Chapter II HIGHWAY ADMINISTRATION

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The systems of highway administration extant in the various political units in the United States present a patchwork of overlapping authority and undetermined responsibility. Highway laws are being constantly revised by state legislatures and with each revision there is some change in administrative methods and often the changes are revolutionary in character. In most states, the trend is away from county and township administration and toward state administration, with provision for considerable participation by the federal government.

It will be pertinent to consider briefly the present functions of each of the administrative authorities having duties in connection with highway work in the United States, although these duties vary greatly in the several states and change periodically with the action of legislatures.

Township Administration.—Township or "Town" authority is a survival of the old New England town government and the town board consists of three or more trustees who hold office for fixed terms. The usual term is three years, but is less in some states. The incumbent is generally a man who has other responsibilities of a public or private nature and who gives but little of his time to highway matters. In some states the pay is a fixed annual salary and in others a per diem with some limitation on the amount that may be drawn in any one year, which limitation may be statutory or may be by common consent.

The township highway commissioners or trustees have jurisdiction over certain of the roads in the township, usually best described as all roads not by law placed under the jurisdiction of some other authority. In certain instances, the township authorities have charge of all of the roads in the township, which would mean that no "county" or "state" roads happened to be laid out in that township. It is a matter of general observation that the trend of legislation is toward removing from the jurisdiction of the township officials all roads except those upon which the traffic is principally local in character. The actual mileage of roads in the United States that is at present administered by township officials is large, probably constituting not less than seventy per cent of the total mileage.

In most states the township officials are responsible for the maintenance of the roads under their jurisdiction and also supervise such new construction as is undertaken. This includes the construction of culverts and bridges as a rule, but in some states the county board of supervisors is responsible for all of the bridge and culvert work on the township roads. In other states, the township board is responsible only for bridges or culverts that cost less than a certain amount specified by law (usually about $1000) and the county board provides for the construction and upkeep of the more expensive bridges and culverts.

Funds for the work carried out by the township road officials are obtained by general taxation, the amount that may be levied being limited by statute and the actual levy being any amount up to the maximum that the township board deems necessary for its purposes. It is the general observation that the tax levy is usually the maximum permitted by law.

In many states, township officials are permitted to issue bonds for road construction, almost invariably, however, with the restriction that each issue must be approved by the voters of the township. There is always a provision that the total amount of bonds outstanding must not exceed the constitutional limit in force in the state. In several states, the townships have large amounts of road bonds outstanding.

County Administration.—In some states the county is the smallest administrative unit in the road system. A county board, called the board of county supervisors or board of county commissioners consisting of from three to fifteen members, is the administrative authority. Its members are elected for fixed terms which vary in length from one to five years. The county board usually has many public responsibilities other than highway administration, and is generally made up of men with considerably more business ability than the average township board.

The county board has jurisdiction over all of the highways in the county in some states, and in others it has charge of only the more important highways. In most states, the laws set forth specifically what highways shall be under the jurisdiction of the county authorities.

In addition to having direct supervision of the improvement and maintenance of the roads assigned to county administration, the county boards in some states arrange for the construction of all culverts and bridges on the roads that are under township supervision, or at least the more expensive bridges and culverts on such roads. Sometimes this is accomplished by granting county aid for township bridges, under which system the county pays a part of the cost of the construction of bridges on the township roads. The amount of aid varies, but is generally about one-half of the cost, and the township and county officials jointly assume the responsibility of arranging for the construction by contract or otherwise.

The county board obtains funds for road work through a direct tax on all property in the county, the maximum rate being limited by statute. County boards are also authorized to issue bonds for road construction under statutory restrictions and limitations similar to those effective in the township as to total amount issued, and many millions of dollars' worth of highway bonds have been issued by county authorities in the United States.

State Administration.—In a state, the administrative authority in highway matters is vested in a board of commissioners usually consisting of three or more members. In a few states, the administrative authority is delegated to a single commissioner. Where the authority is vested in a board, that board is usually appointed by the governor. In several states one or more members of the commission hold that position ex officio; for example, in several states the governor is by law a member of the commission, in others the secretary of state or the dean of engineering at the State University or the state geologist is a member of the commission. Where the administrative authority is a single commissioner he may be elected along with other state officers, but this is the case in only a few states.

The authority of the state highway department varies in the several states, but in general the departments serve in the dual capacity of general advisers to the county and township authorities on road matters and as the executive authority responsible for the construction of those highways that are built entirely or in part from state or federal funds.

State highway departments consist of the commission or commissioner, and the technical and clerical staff required to perform the duties imposed on the state organization. To some extent the state highway departments are able to encourage economical and correct construction of highways by the township and county authorities by furnishing them standard plans and specifications and by formulating regulations to govern the character of construction, but such efforts are likely to be more or less ineffective unless the state authority has supervision of the allotment of state or federal funds to the various counties and townships. Nevertheless, most state highway departments do a great deal of advisory work in connection with the highway construction carried out by county and township authorities.

State highway departments are supported by funds obtained in various ways, laws differing greatly in this respect. The necessary support is in some states appropriated from funds obtained by general taxation, and is in others obtained from automobile license fees. In still others, the funds are secured by a combination of the two methods mentioned above. In addition to these support funds, a certain part of the money obtained as federal aid may be employed for the engineering and inspection costs on federal aid roads. The above mentioned funds are required to maintain the state highway department. In addition, the departments have supervision of the expenditures of construction funds which can be used for road construction and maintenance, and may not be expended for salaries or other overhead expense.

In a number of states, automobile license fees are set aside for financing road construction and maintenance, and the work paid for from the fees is carried out under the supervision of the state highway department.

In a number of instances, state bonds have been issued for road construction, and the expenditure of the proceeds of the sale of road bonds has usually been supervised by the state highway department.

All federal aid funds allotted to a state must be expended under the direction of the state highway department.

Federal Administration.—Federal authority in highway work is vested in the Bureau of Public Roads of the United States Department of Agriculture. The official head is the Secretary of Agriculture, but the administrative head is the Director of the Bureau. In this Bureau are the various instrumentalities needed for carrying on investigations and furnishing information to the various states on highway subjects. The Bureau also supervises the construction of federal aid roads in a general way through district engineers, each of whom looks after the work in several states.

Funds for the support of the Bureau of Public Roads are obtained from congressional appropriations to the Department of Agriculture and from a percentage of the funds appropriated for federal aid.

Federal aid is money appropriated by Congress to be distributed to the various states to stimulate road construction. It is granted to the states on the condition that the states will expend at least an equal amount on the projects involved. The states in turn usually give a suitable part of the state allotment to each county. There are various limitations as to the amount of federal aid per mile of road and the type of construction that may be employed, but these are matters of regulation that change from time to time.

It will be seen that each of the administrative authorities, except the Bureau of Public Roads, is to some extent subservient to a higher authority, and the Bureau of Public Roads is supervised by the United States Congress. Considerable diplomacy is required on the part of any administrative authority if his contact with other officials is to be without friction. This is especially true in connection with the formulation of a policy regarding the types of construction to be adopted for an improvement. The responsibility for the selection is variously placed on the township, county or state authority, the laws not being uniform in this respect. If state or federal funds are allotted to an improvement, the state authority either makes the selection of the type of construction or the selection is made by some subordinate authority subject to the approval of the state highway department. Where the improvement is paid for exclusively with township or county funds, the selection is often made by the township or county authority without review by higher authority. Many abuses have crept into highway administration through the unscrupulous methods of promoters of the sale of road materials or road machinery. A great deal of the selling activity of the agents for these commodities is entirely irreproachable, but it is well known that such is not always the case. As a result, the tendency of legislation is to require the state highway department to approve contracts for materials or construction entered into by the township or county authorities. The state highway departments can secure the requisite technical experts to determine the merits of materials and equipment and, in spite of some glaring examples of inefficiency or worse, have made a good record for impartiality and integrity as custodians of the funds for which they are responsible.

Highway Finance

The paramount problem in highway administration is the development of an adequate financial plan for carrying on road improvement. The necessary expenditures are enormous, although the money so expended is probably much less than the actual benefit resulting from the improvements.

Special Assessments.—There is presumed to be a direct and recognized benefit conferred on farm lands by the construction of improved highways adjacent thereto. Therefore, it is equitable to charge a part of the cost against the lands so benefited.

The principle of paying for public improvements by a special assessment upon private property has been long established and a large proportion of the public improvements in the cities and towns have been made financially possible through the medium of special assessments on abutting and adjacent property. The same principle has been applied to the financing of drainage projects for reclaiming farm lands. Recently the special assessment method has come into limited use in financing rural highway improvements. The policy in such cases is to assess the abutting and adjacent property in a zone along the improved road for a percentage of the cost of the improvement. The amount so assessed does not ordinarily exceed one-fourth of the total cost of the improvement and may be considerably less. The assessment is spread over an area extending back from one to six miles from the improved road. The assessment area is generally divided into about four zones parallel to the road. The zone next the road is assessed at a rate arbitrarily determined as a fair measure of the benefit, and each succeeding zone is assessed at a somewhat lower rate. Generally about three-fourths of the total assessment is placed on the half of the assessment area lying next to the road.

Many systems of making assessments have been proposed which are mechanical in application after the area and rate of distribution of benefit have been established, but in practice it is always found necessary to make adjustments on individual parcels of land because of variation in benefits received and it is impossible to eliminate the exercise of human judgment in equalizing the assessments.

Zone Method of Assessing.—The area to be assessed on each side of the improved road is divided into zones usually four in number, but a larger or smaller number of zones may be adopted. The rate for each zone is then arbitrarily determined. For a typical case, the first of four zones would receive an assessment of 50 per cent of the amount to be borne by the area; the second zone 25 per cent, the third 15 per cent and the fourth 10 per cent. Other percentages sometimes adopted are 45, 25, 20 and 10 and 60, 20, 15 and 5. The set of percentages first mentioned seems to insure the most equitable distribution for an area all of which is substantially equally productive.

When a road, for the improvement of which an assessment is being made, lies on two or more sides of a parcel of land all of which is within the assessment area, the rate is arbitrarily reduced to relieve that parcel of land somewhat, or the assessment is first spread as above outlined and afterward equalized as judgment dictates.

In applying the zone method some difficulty is encountered in determining an equitable distribution on those parcels of land lying partly in one zone and partly in another, but the rate may be arrived at with reasonable accuracy by pro-rating in accordance with the exact conditions.

In. Fig. 1, let it be assumed that the assessment area is to be two miles wide, one mile on each side of the road and the various ownerships to be indicated by the parcels of land numbered 1 to 8, as shown. Each zone for the assessment of the 3¼ mile section is ¼ mile wide and the rates for the several zones are 50, 25, 15 and 10 per cent respectively. Let it be assumed that the portion of the cost of the 3¼ miles of road to be assessed on the area shown is $20,000. The assessment would then be as follows:

[1] The assessment per unit is obtained by dividing the total assessment by the total of column three.

[2] On these two parcels, it is decided that more than half of the zone rate should apply to the half of the zone toward the improved road, but some modification of the rates adopted might be justified.

Fig. 1 Fig. 1

The assessment of the cost of the east and west one-mile section of road is made up in like manner, and let it be assumed that the portion of the cost of this road that is to be assessed on the area shown is $5500. The assessment area will be one mile wide and each zone one-fourth mile in width and the rates for each zone the same as before.

Parcel Rate Rate × frontage on
improved road =
assessment units
Amount of
Assessment
per unit
Assessment
1 a 75 75 x 1320 = 99,000 $0.010417 $1031.25
b 15 15 x 2640 = 39,600 412.49
2 75 75 x 2640 = 198,000 2062.53
3 50 50 x 1320 = 66,000 687.51
4 a 25 25 x 1320 = 33,000 756.25
b 15 15 x 2640 = 39,600
5 10 10 x 3300 = 33,000 343.73
6 10 10 x 1980 = 19,800 206.24
528,000 5500.00

It will be noted that the combined assessment for the two sections of road is especially heavy on parcels 1, 2 and 3. In order to prevent unjust charges against such properties, laws usually limit the total assessment against any parcel of land to a fixed percentage of a fair market value or of the assessed value. The assessment on these parcels would be reduced as seemed expedient and the deficit would be distributed over the remainder of the area in the same manner as the original assessment was spread. In practice such re-distribution is ordinarily made by the arbitrary adjustment in accordance with what the authorized officials consider to be fair and equitable. The method outlined is merely a mechanical means of securing distribution and must not be considered as an infallible method of making the assessment. It is always necessary to review the results in the light of the actual benefits to be presumed for each parcel of land. Nevertheless, the method outlined will prove equitable in a majority of cases.

General Taxation.—There is a general community benefit derived from the construction of good roads in that the actual cost of marketing farm products is lessened with a resulting lowering of the price to the consumer. The benefit also accrues from the greater facility with which all community business may be conducted. The introduction of better opportunities for social, religious and educational activities in the rural districts which results from improved highways is also a community benefit of no mean importance. A part of the cost of road improvement may therefore be equitably paid from funds obtained by general taxation.

A considerable portion of the current expense of maintaining the township and county highway work and at least a part of the cost of maintaining state highway activities is met from funds obtained by general taxation. Likewise, the funds required for the amortization of bond issues are often obtained from general taxation although vehicle license fees are sometimes used for that purpose.

General taxes are levied on all taxable property in a political unit under statutory provisions regulating the amount of the levy and the purpose for which the revenue is to be used. In the aggregate, the road taxes are large but in the township or county the rate is generally small compared to some other taxes, such as the school tax.

Vehicle Taxes.—The great direct benefit derived by those who actually operate vehicles over the roads justifies the policy of requiring a vehicle to pay a license fee in lieu of other taxes, the funds so obtained to be used for the construction and maintenance of public highways. In practice, this method has already been applied to motor vehicles in most states and has proven to be an important source of revenue. Its application to horse-drawn vehicles has not been attempted, due probably to the fact that such horse-drawn vehicles as use the public highways are also employed about the farm or in the towns and the determination of an equitable basis for taxation involves many difficulties.

The rate of the fee for motor vehicles should be based on their destructive effect on the road so far as that is possible. The scale of fees should therefore take account of weight and speed of vehicle and if the license is in lieu of all other taxes, it should also be graduated with the cost of the vehicle.

When funds are thus derived, every precaution should be taken to insure that the money is used judiciously for construction and especially for maintenance on those roads most useful to motor traffic.

Highway Bonds.—Bond issues for road improvement afford a means of constructing roads and paying for them while they are being used. A very large volume of such bonds are outstanding in the United States. Road bonds should be issued only for durable types of improvement and the life of the bond should be well within the probable useful life of the road surface. It is customary and highly desirable that the general nature and extent of the improvement be established before the bonds are issued. It is desirable that bond issues be subject to approval by referendum before issue and that is provided in every instance.

Highway bonds are of three classes known as Sinking Fund, Annuity and Serial Bonds, respectively. The earlier bonds issued were almost all of the sinking fund class, but in recent years the serial bond has been widely employed and is probably the most satisfactory to administer.

Sinking Fund Bonds.[1]—When this type of bond is employed, the amount of the expenditure for road improvement is determined upon and the length of the period during which tax payments shall be made is settled. To employ a concrete example, it may be assumed that $100,000 is to be expended for road work and is to be paid at the end of ten years. The interest rate on the bonds will vary with the condition of the bond market and the stability of the political unit issuing the bonds, but is usually about 5 per cent. Knowing these factors, the amount to be added to the sinking fund each year is computed. In order to pay the interest on the bonds, a tax of suitable rate is levied, and in order to retire the bonds at the end of the period, a sum is set aside each year which is supposed to be invested and draw interest which will be added to the principle, and the principle and interest comprise the sinking fund. The principle of the sinking fund is obtained by tax levies, a sum being added to the principle of the sinking fund each year.

[1] For a more detailed discussion of highway bonds see Bulletin 136, U. S. Dept. of Agriculture, which is the basis of this discussion.

The success of this method of financing depends upon the proper administration of the sinking fund. It must be invested with fidelity and the fund be kept intact. Usually the sinking fund cannot be invested at as high a rate of interest as the bonds bear and there is some loss as a result. Road bonds bearing 5 per cent interest can usually be sold at par while the sinking fund will usually net about 3 or 3½ per cent interest. The total cost of a bond issue will be greater by the sinking fund method than by either of the other methods described.

Annuity Bonds.—Annuity bonds are drawn in such a manner that the amount of the payment for principle and interest is the same each year during the life of the bond. When the amount of the issue and the rate of interest has been determined and the amount of the desired annual payment has been determined, the number of years the bonds must run is computed.

This method is convenient in that the amount of the tax to be levied each year remains constant.

Serial Bonds.—Serial bonds are drawn so that a uniform amount of the principle is retired each year after retirement starts and the total interest payments decrease each year after the first bonds are retired. The first bond may not be retired for a number of years after the issue of the bonds, but when it once starts retirement proceeds at a constant rate annually.

Comparison of Methods of Issuing Bonds.—The relative costs of financing by either of the three methods depends upon the rate of interest in each case and the net rate secured on the sinking fund provided for retiring sinking fund bonds.

For comparative purposes, some typical examples are given in Table 3. These illustrate the differences in total cost of securing $100,000 by each of the three methods at various interest rates.

Table 3

Total Cost of a Loan of $100,000 for 20 Years, Interest Compounded Annually

Annual
Interest
on Bonds
Sinking Fund Compounded
Annually at
Annuity Serial
3 per cent 3½ per cent 4 per cent
4 $154,431 $150,722 $147,163 $147,163 $142,000
164,431 160,722 157,163 153,752 147,250
5 174,431 170,722 167,163 160,485 152,500
184,431 180,722 177,163 167,359 157,750
6 194,431 190,722 187,163 174,369 163,000

Desirability of Road Bonds.—In theory the bond method of financing enables the highway authorities to construct a large mileage of roads in a few years and spreads the cost over the period during which the public is being benefited. Better prices are obtained on contracts for a large mileage than for smaller jobs, and the community can receive the benefit more quickly than where construction proceeds piecemeal with current funds. The vital consideration is to insure that the term of the bonds is well within the useful life of the road, and that ample provision is made to maintain the roads during that period. Under proper restrictions the bond method of financing is to be commended. The bonds are an attractive investment and readily marketable on satisfactory terms.


                                                                                                                                                                                                                                                                                                           

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