A Study Of The Federal Aid Funding Of Highways: How the Construction Industry Influences the Policy Process

Introduction

 On June 9, 1998, President Clinton signed into law the Transportation Equity Act for the 21^st century, known as TEA-21 for short. The bill authorized $217 billion in highway and transit spending over 6 years, in raw numbers a 40% increase over the previous authorization bill, the $155 billion Intermodal Surface Transportation Efficiency Act, or ISTEA.  In turn, ISTEA was more than twice as large as the previous authorization, the $68.8 billion Surface Transportation and Uniform Relocation Assistance Act of 1987.

At the present time, work is well underway on the reauthorization of TEA-21, which expires in October 2003, and highway construction industry groups are calling for unprecedented expenditures of $50 billion annually to relieve congestion and maintain the existing highway system.  The Congressional committees, the U.S. Department of Transportation, industry and professional associations and other interest groups have for some time been gathering the information needed to write the next bill, provisionally dubbed TEA3. 

Although the public perception of the construction industry’s involvement in highway building may be limited to the visible elements of highway work zones, there is much more to the story.  From the earliest days of federal funding of highway construction, in the early 20^th century, the highway construction industry has maintained an active role in helping to set federal policy regarding transportation funding.  Indeed, the political involvement of highway builders in the policy process helps to assure the continued funding of the new roads that the industry will build, helps set priorities for funding of roads at the expense of other forms of transportation, and assists Congress in finding creative ways of funding highway construction.

This paper examines the legislative process of creating the transportation authorization bill, focusing on the factors that influence the major component of the bill, highway construction. As background, the historical development of federal aid for the construction of highways is described, along with the rise of key trade associations and interest groups associated with highway construction.  The key players that are part of the legislative process are introduced, including the congressional committees, state and federal departments of transportation, trade associations and lobbyists, transportation professionals, and other stakeholders interested in the federal funding of highways.  From the information developed in this study of the legislative process, the impact of the highway construction lobby in setting the agenda for the federal-aid highway program is described.  Finally, directions for further study of this question are explored, and the application of this research to undergraduate and graduate construction education is discussed.

The Scope of Federal Highway Spending

The United States road system consists of more than four million miles of roads: 46,000 miles of Interstate highway, 111,000 miles of other national highway system roads, and 3.8 million miles of other roads. The highway system is vital to the national economy and to national defense.  Transportation today accounts for nearly 11% of GDP, and together with its related industries employs nearly 10 million people, about 7% of the labor force (USDOT, 1997).  Transportation is typically described in terms of five major modes: highway, rail, air, water, and pipeline.  Transit is sometimes considered separately as a sixth mode.

The U.S. Department of Transportation (DOT), part of the executive branch of the federal government, has oversight of nine operating administrations covering all modes of transportation: Federal Highway Administration (FHWA), Federal Aviation Administration (FAA), Federal Railroad Administration (FRA), National Highway Traffic Safety Administration (NHTSA), Urban Mass Transit Administration (UMTA), U.S. Coast Guard, the St. Lawrence Seaway Development Corporation, Research and Special Programs Administration, and the Maritime Administration (USDOT, 1990).       

One duty of FHWA is to administer the federal-aid highway (FAH) program with budget authority to provide matching dollars to aid the states in highway construction, reconstruction, traffic management and safety.  The FAH is funded through the Highway Trust Fund (HTF), which receives revenues from user taxes on gasoline, diesel and special fuels, excise taxes on motor vehicles, tires, parts, and other fees.  In constant 1987 dollars, federal transportation-related receipts (all modes) rose from $16 billion to $19.7 billion from 1977 to 1994 (USDOT, 1997).

Historical Development of Federal-aid Highways

 Federal aid for road construction came early in the 20^th century, at a time when there was a general expansion of the scope of government, and strong popular demand for assistance with issues that affected rural America.  Prior to this time, the responsibility for building roads had rested solely with local units of government: road districts, townships, and counties.  States had become involved in assisting local governments with road building only around 1900.  However, the rise of the automobile and the motor truck necessitated a more uniform, nationwide approach to road construction and maintenance.

Historically, most federal grants-in-aid had been related to agriculture—the Morrill Act of 1860 that established the land grant agricultural universities, the second Morrill Act of 1890, and the agricultural experiment acts of 1887 and 1907.  In 1900, the Department of Agriculture began to assume even more importance in the lives of farmers, offering demonstration projects on farming methods, and establishing the “county agent” and the agricultural extension service.  Around the same time, farmers began demanding a network of short, branch-line roads emanating from market centers to aid in transporting goods to markets or shipping points (Douglas, 1920).  At the time, many rural roads were dirt roads, impassable in bad weather, and unsuited to heavy wheel loads or high-speed travel.

In 1907, sixty-two bills for federal aid for roads were introduced to Congress, but division between those who supported farm-to-market roads and those advocating a national system of interstate roads benefiting automobiles and motor trucks prevented passage of the bills:  another attempt in 1912 also failed.  The legislation ultimately passed, the Good Roads Act of 1916, authorized $75 million over 5 years for improvement of rural post roads.  The act apportioned money to states using a formula that considered the land area, population, and rural road mileage of each state in proportion to the national totals.  Since the passage of the 1916 legislation, federal aid to states for highway construction has become a permanent fixture in the federal budget.  Until 1958, the Good Roads Act of 1916 was biennially amended to provide continued funding for rural highway construction.  At that time, Congress codified Title 23-Highways of the United States Code (Wright and Ashford, 1993).

Several landmark bills marked the history of federal involvement in highways during the 20^th century.  The Federal Aid Highway Act of 1944 provided $1.5 billion over 3 years for postwar highway improvements and designated the National System of Interstate Highways and the Federal-Aid Secondary System (FAS).  The Federal Aid Highway Act of 1956 was arguably the most important transportation legislation ever passed in the United States.  The bill provided $25 billion for the construction of the National System of Interstate and Defense Highways. This money was made available to the states on a 90%-10% matching basis, allowing states to greatly expand the construction of modern, high-speed freeways designed to promote traffic safety.

 Another landmark in federal aid for transportation, the Intermodal Surface Transportation Efficiency Act of 1991 (ISTEA), authorized approximately $155 billion over 6 years, from 1991 to 1997.  The act marked a new direction for USDOT, with its stated goal "to develop a National Intermodal Transportation System that is economically efficient, environmentally sound, provides the foundation for the Nation to compete in the global economy and will move people and goods in an energy efficient manner"  (http://www.dot.gov/fhwa/istea).  The bill had a clear set of principles—greater flexibility for the states, intermodalism (the connectivity between the various modes of transportation, especially important in freight movement), and increased emphasis on finding alternatives to building more roads.  The authorization represented a significant increase in funding compared to the previous act, established the designation of the National Highway System, consisting of over 157,000 miles of interstate routes and highways connecting those routes with transportation hubs in the other modes—primarily transit, rail, air, and water.  ISTEA placed an increased emphasis on air quality and congestion mitigation, and required states to establish management systems to deal with pavements, quality, and other issues. A National Highway System (NHS), consisting primarily of existing Interstate routes and a portion of the Primary System, was designated to focus Federal resources on roads that are the most important to interstate travel and national defense, roads that connect with other modes of transportation, and those that are essential for international commerce.  State and local governments were given more flexibility in determining transportation solutions, and were required to establish management systems to guide them in making the best choices.  New technologies, such as intelligent vehicle highway systems and magnetic levitation systems, were funded, as was research into the application of emerging technologies in transportation.  Innovative financing schemes were allowed for highway projects, with public-private partnerships encouraged.  Environmental quality was emphasized in the funding of wetland mitigation, bicycle trails, and scenic byways.

 The reauthorization of ISTEA was eventually named the Transportation Equity Act for the 21^st Century, or TEA-21 for short.  The bill, signed by President Clinton on June 9, 1998, granted over $217 billion in funding authority over six years, a 40% increase over ISTEA (neglecting inflation, which averaged 2.6% per year in the 1990s).

That the name of the bill differed from that of its predecessor reflected the fact that the debate over this bill was primarily about equity between “donor” states—those who generate more motor fuel taxes than they receive back from Washington—and “donee” states, whose federal share is greater than the total motor fuel taxes generated within their state.  Under TEA-21, each state is guaranteed a minimum return of 90.5% of its contributions in motor fuel taxes.  However, observers do not characterize the basic principle of TEA-21 as equity, but choice.  The bill represented a continuation of the principles begun with ISTEA that the states should have more choice in how to spend federal-aid dollars, with less interference from Washington.  In addition, TEA-21 established the principle that individual citizens should have more transportation choices.  Issues such as moving workers from inner cities to jobs in the suburbs, allowing employers to offer employees choices of commuting fringe benefits, building new transit rail systems, encouraging biking and walking as forms of transportation, and looking at the relationship between land use, transportation, and quality of life were addressed in this bill (Kienitz, 1998).

Two key features of the bill were the “firewall” concept that prevented money from being transferred from the Highway Trust Fund to the General Fund to cover budget shortfalls, and the Revenue Aligned Budget Authority, or RABA, a mechanism to adjust annual highway funding to reflect user fee income (USDOT, 1998, 2000).  A base funding level was established, but additional funding was possible if sufficient highway user tax receipts (fuel taxes, truck and tire sales taxes, heavy-vehicle user taxes and others) were collected. In the late 1990s, annual revenues consistently increased, providing a growing pool of money to fund highway construction.  State DOTs made plans for their highway programs based on these increasing amounts (TRB, 1997). The recession of 2001 unexpectedly reversed this trend, and the negative side of RABA was seen.  In FY2001, actual receipts were less than estimated by $4.4 billion, due to decreased truck sales, a decrease in vehicle miles traveled, and increased use of ethanol, which is taxed at a lower rate than gasoline.  Because of this significant divergence between estimated and actual receipts into the Highway Trust Fund, based on the Treasury Department’s calculations, in February 2002, President Bush’s budget called for an $8.6 billion dollar cut in highway spending in FY2003 in order to “pay back” the RABA funds that had already been appropriated for highway spending. Legislators and the highway construction lobby immediately began work to restore the funding, and ultimately won restoration of funding equal to the FY2002 amount of $31.8 billion.  The scare had an impact on the reauthorization process, which was already underway, and the highway lobby quickly went to work to make the reauthorization of TEA-21 less vulnerable to downturns in the economy to prevent future funding shortfalls. 

One of the targets for change in the reauthorization is the tax rate on gasohol fuels, which because of environmental incentives is taxed at a rate of only $0.13 per gallon, significantly less than the $0.184 per gallon federal tax on gasoline.  In addition, $0.025 per gallon of the ethanol tax is placed into the General Fund rather than the Highway Trust Fund.  Some industry groups believe the incentives for ethanol use have outlived their usefulness, and that removing them would raise an additional $1.1 billion annually. Industry groups such as the National Asphalt Paving Association (NAPA) are also calling for an increase of $0.01 per gallon on the gasoline tax, a move estimated to raise an additional $2 billion annually (Jay Hansen, NAPA, personal communication, March 13, 2002). 

The Rise of Highway Construction Interests

The builders of highways are intimately associated with the legislative process associated with transportation funding, and have long exercised considerable influence in the federal funding of highway construction. The national organization of road builders began as early as 1902, when Horatio Earle, president of a bicyclist group called the League of American Wheelmen, proposed an association of road builders. At a meeting in New York of four supporters of better roads, the American Road Makers (ARM) was founded.  In 1910, the organization was renamed the American Road Builders Association, and in 1977, it adopted its present name, the American Road and Transportation Builders Association (ARTBA).  The group has taken an active role in lobbying for the interests of the road building industry, and has been consistently visionary and proactive in identifying transportation needs and finding innovative funding mechanisms to advance transportation construction.  The group helped to pass the first federal-aid highway act in 1916, and has been continuously active in representing highway and transportation building interests throughout the 20^th century.  ARTBA was instrumental in developing the concept of the Highway Trust Fund, a key factor in getting the necessary legislative support for the creation of the interstate highway system in the 1950s.  The group was also involved in obtaining congressional approval of the cabinet-level U.S. Department of Transportation in the 1960s.  The group widened its activities to include other modes of transportation, including airports and transit in the late 1960s, pushed for funding of rehabilitation and reconstruction projects in the 1970s, and called for dramatic increases in federal funding of highway, airport and transit projects in the 1980s, paid for with an increase in the dedicated federal gasoline tax.  In the 1990s, ARTBA focused on legal and regulatory issues in addition to financing, safety, and construction. 

ARTBA has been instrumental in shaping the federal-aid highway funding debate, especially since the late 1980s, and helped develop much of the information that led to the 1991 ISTEA legislation.  By the mid-1990s, ARTBA was developing its policy positions for the 1998 TEA-21, and takes credit for establishing the concept of budgetary firewalls to direct federal gas tax revenues back in to road construction (http://www.artba.org/about_artba/history.htm).

Almost immediately after the reauthorization of the transportation bill in 1998, the group was back to work organizing for the 2003 reauthorization, gathering information on construction needs, projecting costs, and establishing major issues such as congestion mitigation and needed funding levels as centerpieces of the debate.  A white paper, “A Blueprint for 2003 Reauthorization of the Federal-Aid Highway and Mass Transit Programs,” was endorsed by its Board of Directors in early 2001, and is available on their website (www.artba.org).

Another influential industry group is the Associated General Contractors of America (AGC).  AGC was organized in 1918, and today represents more than 36,000 individual firms, including more than 8,000 of the nation’s leading general contractors (www.agc.org).  Its membership is organized into 5 practice divisions: building, highway, federal and heavy, municipal and utility, and international.  The AGC actively follows federal government policies that affect the construction industry, including issues that affect all business owners in general.  In 2001 (106^th Congress), the organization supported changes in tax policies to encourage investment and business development, was involved in the defeat of the OSHA ergonomics standard, and released a book on the reauthorization of TEA-21, among many other things.  In the 107^th Congress, AGC has identified over 77 issues that are of concern to their membership.  AGC has recently produced a publication that details its vision for the TEA-21 reauthorization bill and what it should contain to maintain the economic vitality and national security of the nation.  Key points in the AGC position on the highway reauthorization include a continuation of the TEA-21 policy of allowing all revenue generated by highway user fees to be applied to highway construction, and increased revenues to the HTF through elimination of the subsidy on ethanol fuel.  AGC also seeks streamlining of the environmental regulatory process that slows highway construction projects.

Although the AGC and other industry groups such as the National Asphalt Paving Association (NAPA) are very active in lobbying for highway interests, ARTBA seems to be the organizing force behind much of the industry lobbying effort, particularly since the late 1980s.

Budget Process for Reauthorization of TEA-21

The legislative process of developing the budget for the reauthorization of the highway bill begins as much as two years prior to the expiration of the current bill.  For the reauthorization of TEA-21, which expires October 1, 2003, USDOT began drafting the administration’s version of the bill in late 2001, with the first version due to be transmitted to the Office of Management and Budget by the end of March 2002.  The Congressional committees (Public Transportation and Infrastructure (T&I) in the House; Environment and Public Works (EPW), Commerce, Science and Transportation (CST), and Banking, Housing and Urban Affairs (BHUA) in the Senate) began holding oversight hearings and taking testimony from interested parties in January 2002. The subcommittees began work in early summer 2002.  Highways and Transit (subcommittee of T&I) heard testimony from governors and local officials, and has held hearings on topics such as the benefits of transit, intermodal freight transportation, highway safety and trucking safety.  The Senate EPW in March 2002 held a roundtable discussion of issues related to research funding, and has held hearings on mobility, congestion, intermodal freight, “smart growth” and security issues. The Housing and Transportation subcommittee of the Senate Banking committee has heard testimony regarding the economic and environmental impact of TEA-21, and from transit interests regarding the need for increased federal funding of mass transit (www.tea3.org). 

By August 2002, OMB was scheduled to have made revisions to the DOT version of the bill and returned it for approval or appeal.  Once a budget has been devised that is acceptable to OMB, it will become part of the President’s budget to be submitted to Congress in February 2003.  During the spring of 2003, bills will be introduced in the House and Senate and the relevant committees will hold legislative hearings.  During the summer of 2003, the committees will report out bills, and floor action will take place in both houses of Congress.  A conference committee will meet to settle differences between the House and Senate versions of the bill, and will report out a single bill to be voted upon and sent to the President for signature by September.

This idealized schedule will probably not be realized due to the fact that mid-term elections, which took place in November 2002, changed the membership in Congress and the makeup of the transportation committees.  New members of Congress will have to be educated regarding the importance of the bill’s various features, and it is anticipated that the result could be a delay of up to a year in the signing of the bill.  There is precedent for such delays:  ISTEA was not signed by President George Bush until December 1991, after a series of continuing resolutions had extended the contract authority of the previous bill, the Surface Transportation and Uniform Relocation Assistance Act of 1987.  In turn, the 1987 bill had failed to pass in the 99^th Congress when it was voted on in late 1986, and was reincarnated as H.R. 2 and passed early in the 100^th Congress (Evans, 1994). 

It is not expected that opposition to the bill will delay it, however, but argument over the size of the pie and how it is to be divided.  A review of the “Hearings before the Subcommittee on Surface Transportation of the Committee on Transportation and Infrastructure, House of Representatives, 105^th Congress” showed that 100% of the testimony received by the subcommittee during its opening hearings into the reauthorization of ISTEA consisted of pleas for money for specific projects.  Much of the testimony in fact consisted of presentations by members of the subcommittee, accompanied by local officials from their districts, requesting special consideration for particular projects.  Very little of the testimony, the record of which runs to two volumes of 1,200 pages each, appears to address broad policy concerns (such as funding of transit versus highways or the relationship of highway construction to urban sprawl), and none appears to oppose spending for a particular project or for transportation in general (GPO, 1997).

In considering the transportation reauthorization, which is a bill that faces little opposition, the primary debate is “How much money and who is going to get it?” (TRB, 2001).  At issue are the formulas for apportioning the money among the various programs, which are finally determined through an intense and very political process that is largely unseen in the record.  The final determination of the formula may be made through internal “horse trading” by the chairs and ranking minority members of the full committee and subcommittee meeting behind closed doors (Evans, 1994). 

Since the inception of the federal-aid highway program, one area of contention is the division of dollars between rural and urban interests.  In recent times, there has been further debate regarding the relative proportion of money spent on highways versus public transit, pedestrian, and bicycle facilities.  Beginning with ISTEA, highway opponents, primarily the environmental lobby, have seen more of their agenda incorporated into the bill, with increased funding of these alternative modes of travel for individuals.

Summary and Recommendations for Further Study

The foregoing has shown that the construction industry is actively involved in the political process of crafting the federal aid highway agenda.  On one hand, this involvement could be construed as indicative of the sort of exclusive relationship between groups inside and outside of government that serves to benefit a relatively small group of people (highway constructors) at the expense of larger group (American taxpayers).  Clearly, the provision of federal aid for transportation directly benefits those firms that are involved in the construction of transportation facilities, and those firms therefore have an interest in working to increase the amount of funding available.  However, the federal aid highway program has much wider benefits to many other groups, not least of which is the public at large, who reap the economic benefits of a comprehensive, modern, well-maintained transportation system.  The road-building industry has developed in tandem with the rise of the motor vehicle and in a society where the concept of federal government support of transportation has become the accepted norm.  An automobile-based society requiring a network of high-quality roads, while reviled by environmentalists, is the preferred alternative of the majority of Americans, who routinely vote to approve increased fuel tax rates and tolerate perpetual work zones because they represent progress in the form of highway improvements.  Increased federal-aid highway spending benefits additional industries related to transportation building, such as transportation planning agencies, engineering design firms, equipment manufacturers, asphalt, cement and aggregate suppliers, and many others.  State DOTs benefit from the distribution of federal aid for highway construction and maintenance.  Federal, state and local government officials, including the members of Congress who ultimately authorize the funding legislation, also benefit from the favorable public perception of their ability to provide public works projects to their home state or district.

The nature of the complex relationship between the federal government and the highway construction industry is an area that appears to have been little explored, and which will provide a fruitful area of policy research.  One area of potential research is to examine the extent to which the position papers developed by ARTBA and AGC are realized in the final reauthorization bill, beginning with ISTEA and continuing through TEA3. 

The political activism of the construction industry is a topic that is little discussed in undergraduate construction education, but one that is of vital importance to the industry at large and therefore its future leaders.  While the study of the policy process and the involvement of the construction industry in lobbying for industry concerns should not be a major focus at the undergraduate level, future constructors must become aware of the relationship between federal policy and the financing of construction projects.  This broader scope of understanding, taking into consideration the political involvement and lobbying efforts of the construction industry, will help equip construction graduates to attain ownership roles in construction firms, and to assume leadership roles within the profession.  The application of this research to construction education is probably limited to senior-level courses such as a seminar or overview of industry practices and concerns, to graduate curricula, or to AGC student chapter programs or activities.  Specific applications of this research to construction education will continue to be explored, and suggestions for incorporation into undergraduate and graduate construction curricula will be developed.

References

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