Did construction of the Interstate System contribute to the national debt?
President Eisenhower insisted that the financing mechanism for the Interstate System be "self-liquidating," so that it could not add to the national debt. The president favored a toll highway network financed by bonds, but his aides convinced him that traffic volumes would not generate enough revenue in most corridors to repay bondholders with interest. Therefore, the plan the President submitted to Congress called for establishment of a Federal Highway Corporation to issue bonds to pay for the Interstate System up-front, with the Federal excise tax on gasoline and lubricating oil (which then went to the general Treasury without a linkage to highways) was dedicated to bond retirement. Congress rejected this plan, but adopted a proposal to finance the Interstate System on a pay-as-you-go basis with revenue from highway user taxes. The revenue was credited by the Department of the Treasury to the Highway Trust Fund established under the Federal-Aid Highway Act of 1956.
The Interstate Construction Program, like the Federal-aid highway program of which it is a part, operates on a reimbursement basis. After FHWA authorizes a State to proceed with a project, the State pays the bills for eligible activities, and then submits bills to the FHWA, which reimburses the State for the Federal share. The FHWA makes a commitment (or "obligation") to reimburse the Federal share, but Interstate development takes several years. As a result, the FHWA obligation results in reimbursements to the State for the Federal share over several years. The 1956 Act included a provision named after Senator Harry Flood Byrd (D-VA), the Chairman of the Senate Finance Committee, to ensure the Highway Trust Fund would contain enough money to pay the bills. If sufficient funds are not available, the program must be reduced administratively in proportion to the imbalance.
The Highway Trust Fund financing mechanism established in the 1956 Act satisfied President Eisenhower's "self-liquidating" demand. As a result, construction of the Interstate System did not contribute to a Federal deficit.
(In 1982, the Highway Trust Fund was divided into a Highway Account and a Transit Account, which also receives some highway user tax revenue.)
Why did it cost so much more than expected?
During debate leading up to the Federal-Aid Highway Act of 1956, Congress used an estimate of $27 billion. This estimate was flawed in several ways. It was based on a report by the U.S. Bureau of Public Roads (BPR), which covered only the 37,700 miles designated in 1947. The BPR estimated that to build this mileage in 10 years to meet 1974 traffic needs would cost $23.2 billion, based on midyear 1954 prices. Second, President Eisenhower's Advisory Committee on a National Highway Program under General Lucius D. Clay (Rt.)—known as the "Clay Committee"—added only $4 billion for urban feeders and collectors, bringing the total to $27.2 billion. Considering that the BPR had assumed urban-rural costs for the mileage designated in 1947 would be split $12.5 billion-$10.7 billion, and that an additional 2,300 miles of urban routes had been designated in 1955, the Clay Committee's estimate was flawed.
Beyond the errors in the initial estimate, the 1956 Act added 1,000 miles to the Interstate System. The Federal-Aid Highway Act of 1968 added 1,500 miles, and subsequent legislation increased the mileage as well. In addition, design standards were stricter beginning in 1956, and compliance with essential environmental requirements enacted in the 1960s added to the cost of projects. As might be expected, inflation was a major factor as well.