Improving Efficiency and Equity in Transportation Finance

Introduction

Ever since the widespread adoption of automobiles, the American highway system has generally been financed with "user fees" ? money collected from those who use the roads. Tolls and fuel taxes, which levy charges roughly proportionally to travelers' use of roads, have been the most common.

However, tolls have traditionally been costly and difficult to collect because of the need to construct toll plazas and staff them with salaried workers. In addition, revenues from fuel taxes have for three decades been rising more slowly than program costs as legislators become ever more reluctant to raise them to meet inflation. As a result, the burden of raising the funds for transportation programs is gradually being shifted to local governments and voter-approved initiatives that are, in most instances, not based on user fees. As a result, new sources of revenue, especially local sales taxes have come to pay for transportation infrastructure.

In fact, seemingly modest local tax increases enacted as short-term solutions to immediate problems are setting a major national trend. Without any deliberate or conscious change in policy, transportation finance is gradually devolving to local governments and lessening its reliance on user fees. User fees are, however, more efficient and more equitable than local sales taxes for transportation projects. In the short run, increases in fuel taxes are viable and practical. In the longer term, tolls collected electronically promise the most appropriate and flexible method of user fee financing.

This policy brief outlines the complex series of relationships that define federal, state, and local roles in financing transportation systems. It summarizes some of the most pressing problems regions and the nation face in paying for the growth, management, and maintenance of the American transportation system. And it argues that continued or expanded reliance on user fees remains the most promising way to promote efficiency and equity in transportation finance.