usually has not received explicit consideration. Public officials have, however, generally respected certain historical principles in developing finance arrangements. These include the practice of user fee finance (motorists pay special taxes according to their use of roads, and revenue from these taxes covers highway spending); trust funds to keep track of the balance between fee revenue and spending; cost allocation rules that dictate higher charges for heavy than for light vehicles; and a division of revenue-raising responsibility and spending authority among the federal, state, and local governments. The question this chapter addresses is whether the principles that public officials rely on have led to finance arrangements that promote good performance.

Alternative sets of principles for transportation finance are in use or have been proposed. Other U.S. transportation modes follow different practices with respect to reliance on user fees and federal involvement in funding (see Table 2-6 in Chapter 2). It is probable that the performance of these modes would be greatly altered if they were to adopt finance systems more similar to the one used for highways. In most other countries, no connection exists between highway spending and the revenues generated by fuel taxes and vehicle fees, and it has been proposed that the United States follow the more common practice internationally in this regard. Finally, proposals for expanded use of tolling and for road use metering and charging, which will be examined in Chapter 5, represent fundamentally different finance practices.

A confident evaluation of the effect of present finance arrangements on performance is not possible with available information. Transportation agencies seldom conduct economic evaluations of their operations or of completed capital projects (GAO 2005). There have been few analyses of how changes in the structure of highway user fees changed users’ behavior or of how the practice of trust fund finance in highways or other modes has influenced total spending and project selection. Therefore, only fragmentary evidence can be cited in this chapter, and conclusions are tentative. Better information derived from systematic evaluations of finance practices will be necessary to guide successful policy reforms.

The first section below reviews criteria that have been applied for evaluating revenue sources for government-owned highways and transit. The next two sections review evaluations of the overall performance of the U.S. highway and transit industries from the standpoint of economic efficiency—that is, whether the level of spending is justified, whether capital spending has been directed toward the projects with the best returns, and whether existing capacity is efficiently

and collect more taxes from corporations, the proposal would pump an additional $266 million into the transportation trust fund” (Montgomery 2004). This perspective also was expressed in congressional testimony by the Executive Director of the American Association of State Highway and Transportation Officials (AASHTO) on the federal-aid program: “needs continue—by anyone’s measures—to far outstrip available … resources…. AASHTO is seeking a substantial increase in funding … for both highway and transit programs…. The challenge is how to fashion a funding solution that can achieve these goals and garner the bipartisan support needed for enactment” (Horsley 2002).

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