uninterrupted rising trend extending back to the invention of the automobile.[N 1] To millions of owners, the automobile was no longer a luxury but a necessity of daily existence, and sometimes gasoline came ahead of food and clothing in the family budget. The 1931 receipts from vehicle registrations and fees were only 6.7 percent below 1929, and in 1932 the yield dropped another 1.9 percent. These were insignificant losses compared to the massive deficiencies in other public revenues. The shrinkage of $26.9 million per year in revenue from registrations and fees was more than made up by a whopping $55.5 million increase in the annual yield of the fuel tax which, with registrations, gave the States an annual highway revenue in addition to Federal aid of $807 million in 1932.[2]
This huge revenue was an irresistible magnet to hard-pressed legislatures. In the words of one commentator, “. . . the motor tax has become a big red apple within easy reach, viewed with slavering lips by every agency of government.”[3] In 1932, 16 States “diverted” $82.8 million of road-user revenue to non-highway purposes, over one-half of this by New York. Diversions increased to $145 million in 1933 and $164 million in 1934; and in the decade from 1930 to 1939 they totaled the huge sum of $1.25 billion.[4]
Diversion of highway funds to nonhighway purposes began before the Depression but did not become a real detriment to the highway improvement program until about 1930. In 1916 six States diverted their entire receipts from motor-vehicle fees—some $700,000—to nonhighway purposes. When the gasoline tax became popular, diversions increased, until by 1924 they were about $10.7 million nationwide. By this time, motorists, the automotive industries, and the good roads supporters began to be alarmed by the trend. In 1928 they had enough influence in Kansas and Missouri to push through constitutional amendments prohibiting diversion of highway revenues.
Its opponents argued that diversion was unfair because it saddled one class of taxpayers—the motorists—with more than their fair share of the general expenses of government. The author of Oregon’s pioneering gasoline tax law said, “We might as well tax sugar to build roads as to tax gasoline to run the government.”[5] In particular, diversion penalized lower income families, hundreds of thousands of whom were totally dependent on automobiles and buses to get to work and back again.[N 2]
However, the most telling argument against diversion was that it was self-defeating as a means of fighting unemployment. In 1932 J. L. Harrison of the BPE traced the employment generated by the construction of reinforced concrete pavement and found that ultimately 80 to 90 percent of the total expenditure was laid out for labor and that only one-seventh of this labor was direct employment at the road site. In other words, for every person employed directly on the job, seven others were indirectly employed making cement, aggregates, and machinery and in transporting these products through the economy.[7] Dollars, therefore, were much more effective when used to build roads than when used for direct relief or a dole.
This argument was not lost on the Congress, which not only greatly increased authorizations for roads, but also declared in the Hayden-Cartwright Act of June 18, 1934:
Since it is unfair and unjust to tax motor-vehicle transportation unless the proceeds of such taxation are applied to the construction, improvement or maintenance of highways, after June 30, 1935, Federal aid for highway construction shall be extended only to those States that use at least the amounts now provided by law for such purposes in each State from State motor vehicle registration fees, licenses, gasoline taxes, and other special taxes on motor-vehicle owners and operators . . .
Only two States lost Federal money because of this Act, but it put a brake on further diversions, while the antidiversionists marshaled public opinion for a series of constitutional amendments that, along with an improving economic climate, eventually brought the problem under control. By 1942, 14 States had such amendments.[N 3]
Priming the Pump
As the national economy continued to decline, Congress applied another stimulus in the Emergency Belief and Construction Act of July 21, 1932. This Act appropriated $120 million for advances to the States to match Federal-aid funds with the proviso that the funds should be obligated before July 1, 1933. The advances were to be repaid by deduction from regular Federal-aid apportionments over a period of 10 years.[N 4]
In a number of States, this assistance was sorely needed. Many had over extended themselves during the business boom by huge bond issues secured by the State’s highway revenues.[N 5] By 1927 bond interest and repayments were an appreciable part of the highway budget in many States, amounting to $48 million nationwide; and by 1932 this figure had risen to $90 million.[11] As had been predicted by opponents of bond financing, these payments became a heavy burden, cutting into the funds available for maintenance
- ↑ Registration peaked at 26,523,779 vehicles in 1930. From 1921 to 1926 registrations had increased at a rate of about 16 percent per year, but for the years 1927 to 1929, this rate dropped to about 6 percent per year. From 1931 to 1934 registrations were 24 to 25 million per year.[1]
- ↑ About 1940 a study by the Department of Commerce showed that half of all car-owning families had a weekly income of $30 or less, three-fourths had less than $40 per week and 90 percent less than $60 per week.[6]
- ↑ The Federal Government did not practice what it preached. Until 1956, it treated excise taxes on motor vehicles and fuels as general revenues not connected in any way with grants to the States for highways. From 1918 through 1930 the Federal Government collected $1.17 billion in excise taxes and from 1933 through 1936 another $1.08 billion.[8]
- ↑ These advances were converted to grants by the Hayden-Cartwright Act of June 18, 1934.
- ↑ Illinois had pioneered this method of placing the highway burden on the road users in its $60 million bond issue of 1919.[9] In 1923, the Legislature, against the opposition of business and financial interests, approved the issue of an additional $100 million of highway bonds.[10]
124
- ↑ Motor Vehicle Registrations and Receipts, Public Roads, Vol. 12, No. 1, Mar. 1931, p. 19; Vol. 13, No. 2, Apr. 1932, p. 39; Vol. 14, No. 3, May 1933, p. 54; Vol. 15, No. 7, Sept. 1934, p. 178 ; Vol. 16, No. 5, Jul. 1935, pp. 90, 91.
- ↑ Id.
- ↑ Diversion—An Analysis of the Practice of Applying Motor Vehicle Impost Collections To Other Than Highway Purposes (National Highway Users Conference, Washington, D.C., Jan. 1936) p. 10.
- ↑ Id., p. 22.
- ↑ Id., p. 8.
- ↑ Dedication of Special Highway Revenues To Highway Purposes (National Highway Users Conference, Washington, D.C., Aug. 1941) p. 9.
- ↑ J. Harrison, Where The Highway Dollar Goes, Public Roads, Vol. 13, No. 2, Apr. 1932, p. 21.
- ↑ Off. of Federal Coordinator, supra, note 6, pp. 53, 54.
- ↑ G. Chatburn, supra, note 13, p. 330.
- ↑ Road Location by Legislature, Engineering News-Record, Vol. 90, No. 25, Jun. 21, 1923, p. 1070.
- ↑ Supra, note 35.
