Better Roads without Higher Taxes?

Rick GeddesThe lack of funding for the U.S. surface transportation system is causing serious economic and social problems, according to Dr. Rick Geddes, the director of Cornell University's Program in Infrastructure Policy. Geddes spoke at the Atlanta Fed's most recent Public Affairs Forum, which was held in Miami, Florida, and hosted jointly by President Dennis Lockhart and the Beacon Council president and CEO, Larry Williams.

The U.S. surface transportation system has problems on both the demand and supply sides, according to Geddes. On the demand side, the largest problem is congestion. Citing research from the Treasury Department and academics, Geddes reported that traffic jams squander 1.9 billion gallons of gas and cost drivers more than $100 billion a year in wasted fuel and time.

Socioeconomic costs are also notable, including poor health outcomes for children living near areas with heavy traffic congestion. In addition, research has found that longer commutes are associated with higher levels of obesity and divorce.

On the supply side, Geddes shared that 32 percent of America's roads are in poor or mediocre condition, and poor road maintenance costs the average motorist $400 a year in extra auto maintenance. He also commented that shoddy roads result in an estimated $67 billion in annual operating costs and that transportation investment can sometimes be poorly directed.

Financing surface transportation improvements isn't the major problem, he said. Funding is the root of the nation's surface transportation problems. "There are only two broad sources of funding: some type of user fee revenue such as tolls or mileage-based fees or some source of broader tax revenue," he said. Once funding is in place, financing can come from many sources such as tax-exempt municipal bonds or privately issued corporate bonds.

The funding problem stems from a reliance on fossil fuel taxes at both the federal and state levels, Geddes said. And fossil fuel tax revenue is falling because of the rising use of alternative-fuel vehicles, increasing efficiency of gas- and diesel-fueled vehicles, revenue declines caused by the fall in annual vehicle-miles traveled, and the fact that fuel taxes are not indexed to inflation.

"We need new policies to optimize the operation and maintenance of the road system," he added, noting that the challenge today is that we are no longer building out an original system but rather operating and maintaining an existing system. And the lack of funding is causing maintenance to be deferred longer and longer.

Geddes believes the United States should adopt a utility-type funding model, with consumers charged much like they are for electricity, water, or cell phone usage. The best option, in his view, is to transition to a system of mileage-based user fees, which provide a stable source of funding and are a better alternative than raising taxes.

"We need to think of the road system as a service, as a utility. They are not free," Geddes concluded.