The federal government plays a large role in the nation's highways by funding aid programs for the states and imposing top-down regulations. Congress initiated aid to the states for highways in 1916, and it launched construction of the interstate highway system in 1956. In recent decades, the government has continued to expand its role in state and local highway and transportation systems.

However, federal aid and regulations create inefficiencies in the financing and construction of America's highways. Federal aid is often allocated to low-value activities, and the regulations that accompany aid can stifle innovation and boost highway construction costs.

The Federal Highway Administration (FHWA) within the Department of Transportation will spend $43 billion in 2017, mainly on aid to state and local governments.¹ FHWA activities are funded by a combination of federal fuel taxes and general federal revenues.

Congress implements highway policy through multiyear authorization bills. The last such bill was passed in 2015 as the Fixing America's Surface Transportation Act. The act authorized spending of $305 billion over five years, of which $226 billion was for highways and the rest was for urban transit and other activities.²

With the Trump administration now in office, highway policies might be changed before the current highway bill runs its five-year course. The administration's 2018 budget proposes new directions for transportation policy, including cutting regulations to speed the completion of projects and attracting more private financing for infrastructure investments.³

This study reviews the history of federal involvement in highways, describes the inefficiencies of federal aid and regulations, and discusses possible reforms to highway policies. Americans would be better off if federal highway spending, fuel taxes, and related regulations were cut. The states can tackle their own transportation needs without federal intervention. They should move toward market pricing for highway usage and expand the private sector's role in the financing and operation of highways.

Privately Built Roads in the 19th Century

Before the federal government began financing highways in the 20th century, highways were funded and built by state and local governments and the private sector. Private turnpike companies built thousands of miles of toll roads across the states during the 18th and 19th centuries. The first private turnpike connected Philadelphia and Lancaster in 1794, and by 1800, 69 turnpike companies had been chartered in New Hampshire, Vermont, Massachusetts, Rhode Island, Connecticut, New York, Pennsylvania, and Maryland.⁴ All in all, more than 2,000 companies built private toll roads in America in the 18th and 19th centuries.⁵ Only a few states subsidized the companies.

The total length of privately built toll roads in the eastern states exceeded 10,000 miles, and private road investment in the 19th century comprised a higher share of the national economy than did governmental investment in the interstate highway system in the 20th century.⁶ In Britain, 1,116 turnpike trusts maintained 22,000 miles of toll roads by 1830.⁷ These companies were financed almost entirely by private capital.

As the 19th century advanced, the private road companies were gradually put out of business by the railroads. In turn, the railroads faced a rising challenge from automobiles in the 20th century. Unfortunately, rather than encouraging the revival of private toll highways for automobiles, politicians of the era favored abolishing private ownership and substituting government-owned "free" highways financed by taxes. As a result, 20th century highways were provided outside of the market system.

The Rise in Federal Intervention

Article 1, Section 8, of the Constitution gives Congress the power to "establish Post Offices and post Roads." In 1806, Congress approved funding from the proceeds of land sales to construct the National Road westward from Maryland.⁸ But there were doubts about whether the federal government was allowed to fund such "internal improvements" under the limited powers granted it under the Constitution. President Thomas Jefferson requested that Congress amend the Constitution to allow such expenditures, but Congress declined to do so.

In 1817, President James Madison vetoed a bill that would have provided federal aid to construct roads and canals.⁹ He was followed by presidents Monroe, Jackson, Tyler, Polk, Pierce, and Buchanan, all of whom vetoed transportation bills on the grounds that such federal intervention was unconstitutional. Nonetheless, the federal government did occasionally provide grants of land to the states to raise funds for road construction during the 19th century.¹⁰

Highway laws of 1916 and 1921 initiated direct federal spending on highways in an ongoing manner. Those laws authorized federal grants to the states and established the Bureau of Public Roads, the predecessor to the Federal Highway Administration. The laws were passed after years of lobbying by road-building companies and state highway interests.¹¹ With the introduction of federal grants came the beginning of top-down regulatory controls on state highway systems from Washington.¹²

The origins of the interstate highway system can be traced to the presidency of Franklin Roosevelt. The Federal-Aid Highway Act of 1938 directed the Bureau of Public Roads to study the feasibility of a six-route toll network. The subsequent report rejected toll highways and proposed a nontoll interregional highway network.¹³

Meanwhile, Dwight Eisenhower had long been interested in highways and participated in a 1919 transcontinental motor convoy from Washington, D.C., to San Francisco. He had also been impressed by the German autobahn network, which he saw during World War II. In 1954, the Eisenhower administration unveiled a $50 billion plan to create a national highway network over a decade. Congress passed the Federal-Aid Highway Act of 1956 to complete a 41,250-mile highway system by 1969. The law authorized $25 billion to finance 90 percent of the cost, with grants disbursed to the states from a new Highway Trust Fund.

People often assume that America would not have an extensive interstate highway system without the 1956 law. But, even before 1956, a state highway boom was underway based partly on toll funding. The Congressional Research Service notes, "During the late 1940s and early 1950s, the prospect of toll revenues allowed states to build thousands of miles of limited-access highways without federal aid and much sooner than would have been the case with traditional funding."¹⁴ Unfortunately, the 1956 law banned states from tolling highways that received federal funding, and since that time federal aid has played a major role in highway development.

The federal powers under the 1956 law were supposed to expire in 1972, but the sun never set on federal highway spending. The highway program has been repeatedly renewed and the length of the interstate highway system increased.¹⁵ Interstate construction was formally completed in the 1990s, but today federal spending has broadened to cover the one million mile "federal-aid highway system," as well as urban transit and other nonhighway activities.¹⁶

Fuel Taxes and the User Pays Approach

State governments became the dominant players in highways during the 20th century, and they initially retained the user pays approach that was central to 19th century private toll roads. Beginning in 1919 with Oregon, states started imposing taxes on gasoline and diesel fuel to fund their roads and highways.¹⁷

Congress enacted a "temporary" federal excise tax on gasoline in 1932 at 1 cent per gallon.¹⁸ The tax became permanent, and Congress increased the rate over time, reaching its current 18.4 cents per gallon in 1994. Average state taxes on gasoline are currently 31.6 cents per gallon, for a total federal-state burden on gasoline of 50 cents per gallon.¹⁹

Although the federal government has had a fuel tax since 1932, it did not initially dedicate the taxes to highway funding. Instead, revenues from federal fuel taxes flowed into the government's general fund. That changed with the 1956 highway law, which directed a federal gasoline tax of 3 cents per gallon into a new Highway Trust Fund (HTF) for constructing the interstate system. The idea was to make the users of the interstate system pay for it.

However, the user pays approach in federal fuel taxes began to break down in the 1980s. The Surface Transportation Assistance Act of 1982 redirected some fuel taxes away from highways and toward urban transit. Today, 2.86 cents of the 18.4 cents per gallon federal gas tax is redirected to transit.²⁰ Ironically, in signing the 1982 bill, President Ronald Reagan said, "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."²¹

Another development that is undermining the user pays approach is that since 1998 the federal government has pumped tens of billions of dollars of general revenues into the HTF. HTF spending has soared above HTF fuel-tax revenues, and Congress has filled the gap with other revenues. The 2015 highway bill provided $70 billion of general revenues to the HTF over five years.²²

Despite the use of general revenues and the diversion of fuel taxes to transit, the HTF is still mainly based on the user-pays approach. The system has worked, but it is imperfect. One problem is that fuel taxes only roughly relate to the costs imposed on highways by different kinds of vehicles. For example, electric-powered cars impose costs on highways but do not help fund them. Another issue is that taxes on fuel do not closely relate to the varying costs of providing different types of roads — urban highways tend to cost more than rural ones, for example.

For such reasons, policy experts are looking into alternative ways of having users pay for highways. Global positioning system (GPS)-based technology could enable mileage-based tolls to be electronically charged to road users with the revenues allocated to the road providers. Such a system has been demonstrated in Oregon, where those taking part had the option to pay for roads by fuel taxes or by the new mileage charge. GPS-based methods are currently used to charge trucks for using the German autobahn. A 2009 blue ribbon commission unanimously recommended that the United States begin financing its roads by mileage charges rather than by fuel taxes.²³

However, there are concerns that governments could abuse such systems in numerous ways. They could impose new mileage-based charges on users of American roads while continuing to impose fuel taxes, thus double-charging road users. Government data collection on road users and their habits could also be abused by government officials, or hacked by outsiders if the information is kept in databases. Thus, GPS and mileage-based systems create substantial privacy concerns.

If those concerns were addressed, mileage-based fees could provide data on the payments being made for each highway segment and thus illuminate the relative values of different highway upgrade projects. Such information, which could be made available without revealing the identities of road users, could help move the control and financing of roads from nonresponsive government bureaus to private suppliers operating in markets.

Moving toward mileage-based charges would open a way to revive private highway ownership. Currently, private owners charge tolls that come on top of the fuel taxes that road users already pay. Thus, road users are double-charged. This occurs, for example, on the private Dulles Greenway highway in Northern Virginia. The double-charging makes it harder for privately provided highways to compete with the government's "free" ones. If states repealed fuel taxes in favor of mileage-based fees, they would potentially allow privately provided highways to compete on a level playing field with government-provided ones.

Five Disadvantages of Federal Highway Aid

The federal government contributes to funding the nation's state and local highways and transit systems through the Highway Trust Fund (HTF). In 2017, $42 billion of gasoline taxes and other revenues will flow into the HTF, and the fund will spend $54 billion, with the difference made up by general federal revenues.²⁴

The following sections discuss disadvantages of this top-down funding mechanism. The problems can be addressed by devolving federal funding to the states and the private sector.

1. Aid undermines efficient state investment

Federal aid typically covers between 75 and 90 percent of the costs of federally supported highway projects. Because states cover just a small fraction of the costs, state officials have less incentive to manage funds efficiently and to fund only high-return projects. Boston's Central Artery and Tunnel project (the "Big Dig"), for example, suffered from poor management and huge cost overruns.²⁵ Federal taxpayers paid for most of the project's costs, which soared from about $3 billion to $15 billion.²⁶

A similar problem plagues other aid-to-state programs. Urban rail projects, for example, typically double in cost from original estimates.²⁷ When the money comes "free" from Washington, state officials tend to waste it and federal officials do not provide sufficient oversight. At the same time, members of Congress focus on maximizing federal spending in their districts, not on ensuring efficiency and high performance in programs.

Former Secretary of Transportation Mary Peters and two other members of a 2008 congressional commission made the case for reducing the federal role in highways:

[By contrast to federal funding,] revenues collected at the state and local levels allow greater flexibility, responsiveness, and accountability to local transportation consumers. Planning and construction flexibility is much greater without the onerous procedural requirements and "one size fits all" approach that come with federal funds.

Accountability is also improved by state and local funds because those agencies have a stronger incentive to be accountable to their voters than to the federal government, which can often be blocked from acting through political intervention. Taxpayers are less inclined to hold state and local officials accountable for the careful spending of federal funds, in part because these funds are perceived (often incorrectly) to come from outside the state.²⁸

2. Aid is diverted for nonhighway activities

Congress has redirected substantial revenues from the HTF to nonhighway uses. The Surface Transportation Assistance Act of 1982 raised federal gas taxes and started diverting revenues to urban transit. The 1991 Intermodal Surface Transportation Efficiency Act allowed states greater flexibility to use their highway funding for a broader range of nonhighway uses.²⁹

The most recent highway bill was the Fixing America's Surface Transportation Act of 2015. It authorized spending $305 billion over five years, of which $226 billion was for highways and the rest was for urban transit and other activities.³⁰

A study by Randal O'Toole discusses the inefficiencies in federal funding of urban transit, particularly rail systems.³¹ Large resources are being spent on urban rail, yet relatively few Americans use the systems, and many cities face a maintenance crisis as the systems age. Eliminating federal funding of transit would encourage cities to make smarter choices based on bus or shared-taxi systems, which are more flexible and often provide more convenient service, as well as being less costly.

3. Regulations tied to aid raise costs

Federal aid to the states for highways comes part and parcel with regulations that make highway building more expensive. One problem is that federal standards for construction can be more inflexible than state standards. Top-down federal rules on features such as shoulder widths may ignore unique features of states and cities and not allow efficient choices on highway design.

A commission report in the 1980s found that these sorts of problems were an important reason to reduce federal highway intervention. It noted, "The federal restriction on state and local road choices occurs not solely because federal standards are high, but because they tend to be inflexible, inappropriate to circumstances that vary from place to place, and more responsive to national interest groups than to the users of specific highways."³¹ The report noted that imposing "gold-plated" standards on the whole country does not allow states to make efficient trade-offs between infrastructure costs and benefits.³³

Another problem is that federal aid comes with special-interest provisions that increase costs. Davis-Bacon Act rules, for example, require that workers on federally funded projects be paid "prevailing wages," which typically means higher union wages. These rules increase the wage costs on highway projects by an average of 22 percent, while also slowing projects and piling paperwork on contractors.³⁴

Federal environmental regulations are also costly. The average time for states to complete reviews for highway projects under the National Environmental Policy Act increased from 2.2 years in the 1970s to about 6.6 years today.³⁵ The number of environmental laws and executive orders affecting transportation projects has increased from 26 in 1970 to about 70 today.³⁶

Ralph Stanley, the entrepreneur who created the private Dulles Greenway in Virginia, estimated that federal regulations increase highway construction costs about 20 percent.³⁷ Robert Farris, a former head of the Federal Highway Administration, suggested that federal regulations increase costs about 30 percent.³⁸

4. Aid is misallocated across the states

Federal highway spending is allocated to the states by formula or by the discretion of policymakers. Allocations are often inefficient because they are not based on marketplace demands. Faster-growing states with higher needs do not necessarily receive more funding. A study by Pengyu Zhu and Jeffrey Brown looked at highway aid and found that it is biased against states that have larger highway systems and more highway use, thus it is biased against states that have greater needs.³⁹

The HTF creates winner and loser states. Some states with growing populations — such as Texas and Florida — consistently get the short end of the stick.⁴⁰ For example, Texas has accounted for an average of 10 percent of taxes paid into the highway account over the past decade but has received only 8 percent of the spending from it.⁴¹ The Zhu-Brown study found that the HTF tends to redistribute money from lower-income to higher-income states, a situation that seems particularly unfair.⁴² The study also found that states that are "better represented on the four key congressional committees generally benefit from redistribution" in the federal highway program.⁴³

The Congressional Research Service noted that substantial debate over recent highway bills has been on these interstate inequities and that donor states tend to be in the South and Midwest while donee states tend to be in the Northeast, Pacific Rim, and West.⁴⁴ Members of Congress put much of their effort into fighting for their share of funds rather than on trying to increase quality and efficiency.

Transportation expert Robert Poole noted: "A key rationale for devolution is that the funding approach developed to build the interstate system is now obsolete. That approach transfers large sums from larger and faster-growing states to smaller and slower-growing states. . . . That is exactly backwards of what a real user-fee system would do — which is to generate and spend large sums in the places with huge problems of congestion and insufficient highway capacity."⁴⁵

5. Aid crowds out private investment

Federal aid and other federal policies discourage, or crowd out, the provision of infrastructure by the private sector. Federal aid for infrastructure is generally restricted to support only government-owned projects, not privately provided ones. That puts potential private competitors to government facilities at a disadvantage.

Consider that most urban transit in America was privately owned and operated before the 1960s. That ended with the passage of the Urban Mass Transportation Act of 1964, which provided federal aid only to government-owned bus and rail systems.⁴⁶ That prompted local governments across the country to take over the private systems, ending more than a century of private transit investment in American cities, while not improving service to the public.

With regard to highways, the main government funding mechanism — fuel taxes — creates a hurdle for potential private providers. That is because the users of private facilities would have to pay twice — once in fuel taxes to fund the government facilities and again in tolls to use the privately provided facilities.

Other hurdles impede private provision. Private highway, bridge, and transit companies have to pay property taxes and income taxes, whereas government agencies do not. Private companies also face higher financing costs because they generally must issue taxable bonds, whereas public agencies can issue tax-exempt bonds.

Despite the hurdles, some entrepreneurs have shown that private highway and bridge provision can succeed. The private Dulles Greenway in Virginia was completed in the mid-1990s with $350 million of private debt and equity.⁴⁷ The highway did not receive subsidies, and today the owners even pay local property taxes and the costs of policing the 14-mile artery. The Greenway raises revenues from electronic tolls, and it competes against nearby "free" state highways.

One policy option to encourage more private investment would be to credit the owners of private highways, such as the Greenway, for the fuel taxes paid for motorists on their facilities. Doing so would enable companies to reduce their tolls and attract more traffic, which in turn would relieve congestion on other roads.

Elsewhere in Virginia, FIGG Engineering Group and partners financed and constructed the $142 million South Norfolk Jordan Bridge over the Elizabeth River. The bridge opened in 2012, and its cost is being paid back to investors over time from toll revenues.⁴⁸ No government funding was involved.

FIGG is seeking out other private bridge opportunities across the country. Such entrepreneurial efforts can play a much larger role in America's transportation future. Federal reforms should seek to level the playing field between private and government projects to encourage such efforts.

Public-Private Partnerships

In recent decades, there has been a worldwide trend toward privatizing infrastructure.⁴⁹ Governments in more than 100 countries have transferred thousands of state-owned businesses worth more than $3 trillion to the private sector.⁵⁰ Railroads, airports, seaports, and other infrastructure businesses have been privatized.

Short of full privatization, many countries have partly privatized infrastructure — such as highways — through public-private partnerships (P3s). P3s differ from traditional government contracting by shifting various elements of financing, management, operations, and project risks to the private sector. Unfortunately, the United States "has lagged behind Australia and Europe in privatization of infrastructure such as roads, bridges and tunnels," noted the Organisation for Economic Co-operation and Development.⁵¹

Nonetheless, a number of U.S. states have pursued P3 projects. In Virginia, Transurban and Fluor built and are now operating electronic toll lanes along 14 miles of the Capital Beltway, I-495. The firms used debt and equity to finance most of the project's $2 billion cost.⁵² The lanes were completed on time and on budget in 2012. Texas and Florida have also pursued numerous P3 projects.

When private businesses put their own funds on the line, infrastructure investment is more likely to be allocated to high-return projects, and projects are more likely to be constructed efficiently. An Australian study compared 21 P3, or PPP, projects with 33 traditional government projects and found: "PPPs demonstrate clearly superior cost efficiency over traditional procurement. . . . PPPs provide superior performance in both the cost and time dimensions."⁵³

A Canadian expert testified to Congress that the P3 effort in that country has "focused primarily on transferring construction and asset availability risks to the private sector concessionaire, in an attempt to stem the trend of infrastructure mega-projects being plagued by endemic cost overruns and delays."⁵⁴ The effort has been a success: "Canadian PPPs have a strong reported record of projects coming in on time and on budget."⁵⁵

The publisher of Public Works Financing, William Reinhardt, noted, "The design-build contracting approach used in a P3 guarantees the construction price and project completion schedule of large, complex infrastructure projects that often befuddle state and local governments, as was the case with Boston's Big Dig."⁵⁶ Reinhardt says that P3 projects often enjoy capital cost savings of 15 to 20 percent compared with traditional government contracting.

A Brookings Institution study noted that traditional government contracting decouples the construction from the future management of facilities, which results in contractors' having little incentive to build projects that minimize long-term costs.⁵⁷ P3s solve this problem when the same company both builds and operates the new facilities. Many advantages of P3s "stem from the fact that they bundle construction, operations, and maintenance in a single contract. This provides incentives to minimize life-cycle costs," noted the study.⁵⁸

The growth in P3s and electronic tolling for congested highways are some of the innovations that will reduce congestion and make highways more efficient. Other exciting developments are coming in highway technology, and ending federal intervention would encourage the states to seek new and better ways of fostering transportation.

New Directions for Infrastructure Policy

Highway policy is dominated by lobby groups pushing to increase federal spending. Such advocates often claim that we face a crisis of pot-holed highways and falling down bridges. It is true that America's highways are getting more congested, but the overall condition of our highways and bridges is actually improving.

FHWA data show that of the nation's more than 600,000 bridges, the "structurally deficient" share fell from 22 percent in 1992 to 10 percent in 2016, while the "functionally obsolete" share has also fallen.⁵⁹ The surface quality of interstate highways has also improved. Looking at FHWA data, two Federal Reserve economists found that "since the mid-1990s, our nation's interstate highways have become indisputably smoother and less deteriorated."⁶⁰

Even if our highways were deteriorating, the best way to fix them is not by more federal spending. Instead, the way forward is to devolve federal activities to the states and private sector. In "turnback" proposals, the federal government would cut its highway and transit spending and the federal gas tax, and allow the states to fill the void. State governments could raise their own gas taxes or seek private investment for their transportation projects through P3s and privatization.

In 1982, President Reagan proposed that all federal highway and transit programs, except the interstate highway system, be turned backto the states and related federal gas taxes ended.⁶¹ A study by the Advisory Commission on Intergovernmental Relations (ACIR) in 1987 supported devolution for noninterstate highway funding.⁶² ACIR was an expert policy group headed by a bipartisan group of elected officials. The ACIR study concluded:

With state and local governments freed from federal requirements, some of which are unsuitable and expensive, turnbacks offer the possibility of more flexible, more efficient, and more responsive financing of those roads that are of predominantly state or local concern. Investment in highways could be matched more closely to travel demand and to the benefits received by the communities served by those roads.⁶³

In recent years, numerous members of Congress have sponsored versions of the Transportation Empowerment Act, which would follow the Reagan and ACIR approach. A bill sponsored by Senator Mike Lee (R-UT) in 2013 would have cut the federal gas tax from 18.4 cents to 3.7 cents per gallon and phased out most federal highway and transit activities.⁶⁴

The Trump administration has not proposed such major reforms yet, but it is focusing on devolving some infrastructure activities and cutting federal regulatory burdens. The administration's 2018 budget argued:⁶⁵

• "The federal government now acts as a complicated, costly middleman between the collection of revenue and the expenditure of those funds by states and localities."
• "The federal government provides services that non-federal entities, including the private sector, could deliver more efficiently. The administration will look for opportunities to appropriately divest from certain functions."
• "The private sector can provide valuable benefits for the delivery of infrastructure, through better procurement methods, market discipline, and a long-term focus on maintaining assets."
• "The environmental review and permitting process in the United States is fragmented, inefficient, and unpredictable. . . . The funding of infrastructure is predominately state, local and private, yet the federal government exerts an inordinate amount of control over all infrastructure with unnecessary bureaucratic processes."

The administration plans to reduce the federal middleman role, devolve some activities to the states and private sector, and speed environmental reviews. It plans to boost P3 projects and expand the ability of states to toll the interstates. This is important because the interstates are aging and will need major investments in coming years. As an alternative to raising taxes, adding electronic tolling to some lanes of the most congested portions of some interstates within P3 projects would be a funding solution that encourages efficient highway use.⁶⁶

As an alternative to tolling, states could contract with private firms to maintain or improve highway sections that meet their standards. The states could pay these private firms from fuel tax revenues in amounts proportional to traffic volumes, or some other agreed measure, which could also serve as a basis for bidding.

The Trump approach to transportation is a refreshing change. The Obama administration had pursued antimotorist policies that would have increased federal intervention. Obama's policies aimed to reduce automobile travel in favor of mass transit, but such policies restrict freedom and reduce economic growth. Highway users should cover the full costs of highways, but automobile use should not be penalized in favor of generally less-efficient transportation modes, such as urban and intercity passenger rail.

One Obama policy was to increase Corporate Average Fuel Economy (CAFE) mandates, which require automobile producers to reach certain national average miles-per-gallon thresholds for the automobiles they produce. The rules tend to push Americans into smaller cars, but that leads to more injury and death on the roads because vehicle size is related to safety. A National Academy of Sciences study concluded that CAFE's effect on vehicle size added 1,300 to 2,600 deaths annually and more than 10,000 serious injuries.⁶⁷ A Brookings-Harvard study estimated that CAFE standards caused a 14 to 27 percent increase in automobile fatalities.⁶⁸ As such, the Trump administration should work to repeal the CAFE mandates.

Conclusions

The funding of highways and urban transit should be devolved to the states, and federal regulations that raise the costs of infrastructure should be repealed. The states should innovate with electronic tolling of highways and private investment in highways and transit systems.

An advantage of transportation devolution according to ACIR would be "fiscal equivalence." That means "the same jurisdiction finances a governmental program, is responsible for its operation, and receives the benefits of that program … [which] promotes efficiency and careful choices."⁶⁹ It would also increase "political, fiscal, and program accountability."⁷⁰

Although highway and bridge quality is improving, it is also true that Americans are frustrated with traffic congestion. The problem is that government infrastructure is unresponsive to market demands. There is not enough focus on cost efficiency and no mechanism to provide the improvements that users are the most willing to pay for.

By devolving highways and transit to the states and private sector, there would be a more direct link between user charges and the allocation of funding to the highest-valued improvements. Highway space is a scarce resource, so we would increase efficiency by charging for it where feasible and using the revenues to add capacity.

Ending federal subsidies would give the states more incentive to spend their highway dollars efficiently and to innovate with P3s and full privatization. Successful innovations in one state would promote reforms in other states. So let us put states in the driver's seat, and allow them to harness entrepreneurs and markets to tackle America's infrastructure challenges.

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Gabriel Roth is a civil engineer, transportation economist, and a research fellow at the Independent Institute. During 20 years with the World Bank, he was involved with transportation projects on five continents. Roth's books include Paying for Roads: The Economics of Traffic Congestion (1967) and Roads in a Market Economy (1996). He also edited Street Smart: Competition, Entrepreneurship, and the Future of Roads (2006). Chris Edwards is editor of DownsizingGovernment.org at the Cato Institute.

¹ Budget of the U.S. Government, Fiscal Year 2018, Analytical Perspectives (Washington: Government Printing Office, 2017), Table 26-1.

² Federal Highway Administration, "Fixing America's Surface Transportation Act," www.fhwa.dot.gov/fastact.

³ Budget of the U.S. Government, Fiscal Year 2018 (Washington: Government Printing Office, 2017), Infrastructure Investment Fact Sheet.

⁴ Daniel B. Klein and Gordon J. Fielding, "Private Toll Roads: Learning from the 19th Century," Transportation Quarterly 46, no. 3 (1992): 321–41.

⁵ Daniel B. Klein, "Private Highways in America, 1792–1916," The Freeman: Ideas on Liberty, February 1994. See also Daniel B. Klein and John Majewski, "Turnpikes and Toll Roads in Nineteenth-Century America," EH.net, edited by Robert Whaples, February 10, 2008, http://eh.net/encyclopedia/turnpikes-and-toll-roads-in-nineteenth-century-america.

⁶ Gerald Gunderson, "Privatization and the 19th-Century Turnpike," Cato Journal 9, no. 1 (Spring/Summer 1989): 191–200. See also Daniel Klein and John Majewski, "America's Toll Road Heritage" in Street Smart: Competition, Entrepreneurship, and the Future of Roads, ed. Gabriel Roth (New Brunswick, NJ: Transaction Publishers, 2006).

⁷ Rees Jeffreys, The King's Highway (London: Batchworth Press, 1949).

⁸ For articles on the history of federal road funding, see Federal Highway Administration, "Highway History," www.fhwa.dot.gov/infrastructure/history.cfm.

⁹ James Madison, "Veto of federal public works bill, March 3, 1817," Constitution Society, www.constitution.org/jm/18170303_veto.htm.

¹⁰ Robert Jay Dilger, "Federalism Issues in Surface Transportation Policy: A Historical Perspective," Congressional Research Service, December 8, 2015.

¹¹ Austin F. MacDonald, Federal Aid: A Study of the American Subsidy System (New York: Thomas Y. Crowell, 1928), p. 90. See also Richard F. Weingroff, "For the Common Good: The 85th Anniversary of a Historic Partnership," Public Roads 64, no. 5 (March/April 2001).

¹² Austin F. MacDonald, Federal Aid: A Study of the American Subsidy System (New York: Thomas Y. Crowell, 1928), p. 93. MacDonald notes that the 1916 act "went further than any previous federal aid legislation in prescribing the exact manner of spending federal allotments." States were required to send a "vast amount of detailed information" to Washington on their projects and were subject to federal inspections.

¹³ Richard F. Weingroff, "Federal-Aid Highway Act of 1956: Creating the Interstate System," Public Roads 60, no. 1 (Summer 1996).

¹⁴ Robert S. Kirk and William J. Mallett, "Funding and Financing Highways and Public Transportation," Congressional Research Service, November 1, 2016, p. 14.

¹⁵ Federal Highway Administration, "Interstate System: Dwight D. Eisenhower National System of Interstate and Defense Highways," www.fhwa.dot.gov/programadmin/interstate.cfm.

¹⁶ Federal Highway Administration, "Highway Statistics 2015," December 2016, Table HM-16.

¹⁷ James M. Bickley, "The Federal Excise Tax on Gasoline and the Highway Trust Fund: A Short History," Congressional Research Service, September 7, 2012.

¹⁸ Brian Francis, "Gasoline Excise Taxes, 1933–2000," Statistics of Income Bulletin, Internal Revenue Service (Winter 2000–2001).

¹⁹ American Petroleum Institute, "Gasoline Tax," www.api.org/oil-and-natural-gas/consumer-information/motor-fuel-taxes/ga.... The federal tax rate on diesel fuel is 24.4 cents per gallon.

²⁰ Also, 0.1 percent is redirected to the Leaking Underground Storage Tank Fund.

²¹ Quoted in Robert S. Kirk and William J. Mallett, "Funding and Financing Highways and Public Transportation," Congressional Research Service, November 1, 2016, p. 7.

²² Robert S. Kirk and William J. Mallett, "Funding and Financing Highways and Public Transportation," Congressional Research Service, November 1, 2016.

²³ National Surface Transportation Infrastructure Financing Commission, "Paying Our Way: A New Framework for Transportation Finance," February 2009.

²⁴ Congressional Budget Office, "Estimates of the Status of the Highway Trust Fund Based on CBO's August 2016 Baseline," September 9, 2016.

²⁵ See the Boston Globe's "Easy Pass" series of reports by Raphael Lewis and Sean P. Murphy, published in 2003, http://archive.boston.com/globe/metro/packages/bechtel. See also Amy Goldstein, "Myriad Reports Pointed to Big Dig's Problems," Washington Post, July 23, 2006.

²⁶ Rick Klein, "Big Dig Failures Threaten Federal Funding," Boston Globe, August 6, 2006. The federal contribution was $8.6 billion.

²⁷ Chris Edwards and Nicole Kaeding, "Federal Government Cost Overruns," DownsizingGovernment.org, Cato Institute, September 1, 2015.

²⁸ This is an excerpt from the "Minority Views" of the bipartisan congressional commission report, National Surface Transportation Policy and Revenue Study Commission, "Transportation for Tomorrow," January 15, 2008, http://transportationfortomorrow.com.

²⁹ James M. Bickley, "The Federal Excise Tax on Gasoline and the Highway Trust Fund: A Short History," Congressional Research Service, September 7, 2012, p. 6.

³⁰ Details of the 2015 highway bill are available from the Federal Highway Administration, www.fhwa.dot.gov/fastact.

³¹ Randal O'Toole, "Urban Transit," DownsizingGovernment.org, Cato Institute, January 4, 2017.

³² Advisory Commission on Intergovernmental Relations, "Devolving Selected Federal-Aid Highway Programs and Revenue Bases: A Critical Appraisal," September 1987, p. 13, www.library.unt.edu/gpo/acir/Reports/policy/a-108.pdf.

³³ Advisory Commission on Intergovernmental Relations, "Devolving Selected Federal-Aid Highway Programs and Revenue Bases: A Critical Appraisal," September 1987, p. 11, www.library.unt.edu/gpo/acir/Reports/policy/a-108.pdf.

³⁴ James Sherk, "Repealing the Davis-Bacon Act Would Save Taxpayers $10.9 Billion," Heritage Foundation, February 14, 2011. And see Joint Economic Committee, "Highway Robbery: The Davis-Bacon Act Increases Costs, Decreases Employment," March 31, 2011.

³⁵ Toni Horst et al., 40 Proposed U.S. Transportation and Water Infrastructure Projects of Major Economic Significance (Los Angeles: AECOM, 2016), p. 7. The report was prepared under contract to the U.S. Department of Treasury.

³⁶ Chris Edwards, "Infrastructure Investment," DownsizingGovernment.org, Cato Institute, January 13, 2017.

³⁷ Ralph Stanley, "Reducing the Federal Role in Highway Assistance" in Mandate for Leadership III: Policy Strategies for the 1990s (Washington: Heritage Foundation, 1989), pp. 433–34.

³⁸ Robert Farris communication with Gabriel Roth, July 21, 2004.

³⁹ Pengyu Zhu and Jeffrey R. Brown, "Donor States and Donee States: Investigating Geographic Redistribution of the U.S. Federal-Aid Highway Program 1974–2008," Transportation 40, no. 1 (January 2013): 203–27.

⁴⁰ Gabriel Roth, "Liberating the Roads: Reform U.S. Highway Policy," Cato Institute Policy Analysis no. 538, March 17, 2005. And see Ronald Utt, "Federal Highway Program Shortchanges More Than Half the States," Heritage Foundation, April 18, 2011.

⁴¹ Author's calculation for 2006 to 2015 of the HTF's highway account. See Federal Highway Administration, "Highway Statistics 2015," August 2016, Table FE-221B. See also Robert S. Kirk, "The Donor-Donee State Issue in Highway Finance," Congressional Research Service, June 13, 2011.

⁴² Pengyu Zhu and Jeffrey R. Brown, "Donor States and Donee States: Investigating Geographic Redistribution of the U.S. Federal-Aid Highway Program 1974–2008," Transportation 40, no. 1 (January 2013): 203–27.

⁴³ Pengyu Zhu and Jeffrey R. Brown, "Donor States and Donee States: Investigating Geographic Redistribution of the U.S. Federal-Aid Highway Program 1974–2008," Transportation 40, no. 1 (January 2013): 203.

⁴⁴ Robert Jay Dilger, "Federalism Issues in Surface Transportation Policy: A Historical Perspective," Congressional Research Service, December 8, 2015.

⁴⁵ Robert Poole, "Letting States Keep Gas Tax Money, Opt Out of the Highway Trust Fund," Reason Foundation, April 29, 2009.

⁴⁶ National Research Council, "Contracting for Bus and Demand-Responsive Transit Services," Special Report 258, 2001, Chapter 2.

⁴⁷ Dulles Greenway, http://dullesgreenway.com.

⁴⁸ FIGG, South Norfolk Jordan Bridge, www.figgbridge.com/jordan_bridge.html.

⁴⁹ Chris Edwards, "Privatization," DownsizingGovernment.org, Cato Institute, July 12, 2016.

⁵⁰ Worldwide privatization proceeds between 1988 and August 2015 were $3.3 trillion. See William L. Megginson, "Privatization Trends and Major Deals in 2014 and Two-Thirds 2015," in The PB Report 2014/2015, Privatization Barometer, www.privatizationbarometer.com.

⁵¹ Organisation for Economic Co-operation and Development, "Pension Funds Investment in Infrastructure: A Survey," September 2011, p. 107.

⁵² Transurban (USA) Operations Inc., 495 Express Lanes Project Background, www.expresslanes.com/project-background.

⁵³ Allen Consulting Group and the University of Melbourne, "Performance of PPPs and Traditional Procurement in Australia," November 30, 2007, p.1.

⁵⁴ Testimony of Dr. Matti Siemiatycki, University of Toronto, before the U.S. House Committee on Transportation and Infrastructure, April 8, 2014.

⁵⁵ Testimony of Dr. Matti Siemiatycki, University of Toronto, before the U.S. House Committee on Transportation and Infrastructure, April 8, 2014. And see Testimony of Dr. Larry Blain, Partnerships British Columbia, to the U.S. House Committee on Transportation and Infrastructure, April 8, 2014.

⁵⁶ William G. Reinhardt, "The Case for P3s in America," Public Works Financing, January 2012.

⁵⁷ Eduardo Engel, Ronald Fischer, and Alexander Galetovic, "Public-Private Partnerships to Revamp U.S. Infrastructure," Brookings Institution, February 2011.

⁵⁸ Eduardo Engel, Ronald Fischer, and Alexander Galetovic, "Public-Private Partnerships to Revamp U.S. Infrastructure," Brookings Institution, February 2011, p. 7.

⁵⁹ Federal Highway Administration data at www.fhwa.dot.gov/bridge/deficient.cfm.

⁶⁰ Jeffrey R. Campbell and Thomas N. Hubbard, "The State of Our Interstates," Federal Reserve Bank of Chicago, July 2009.

⁶¹ Richard Weingroff, "In Memory of Ronald Reagan," Highway History, Federal Highway Administration, June 27, 2017. Unfortunately, Reagan then reversed course and signed the expansive 1982 highway bill.

⁶² Advisory Commission on Intergovernmental Relations, "Devolving Selected Federal-Aid Highway Programs and Revenue Bases: A Critical Appraisal," September 1987, www.library.unt.edu/gpo/acir/Reports/policy/a-108.pdf.

⁶³ Advisory Commission on Intergovernmental Relations, "Devolving Selected Federal-Aid Highway Programs and Revenue Bases: A Critical Appraisal," September 1987, p. 3, www.library.unt.edu/gpo/acir/Reports/policy/a-108.pdf.

⁶⁴ This was S. 1702 in the Senate and H.R. 3486 in the House sponsored by Rep. Tom Graves (R-GA).

⁶⁵ Budget of the U.S. Government, Fiscal Year 2018 (Washington: Government Printing Office, 2017), Infrastructure Investment Fact Sheet.

⁶⁶ Robert Poole, "Interstate 2.0: Modernizing the Interstate Highway System via Toll Finance," Reason Foundation, September 12, 2013.

⁶⁷ National Research Council, Effectiveness and Impact of Corporate Average Fuel Economy (CAFE) Standards (Washington: National Academies Press, 2002). Also, a 1999 USA Today analysis concluded that, over its lifetime to that point, CAFE had resulted in about 46,000 additional fatalities. James R. Healey, "How Fatality Statistics Were Calculated," USA Today, July 2, 1999.

⁶⁸ Robert W. Crandall and John D. Graham, "The Effect of Fuel Economy Standards on Automobile Safety," Journal of Law and Economics 32, no. 1 (April 1989): 97–118.

⁶⁹ Advisory Commission on Intergovernmental Relations, "Devolving Selected Federal-Aid Highway Programs and Revenue Bases: A Critical Appraisal," September 1987, p. 22, www.library.unt.edu/gpo/acir/Reports/policy/a-108.pdf.

⁷⁰ Advisory Commission on Intergovernmental Relations, "Devolving Selected Federal-Aid Highway Programs and Revenue Bases: A Critical Appraisal," September 1987, p. 48, www.library.unt.edu/gpo/acir/Reports/policy/a-108.pdf.