Paying for Locally Owned Roads: A Crisis in Local Government Highway Finance

Abstract

The past two decades have witnessed substantial changes in the dynamics of state—local relationships for highway funding. We argue that four factors have produced a funding crisis for local governments: an increase in developed land and locally owned roads; a rise in construction and maintenance costs; devolution of highway financing responsibility from the states to localities with a reduction in intergovernmental transfers; and more wear and tear on roads due to increased vehicle miles traveled. Local governments can delay maintenance and build fewer new facilities, but eventually many will seek new sources of revenues to fund their growing responsibilities. We identify several potential financing mechanisms: impact fees and smart growth policies; local option transportation taxes; nontraditional taxes and fees such as transportation utility fees and land taxes; and low-cost debt financing from state infrastructure banks. We discuss challenges faced by local governments in continuing to meet their responsibilities and financing needs.

Measuring State Highway Sustainability

“…Paying serious attention to financial sustainability to embrace transportation development is both necessary and urgent. Several scholars have discussed the problem and importance of fiscal sustainability in transportation finance (e.g., O’Connell & Yusuf, 2013; Yusuf et al, 2011). Yet, few scholars have explicitly incorporated the financial dimension into defining sustainable transportation (Bartle, 2006; Bartle & Devan, 2006; Leuenberger & Bartle, 2009).…”

“…A safe, efficient, environmentally sound, and fiscally responsible highway transportation system is crucial to the nation's economy. However, the U.S. transportation system is confronting a series of challenges to sustainable development, including deteriorating physical conditions, delayed maintenance, increased traffic congestion, declining fuel tax revenues, and heavy reliance on fossil fuels (Bartle & Devan, 2006; W. R. Black, 2010;Leuenberger & Bartle, 2009;O'Connell & Yusuf, 2013;Wachs, 2003;Yusuf, O'Connell, & Abutabenjeh, 2011). These challenges have caused many people to become concerned with the future of America's transportation system (Kemp, 2005).…”

Support for and Behavioral Responses to Tolls

“…At the state level, the motor fuels tax has similarly been cited as a source of the crisis in highway finance with roots in three primary issues: (1) the tax is levied on a per gallon basis that does not automatically adjust with inflation; (2) vehicle fuel efficiency has increased, reducing fuel consumption per mile traveled; and (3) the impact of inflation on construction costs. Local governments are not immune to the problem; as Yusuf, O'Connell, and Abutabenjeh (2011) point out, localities in the U.S.A. are also confronting a crisis in highway finance that forces local governments to look for new sources of funding.…”

You Don't Always Get What You Want: The Effect of Financial Incentives on State Fiscal Health

“…Previous research on state governments has suggests that states may have engaged in the redistribution of the burden for public services to governments within their borders (Bowman and Kearney 2011; Reschovsky 2004). Since the start of the Great Recession, the literature on fiscal health has often pointed to this shirking of responsibilities as a way for states to maintain their solvency (see Singla and Stone 2018; Yusuf, O'Connell, and Abutabenjeh 2011). As county governments are administrative branches of the state (see National Association of Counties 2008), states may be able to reduce their expenditures and improve their overall fiscal health by reassigning their responsibilities to the counties.…”