Who pays for Texas highways?

Highways cost billions of dollars in state and federal tax revenue to build and maintain. Then there are the hidden costs: polluted air, traffic congestion and increased greenhouse gas emissions.

By Nathan Bernier, KUT NewsMay 21, 2024 10:30 am, ,

From KUT News:

Texas boasts a sprawling highway network with more than 200,000 miles of lanes — almost the distance from Earth to the moon.

Those roads aren’t cheap. The Texas Department of Transportation (TxDOT) outspends every other state, devoting more than $18 billion to highways in 2022 alone, according to Federal Highway Administration data.

As the Texas population expands, so do the state’s freeways. In the last decade, Texas has added at least 700 miles of new highway. Now, a decade-long project has begun to widen I-35 through Austin.

Ever wonder who foots the bill?

The money for highways comes from a mix of gas taxes, vehicle registration fees, state sales taxes, levies on oil and gas companies and federal funds — which includes a big chunk of money from personal income taxes.

Then there are the hidden costs of highways: polluted air, traffic congestion, the risk of being hurt or killed in a crash, government-seized property, forced relocations and increased greenhouse gas emissions.

User-pay ‘needs to be thrown out the window’

When the interstate system of criss-crossing superhighways was built in the 1950s, drivers were expected to cover the construction costs. A gasoline tax was funneled into a government account called the Highway Trust Fund. The fund generously shoveled out cash, offering states $9 for every $1 they invested in interstate construction.

I-35 at U.S. 290 in 1959. The Federal-Aid Highway Act passed by Congress in 1956 devoted $25 billion — $291 billion in today’s dollars — to construct a 41,000-mile interstate highway system.
TxDOT / TexasFreeway.com

Since then, the federal funding ratio has become less generous. Texas now gets only about a third of its highway money from the U.S. government, equating to nearly $6 billion this year — still a significant chunk of the $50 billion the U.S. government spends on freeways each year.

One challenge is the Highway Trust Fund keeps running out of money. The federal gas tax — now 18.4 cents a gallon — hasn’t risen since President Bill Clinton’s first year in office. The Texas gas tax is even older, frozen at 20 cents a gallon since 1991.

So for the past two decades, Congress has pumped other money to the Highway Trust Fund to make up the difference. The single biggest infusion was in 2021: a $118 billionbailout from the Infrastructure Investment and Jobs Act.

“There’s this big change that has happened when it comes to this ‘user pay’ concept, which basically needs to be thrown out the window,” said Robert Puentes of the Eno Center for Transportation, a century-old nonprofit think tank based in Washington, D.C.

“It’s not like it’s a free market that’s operating,” he said.

Still, while the Federal Highway Administration (FHWA) reports some data publicly, it’s hard to pin down the exact spending details — even for an expert like Puentes, who has been researching the topic for decades.

“Projects take a long time to be constructed, and so it’s very opaque, and it’s very frustrating because there’s not an easy way nationally to figure out where this money is going,” he said.

Since 1993, the federal gasoline tax has remained unchanged at 18.4 cents per gallon. The state gas tax has held steady at 20 cents a gallon since 1991.
Alyssa Olvera / KUT News

Federal cash covers 35% of TxDOT’s budget. The money comes not just from gas taxes, but also directly from the Treasury’s general fund, which is primarily funded by individual income taxes.

Where does TxDOT find the remaining 65%? The short answer is a blend of taxes and fees, most of which are required by the state constitution to be spent on roads.

So drivers directly pay for about a quarter of TxDOT’s budget through gas taxes and vehicle registration fees funneled through the State Highway Fund.

Starting in 2023, that includes an annual $200 fee on electric vehicles, whose owners don’t pay gas taxes. An official analysis predicted the new fee would earn the State Highway Fund more than $340 million a year by 2028. But that forecast will depend entirely on the rate of EV adoption.

Owners of electric vehicles in Texas must now pay a $200 registration fee each year, money intended to recoup lost gas taxes.
Gabriel C. Pérez / KUT News

With the state gas tax frozen at 1991 levels, Texas lawmakers went looking for new ways to pay for highways. About a decade ago, legislators asked voters to amend the Texas constitution so other streams of revenue could be committed to building, expanding and maintaining the state’s roads.

In 2014, Texas voters obliged, agreeing overwhelmingly to siphon a portion of the money sent to the state’s Rainy Day Fund — a bank account for emergencies funded by taxes on oil and natural gas producers — and dedicate the revenue to roads instead. Proposition 1 now generates more than $3 billion a year for the State Highway Fund.

The next year, a second constitutional amendment won by an even wider margin. Proposition 7 devoted part of the state’s 6.25% sales tax to roads, up to $2.5 billion a year.

Money dedicated by the two constitutional amendments pays for more than a third of the state’s highway spending.

“It makes up such a large chunk now that if we were not to have it, it would probably devastate the plans we have,” said Brianne Glover, a research scientist who leads policy analysis at the Texas Transportation Institute — a state-funded research agency at Texas A&M University. “It’s something we would definitely feel.”

To sum up, about one third of Texas highway funding comes from the federal government. Close to a third comes from money dedicated by Props 1 and 7. About a quarter comes from the State Highway Fund, which is fed by gas taxes and vehicle registration fees. The rest comes from smaller sources like the Texas Mobility Fund, which generates interest income for TxDOT by lending money to cities and counties.

While road-building takes up the vast majority of TxDOT’s budget, the state agency does spend money on other things like railroad construction, aviation services, public transit in rural areas and ferry operations.

Hidden costs of highways

Highways carry expenses far beyond their construction and maintenance budgets. Road systems also impose costs on individuals, society and the environment that are not paid for by the government.

Who pays for highways? It’s not just government-supplied tax funds. The true cost also includes external factors like traffic congestion, displacement, environmental impacts and land use changes, all of which affect local communities.
Nathan Bernier / KUT News

TxDOT’s own analysis of the I-35 expansion in Central Austin, for example, lists noise pollution, increased greenhouse gas emissions, the destruction of historic sites and the forced relocation of more than 100 homes and businesses as just a few of the impacts of the massive $4.5 billion project.

“I was already ready to retire,” said Dina Flores, owner of a Spanish-immersion day care being forced to relocate by the I-35 expansion in Austin. “Then, boom. I get notified that we’re going to have to move again. Now, I’m going to have to delay the retirement. I’m losing a lot of sleep. I don’t know how successful we’re going to be.”

Highways impose significant health costs, too. Drivers face the risk of crashes. Children who live close to freeways are more likely to have asthma caused by pollution.

The FHWA estimates air pollutants from highways alone cause $215 billion in health costs.

These “external” costs, as economists call them, are often borne by people living closest to the freeway. Those residents are more likely to be from nonwhite families or have lower incomes, the FHWA says, emphasizing the unequal distribution of external costs.

Despite being engines of economic activity, highways also exact financial tolls. Congestion consumes time and money, $892 per Austin driver by one measure. Residents incentivized by highways to live in sprawling suburbs pay more for gas and vehicle maintenance. The sprawl makes land use less efficient and public transit more difficult.

The opportunity costs — benefits lost by choosing one option over another — are also steep. For example, Texas gives up billions in matching federal transit grants by prioritizing highways over alternative forms of transportation.

Public transit in Texas misses out on millions of dollars in federal grants that match local spending, because laws and constitutional amendments require most state transportation money be spent exclusively on roads.
Michael Minasi / KUT News

“We are leaving federal transit funding on the table and essentially sending our federal tax dollars to California and New York, because we uniquely have such low transit funding in our state,” said Jay Crossley of Farm&City, an Austin-based nonprofit focused on land-use and transportation policy.

Crossley, whose organization receives TxDOT road safety grants, says employees at the state agency have been increasingly vocal about the pitfalls of an over-reliance on highway spending — often stating outright that Texas cannot build enough roads to solve traffic congestion.

He said TxDOT staff have started using something called scenario planning to consider a wider range of transportation options beyond more highways. A new long-range plan called “Connecting Texas 2050” suggests funding for “all modes of transportation.”

But the road to shifting Texas transportation priorities is long.

“It is not TxDOT staff who are imposing this view of the future of Texas. It is our elected officials [who] are holding us to this concept,” Crossley said. “TxDOT staff are not lobbying the Legislature, but they have made it clear that we are making big mistakes by only spending money on roads.”

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