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Deliberations on reauthorizing the federalfuel tax dragged on through the summer of 2004and were not completed in the 108th Congress.Whether the fuel tax and the transportation pro-grams it funds should be renewed is the centralquestion of this paper. A federal role may have been necessary tofinance the Interstate Highway System in 1956—the year the federal fuel tax was enacted—but thesystem is now complete. The Federal Highway Trust Fund was established specifically as a means to finance highway construction. It isnow a slush fund for Congress to fund programsaimed at appeasing special interests and financ-ing nonhighway projects. The power of Congressto finance road projects was supposed to sunsetin 1972 but instead continues to this day. Inaddition, federal regulations increase construc-tion costs and stifle innovative policy experi-ments in the states.Before the federal government took on therole of financing highways in 20th century, thatrole was assumed entirely by state governmentsand, before that, the private sector. This study makes the case that there is no longer any role forthe federal government in the construction andfinancing of roads. Significant reform mustinclude phasing down the federal fuel tax andgiving back to the states full responsibility forhighway programs.
 Liberating the Roads
 Reforming U.S. Highway Policy
by Gabriel Roth
_____________________________________________________________________________________________________
Gabriel Roth, a transportation consultant, is a former transportation economist at the World Bank. He is the author of numerous books on transportation policy. He is the editor of 
Paving the Way for Private Roads
 , to be pub-lished in 2005 by Transaction Publishers.
Executive Summary 
No. 538March 17, 2005
Routing 
 
Introduction
The most recent congressional reauthor-ization of the federal fuel tax and the federaltransportation programs it funds expired inSeptember 2003. Currently, Congress decidesthe financing and allocation of federal capitalspending on highways (consisting, at present,of 39 percent of all such spending nationally),and enacts many of the regulations governingexpenditures financed by various federal agen-cies.
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Deliberations on reauthorizing the fed-eral transportation programs dragged onthrough the summer of 2004 and were notcompleted in the 108th Congress. Whetherthe federal fuel tax and the programs it fundsshould be renewed is the central question of this paper.There may have been good reasons tochoose such a federal system to finance theInterstate Highway System in 1956—when thefederal fuel tax and the federal highway systemlegislation was enacted—but the IHS is now complete. What was established as a trustfund fed by fuel taxes to be spent on roads forthe mutual benefit of road users has now become a mechanism for the exercise of polit-ical power and for distributing favors to indi- vidual members of Congress.The congressional deliberations on reau-thorizing the federal financing of roads thattook place in 2004 were mainly about how much to spend—not about policy. As RobertPuentes of the Brookings Institution noted:The differences are not arguments overpolicy. As far as Washington is con-cerned, transportation is all aboutmoney—how much and who gets it. . . .The sad fact is that the national trans-portation system is broken and in direneed of fundamental reform. That iswhy billions and billions of dollars of additional federal investments, with-out significant reform, will do preciouslittle to ameliorate the transportationproblems of the modern metropolis.
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This study makes the case that the com-pletion of the IHS removed any argumentthere might be to maintain federal controland financing of roads; that market pricingand investment principles, which govern theprovision of most goods and services in freesocieties, could usefully be applied also toroads; and that significant reform shouldstart with phasing out the federal role in roadfinance. This would require a phase-down of the federal fuel tax and would effectively turnback to the states full financial responsibility for their roads, allowing them to manage andfinance highways and the transportation sec-tor as they deem appropriate.
Paying for Roads:A Historical Perspective
In a market economy, people generally pay for what they use, and get what they pay for.But until recent technological develop-ments—like electronic tolling—it was impos-sible to charge directly for road use withoutrequiring vehicles to stop at pay tolls. Mostdrivers today probably assume that fuel taxescoupled with an occasional toll is the way roads have always been financed.However, government use of fuel taxes asthe primary funding mechanism for buildingand maintaining roads is a relatively new invention that has its roots in the 20th century.During the late 18th and most of the 19th cen-tury, intercity roads in the United States andthe United Kingdom were primarily toll roadsfinanced by private capital.In the beginning of the 19th century, hun-dreds of turnpike companies operated thou-sands of miles of toll roads in the UnitedKingdom and the United States. In 1830there were, in Great Britain, 1,116 turnpiketrusts maintaining 22,000 miles of toll roads,which accounted for about one-fifth of thetotal road system.
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Those companies werefinanced almost entirely by private capital.Toll road companies in the United Statesfollowed the British example. The first turnpikeroad to operate in the United States, connectingPhiladelphia and Lancaster, was built by a pri-
2
What wasestablished as atrust fund fed by fuel taxes to bespent on roadsfor the mutualbenefit of roadusers has now become amechanism forthe exercise of political power.
 
 vate company chartered by the Pennsylvania government in 1792. The road opened in 1794.Other roads quickly followed and, by 1800, a total of 69 companies had been chartered inNew Hampshire, Vermont, Massachusetts,Rhode Island, Connecticut, New York, New  Jersey, Virginia, and Maryland.
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Ohio, Pennsyl- vania, and Virginia were the only states thatsubsidized their turnpike companies.
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The totallength of these roads exceeded 10,000 miles,and they comprised a substantial part of theeconomy at that time. Their comparative mag-nitude exceeded the public-sector investmentsin the Interstate Highway System after theSecond World War.
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Most of the toll road companies were putout of business in the 19th century by a modeof transportation technically superior to ani-mal-drawn vehicles—the railroad. At the turnof the 20th century, when the railroads were, intheir turn, challenged by motorized road trans-port, the intellectual climate in the UnitedStates was dominated by the Progressive move-ment, which advocated a larger role for govern-ment in many areas, including transportation. As tolls were generally unpopular, it was politi-cally easy to abolish them and finance “free”roads (some of which came to be called “free-ways”) out of the proceeds of taxation. Sometoll facilities remain, but most roads in the20th and 21st centuries were, and are, providedoutside the market system on the basis of whatare essentially political decisions. Thus, to thisday, roads, together with education, health,and pension services, constitute major socialis-tic elements even in free-market economies.
The Evolution of DedicatedRoad Funds
The advent of the automobile not only high-lighted the road-financing problem but alsosuggested a solution: Unlike the hay consumedby horses, motor-vehicle fuel could be easily taxed. So, in the United Kingdom, the estab-lishment of a Road Improvement Fund, to befed from the proceeds of taxes on motor vehicleownership and use, was included in the 1909budget of the Chancellor of the ExchequerDavid Lloyd George. Sir Edgar Harper, econo-mist and chief valuer to the Inland Revenue (theUK tax authority), explained that the RoadImprovement Fund “is not fed by taxation inthe strict sense. It provides machinery by whichthe owners of motor vehicles in combinationand under State guidance are enabled to spendmoney on roads for their mutual benefit.”
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The concept of dedicated road funds sooncrossed the Atlantic. The first in the UnitedStates was established in Oregon in 1919,and there are now more than 30 states withsuch dedicated funds.Fuel taxes are easy to collect, but they suf-fer from three drawbacks:
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First, they are not responsive to costsimposed on the road system; diesel-pow-ered vehicles typically use half the fuelconsumed by gasoline-powered ones, butcan impose the same or greater costs onroad maintenance.
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Second, the costs imposed by road userson one another under conditions of con-gestion—costs which should be chargedto users if road systems are to be usedefficiently—are not adequately reflectedin increased fuel consumption.
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Third, as vehicles become more fuel-effi-cient, revenues proportional to fuel con-sumption decline in value and cannotkeep up with the costs of providing roads.In addition, dedicated road funds are oftenused by governments for nonroad purposes.The first to suffer this fate was the British roadfund, which was raided by Chancellor of theExchequer Winston Churchill in 1929.
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 As wewill see later, the same fate overtook the U.S.Federal Highway Trust Fund.
A Brief History of theFederal Role inthe Provision of Roads
Section 8 of Article I of the U.S. Constitu-tion gives Congress explicit power “to estab-
3
During the late18th and most of the 19th century,intercity roads inthe United Statesand the UnitedKingdom wereprimarily tollroads financed by private capital.
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