The role of the private sector in public transportation dates back to the beginning of road construction in the United States. Many of the earliest major roadways in the U.S. were private toll roads. In the early years of the Republic the importance of highways for westward expansion and trade was recognized and an era of road building began. This period was marked by the development of private turnpike companies, to construct essential highways that would be operated as toll roads.
In 1792, the first turnpike was chartered and became known as the Philadelphia and Lancaster Turnpike in Pennsylvania. The boom in turnpike construction resulted in the incorporation of more than 50 turnpike companies in Connecticut, 67 in New York, and others in Massachusetts and around the country.
Over time private involvement in highway infrastructure investment and operation declined as States and the Federal government increased the pace of road construction to open new lands and increase economic development. In 1806, the Federal government passed legislation to fund the National Road, also known as the Cumberland Road. This road stretched from Maryland through Pennsylvania, over the Cumberland Mountains, to the Ohio River.
The Federal-aid Highway Act of 1916 was a landmark piece of legislation that authorized $75 million for use on highways primarily in rural areas. It required each State to have a State highway agency with engineering professionals to carry out the Federal-aid highway program. This provision led to the formation of State Highway Departments in all States and further institutionalized the role of the State in providing major highways.
The relationship between the new State Highway agencies and the Federal government that followed from the 1916 Act was strengthened by the Federal-Aid Highway Act of 1921, which created the State/Federal partnership-the hallmark of the program to this day.
Another major development was the use of fuel taxes to finance Federal and State highway programs. Beginning in the early 1900s, States and the Federal Government have increasingly relied on fuel taxes and other user fees to finance highway construction programs. The first Federal fuel tax was levied in 1932 at the rate of 1 cent per gallon. The rate varied between 1 and 2 cents per gallon until 1956 when the Highway Trust Fund was created. Since then, the Federal tax rate increased to its current level of 18.4 cents per gallon on gasoline, but the last excise tax increase was more than ten years ago. State fuel tax rates have followed a similar pattern.[11] During the era of Interstate Highway System construction, motor fuel tax increases were much easier to get approved than during the post-Interstate era when many States have had difficulty getting fuel tax increases approved by the electorate. The use of Federal user taxes like the fuel tax did not begin until July 1, 1956 (the first day of FY 1957). While the Federal fuel tax has indeed existed since 1932 and vehicle related taxes began even earlier in 1917, there was no connection between the revenue raised and highway funding.
Immediately after World War II, States increasingly recognized that modern, high quality highway systems were needed to meet growing demands for personal and commercial travel. The Pennsylvania Turnpike was the first of the modern highways to be constructed, and it was an immediate success. Between 1945 and 1955, many States, mainly located in the North and East, began to build turnpikes on their primary intercity travel corridors. These turnpikes typically were administered by public turnpike commissions or turnpike authorities that usually were not part of the State highway agency, but were separate State agencies. They were not private enterprises as many of the earlier turnpike companies had been. The tradition of publicly-provided highways had become so deeply ingrained that few thought of involving the private sector in financing and operating highways. But, States also recognized that motorists were willing to pay tolls for the comfort, convenience and speed provided by the new turnpikes. By issuing bonds and charging tolls States could construct the needed highways much sooner than if they had to finance them primarily from fuel tax revenues.
Indeed, the Federal-Aid Highway Act of 1956, although allowing 2102 miles of existing toll roads to be incorporated into the original Interstate System, prohibited the use of Federal-aid funding for the construction of new toll Interstate highways. Tolls were only permitted on new bridges, tunnels, and approaches, provided an agreement was signed that would require these facilities to become free upon collection of sufficient tolls to liquidate any outstanding debt ("free-up agreements"). Federal law has changed a number of times since 1956, with regard to the use of Federal-aid funding on the Interstate System and on other highway facilities. Currently, 23 U.S.C 301 continues to restrict tolling on federally aided facilities, except as provided under 23 U.S.C. 129 and two pilot programs.
Once construction of the Interstate System began, proposals for additional toll roads languished. By 1963, the last of the toll roads planned before Interstate System construction began opened, and few additional proposals were seriously considered for many years.
In the late 1980s some States began exploring the potential for the private sector to augment State highway construction programs. About this time, States also began exploring ways to expedite highway construction while maintaining quality and reducing the impact on the traveling public. Under the auspices of FHWA's SEP-14, created in 1990, States began to evaluate several potential contracting options, including cost-plus-time bidding, lane rental, and the use of warranties for specific project features. States also began evaluating the use of design-build contracting, especially for the more complex projects that are being constructed today to shift cost exposure to the private sector design-build contractor. Use of alternative contracting techniques continues to grow around the country, primarily for projects with tight timetables or high impact on the traveling public.
In 1991, ISTEA was enacted and established a new vision for surface transportation in the United States. ISTEA permitted the use of tolls to a much greater degree on Federal-aid facilities, including allowing Federal-aid to be used to construct new, non-Interstate System toll highways. This expansion of the use of tolls also included a congestion pricing pilot program. For the first time, private entities were allowed to own toll facilities and States were allowed to loan the Federal share of a project's cost to another public agency or private entity constructing the project. This trend in giving States greater flexibility in utilizing innovative financing and operating methods continued with subsequent surface transportation acts. These further advances will be discussed later in this chapter.