Devolving Transportation Creates an Interesting Opportunity

by Reihan Salam

Having discussed Rohit Aggarwalla’s call for abolishing the federal gasoline tax and surface-transportation program, thoughts turn to how state governments might pick up the slack. David Levinson of the University of Minnesota raises a number of arguments for and against devolution, and in doing so he points to his argument that state-level Departments of Transportation ought to be restructured as regulated public utilities:

The United States should follow Australia and New Zealand’s lead, and transform its state Departments of Transportation (or the highways divisions thereof) into separate, publicly regulated, self-financing corporate entities. Full-cost accounting—as already performed by Arizona’s Department of Transportation—constitutes a necessary first step in this direction. In making the transition, policymakers should strive to impose regulation only where absolutely necessary, to minimize the anti-competitive effects of any such regulation, and to leave social objectives to the government, thereby freeing road enterprises to focus on economic ones. Accordingly, road enterprises should be permitted to pursue cost-effective contracting and public private-partnerships as they see fit.

The new road enterprises should also be given latitude to make greater use of user fees—as opposed to general revenue—for funding their activities. Such charges are not just more efficient and equitable than traditional funding sources; if properly designed and implemented, they are also better suited to reducing congestion through effective pricing. Vehicle-miles-traveled charges, weight-distance charges and electronic tolling are all options that road enterprises should be free to pursue.

Levinson observes that the New Zealand Transport Agency, which adheres to the regulated public utility model, has delivered large efficiency gains, as have state-based Australian road enterprises. If the U.S. did devolve primary responsibility for surface transportation to state governments, one assumes that some states would embrace the regulated public utility model while others would stick with a more traditional approach.

And among states that establish state-based transportation enterprises, some would make greater use of direct user fees, including congestion charges and HOT lanes, etc., than others. Over time, the most successful approaches would “go viral,” spreading the benefits of transportation innovation. The result would be a kind of bottom-up federalism, in which states converge around a set of best practices while diverging in other domains to better meet local preferences, as opposed to top-down federalism, in which the federal government imposes or heavy-handedly incentivizes adherence to a set of federal guidelines. 

The Agenda

NRO’s domestic-policy blog, by Reihan Salam.