Key Issues > High Risk > Funding the Nation's Surface Transportation System
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Funding the Nation's Surface Transportation System

Congress needs to pass a long-term, sustainable solution for funding surface transportation.

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The nation’s surface transportation system—including highways, transit, maritime ports, and rail systems that move both people and freight—is under growing strain.  Further, the cost to repair and upgrade the system to meet current and future demand is estimated in the hundreds of billions of dollars. The oldest portions of the Interstate Highway System are over 60 years old, and almost 9 percent of the nation’s bridges were rated as structurally deficient in 2017.These challenges are intensified by a range of factors such as shifting demographics, a growing economy, and rapid development of new technologies. This issue has been on our High-Risk List since 2007.

These surface transportation challenges come at a time when traditional funding sources are eroding, and the federal government lacks a long-term sustainable strategy for funding surface transportation. Funding is further complicated by the federal government’s financial condition and fiscal outlook. The nation is on an unsustainable long-term fiscal path of deficits and debt, and Congress and the administration face difficult policy choices about federal revenues, spending and investment; choices that need to be accompanied by a broader fiscal plan to put the government on a more sustainable long-term fiscal path.

Strategic Human Capital Management

We are not rating this high-risk area because addressing the identified issues primarily involves congressional action.

Motor fuel taxes and additional truck-related taxes that support the Highway Trust Fund—the major source of federal surface transportation funding—are eroding. Federal motor fuel tax rates have not increased since 1993, and we reported in 2012 that drivers of passenger vehicles with average fuel efficiency paid about $96 per year in federal gasoline taxes. Because of inflation, the 18.4 cent-per-gallon federal tax on gasoline has about one-third less purchasing power than it did when the tax was last raised in 1993.

To maintain spending levels of about $45-50 billion a year for highway and transit programs and to cover revenue shortfalls, Congress transferred a total of about $141 billion in general revenues to the Highway Trust Fund on eight occasions from 2008 through 2015. These transfers each represented a one-time infusion of funding, not a sustainable long-term source of revenues. This funding approach effectively ended the long-standing principle of “users pay” in highway finance, breaking the link between the taxes paid and the benefits received by highway users.

Most recently, the Fixing America’s Surface Transportation (FAST) Act authorized around $70 billion of the $141 billion in transfers for 2015 through 2020. After 2021, the gap between projected revenues and spending will recur. In January 2019, the Congressional Budget Office estimated that $159 billion in additional funding would be required to maintain current spending levels plus inflation from 2022 through 2029, as shown in figure 11.

Figure 11: Projected Cumulative Highway Trust Fund Balance, Fiscal Years 2022 through 2029

Note: This projection assumes no further augmentation of highway-related taxes to the Highway Trust Fund after 2021 from general revenues or other sources. By law, the Highway Trust Fund cannot incur negative balances.

A long-term sustainable plan for funding surface transportation requires congressional action and remains the pivotal action that will determine whether this issue remains on, or is removed from, our High-Risk List. However, it is also important that federal funding for surface transportation be spent wisely and efficiently.

Over the last decade we have noted opportunities to improve performance and accountability in how surface transportation funds are spent by maximizing the use of existing resources and linking funding to performance. These opportunities include (1) implementing a performance-based approach to surface transportation funding, and (2) improving how surface transportation projects are selected through DOT’s discretionary grant programs.

Performance-based approach to surface transportation funding. Historically, spending for surface transportation programs has not effectively addressed key challenges, such as deteriorating infrastructure conditions and increasing congestion and freight demand. This is because federal goals and roles have been unclear, programs have lacked links to performance, and programs have not used the best tools and approaches to ensure effective investment decisions. Beginning in 2008, we suggested that Congress consider a fundamental reexamination of these programs to improve performance and accountability by clarifying federal goals and roles, establishing performance links, and improving investment decision-making.

Provisions enacted in 2012 in the Moving Ahead for Progress in the 21st Century Act (MAP-21) and affirmed in the 2015 FAST Act have begun to address these key challenges. Specifically, MAP-21 included provisions to move toward a more performance-based surface transportation program by establishing national performance goals in areas such as infrastructure condition, safety, and system performance. The act and its implementing regulations set forth a three-stage process in which (1) DOT establishes performance measures and standards, (2) states and other grantees set targets based on these performance measures and states report progress to DOT, and (3) DOT evaluates whether grantees have met or made significant progress toward their targets.

DOT has been implementing the performance-based approach envisioned in MAP-21. For example, in January 2017, the Federal Highway Administration (FHWA) finalized the last of six interrelated rules establishing performance measures in the areas of safety, pavement and bridge conditions, and system performance. States and other grantees began setting targets in 2018. In July 2017 we reported that without a formal plan guiding and coordinating FHWA’s efforts, the agency might struggle to articulate the goals and purpose of the transition, and to identify and address the activities best suited to help states and others overcome challenges.  As a result, we recommended that FHWA develop an implementation plan—including strategic goals for the transition to a performance-based approach, specific efforts FHWA plans to take to help states and other grantees successfully make the transition, and a timetable for when these efforts would be completed. In July 2018, FHWA publicly released an implementation plan that addressed the issues we identified and the recommendation we made in 2017.

Discretionary grants. Discretionary grants are an important component in improving the performance and accountability of transportation funding decisions. We have reported that the historic approach to funding surface transportation, in particular highways, poses challenges because funding has been principally provided through formulas designed largely to return revenues to their attributed state of origin in order to closely align the states’ contributions to the Highway Trust Fund with the funding they receive. The FAST Act authorized about a dozen new discretionary grant programs. For example, the FAST Act established a grant program to fund freight and highway projects of regional or national importance, and in 2016 DOT awarded nearly $760 million for the Fostering Advancements in Shipping and Transportation for the Long-term Achievement of National Efficiencies (FASTLANE) grant program to 18 projects. While over 90 percent of spending from the Highway Trust Fund will continue to be distributed by formula, the FAST Act represents a promising development to address national and regional transportation priorities.

We have found challenges with DOT’s implementation of discretionary grant programs, including problems with the transparency of the application review and selection process, and a lack of documentation of key decisions. For example, in November 2017 we reported that, due to inconsistencies in assessing applications for the FASTLANE program, we were unable to determine the rationale DOT used to award $759.2 million to the 18 projects it selected. Similarly, in December 2016, we found that the Federal Transit Administration (FTA) did not document key decisions in awarding $3.6 billion in discretionary grants for projects to increase the resilience of transit systems to withstand future disasters in areas affected by Hurricane Sandy. We have raised concerns about the lack of documentation of key decisions in DOT discretionary grant programs since 2011.

Given the continuing challenges we have found with DOT discretionary grant programs, and the number of new programs authorized by the FAST Act, we recommended in December 2016 that the Secretary of Transportation issue a directive governing department-wide and modal administration discretionary grant programs. Such a directive should include requirements to, among other things, (1) develop an up-front plan for evaluating project proposals to ensure DOT reviews applications consistently, and (2) document key decisions, including the reason for any rating changes, as well as how high-level concerns raised during the process were addressed. DOT concurred with the recommendation and stated it planned to implement it in 2019 by updating its Financial Assistance Guidance Manual. In order to fully implement this recommendation, DOT needs to issue a directive that incorporates all of the elements identified above.

Congressional Actions Needed

Congress and the administration need to agree on a long-term plan for funding surface transportation. Continuing to augment the Highway Trust Fund with general revenues may not be sustainable, given competing demands and the federal government’s long-term fiscal challenges. A sustainable solution would balance revenues to and spending from the Highway Trust Fund. New revenues from users can come only from taxes and fees; ultimately, major changes in transportation spending or in revenues, or in both, will be needed to bring the two into balance. In 2008, we reported that Congress should consider addressing the imbalance between federal surface transportation revenues and spending. That matter has not been addressed, and the current authorization for surface transportation funding expires in October 2020.

While passage by Congress of a long-term sustainable plan for funding surface transportation is the pivotal action that is needed to remove this issue from our High-Risk List, it is also increasingly important that the effectiveness of surface transportation programs be improved by maximizing the use of existing resources and linking funding to performance. Specifically, DOT can: 

  • continue to make progress implementing the performance-based framework established in MAP-21, and
  • enhance the management of its discretionary grant programs and respond to our recommendation to develop a directive to help ensure the integrity of future DOT discretionary grant programs.
Looking for our recommendations? Click on any report to find each associated recommendation and its current implementation status.
  • portrait of Susan Fleming
    • Susan Fleming
    • Director, Physical Infrastructure
    • (202) 512-2834