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When the federal government subsidizes certain types of infrastructure, the states want to grab a
share of the funding and they often don't worry about long-term efficiency. High-speed rail is a rare
example where some states are rejecting the "free" dollars from Washington because the economics
of high-speed rail seem to be so poor.11 The Obama administration is trying to impose its rail vision
on the nation, but the escalating costs of California's system will hopefully warn other states not to go
down that path.12
Even if federal officials were expert at choosing the best types of infrastructure to fund, politics usually
intrudes on the efficient allocation of dollars. Passenger rail investment through Amtrak, for example,
gets spread around to low-population areas where passenger rail makes no economic sense. Indeed,
most of Amtrak's financial loses come from long-distance routes through rural areas that account for
only a small fraction of all riders.13 Every lawmaker wants an Amtrak route through their state, and the
result is that investment gets misallocated away from where it is really needed, such as the Northeast
Another problem is that federal infrastructure spending comes with piles of regulations. Davis -Bacon
rules and other federal regulations raise the cost of building infrastructure. Regulations also impose
one-size-fits-all solutions on the states, even though the states have diverse needs. The former 55 mph speed limit, which used to be tied to federal highway funds, is a good exa mple. Today, federal
highway funds come with requirements for the states to spend money on activities such as bicycle
paths, which state policymakers may think are extraneous.14
Decentralizing Infrastructure Financing
The U.S. economy needs infrastructure, but state and local governments and the private sector are
generally the best places to fund and manage it. The states should be the "laboratories of
24 | P a g e States CP BDL democracy" for infrastructure, and they should be able to innovate freely with new ways of financing
and managing their roads, bridges, airports, seaports, and other facilities.
It is true that — like the federal government — the states can make infrastructure mistakes. But at
least state-level mistakes aren't automatically repeated across the country. If we ended federal
involvement in high-speed rail, for example, California could continue to move ahead with its own
system. Other states could wait and see how California's system was performing before putting their
own taxpayers on the hook.
A big step toward devolving infrastructure financing would be to cut or eliminate the federal gasoline
tax and allow the states to replace the funds with their own financing sources. President Reagan tried
to partly devolve highway funding to the states, and more recent le gislation by Rep. Scott Garrett (RNJ) and Rep. Jeff Flake (R-AZ) would move in that direction.15 Reforms to decentralize highway
funding would give states more freedom to innovate with the financing, construction, and
management of their systems.16
One option f...
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This document was uploaded on 02/06/2014.
- Spring '14