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The End of the Road

Stephen Blank on how Washington’s highway funding crisis threatens the North American economy.

By: /
21 July, 2014
By: Stephen Blank

 Senior fellow, University of Ottawa 

Even those who relish watching Washington’s antics may think struggles over funding highways are stranger than usual. But the game being played out today reveals deeper factors that now shape U.S. politics. (And this affects Canada, stalling efforts we should be making to enhance our competitiveness in the global economy.)

Americans are well aware that U.S. infrastructure is in grim shape. The American Society of Civil Engineers’ latest report card on the condition and performance of U.S. infrastructure gives them an overall grade of D+ (the plus because the U.S. seems able to deal better with solid waste). More puzzling is the political storm over funding infrastructure maintenance and improvement.

The problem of deteriorating, underinvested infrastructure blew up into a crisis in the United States early in the 21st century. During the 1990s, rapid economic growth, urban expansion, the emergence of extended supply chains, a multitude of new environmental regulations and long-term underfunding of maintenance all stressed the capacity of the nation’s infrastructure. Over the next years, a series of reports focusing particularly on transportation infrastructure called attention to what one observer termed a “perfect storm”.

Washington was not unaware, and as early as 1991 launched what was to be the first in a series of vast new highway bills. The U.S. Intermodal Surface Transportation Efficiency Act (ISTEA) was first national transportation legislation since the Interstate system. ISTEA and those which followed (TEA-21 in 1995, SAFETEA-LU in 2005 and MAP-21 in 2012) were big, complex, fantastically expensive and increasingly politically charged legislative packages. Each involved extensive Congressional maneuvering and trade-offs – and the whole issue became increasingly tangled in the growing controversy over government spending, budgets and the role of government in the economy.

Several conclusions emerge clearly from all of this political and legislative tumult. First, although the ISTEA did envisage the creation of a new, economically efficient and environmentally sound national transport system that would overlay and improve the 1950s Interstate system, the vision faded amidst the welter of competing regional and local demands. One critical reason was that in the course of successive highway legislation, more of the control of the authorization of funds was transferred from the Department of Transportation to Congress. Despite noble intentions, the highway funds became a pot into which Congressional etiquette encouraged everyone to dip his fingers. The sense of a coherent national plan evaporated in a flood of “earmarks” that provided funds to build a mega-store of individual projects. Second, despite huge expenditures, the gap between demand on infrastructure and maintained quality grew larger and larger – roads, highways and bridges continued to deteriorate and the Report Card did not improve.

Finally, it is worth noting that despite an initial vision of a North American freight transport system linked by high tech, north-south corridors (a vision echoed in parallel transport plans in Canada and Mexico), nothing like a coherent, rational North American highway system – not to mention, an “economically efficient and environmentally sound North American National Intermodal Transportation System”– was ever pursued.

Canada suffers, too, from infrastructure underinvestment–though it takes the form, one think tank observed early in 2013, not of a crisis but rather of a chronic problem.

During the 1990s, while economic growth, urban concentration and U.S. border trade were all increasing, Canadian transport infrastructure spending became a casualty of federal and provincial government deficit reduction strategies, leading TD Bank to declare that “ongoing neglect of the nation’s capital stock presents one of the greatest risks to the country’s overall quality of life.” In 2007 the Conservative government recognized the growing infrastructure financing problem. Then Finance Minister Lawrence Cannon underlined that infrastructure is critical to achieving the nation’s competitive and environmental goals. “But,” he continued, “much of our public infrastructure is nearing the end of its expected lifespan and needs upgrading or replacing. Without significant investment in the country’s critical physical assets, there is a risk that Canada will fall behind in the global economy and face challenges in maintaining a high quality of life for all Canadians.” In the October Speech from the Throne, the Government announced Building Canada, a new infrastructure program.

Not withstanding funding innovations and a strong emphasis on new trade corridors, few observers felt the promised investment would be sufficient to fill the infrastructure gap. Six years later, a report issued by the Canadian Chamber of Commerce came to the “staggering conclusion” that “Canada needs to significantly increase its investment in public infrastructure or see its infrastructure continue to decay. It is clear that our national infrastructure stock is suffering from years of underinvestment and poor management.” The Chamber repeated the well worn maxim: “Given the linkage between infrastructure investment and productivity, it is clear that Canada has no choice but to make infrastructure investment one of its highest priorities.”

Both countries continue to suffer from decaying and inadequate infrastructure, but while in Canada, the issue rises only occasionally into public view, in the U.S., infrastructure funding has become a perennial political bombshell.

In the United States, today’s crisis focuses on highway funding. Washington’s current role in highway funding dates back to 1956 with the creation of the Highway Trust Fund (HTF) to finance the new interstate system. Funds come from a federal tax on gasoline currently levied at 18.4 cents per gallon and on diesel at 24.4 cents per gallon. The U.S. Department of Transportation says the HTF’s highway account (transit funds are in a separate account) which allocated $37 billion to states for highway projects in the fiscal year ending September 30 runs out of money in August. Then the HTF goes insolvent and a major source of money for highway construction and maintenance dries up—unless Congress acts.

This is a big deal. States receive a substantial share of their total highway and transit funding from the federal government – ranging anywhere from 15 percent (New York) to close to 60percent (Montana) of their total. Twenty-four states get a third or more of their highway and transit funding from federal sources – nearly all from the HTF.

How did Washington paint itself into this corner? Simple answer: The tax on gasoline which supports the Fund has not been increased since 1993. Americans pay less for gas than almost anyone else in developed nations. Inflation, increased fuel efficiency, decreased driving and the recession have further depleted the fund.

Why hasn’t the gasoline tax been increased? Another simple answer: “NOMW” – Not On My Watch. No legislator wants to raise the cost of gasoline in a country that for a century has lived and dreamed in its cars. Instead, various interim measures have been called up. Most important, since 2008, the U.S. Congress has channeled $55 billion from general funds to keep the HTF liquid.

Both Houses have proposed extensions – short-term, of course – to meet the crisis in transportation funding, though the Republican side demands that federal highway spending remain revenue neutral (that is, increased funding here must be accompanied by equal reductions somewhere else). A Senate bill (Democratic majority) would provide $9 billion to carry infrastructure spending through the end of the year. House bills (Republican majority) would balance funding for transportation projects for a year by cutting funds for the U.S. Postal Service, extending customs fees on importers that otherwise will expire, taking money from a separate trust fund for leaking underground storage tanks and changing rules on private pension contributions. Senator Rand Paul proposes that the Highway Trust Fund be rescued by lowering corporate tax rates. No one believes it is possible to raise the tax on gasoline.

The deadlock on highway funding illuminates more fundamental issues in U.S. politics.

For example, in governmental budgeting, Washington suffers from a short-term mentality that fails to distinguish between consumption (paying salaries of government workers) and investment (building infrastructure). This failure is reflected in the balanced budget obsession which grips many leaders, and sees only two columns on the accounts page, income and expenditure, and insists they balance out annually.

Some conservatives urge that responsibility for highways be devolved to states (and some would eliminate the Department of Transportation altogether) – which would dismantle the national highway system created by Republican President Eisenhower.

What this reveals is an intense hostility to federal action and spending, the fear of Washington and the belief that anything government does can be better done by some other, preferably private actor.

In fact, this isn’t new. The debate over government’s role in building infrastructure goes back to the early days of the Republic, with a proposal to construct a National Road to strengthen ties between the Atlantic seaboard and the growing (and vulnerable) trans-Allegheny territories. Although supported in principle, concerns arose about the constitutional legality of the federal government spending money to build roads. Soon, clashing regional interests (who benefits? who pays?) and deep hostility to larger government undermined efforts to build a consensus on the project. Any hopes for new government spending were finally capped by the 1830 recession.

This old Jeffersonian-Hamiltonian debate that has structured much of U.S. history dominates much of U.S. politics again – and the Jeffersonian view (at least as interpreted by conservatives and the Tea Party) is, for the moment at least, ascendant.

These developments pose a more serious threat. The obvious response on HTF funding is to shout about how many potholes perforate streets and highways, the cost of repairs to potholed vehicles, the time lost in traffic slowdowns, the danger of decrepit bridges – as well as how many jobs will be created in a multitude of “shovel ready” projects.

The danger is that as we struggle to find funds to repair potholes and create jobs, we forget to look beyond today’s crises to tomorrow’s. The infrastructure crisis threatens both the U.S. and North American freight transport system. In an era of heightening global competition and still more complex supply chains, the infrastructure of roads, rails, air and sea ports, power lines and pipelines are critical elements of competitiveness (not to mention security).

At best, even well-maintained, the U.S. and Canada begin with highway systems dating to the 1950s and a rail system based on the economic geography of the second half of the 19th century. We have continued to think in terms of three national North American transportation systems when our economies are deeply interdependent. We jerryrig around bottlenecks, thicken borders and increase our trade with a dated and frequently disorganized structure of ports, regulations and landside transport.

In the current crisis in Washington, all hands are on deck trying to work out a funding formula that will be acceptable to both sides of Congress to keep some highway funds flowing to states.

But our objective cannot be only to patch and mend what exists, as important as that is. Both Washington and Ottawa need new initiatives to address infrastructures that are both inadequate to serve huge volumes of traffic within the continent and uncompetitive relative to the rest of the world. We need to lay out alternative visions of an efficient, sustainable and secure North American freight transportation system for the next decades and think together about how we can take larger steps together to move into the 21st century.

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