In recent years, the formula for federal highway funding in the United States has come under scrutiny. This system, which plays a crucial role in shaping the nation’s transportation infrastructure, determines the distribution of federal highway funds among the states. However, there is a growing disconnect between this funding formula and the evolving challenges in transportation infrastructure.

History

The Federal Aid Road Act of 1916 marked the beginning of the first sustained federal program for road construction, apportioning funds among states based on land area, population, and rural post road mileage. Influenced by the balance of urban and rural interests and constitutional considerations, this formula remained largely unchanged until the Federal-Aid Highway Act of 1944, which shifted focus towards a comprehensive highway system and introduced divisions into Primary, Secondary, and Urban Systems.  Perhaps the most notable federal highway program is the Interstate Highway System, enacted through the Federal-Aid Highway Act of 1956. This act not only created the nation’s largest highway system but also established the Highway Trust Fund, funding 90% of the construction costs federally and 10% through state governments, continually fueled by taxes on gasoline and diesel fuel sales.

Throughout the 1970s and 1980s, the program diversified with many narrowly targeted programs, each with unique formula factors. The Intermodal Surface Transportation Efficiency Act of 1991 further distributed funding to states and localities, shifting some decision-making responsibilities from the federal to state and local governments. Most notably, the act created a surface transportation block grant program, funded at 80% by the federal government and 20% by state governments, as well as funding for public transportation and infrastructure repair programs. The Transportation Equity Act for the 21st Century, passed in 1998, further expanded highway programs, providing all core programs with significant cash inflows. From 1982 to 2005, state equity programs ensured that every state received a minimum percentage of federal highway funding based on the taxes paid by its users. The 2012 Moving Ahead for Progress in the 21st Century Act (MAP-21) streamlined federal highway programs and altered the apportionment method to base it on each state’s share of total apportionments in FY2012. The Fixing America’s Surface Transportation Act of 2015 (FAST Act) continued this approach with minor adjustments. The Eno Center for Transportation provided a detailed breakdown of how funding is calculated under the act in a 2019 report.

The IIJA

On November 15, 2021, President Joe Biden signed the Infrastructure Investment and Jobs Act (IIJA), a wide sweeping infrastructure package with $1.2 trillion in spending across numerous federal agencies. The IIJA included a five-year surface transportation reauthorization and provided $356.5 billion for federal highway programs, allocated under the rules set by MAP-21 and the FAST Act, to be used from FY2022 to FY2026. This funding focuses on highway bridges, electric vehicle infrastructure, and other areas. Additionally, the act reintroduced the Appalachian Development Highway System and added new programs like the Carbon Reduction Program, a federal strategy to reduce transportation-related carbon emissions, and the PROTECT Program, which focuses on making surface transportation more resilient to climate change and natural disasters.

TCS and other groups have long demonstrated that, despite increased spending on transportation and infrastructure, American infrastructure has deteriorated, with as much as 20% of roadways nationwide in “poor condition” as of 2019. This deterioration can largely be attributed to policymakers’ preference for constructing new infrastructure rather than investing in the essential yet less glamorous task of repairing existing infrastructure.  While the administration has highlighted the necessity of this level of funding, the method for dividing federal dollars among states still relies on outdated patterns, not current needs or performance metrics. Under the IIJA, nine of the core programs within the Federal-Aid Highway Program are apportioned to the states via formula. These include programs such as Surface Transportation Block Grants (STBG), Highway Safety Improvement Program, and the National Highway Freight Program, among others. For transportation funding to advance into the 21st century and to efficiently utilize the funding available under the IIJA, serious funding reforms are necessary.

Federal highway dollars are currently allocated based on divisions established in fiscal year 2012, following guidelines from the Safe, Accountable, Flexible, Efficient Transportation Equity Act: A Legacy for Users (SAFETEA-LU). This formula ensures that each state receives at least a certain amount of federal funding, equivalent to a percentage of the federal highway taxes paid by its residents. MAP-21 guaranteed that states would receive back at least 95% of these taxes . Both the FAST Act of 2015 and the IIJA have continued this approach, focusing on maintaining the existing distribution of funds rather than on specific policy goals. With recent transfers from the highway general fund, the guarantees made under

The current apportionment mechanism, while codified, does not straightforwardly describe any formula, making it difficult for Congress, state governments, and the public to assess whether the funding method effectively meets national transportation needs. Indeed, a recent report from Transportation for America, a national nonprofit focused on efficient transportation funding, determined that the complicated web of state funding formulas makes it practically impossible to track where IIJA funding is allocated once it reaches the states. Due to varying transparency levels among state Departments of Transportation, tracking whether funds are allocated to maintenance versus new construction is also challenging. It’s similarly difficult to adjust the system to better align with changing priorities, such as shifts in population, land size, highway size, or vehicle use.

Finding a Funding Fix

Establishing clear policy goals for state allocations in federal highway funding is essential, as allocations are still based more on historical formulas than strategic objectives. By defining explicit goals—such as improving infrastructure resilience, reducing congestion, enhancing safety, or promoting sustainable transport—tax dollars can be more effectively targeted.

Moreover, the continued existence of many programs within the Federal-Aid Highway Program, each with its own set of formula factors, can lead to fragmentation and inefficiencies in how federal highway dollars are allocated and used. For instance, the National Highway System program uses factors such as lane miles on principal arterial routes, Vehicle Miles Traveled (VMT) on these routes, diesel fuel use, and per capita lane miles to apportion funds. The Surface Transportation Program, which offers states greater spending discretion, is apportioned based on total lane miles of federal-aid highways, VMT on federal-aid highways, and estimated tax payments into the Highway Trust Fund (HTF).

It is time for a reevaluation of how federal tax dollars are allocated to states. The debate should now focus on several key issues: the reliance on historical distributions of funds, the policy of guaranteed minimum returns for each state, and the absence of clear policy-driven objectives.