Congress is poised to extend the Highway Trust Fund for two more months. This Band-Aid is needed because the fund’s authorization expires at the end of May, and lawmakers haven’t been able to agree to a more durable strategy to pay for America’s roads.
In China, where I am at the moment, things are different. Despite this country’s much lower per capita income, Chinese drivers pay noticeably more in fees per mile than American drivers do. The higher fees encourage people to use high-speed rail and other alternatives for getting around. And the money finances new and more efficient investments in highways.
It is absolutely correct, as my former colleague Larry Summers and others have argued, that today’s low interest rates and sluggish economic activity provide an ideal environment for making needed improvements to infrastructure. And it would easily be possible to borrow the money for such projects, were it not for the political unwillingness to commit to some way of paying it back.
An alternative to full public financing is the much-hyped public-private partnership model for infrastructure spending. That model, though, requires tolls or other forms of revenue; private investors demand a return, and that return necessitates an identifiable revenue source.
In the U.S., we are unwilling to levy either dedicated taxes (the federal gas tax hasn’t been raised in more than 20 years) or charge tolls and other user fees.
There is one exception in American infrastructure, and that is the freight railroad system. In her book “Move: Putting America’s Infrastructure Back in the Lead,” Rosabeth Moss Kanter explains that, although passenger rail lags behind, U.S. freight rail is a global leader, thanks to the system’s “financial profitability and reinvestment of profits in the improvement of infrastructure.”
Freight rail is not without its challenges, including some areas of congestion (especially around Chicago), questions about whether the industry is adequately prepared for the increase in cargo that will come with the expansion of the Panama Canal, and the controversies surrounding the safety of carrying oil from shale formations. But because the freight railroad companies have paying clients, they have the incentive and the resources to innovate and improve.
A new paper from the Hamilton Project lays out several ways in which we could facilitate user fees in the U.S. The federal government could, for example, establish a single national standard for electronic toll collection, perhaps through a smartphone application that would function much like an E-Z Pass. The authors also suggest a set of national guidelines for congestion pricing, with variable user fees that depend on traffic flows and so reduce demand on infrastructure at peak times.
To be sure, not all infrastructure can or should be financed by users, which is why public-private partnerships are not the universal response to infrastructure needs. Furthermore, many other kinds of changes are needed before the U.S. can move forward with an ambitious infrastructure program. Overlapping federal, state and local regulations need to be sorted out, for example.
But Congress is kidding itself if it believes that it’s possible to substantially expand investments for the future without asking users to pay more.
Peter R. Orszag, a Bloomberg View columnist, was formerly President Obama’s director of the Office of Management and Budget.