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The Dumbest Way to Fund America's Infrastructure

Barry Ritholtz is a Bloomberg View columnist. He founded Ritholtz Wealth Management and was chief executive and director of equity research at FusionIQ, a quantitative research firm. He blogs at the Big Picture and is the author of “Bailout Nation: How Greed and Easy Money Corrupted Wall Street and Shook the World Economy.”
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 Writing in Fortune in January 2004, my View colleague Justin Fox wrote that the Interstate System 

was heralded as the greatest public works project ever. That it was. And it did, as promised, lead to an America that is more mobile, less plagued by regional differences, and vastly wealthier than before.

 If you've been reading my rants, you know I have not been very happy about the decrepit state of our roads, highways and bridges. (See this, this, this, this, this, this, this and this). Especially when you consider that the cost of financing all of this is the lowest it has been in our lifetimes. It is perplexing to me that the nation that developed the world’s first interstate highway system cannot seem to find an adequate way to finance basic maintenance, repairs and improvements.

QuickTake Money for Highways

Today, I bring you the proverbial good news and bad news on this issue.

The good news: Congressional negotiators have agreed on a bipartisan deal for a five-year, $300 billion transportation bill. It earmarks badly needed money for the maintenance of the deteriorating transportation infrastructure. The deal also reopens the Export-Import Bank, but let’s save that bit of congressional stupidity for another column.

The bad news is how bereft of intelligence and long-term thinking this congressional infrastructure funding deal actually is. The Highway Bill -- cobbled together as a monument to poor planning -- is such a hodgepodge of funding that it is far more of a testimony to Congress’ incompetence than it is a victory for those who would get something done.

When President Dwight D. Eisenhower (and Congress) built the nation’s Interstate Highway System, he also created a way to fund the maintenance of its now 47,856 miles of roads: A simple user fee, collected through the sale of gasoline to automobiles, paid to the Highway Trust Fund.

The system should have been self-funding, without the need for any of the gimmicks we see today. But that federal excise tax on gas has not been increased since 1993 and it is not indexed to inflation. Given that 22-year freeze, plus the increased fuel efficiency of cars in general and the rise of the Prius, Tesla and Volt specifically, the Highway Trust Fund has accumulated a shortfall of more than $70 billion since 2008.

Rather than raising the 18.4 cents per-gallon gas tax, Congress keeps coming up with short-term funding mechanisms and other sleights of hand that make no sense. The absurdity du jour is a 100-year-old program the Federal Reserve used to attract member banks: The 6 percent, tax-free dividend paid to its members and primary dealers on the capital reserves the Fed required. (See Big Banks Suffer Rare Fail as Congressional Deal Cuts Nearly $1 Billion a Year in Handouts). This anachronism certainly deserved to be reviewed -- the 6 percent dividend will be cut down to 1.5 percent -- but not as part of the highway funding bill. Nor should sales of the Strategic Petroleum Reserve be used to pay for highway maintenance; nor should “capturing” the Federal Reserve’s “rainy day fund” go into the Highway Trust Fund -- but that was how this $300 billion, five-year deal was assembled.

It is Dr. Frankenstein’s creature, built from disparate parts of different government bodies to create what resembles a normal bill but really is an ungodly monster. Making matters worse, this deal puts me in the rare situation of being on the same side of the argument as the big Wall Street banks and their overpaid lobbyists. That is a place I never enjoy.

Blame Grover Norquist, of Americans for Tax Reform. He has so terrified congressional Republicans about raising any tax, no matter how appropriate, that Congress can only do its work in these absurd, backward ways. As an aside, any time you get a flat tire or break an axle on an unmaintained road, I suggest you file a suit in Small Claims Court against Norquist personally for the cost of repairs.

Despite the good this bill can do, it stands as an admission of political failure. We still have a “chronic shortfall in financing for the Federal Highway Trust Fund,” we still rely on a variety of short-term financing provisions for long-term investments, and we still have a Congress that is more concerned with getting re-elected than doing the people’s business.

As Mark Twain observed, “Suppose you were an idiot, and suppose you were a member of Congress; but I repeat myself …”

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

To contact the author of this story:
Barry L Ritholtz at britholtz3@bloomberg.net

To contact the editor responsible for this story:
Max Berley at mberley@bloomberg.net