Can we trust the federal government to spend transportation dollars wisely?

Sen. Bernie Sanders (I-Vt.) has introduced a bill that would increase federal spending on transportation infrastructure by $1 trillion over the next five years.  The senator laments poor road maintenance and structurally deficient bridges as a justification to expand the federal government’s role in the provision of transportation infrastructure. In the House, Rep. John Delaney (D-Md.) has also introduced a bill that would increase infrastructure spending by $170 billion over the next six years.  These legislators seem to think that our infrastructure problems are simply the result of inadequate funding.  They are wrong.  It’s not just a question of throwing more dollars at highway construction: it matters how those dollars are spent.

There are economically worthwhile transportation projects out there.  But before we approve a massive expansion of federal funding for state and local projects, it’s reasonable to ask Washington politicians some questions about past spending.  Why haven’t more transportation dollars been spent on maintaining the existing highway system?  Why don’t highway dollars go toward construction in areas where economic growth and net project benefits are the highest?  Why is funding disproportionately aimed at states and districts of legislators sitting on key transportation committees? Why have federal gasoline tax revenues been spent on mass transit and hiking trails rather than highway construction?

{mosads}A review of past spending reveals that Washington politicians do a poor job allocating highway funds.  Rather than increasing the role of the federal government in transportation spending, it would make more sense to reduce Washington’s role in transportation and to shift transportation spending to the state level.  State officials have stronger incentives to put funds to higher valued uses.

There is never enough money for the federal government to fund all of the transportation projects politicians argue they can’t live without. In an ideal world, government officials would prioritize transportation projects based on economic merit.  They would compare the benefits of a project, say safer bridges or better highway surfaces, to the construction, maintenance, and environmental costs.  Using this approach, projects where the benefits exceed the costs by the greatest amount would be funded and built.

The problem is that it is difficult to project traffic flows, changes in congestion, and construction costs.  Officials must have accurate forecasts of economic growth, inflation, and demographic trends.  Because of the uncertainty, project proponents can easily manipulate the estimates of a project’s economic merit.  Politicians under pressure from special interests have leeway to approve projects that do not meet the criteria of economic merit, but benefit construction companies and their workers.  Politics clouds the process.

A number of academic research papers have evaluated cost – benefit studies of past transportation projects.  These papers do not paint a pretty picture.  Bent Flyvbjerg of Oxford University, a leading scholar in this area, found officials under-estimated construction costs, on average, by almost 28 percent.  The estimated costs of rail projects were short by nearly 45 percent.  Estimates of projected traffic flows aren’t any better.  Rail passenger forecasts overestimated ridership by more than 50 percent, on average.  These errors are systematic, not random.  In other works, projections are deliberately biased to make politically select projects look good.  Political interests make it hard to produce an honest economic assessment of a transportation project. It should come, then, as no surprise than that the wrong projects get built.

Federal legislators cannot be counted on to spend transportation funds wisely.  Because the benefits of a project are local, but the costs are spread out over the entire country, everyone wants federal funds. States and cities get a  new road without paying the full cost.  Politicians get more votes.  Legislators on key transportation committees get disproportionally more funding for transportation projects in their state or district, independent of economic merit.  Congressional leaders allow earmarks for legislators’ pet projects in order to ensure passage of a transportation bill.  Increasing the federal role in transportation spending would simply give more power to politicians in Washington who choose projects on the basis of politics rather than economic merit.

The responsibility for designing and funding transportation infrastructure should be shifted to the states.  Eliminating the federal gasoline tax would give each state the flexibility to adjust its gasoline tax to meet its needs.  Having each state bear the full cost of a highway project would lead to a more clear- eyed view of which transportation projects make the most economic sense.  This would reduce much of the politics that leads to federal allocations that ignore the economic merits of projects and favor political interests.

Krol is a professor of economics at California State University, Northridge.  Much of his published research focuses on infrastructure issues.