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America’s infrastructure discussions are dominated by debates about federal funding. But large portions of America’s roads and streets are under the jurisdiction of local governments. These locally owned roads are mostly ineligible for federal funding. So any increased federal funding of highways would have only a limited effect on the condition of local streets.
Unlike the federal and state governments, which draw heavily on dedicated road-user fees such as gas taxes, local governments rely far more on general funding for streets. In an era of fiscal constraint, this has left many local governments, urban and rural, struggling to address street- and bridge-maintenance backlogs.
While conditions and policy responses will vary by place, localities would do well to consider adopting the following eight policies:
1. Maintain general fiscal discipline. Since local-source road funding largely comes from general funds and property taxes, overspending in one area, such as employee pensions, can easily result in road funding being crowded out. It is easier to let streets crumble than to avoid paying employees and bondholders—at least in the short term.
2. Stop expanding capacity. Too often, localities that cannot pay to maintain current roads spend what money they do have on building new roads or widening existing ones. In the long run, this only adds to the inventory of infrastructure that can’t be maintained. Federal and state funding for projects, which can seem like “free money,” encourage this. Localities should adopt a “fix it first” policy—a principle endorsed even by President Obama—that focuses on maintaining what governments already have, rather than building more.
3. Stop accepting new streets. In new residential developments, local governments often take ownership and maintenance responsibility for streets after the developer builds them initially. To the extent permitted by law, localities should instead consider a policy that requires homeowner associations to retain ownership and maintenance responsibility when new subdivisions are built. Subdivision streets exist for the benefit of the properties that they allow access to; such property owners should be responsible for maintenance. Some housing developments and localities already function this way.
4. Devolve responsibility to property owners. One step beyond refusing to accept new streets into the local government’s inventory is relinquishing existing streets to homeowner associations. Long Grove, Illinois, near Chicago, made headlines for a proposal to do this. The town planned to make street maintenance the responsibility of homeowner associations, or to establish so-called special-service areas with a special street-maintenance tax. While a final policy for maintaining village streets has yet to be adopted, this is a good example of the type of discussions that need to happen.
5. Implement roadway pricing (tolls). The principle of making beneficiaries pay for the roads that serve them could be extended to tolling in some locations. This could even include variable demand-based pricing in a system known as “congestion pricing,” which has been very successful in cities where it has been implemented. Tolls can operate to raise revenue and to reduce congestion in tandem. London and Singapore use congestion pricing on select roads. New York City has proposed implementing congestion pricing and tolls on East River bridges. Doing so, however, would require approval from the state legislature, which has thus far not been forthcoming. The Indiana example, which involved a politically unpopular hike in toll rates, demonstrates that the public can be sold on this approach.
6. Special funding referendums. Where permitted, local governments could allow voters to decide to impose a temporary special tax to finance road improvements. Oklahoma City has successfully done this through a series of voter-approved initiatives known as “MAPS” (metropolitan area projects). The current MAPS-3 program imposes a supplemental sales tax of one percent for ten years to finance a series of specific capital improvements. This is not limited to transportation but does include a downtown streetcar system and a series of sidewalk improvements. All projects are being constructed on a pay-as-you-go basis and so result in no additional municipal debt.
7. Issue bonds. Another alternative is to issue bonds to pay for road upgrades. One advantage of borrowing is that debt service sits at the top of the payment stack. By using general revenue-backed debt to finance infrastructure, the crowding-out problem is avoided, at least for roads. While debt can be appropriate, it can also be misused. Projects financed by debt should have a useful life that extends at least to the debt repayment date. This means that debt should not be used for routine maintenance activities. Also, debt should not be used to paper over a structural deficit in annual spending on roads and streets. However, bonding may be useful for “catch-up” spending to finance a major capital refresh program, provided that the tax base adequately supports it and that the ongoing maintenance spending gap is addressed.
8. Increase state fuel taxes. In some cases, state and local governments may decide that there should be more user funding of roads, via increased gas taxes. In this case, an increase in the state gas tax, with distribution to localities, would be preferred. Locally imposed gas taxes create many more market distortions because of the small geographic scope of many local governments—allowing for relative ease in crossing borders in search of lower taxes, compared with a state-level tax. Local gas taxes may even create perverse incentives, such as encouraging localities to subsidize gas stations.
Regardless of the specific policies adopted, state and local governments need to ask tough questions and make difficult decisions about what roadways they can afford to maintain, at what service level, and how to pay for them. Because of the limited impact of the federal HTF on local street conditions, apart from this type of reckoning, the status quo of neglect and slow deterioration will be a policy choice made by default.
Aaron M. Renn is a senior fellow at the Manhattan Institute and a contributing editor of City Journal. You can follow him on Twitter here.
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