AN ECONOMIC ANALYSIS OF FINANCING AN INTERSTATE HIGHWAY SYSTEM*

Abstract

IN 1955 THE FINANCIAL needs of the Interstate Highway System were estimated to be approximately $27 billion. The 1956 FederalAid Highway Act had as its basic objective the satisfaction of this need. The act established a pay-as-you-go financial plan for the 41,000-mile Interstate System. For the first time in the financial history of providing highway services, the federal government earmarked highway-user revenue for highway expenditures. Congress expressed an intent to have the Interstate System completed by 1969. The pay-as-you-go financial plan has not been successful in the first four years of the program. The original appropriations enacted by Congress in 1956 have not been met. The Byrd amendment had to be suspended in 1958 to enable authorized appropriations to be made for fiscal years 1959 and 1960. Furthermore, there is little doubt that the highway trust fund will have a deficit balance in the fiscal years 1960 and 1961. Pay-as-you-go financing cannot accomplish the goal of a 41,000mile system in a thirteen-year period. The projected cost and revenue schedules have not been realistically conceived. Costs have risen about 37 per cent since the inception of the program. Highway-user taxes have had to be increased to keep the program on a cash basis. Motor-vehicle users are becoming cognizant of the financial burden. At a realistic cost estimate of $37 billion, the Interstate Highway System cannot be modernized in thirteen years on a pay-as-you-go financial plan. A go-before-you-pay program is not difficult to justify as a solution for the financial problem of the Interstate Highway System. However, the advantages of a bond program should be considered in the light of the current debt-management problems of the federal government and the economic costs of utilizing public credit. Interstate highway construction has not jeopardized the financial position of toll roads. Toll financing has been incorporated into the financial scheme of the Interstate Highway System. Opportunities