Washington Power Is Flowing Away

Michael Barone
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Posted: Dec 26, 2014 12:01 AM
Washington Power Is Flowing Away
Too much power being grabbed by Washington -- Obamacare, environmental regulations, education standards. That's a constant complaint of conservatives not only during Barack Obama's presidency but during George W. Bush's as well.

But power is also flowing out of Washington, largely unnoticed, and back to the states and localities. You can see that if you look at transportation policy, which is following the same path as the little remembered federal revenue sharing program enacted in the Nixon years and phased out during the Reagan presidency.

Federal transportation spending has an even longer pedigree, dating from the Federal-Aid Highway Act signed by Dwight Eisenhower in 1956. A few states had already been building limited-access toll highways. The new law instituted a federal gasoline tax to pay for Interstates, as they became known, throughout the country.

It made sense at the time, and for years afterwards. There was much more economic disparity between states then, and federal money could be spread from rich states to poor. Interstates would make trucking transportation cheaper at a time when overregulation was making freight rail uneconomic. Routes between states could be coordinated, connecting all major metropolitan areas (though not those which would become major, notably Phoenix and Las Vegas).

But it doesn't work anymore. Gas tax revenue is flat lining because people haven't been driving as much since 2007. Gas mileage has improved, and increasing mileage standards and electric and hybrid vehicles will reduce revenues all the more.

So gas tax revenues are insufficient to replenish the Highway Trust Fund. Congress could increase the gas tax, but won't; it's highly unpopular and only a handful of members favor an increase. Barack Obama understands that and is not seeking one.

The alternative is to spend money from general revenues. But that puts a squeeze on discretionary spending because general revenues are and will be increasingly needed for entitlements -- Social Security and Medicare. In the meantime, Barack Obama has said, the best Congress "could do would be to stagger through another year" of temporary funding.

In effect, the feds are abdicating and the states are taking up the burden. New roads and bridges are needed in some places and, more important, existing roads need to be maintained, repaired and upgraded. More than 30 states have passed transportation fiscal measures in the last three years, according to transportation expert Ken Orski. Six have increased gas taxes. Others have increased highway tolls, floated toll revenue bonds or have passed sales taxes dedicated to transportation. "The move toward greater fiscal autonomy, self-sufficiency and financial innovation at the state and local level is likely to grow in strength," Orski wrote.

The gas tax, justified as a user fee, is being replaced by tolls, a more efficient measure of use. Transponder technology allows tolls to be levied based on actual use, and fees can be adjusted to discourage congestion at peak-use hours, as is being done in Colorado, Florida, North Carolina, Texas and Virginia. There's a move to public-private partnerships, like the one Canada is using to finance a new Detroit River bridge, in which private capital puts up the cash and is repaid from tolls. Some conservatives complained, evidently on the theory that highways are built and maintained for free. But private decision makers are likely to make better decisions than the feds about where the real needs are.

Democrats have obdurately blocked (and most Republicans have been less than eager about supporting) entitlement program reform, which means that entitlements will continue to squeeze discretionary spending out of federal budgets. Transportation is just a leading example.

Something similar happened years ago with revenue sharing, a program promoted in the 1960s by Brookings economist Joseph Pechman. Pechman argued that revenues from the progressive federal income tax would rise faster than incomes and that Congress should share the largesse with the states. He concocted a formula to reward states with progressive taxes of their own and penalize those without, and it passed Congress in 1972 and was signed by Richard Nixon.

This economic redistribution increased as inflation pushed people with stagnant real incomes into higher tax brackets. In response, Colorado Sen. William Armstrong put income indexing in the 1981 Reagan tax cuts.

That, plus increasing crowding out by entitlements, led to the repeal of revenue sharing in 1987. Now we're seeing the slow-motion disappearance of the Highway Trust Fund. Washington is always trying to accumulate power. But some of it is flowing away.