been
capitalization. This is because federal grant funds that could be used to capitalize a SIB have
typically been committed elsewhere. For this reason, one idea is to provide federal funds to states
specifically dedicated to SIBs. For example, during the surface transportation reauthorization
debate that led to the enactment of MAP-21, it was proposed that $750 million per year be
dedicated to SIBs (H.R. 7, 112th Congress). Another proposal was to authorize SIBs to issue a
type of tax credit bond (S. 1436, 112th Congress). Neither proposal was enacted.
Author Contact Information
Robert S. Kirk
William J. Mallett
Specialist in Transportation Policy
Specialist in Transportation Policy
rkirk@crs.loc.gov, 7-7769
wmallett@crs.loc.gov, 7-2216
Acknowledgments
John W. Fischer, former Specialist in Transportation Policy, contributed to this report.
93 Robert Puentes and Jennifer Thompson, “Banking on Infrastructure: Enhancing State Revolving Funds for
Transportation,” Brookings Institution, September 2012, http://www.brookings.edu/~/media/research/files/papers/2012/
9/12%20state%20infrastructure%20investment%20puentes/
12%20state%20infrastructure%20investment%20puentes.pdf.
94 Chicago Investment Trust, http://www.shapechicago.org/.
95 Jeff Frantz, “Dauphin County Creates Infrastructure Bank for Road Improvements,” PennLive, March 1, 2013,
http://www.pennlive.com/midstate/index.ssf/2013/03/dauphin_county_creates_infrast.html;
http://www.dauphincounty.org/government/about-the-county/Pages/News.aspx?NewsID=220.
Congressional Research Service
29