NCPA - National Center for Policy Analysis

States Should Opt-Out of Federal Highway Funding

July 22, 2011

Since the mid-1990s, legislation has been introduced each year in Congress to phase out the federal highway program by shifting the existing federal taxing authority to states in a multiyear phaseout that would restore most surface transportation responsibility -- and the revenues to fulfill it -- to the states.  Considered too extreme by some, this "turnback" legislation never gained much traction and has not been a serious contender to displace the increasingly dysfunctional federal program, says Ronald D. Utt, a senior fellow at the Heritage Foundation.

Recognizing that the all-or-nothing approach of the leading turnback proposals was a deterrent to widespread support, the Heritage Foundation in 2004 devised a hybrid proposal that would allow the existing program to continue as is but permit states to opt out of it if they decided that doing so would be to their benefit.

  • Under an opt-out program, a state would forgo its annual authorization from the highway trust fund -- with its many mandates, regulations and dozens of specific spending allocations -- and instead choose to receive its share of the federal fuel taxes collected within its borders.
  • Depending on which bill became law, the state would either receive these revenues as a block grant from the U.S. Department of Transportation equal to the federal fuel tax revenues collected in that state or directly collect, keep and spend the 18.3 cents per gallon fuel tax once collected by the federal government in the state.

Freed from federally imposed one-size-fits-all policies, states could use the funds to finance their own transportation priorities.

At the same time, states opting out would have to agree to maintain certain standards of performance, including safety and interstate maintenance, and would also be required to use these freed-up funds on surface transportation projects as opposed to other public purposes such as health care or education, says Utt.

Source: Ronald Utt, "Federal Highway Program: How Opting Out Would Help States," Heritage Foundation, July 6, 2011.

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