The troubling decline of the users-pay, users-benefit principle in infrastructure funding

Taxpayers have traditionally paid for some large-scale infrastructure. However, since World War II, commercial aviation infrastructure, like airports, air traffic control, and highways, has mainly been paid for via user taxes. Customers such as airlines, trucking companies, and motorists understood that this infrastructure is costly, and they expected to pay for its use.

The last decade, however, has seen a departure from this practice. In highways and bridges, the 2021 Infrastructure Investment and Jobs Act (IIJA) legislation, known as the bipartisan infrastructure law, provided $674 billion in federal money that is being provided to state departments of transportation for projects that would otherwise have been paid for via long-term bonds supported by highway user tax revenues or by tolls.

Congress didn’t find the funding for this bill. The borrowed federal money has rewarded holdouts against using tolling to fund projects. The more federal funding is available, the less highway users will realize what infrastructure projects actually cost to build and maintain. This disconnect will reinforce political opposition to the increases in federal highway user fees needed to reconstruct and modernize things like our aging Interstate system.

Unfortunately, major transportation organizations have become big fans of the federal funding from the bipartisan infrastructure law. We now see the Associated General Contractors of America (AGC), the American Road and Transportation Builders Association (ARTBA), and the American Association of State Highway and Transportation Officials (AASHTO) all calling for Congress to make the infrastructure bill the new baseline for federal highway and transit funding levels in the forthcoming 2026 surface transportation reauthorization legislation.

Whatever happened to the users-pay/users-benefit principle?

A similar turnabout has taken place regarding funding much-needed improvements to this country’s antiquated air traffic control system. Last decade, Airlines for America (A4A) went all out in support of House Transportation and Infrastructure Chair Bill Shuster’s landmark bill to convert the Federal Aviation Administration’s Air Traffic Organization (ATO) into an air traffic control (ATC) utility to be paid for via aviation user fees paid directly to a new nonprofit ATO corporation (modeled after the highly successful Nav Canada air traffic control utility). 

Today, when the air traffic control organization’s significant deficiencies are making daily news headlines, the airlines have joined other aviation groups in lobbying for a $30 billion to $50 billion federal bailout of the nation’s air traffic control system. Yet this costly bailout would still fail to address the ATO’s seriously flawed organizational and funding problems. Today, A4A is silent on any kind of increase in aviation user taxes, unlike their willingness a decade ago to pay the kind of air traffic control user fees that airlines pay worldwide.

The retreat from users-pay/users-benefit is troubling for two reasons. The first is simple political defense. When air travel and highway infrastructure are paid for by users, they have a strong defense against claims that taxpayers should subsidize their competitors.

A much-noted study by the Department of Transportation’s Bureau of Transportation Statistics in 2004 found that federal subsidies for highway and airline infrastructure were essentially rounding errors compared with other modes such as transit and Amtrak. Thus, when advocates of massive taxpayer funding for potential competitors such as high-speed rail argued for their share of federal subsidies, aviation and highway groups had strong arguments that, since they were not being subsidized, neither should their competitors be. That argument is much less credible since Congress began bailing out the Highway Trust Fund with borrowed money.

The second reason is a much larger concern. The federal government’s current and long-term fiscal solvency should concern everyone involved in U.S. infrastructure. All the billions in the bipartisan infrastructure bill were borrowed. Those dollars add to each fiscal year’s budget deficit and directly increase the national debt, which is now over $36 trillion.

In mid-May, Moody’s Rating Service downgraded the federal government’s credit rating, as Fitch and S&P had done several years before. In its statement, Moody’s projected annual federal budget deficits to reach nine percent of Gross Domestic Product by 2035, up from 6.4 percent in 2024—already an indefensible level in a peacetime, growing economy.

The rating agencies are providing a warning to policymakers. A May headline in The Wall Street Journal declared, “Bond Market Wakes Up to Fiscal Mess in D.C.,” as a weak auction of Treasury bonds led to a stock market selloff, for the first time since late 2023. Thus far, Congress remains mostly oblivious to the realities of the debt and deficits. For example, the “One Big Beautiful Bill,” passed by the House on May 22 and sent to the Senate, ignores these concerns and would increase the national debt by $3 trillion to $5 trillion over the next 10 years.

Obviously, if highway and aviation groups took seriously the federal government’s approaching insolvency, they would forego asking for massive federal spending bailouts and instead work hard for increased user fees and a larger role for public-private partnerships. But of course, giving up their place at the federal trough would hardly move the needle on the projected ruinous increase in the national debt. 

But here’s a more pragmatic reason for them to think again. Trillions in so-called free federal money for infrastructure cannot continue much longer. The impending bankruptcies of Social Security and Medicare, expected by 2033, should be a wake-up call to start planning now for the end of federal money for transportation infrastructure.

State transportation departments and metropolitan planning organizations must start planning to become financially self-sufficient within this 10-year (at best) window. Among the tools in their toolbox are a shift from diminishing fuel taxes to per-mile charges, toll-based financing of major projects, and regional (not federal) funding of metro area transit systems.

Prior to the 1950s, state highway departments were fully responsible for their highway systems, and tolling proliferated as one of the best ways to finance major highway projects. Today, we also have 30 years of experience with long-term public-private partnerships as additional tools for funding major infrastructure projects.

So-called ‘free’ federal funding for infrastructure is politically golden—until it isn’t, because it is no longer possible. Congress, industry organizations, and provider agencies like the FAA, state transportation departments and metropolitan planning organizations all need to face this financial reality. Policymakers need to start planning for self-sufficiency and return to the core principle of the user pays, the user benefits.

A version of this column first appeared in Public Works Financing.

The post The troubling decline of the users-pay, users-benefit principle in infrastructure funding appeared first on Reason Foundation.

Source: https://reason.org/commentary/troubling-decline-of-users-pay-users-benefit-principle-in-infrastructure/