Highway Costs and Efficient Mix of State and Local Funds

whereas in other states similar roads are financed locally. Larger governments attain scale economies. However, they also tend to be more bureaucratic and have higher operating costs, all else being equal, because of problems such as span of control. A study was done to relate highway expenditures with the share of expenditure by state governments to determine how governments should allocate expenditure on all roads in a state. Highways are divided into two hierarchical classes (higher and lower), governments into two layers (state and local), and costs into capital and operations and maintenance. Regression models to predict different highway expenditures on each highway class as a function of utilization, capacity, and funding shares are estimated. It is found that there is a share of expenditures by each level of government for each highway class that results in a minimum expenditure for each funding category (capital and operations). That minimum is not very far from typical state and local mixes found in many states. The results can be applied in formulation of efficient network financing arrangements. Policies can be formulated that would help adjust the financial responsibilities of transportation networks between government layers. States are continually considering returning some roads to localities while assuming responsibility for other local roads, so determining what level of government should be responsible for provision, finance, operation, and regulation of each highway class is an important issue. Management of a highway class by a geographically too small or too large jurisdiction brings about extra costs that can be avoided by appropriately assigning government layers to a roadway class. The objective of this study is to find the share of costs borne by each government layer for each highway class that minimizes expenditures. Both highways and government are hierarchically arranged. Highways are classified into hierarchies depending on the amount of through movement and land access they provide (1). The shape and slope of the hierarchical pyramid of highways depend on the length or number of highways in a state that falls into each class. Government is classified into hierarchical layers depending on the area administered under its jurisdiction. Each class of highway is controlled or financed by a set of government layers. A new dimension can be added to this problem if different costs, shared by a set of government layers, are considered. With this cost dimension, the hierarchical pyramid of highways is represented in Figure 1. …