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U.S. Department of Transportation U.S. Department of Transportation Icon United States Department of Transportation United States Department of Transportation

Major Proposals to Restructure the Highway Program

Reprinted, with permission of the Eno Transportation Foundation, Washington, DC, from Transportation Quarterly, Vol. 45, No. 1, January 1991 (pages 55-66). Copyright 1991 Eno Transportation Foundation.

Elizabeth Parker

Ms. Parker has been a Senior Policy Analyst in the Office of the Secretary of the U.S. Department of Transportation since 1975. She is responsible for transit and highway policy, planning and legislative issues. Prior to that, she was a Senior Analyst with the League of Cities and U.S. Conference of Mayors, Aerospace Industries Association and the Institute for Defense Analyses. In 1978, she receiving the Secretary's Award for Meritorious Achievement and, in 1981 and again in 1987, she received Superior Achievement Awards. She received a B.A. from The Colorado College and an M.A. from Stanford University.

In light of current proposals to consolidate some federal highway and transit programs and focus direct federal effort on major programs of national interest, it might be instructive to look at the history of past administration efforts to make significant changes in these programs. Beginning with the Nixon administration's Transportation Revenue Sharing proposal in 1971, each administration since has proposed legislation that would have substantially changed the programs. Some proposals have included combining portions of either the federal highway or transit programs; others involved merging some elements of the two.

Over the past 20 years, serious consideration was given to revenue return, turnback or program consolidation in 1971, 1972, 1973, 1974, 1976, 1978, 1981, 1982, 1983, 1986, and 1987. Now, in 1990, the idea of establishing a national highway system and consolidating local highway and transit programs or, at minimum, making portions of the two programs more compatible is once again being given serious consideration by the administration.

Under each of the administrations noted above, there was an attempt either through legislative proposals, policy statements or speeches to redefine the highway program or the highway and transit programs, not only at the beginning of the administration, but at the close as well. Under both the Ford and Carter administrations, major proposals were advanced after the fall elections in which they were defeated. Under the Ford administration, there also was a proposal to reorganize the U.S. Department of Transportation (DOT) as well as its programs. Under the Carter administration, a major highway bill was sent to Congress on January 16, 1981, just days before Reagan's inauguration. One of the unfortunate outcomes of these "exit" policy statements has been that it guaranteed that whatever was last proposed by the previous administration, irrespective of the proposal's merits, was automatically discounted by the next.

Changing Federal Role

To understand the development of these proposals, it is useful to review the changing federal role in the highway program, as well as various attempts to restructure or consolidate highway and transit federal grant programs.

Transportation Revenue Sharing (1971)

One of the first attempts to consolidate local programs was the Nixon administration's Transportation Revenue Sharing bill, which was introduced along with the rest of the administration's revenue sharing package at the beginning of the 1971 session of Congress. This proposal would have abolished all of DOT's grant programs except the Interstate program (i.e., airport grant programs, all non-Interstate highway programs and the newly established Urban Mass Transportation Administration (UMTA) capital grant program). Because its provisions appeared to threaten virtually all of the interests involved and offered no provisions sufficiently attractive to any particular constituency to serve as a rallying point for support, it made no legislative progress. Congress essentially ignored the proposal. But, as long as the Transportation Revenue Sharing bill was before Congress as the administration's position, attempts to develop other means to increase program flexibility were sidelined.

Single Urban Fund (1972)

The administration decided to take a slightly smaller step with its 1972 highway bill than that proposed in 1971. Secretary Volpe's initial proposal for a Single Urban Fund provided flexibility in the use of highway funds for highway and transit investments, but did not incorporate the UMTA program. The Office of Management and Budget (OMB), however, required that DOT propose merging the UMTA capital grant program with the Urban System fund. This treatment of the transit program was viewed as a serious threat by the transit lobby and urban interests, largely because the transit program was so new and because it was felt that a combined program would result in all or most of the money being devoted to highways. At the same time, highway interests did not want any of "their money" to be used for transit. The Urban System program had only been in existence since 1970, so supporters of this program also felt threatened. Deprived of the support of transit groups and facing strong opposition from highway interests, the Nixon administration was unable to make any significant headway in its efforts to increase flexibility in the use of federal highway and transit money. Almost 20 years later, these are still concerns of the highway and transit interests.

Federal-Aid Highway Act of 1973

The compromise position that OMB accepted in mid-1972 (which was similar to the original DOT position for the 1972 legislative proposal) formed the basis of the Nixon administration's 1973 legislative proposal. This time, the administration made some headway with interest groups and Congress. The 1973 highway act included the administration's proposal for some flexibility in local highway programs and, for the first time, provided that Urban System funds could be used for mass transit. This flexibility was phased in from FY 1974 through FY 1976. Additional power was given to local officials through a new program for metropolitan planning purposes (thus building on the so-called Section 134 planning process or 3C process which provided, beginning July 1, 1965, that projects in urbanized areas be based on a continuing, comprehensive transportation process carried on cooperatively by the states and local communities), the establishment of local initiative in planning routes and projects on the Urban System, allowing the use of Interstate, Urban System, Secondary and Primary funds to be used for busways, the expansion of the Urban System to add areas with a population of 5,000 to 50,000, and the earmarking of these funds for areas with a population of 200,000 or more. All of these changes significantly expanded the role of local officials in the highway program.

This act also allowed state and local governments to elect to substitute mass transit projects for controversial Interstate System routes that were not essential to a unified system and that local officials opted not to build. These provisions were strongly supported by the cities and, for the first time, local governments had significant and direct involvement in the federal-aid highway program. All of these proposed changes constituted fairly significant steps in increasing the flexibility of the federal-aid highway funds.

It was not until 1975, however, that UMTA and the Federal Highway Administration (FHWA) issued joint planning regulations that required coordinating highway and transit planning in urbanized areas.

Unified Transportation Assistance Act Proposal (1974)

In 1974, the administration tried to take yet another step toward highway and transit consolidation, by proposing the Unified Transportation Assistance Act, which called for combining transit and highway funds for urban areas into a Unified Transportation Assistance Program (UTAP). This proposal was poorly received by highway and transit interest groups and Congress; it received no serious consideration or debate. It provided only small increases for highways and transit and all interest groups felt threatened by the proposed changes in program control. The proposal became such a joke among interest groups that they threatened to send a pair of taps to each member of Congress so they could do the UTAP.

Rural Transportation Assistance Proposal and Urban Transportation Assistance Proposal (1976)

In 1976, DOT established a Surface Transportation Task Force, consisting of representatives from UMTA, FHWA, the Federal Railroad Administration, and the Office of the Secretary (Administration, Policy, Budget, General Counsel and other Secretarial Offices), to develop options and recommendations for consolidating highway, transit and rail programs into a Surface Transportation Program and Administration. The primary emphasis of this group was to define areas of federal interest and to provide increased flexibility to states and metropolitan areas to deal with local transportation issues.

After much deliberation, the Ford administration proposed consolidating highway and transit grant programs into three broad categories: The Rural Transportation Assistance Program, the Urban Transportation Assistance Program (UTAP) and the Highway Safety Improvement Program. They recommended that only the Interstate System be financed from Highway Trust Fund revenues; all other activities would be financed from general revenues. Two cents of the gas tax would be diverted to the General Fund and one cent of gas tax would have been repealed in any state that increased its gas tax by one cent. This proposal also was largely ignored; Congress enacted the Federal-Aid Highway Act of 1976 which was basically a "business as usual" bill, but it only extended the highway programs for 2 years, rather than the somewhat customary 4-year period. In addition to being ignored by Congress, the administration's proposal had little support at the state and local level because it would have required state and local officials in each state to support enacting taxes to substitute for federal taxes.

Another significant reason the administration's proposal was such a colossal failure is that it offered no real improvements and because it asked state and local officials to assume responsibility for programs that would have cost more than the tax money they would get. It also suffered from the unfortunate name association with UTAP.

Federal-Aid Highway Act of 1978

In the early days of the Carter administration, serious consideration was given again, within the administration, to a tax turnback proposal that would have reserved funds for the Interstate only and turned back all other highway funds to the states. Another alternative under consideration was a Unified Transportation Block Grant, similar to the Community Development Block Grant Program administered by the Department of Housing and Urban Development. After extensive consultation with various transit and highway interest groups, as well as representatives of state and local governments, the administration's 1978 highway bill included an urban formula program and a rural formula program, rather than a turnback proposal or a complete consolidation of urban and rural programs.

Congress enacted the Federal-Aid Highway Act of 1978 which bore little resemblance to the administration's proposals, although it did consolidate some programs to allow more flexible mass transit and highway funding and made some more progress toward the goal of combining highway and transit planning processes. Once again, however, the administration's proposal coupled flexibility with less money, which could hardly be viewed as attractive to any of the parties.

The New Federalism (1981 and 1982)

In 1981 and 1982, the administration was developing its New Federalism proposal which would have given states total responsibility for all highway programs, except the Interstate System, and for all transit programs. In his 1982 State of the Union address, President Reagan proposed that highway and transit programs, except the Interstate, be "turned back" to the states. Half of the federal gas tax receipts would be made available to the states "to pick up." Generally, there was little support on Capitol Hill or among interest groups. The Governors' Association calculated that the proposal would turn over highway programs costing about $5.2 billion in FY 1982 and transit programs amounting to $3.1 billion, while providing only $2.2 billion in revenues. Thus, once again, the administration proposed a package that allowed flexibility, but in exchange, required states to enact taxes and take on more programs than the turned back taxes would pay for. It received no serious attention.

Richard Williamson, assistant to the President for Intergovernmental Affairs, later said "I think now it was a strategic error to put the federalism initiative on the table at the same time we were trying to get cuts out of a budget that had already suffered. . . . It poisoned the well for the federalism discussion because the mayors and governors were so concerned they were going to be left holding the bag with a recession coming on." William Hudnut, the Republican mayor of Indianapolis, and head of the National League of Cities during some of the bargaining with the White House, said the federalism initiative was not going anywhere and was tantamount to saying "Here, the ship is sinking, you take over."

The administration's highway bill was even less well received as it proposed eliminating all federal aid for urban and rural highway programs without yielding any revenue sources. Secretary Drew Lewis, however, had proposed, in fall 1981 and again in March 1982, that the administration seek a five-cent gas tax increase, and a reallocation of user charges, especially for large trucks. Both times, Reagan turned Lewis down, but he did agree to give him the opportunity to try to sell him on it in the fall. Eventually, after many discussions of the issue, Lewis prevailed and DOT's position was reflected in the administration's proposal, the Surface Transportation Assistance Act of 1982. Another significant aspect of Lewis's approach was that in addition to seeking more revenue for the highways and for transit, he linked the administration's bill with the larger issue of providing employment opportunities and thus contributing to a stronger economy.

Federal-Aid Highway Act of 1981 and Federal-Aid Highway Act of 1982

The Federal-Aid Highway Act of 1981 was essentially a stopgap measure to continue program funding while Congress debated the larger issue of restructuring the highway programs and both increasing and reallocating taxes. Although the 1978 act had provided authorizations through 1982, funding compromises at the time of passage resulted in artificially low funding levels for the last year of the act. The levels were even below the somewhat modest amount recommended by the Reagan administration. The 1981 act increased the authorizations for FY 1982 for the Primary System, for Interstate resurfacing, restoration and rehabilitation program and for the bridge program.

Congress opted for a 1-year bill for several reasons, but primarily because of the diversity of opinion on the future of the federal role in highway system construction and the complexity of highway revenue questions. The act, however, did make a significant change in the Interstate by more narrowly defining the remaining Interstate System construction costs, a move designed to speed completion of the system. Some things that were moved out of the so-called cost to complete became eligible under the redefined Interstate resurfacing, restoration and rehabilitation (3R) program which was expanded to include reconstruction (known as the fourth R.)

Once again, in October 1982, when program funds were running out, Congress enacted a "skinny" 1-year reauthorization bill and deferred consideration of the pending controversial highway issues. This act basically provided a simple extension of the existing programs.

Surface Transportation Assistance Act of 1982 (signed January 6, 1983)

Throughout 1982, DOT and Congress worked at carefully redefining the federal role in both highways and transit. For the first time in many years, they also examined the financing for these programs, including how much to increase taxes, and numerous associated cost allocation issues. From the beginning of the Reagan administration, DOT sought to draw a clear line between highways of high federal priority and highways that essentially provide local service, but there was no suggestion that state and local governments would get the responsibility for these programs without the money to go with them.

In fall 1982, Reagan agreed to let DOT seek tax increases for the highway program, with one-cent of the gas tax increase to be allocated for mass transit. Lewis held firm that the highway interests would have to accept the one cent for transit in exchange for the significant increase in the highway program. Most of the revenue increases were to be applied to what were called federal interest programs, including the Interstate, Primary and bridge programs, all of which had strong support in Congress and among some of the major highway groups.

The result of those extensive deliberations was the Surface Transportation Assistance Act of 1982 (STAA), a 4-year bill that was signed by President Reagan on January 6, 1983. On the highway side, gas taxes and certain other user taxes were increased significantly (Highway Trust Fund revenues were increased by about $6.5 billion per year). As noted above, most of these increases were directed toward Interstate completion, Interstate 4R and bridge programs, which reflected the administration's position that these programs were of the highest federal priority. On the transit side, the STAA established a Mass Transit Account in the Federal Highway Trust Fund as a source for funding capital expenditures and diminished the emphasis on operating assistance. For the first time in roughly a decade, the administration was a major player in determining the outcome of highway and transit legislation.

Federalism Block Grant Highway Act of 1983

Although the Reagan administration had just played a key role in enacting major new highway legislation, there was still a strong interest in relinquishing federal responsibility for highway programs that predominantly addressed local transportation service. On February 24, 1983, the administration submitted the Federalism Initiative Legislation to Congress, of which one of the four parts was a Transportation Block Grant for local highway programs. During the period covered by the legislation, FY 1984 to FY 1988, states would have had the choice of continuing to receive funds for local highway programs (Urban System, Second System, bridges other than Primary and high-cost bridges, highway safety, hazard elimination and rail-highway crossings) under existing statutory mechanisms or receiving them in the form of a block grant. The federal role in highway programs that benefit the federal interest, that is the Primary and Interstate roads and bridges, as well as high-cost bridges, was to be continued. During the 5-year period, the administration would determine whether it was feasible to return revenue sources, such as federal excise taxes or a percentage of the federal income tax, to state and local governments.

The former executive director of the National Governors Conference later noted that ". . . the President had a very narrow window to get the New Federalism through. There was momentum right after the State of the Union speech and a chance to get it done. They didn't do it . . . . The negotiations dragged on and the political focus in Washington, in the White House, shifted."

Surface Transportation and Uniform Relocation Assistance Act of 1987

In February 1986, the administration submitted the Surface Transportation Reauthorization Act of 1986, which redefined the role of federal, state and local governments in carrying out surface transportation projects. It proposed combining the Primary, Interstate reconstruction and Interstate construction programs into a single program. It also proposed creating a block grant for the remaining highway programs and the transit program.

At roughly the same time, the National Governors' Association (NGA) held its winter meeting in Washington, D.C., where the issue of returning some federal transportation program responsibilities to the states dominated the discussions. One such proposal, devised by the Governors' Transportation Committee staff, called for repeal of the nine-cent federal gasoline tax, which was to be replaced with a tax at the state level. The turned-back revenue would support all highway programs but Interstate construction, discretionary bridges, public lands, emergency relief, safety, research and development and hold harmless payments for the eight states adversely affected under the proposal. The remaining federal programs were to be funded from the remaining revenue, an estimated $5 billion. Opinion was divided on the turnback. While the NGA Transportation Committee approved it by a vote of eight to four, just one day later, the 32 governors present and voting defeated it by a vote of 15 to 17.

As Congress had done in 1972-73 and again in 1981-82, the 1986 deliberations on the highway and transit bill dragged on. The authorizations from the STAA of 1982 expired September 30, 1986, and the outlook for speedy congressional resolution was bleak. This time, Congress did not want to take the pressure off, so it elected not to enact a stopgap funding bill. It was during this period that DOT considered three options for the highway program: (1) a state highway revenue return initiative, (2) a surface transportation restructuring initiative, and (3) a so-called "clean" highway bill that basically extended the current programs.

Recognizing the need for quick enactment of basic highway reauthorizing legislation, Secretary Dole opted to send a "clean" highway bill, the Essential Highway Reauthorization Amendments of 1987 to Congress on January 5, 1987. While this bill generally could be described as a "business as usual" bill, it did include a few key features designed to streamline the program and increase the flexibility to use funds for a range of interstate and local programs. This bill was designed to provide a quick fix for the highway program, so that the forthcoming construction season would not be lost. But, it did not preclude the opportunity to rethink DOT's position.

Once again, DOT examined options and narrowed the field of consideration to (1) a State Highway Revenue Return, and (2) a Highway Tax Substitute. DOT finally opted for a major revenue return proposal, but did not send legislation to the Hill. Under the proposal finally agreed upon by DOT, beginning in 1989, all revenue generated by highway user fees, except about $60 million for safety operations activities in FHWA and the National Highway Traffic Safety Administration, would have been returned to the states.

The administration decided that should congressional highway negotiations completely break down, the administration should recommend revenue return to allow the states to move ahead with the highway program. Before the administration took any action, Congress finally completed a highway and transit bill. Although by this time many states were either out of highway money or running short, the President decided to veto the bill, largely because of numerous special interest provisions. The House overrode the veto, and the Senate also was unable to sustain it.

Lessons Learned

There are a number of lessons learned over the years.

  1. The proposed level of funding and operation of the programs must be viewed as equitable to a majority of the states so that there are no clear winners or losers in a proposed realignment.
  2. There is little interest in addressing program restructuring in the first year or two after a multiyear reauthorization bill is enacted, particularly if there was a long struggle to get a bill, such as occurred in 1972-3, 1981-2, and again in 1986-87. This suggests that it might be possible to achieve significant changes at this time, if the right balance of inducements is offered.
  3. Congress has a strong interest in keeping the program much as it is. The highway program has traditionally been a popular public works program, and most Congressmen are loathe to give up the power that goes with it. The transit program also has its congressional advocates, and Congress has been instrumental in identifying and funding particular pet projects.
  4. Irrespective of the actual merits of any proposal, it will not receive serious consideration by interest groups or Congress unless it is supported by a majority of the parties that benefit from current transit and highway programs.
  5. Incremental changes, rather than sweeping new proposals, have been the most successful.

Other Considerations

Some would argue that conditions are different now from previous times in which the administration and others proposed significant program restructuring to focus the federal interest and combine rural and urban highway and transit programs or make them more compatible. Some of the arguments are as follows.

  1. The Interstate System is basically finished, which offers the opportunity to redefine the federal role in the highway program.
  2. With scarce dollars for highways and for transit, it makes sense to allow state and local officials more flexibility to use the funds for their highest priority projects. By limiting federal involvement and controls, more work can be done for fewer dollars. Efforts also need to be made to leverage more non-federal expenditures (state, local and private) on transportation.
  3. Increasingly, Congress and others have tacked on additional and often unrelated requirements for the highway program, such as the Buy America, etc., that simply increase the cost of federally-funded highways and transit systems and essentially reduce the amount of money that could be used for construction and reconstruction.

Also, over the last decade, the process of getting highway and transit legislation enacted has become more complicated each time the programs have been reauthorized. Furthermore, Congress has approved an increasing number of special interest projects that generally are not of high priority and, in fact, might not even have been funded had it not been for the special legislation. This means that limited tax dollars are not being used for the highest local priority projects.

While these arguments all have merit, there is still the basic problem that many of the traditionally strong lobby or interest groups feel threatened by efforts to make highway and transit programs more flexible. Highway groups fear losing control as do the transit interests.

[1] The views expressed in this article are those of the author and do not necessarily represent any policy or position of the U.S. Department of Transportation.