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"Clearly Vicious as a Matter of Policy": The Fight Against Federal-Aid

PART TWO: Unease in the Golden Age (Page 2 of 3)

The President Sticks to His Views

The expressions of support for the Federal-aid highway program had little impact on President Coolidge.

Overall, he was happy with the state of the national budget. His annual budget message to Congress, released on December 9, 1925, reported that the surplus would exceed $260 million in FY 1926, and the outlook for 1927 "is most favorable." The surplus for 1927 was expected to exceed $330 million. Therefore, he believed the time had come to reduce taxes to a level that would avoid deficits. Doing so "should carry an obligation not to embark upon new projects involving large, annual expenditures if we are to safeguard the integrity of our budget."

In that regard, he reiterated his views against expansion of the many Federal-aid activities, which would cost $110 million in 1927, with $80 million of that for the Federal-aid highway program. Moreover, because of contract authority, the program had an additional $116.7 million in obligations. The Federal Government had been generous, he said, having appropriated $690 million to help the States with their road construction programs. The funds were "probably necessary in the beginning" and had "expedited and so coordinated construction that all expenditures would be reflected in a definite and approved connecting highway system."

Still, the Federal contributions required the States to spend more State funds than they might otherwise have chosen to expend. Asserting that, "I am speaking for what I consider the best interest of the people," the President pointed out that Federal taxes had been decreasing while State taxes were increasing, with Federal-aid influencing the State increases:

We should keep in mind that the moneys which we have contributed to the States are taken from the people, who in turn also pay the moneys required by the State to finance their own portion of the cost. The entire cost falls upon the people. It is true that the necessity and demand for good roads are constantly increasing but they should not be constructed faster than the taxpayers can afford to pay for them. The amount that taxpayers can afford to pay can best be determined by the citizens of each State.

Aside from the burden on taxpayers, President Coolidge believed the States had a responsibility to make their own decisions about road construction:

Since the inauguration of the present plan of Federal aid for road construction the States have changed their methods of financing their portion of the expenses. A large majority of the States now exact a gasoline tax, thereby distributing the cost of road construction and maintenance to those who benefit by their use.119 The construction of roads within a State is purely a State matter and ultimately should be financed by State funds. Without further legislative enactment the States would carry on their construction to an amount which they can afford to spend on it. But the National Government is committed to the policy of assisting in the building of good roads. Commitments have been made both by the States and the Nation in this direction. It is necessary to continue them for the present.

Although the President requested another authorization of $80 million for 1927, he recommended that the Congress consider a broader issue:

I do, however, recommend for the consideration of the Congress that future legislation restrict the Government's participation in State road construction to primary or interstate highways, leaving it to the States to finance their secondary or intercounty highways. This would operate to diminish the amount of Federal contribution.

The Congress took up the President's recommendations the following year. Many of the same arguments were repeated when the Committee on Roads of the U.S. House of Representatives held hearings on road bills on February 15-20, 1926. The April 1926 issue of American Highways reprinted many of the statements delivered during testimony. The title of the reprints was:

Congress Listens To Requests For Continued Federal Cooperation
With The States In Road Building
Such Unanimous Support from All Parts of the Nation Has Never Been Received.

In addition to AASHO, organizations speaking (or submitting resolutions) in favor of Federal-aid were:

  • American Automobile Association
  • American Bankers' Association
  • American Farm Bureau Federation
  • American Federation of Labor
  • American Road Builders' Association
  • National Grange
  • National Automobile Chamber of Commerce
  • Chamber of Commerce of the United States.

In testimony, MacDonald explained that he was convinced "that highways are one of the prime essentials of our civilization and... one of the prime necessities for the maintenance of our standard of living in the rural sections as well as in the city districts." He acknowledged that the issue before the committee was not just the amount of funding, but "whether we are going to have a governmental policy or whether we are not going to have a governmental policy." He summarized the status of work under the Federal-aid highway program and indicated a higher level of funding would be needed:

I have discussed the matter at considerable length from time to time with the Secretary of Agriculture. It is the position of the Department that the program which has been operative between the Federal Government and the States should be continued, but that the program should not be increased beyond its present rate.

MacDonald said that he and Secretary of Agriculture William M. Jardine had never discussed a specific amount. Although the authorized amount had been $75 million a year, expenditures in the multi-year program actually reached $80 million. MacDonald concluded that the position of the Department was to fund the program "at the continuing rate, and there is more evidence that the program has been approximately $80,000,000 than it has been $75,000,000." He added that, "I am assuming that the position of the Department would be based on the authorization and that $75,000,000 would be the position taken by the Department."

Further, MacDonald referred to New York State's new $300 million bond issue for eliminating rail-highway grade crossings to illustrate "something of the measure of the cost of doing work of this character." American Highways reprinted a brief colloquy between MacDonald and Representative Clarence MacGregor (R-NY.):

Mr. MacGregor. Why do not all the other States do what New York State is doing, and pay for their own?

Mr. MacDonald. Mr. MacGregor, there is only one reason, and that is because all the other States do not have within their borders the city of New York. That is absolutely the only reason. If they did have, they would.

On June 26, 1926, President Coolidge signed legislation that authorized $75 million a year for the Federal-aid highway program in FYs 1928 and 1929.

Thomas H. MacDonald Responds

MacDonald, who had done so much to advance the Federal-aid cause and thwart supporters of Federal construction of national roads, was concerned by the criticism of the concept. He often addressed the Federal-aid debate in speeches and articles. However, in April 1928, he and his assistant, Herbert S. Fairbank, consolidated the arguments into a 56-page paper on "Federal Aid as a Road Building Policy." It was written in three parts:

  1. What Is It and What Has It Accomplished?
  2. Is It Aid or Cooperation?
  3. Do Some States Pay More Than They Receive?

The paper began by citing the accomplishments of the Federal-aid highway program:

What we do assert - and that without hesitation - is that, as a result of the Government's participation and the inevitable concomitants of that participation a high degree of order and harmony has been brought into what would otherwise have been at best a discordant, and at worst a planless, expenditure of effort.

The requirements of the Federal law and administration have been the strongest forces at work to effect a concentration of the State highway expenditures on the really important roads.

MacDonald and Fairbank saw the BPR as "the common denominator of the State fractions which make up the sum of national road building effort." They explained:

[The BPR] has served to disseminate a knowledge and practice of successful methods and to bring about the abolition of inefficient and uneconomic practices. It has been responsible for a standardization of construction and administrative policies at a level which tends to approach the highest. The co-partnership existing between the Federal bureau and each of the State highway departments has been the binding force which has kept the highway officials of the country to a community of effort.

The allegation that "Federal-aid" is a misnomer was not so much denied as amplified upon. Given that Federal-aid highway funds were restricted to the Federal-aid system, the paper acknowledged that the funds are not "aid" at all, but rather "a necessary Federal provision to accomplish an important Federal object - the improvement of a limited system of main interstate roads." These roads were the most important roads of the States and "the great arteries of the nation, serving both intrastate and interstate traffic to a greater degree than any other roads."

To illustrate the mix of traffic, the paper cited several examples from the East Coast. In Connecticut, for example, interstate passenger car traffic was more than half the total use of the Federal-aid system. During the summer season, a third of the traffic in Vermont and a half of the traffic in New Hampshire originated beyond their borders.

Delaware and New Jersey had a different situation, serving as "bridge" States for traffic coming from and bound for elsewhere. A large amount of traffic in Delaware did not carry Delaware license plates. New Jersey, dating to the Colonial period, carried a high percentage of traffic between New York City and Philadelphia and points beyond.

The paper listed Connecticut, Delaware, Maryland, Massachusetts, New Jersey, and Rhode Island as States that "by virtue of their size and position in the eastern tier, are carrying especially heavy burdens as a result of traffic originating in and destined to their sister States." Other States, such as New York and Pennsylvania, "are less heavily burdened with traffic not their own." The paper added:

It is precisely this unequal pressure of interstate traffic that cries aloud for relief and equalization through Federal contribution to the cost of providing the main highway facilities. It is rather remarkable, therefore, that such opposition as there is to continuance of the Federal-aid policy should spring so largely from this section in which the need for the compensation it offers is so clear.

In the western public lands States, where much of the traffic was from elsewhere, "there is no doubt whatever of the absolute necessity of Federal cooperation."

Based on this analysis, the paper stated:

So it is asserted with ample basis we think, that the Federal provision for road construction, called Federal aid, is not aid at all, but a Federal payment for a Federal purpose. It is not a gratuity calculated to break down the independence and the initiative of the States any more than, let us say, the improvement of rivers, or the building of post offices or army posts, or any other construction work by the Federal Government within State jurisdiction is calculated to do so, for no less certainly than these is the Federal cooperation in interstate road construction a necessary Federal activity.

MacDonald and Fairbank stated that the constitutional authority was "clear." Therefore, they addressed only the power "to establish Post Offices and post Roads." Because of the modern interpretation of these words, they said, Congress in 1916 limited Federal-aid to roads over which the mail was carried. This was "no limitation at all" because rural delivery routes equaled 1.2 million miles as of January 1927. A true limit had been imposed in 1921, with the Federal-aid system comprising no more than 200,000 miles.

From a historic perspective, the modern understanding of "post roads" was "one of those curious inversions of the meaning of words" that occurs over time because of changing habits and customs:

The original "post roads" were the highways over which journeys were made of such length as to necessitate accommodations for the changing of horses and the over-night lodging of travelers. To provide those accommodations post houses or inns were established at convenient intervals and the roads took their name from these posts... By reason of the fact that the carriage of parcels and packets necessarily took place over the post roads, the public agency which performed that service became the postal service, and the stations already established for other purposes naturally became the post offices.

This was, the paper asserted, the understanding of the term "in the minds of the framers of the Constitution."

With the constitutionality of the program explained, MacDonald and Fairbank considered the charge of extravagance to be the weakest objection to Federal-aid:

By some, the plan has been attacked on the ground that the Federal expenditures are excessive. Others fear that it will encourage the States in an extravagant expansion of their road expenditures.

In response, the paper explained that whether as a percentage of total government expenditures (2 percent) or as a percentage of total highway expenditures (8 percent), the amount of Federal-aid funding is relatively small. More important, the paper asked what expenditures could rightly be considered extravagant:

Public expenditures for road construction are investments... The money is simply converted into [roads that] so facilitate the movement of vehicles and so greatly reduce the operating costs of highway transportation that the sums invested in the roads are returned to the public, with very considerable increase, in the saving of transportation costs. When viewed in this light, one is almost prepared to say that no possible expenditure for road improvement could rightly be regarded as extravagant.

The paper addressed the frequently raised objection by some States that they contribute more to the Federal Government in taxes than they receive. In this era before the Federal excise tax on gasoline, the objection referred to revenue from all Federal taxes, including income taxes, compared with Federal funds returned to the States:

Of course, those who complain that this or that State pays more than it receives utterly ignore the national objects of the expenditure - the connection of State with State, the construction of transcontinental highways over the mountain passes and across the desert spaces of the West, the building of roads for national defense. They overlook the fact that from the national point of view the need for Federal expenditure is not gauged at all by the wealth of the States nor by their tax contributions, but rather by the area to be spanned and the mileage to be built, and the traffic to be accommodated. All these things they fail to take account of; and insist only that if there is to be any Federal expenditure at all, no State should benefit in lesser proportion than the percentage of internal revenue collected from it.

The paper also challenged the common assertion that revenue collections reported as received from each State represent taxes paid by the citizens of that State. Certain taxes were clearly paid by each State's citizens - the individual income tax being the primary example. But as AASHO had pointed out, corporate income taxes were collected where the corporation's business offices were located even though "they are ultimately paid by the stockholders whose homes may be, and often are far removed from the place of tax collection."

Similarly, the taxes on manufactured articles and commodities were collected where the manufacturers have their office. However, they "are ultimately paid by consumers all over the land." For example, a high percentage of the revenue from the tax on tobacco is collected in North Carolina and Virginia, but the taxes "are actually paid by consumers in every State." The paper also cited Michigan, which paid $198 million, or 7 percent of the Federal total in internal revenue collections, but received only 3 percent of the Federal-aid. The paper suggested that before concluding that Michigan was being treated unfairly, critics should consider several factors:

[We] find that it includes over $48,000,000 of excise taxes on motor vehicles and nearly $4,000,000 of tobacco taxes, the ultimate payment of which is by citizens of many States. We find also that the corporation income taxes are more than half of the total, and without question a large part of this portion of the receipts consists of taxes on the income of motor vehicle manufacturing concerns, which are really paid by the widely scattered stockholders in these great corporations. A very large part of the individual income taxes of $38,000,000 is paid by the Fords, father and son. The exact amount of their tax in 1927 is not readily available. In 1923 it was more than $21,000,000.

In short, when such factors are considered, "it is more than probable that it would be found that [the citizens of Michigan] pay no more than their proportional per capita share and no more than the percentage of Federal aid they receive."

The paper also challenged the basic assumption behind the complaint:

It is a false theory which assumes that States contribute to the Federal Treasury. The Federal taxes are paid finally by individuals all over the land who, wherever they may live, are citizens of the United States. They pay their taxes to meet Federal needs, and the improvement of the Federal-aid highway system is such a need.

To the objection by some States that they built their own roads with their own money, MacDonald and Fairbank responded that this view assumed that Federal funding is "a gratuity toward the accomplishment of improvements of benefit solely to the individual States." This assumption has already been "shown to be incorrect." The view also assumed "that roads are improved once for all time." History proves this theory wrong. Moreover, all the States, without exception, "are absorbing the Federal apportionments in the making of needed improvements."

Finally, the paper addressed the charge of paternalism:

... that it is an unwarranted Federal infringement upon State authority, that its administration is bureaucratic and not amenable to the will of the people, and that it fastens upon the taxpayers the burden of maintaining an army of Federal jobholders.

The paper had previously demonstrated the constitutional basis for Federal-aid. To the other points, the paper noted that the Federal-aid program placed the initiative in all matters in the hands of the State highway departments. A "studied effort" was being made to accommodate the particular circumstances of each State "by decentralization of authority and the avoidance of impracticable general standards." Further, every major administrative policy of the BPR had the support of AASHO.

As for "bureaucracy," the paper explained:

That of every dollar of Federal money appropriated 97½ cents goes into the labor and materials of actual road construction, and the other 2½ cents not only pays the entire cost of the Federal-aid road administration, but also supports the research activities of the Bureau of Public Roads.

At the end of the third section, MacDonald and Fairbank brought the article to a quick conclusion:

How successful the Federal administration has accomplished the aims which it has set for itself, and whether or not its stewardship has been efficient and effective: those questions we leave to others to judge.

The Depression

Despite the feverish pace of the roadbuilders in the 1920s Golden Age, they could not keep up with the growth in traffic. Auto sales had reached 1.6 million units by 1921, but by 1929, the Nation's automobile manufacturers were selling 5.3 million units a year. Over 26.5 million vehicles were operating on the Nation's roads. Congestion in cities was growing. Crashes were increasing - fatalities nearly tripled from 10,723 in 1918 to 31,215 in 1929. They cost an estimated $1.3 billion in 1929.120

Road builders expected 1929 and the years beyond to be a period of booming growth. An editorial in the January 1929 issue of Highway Engineer & Contractor said:

A very few years ago roadbuilders were begging the public to permit the construction of adequate highways; to-day the market has reversed, the public is bulling the roads market because of the rather general inadequacy of the roads to care for traffic...

The roadbuilding industry is in an exceedingly healthy condition... and can confidently be expected not merely to maintain the present volume of expenditure but to materially increase such expenditures. Highway building has not yet grown up to the motor vehicle industry and, unless the motor vehicle industry stagnates, must as Alice was told by the White Queen, "run as fast as it can just to stay in the same place."

However, in October 1929, the stock market crashed, leading the economy into a rapid downward spiral as the stock losses rippled through the economy, bringing down banks, businesses, and faith in the future. Economic troubles had bubbled under the surface of the Roaring 20s, particularly in the agricultural sector, but the free-wheeling stock market built on a bubble of unsecured debt was the trigger for the Depression that would be unlike anything - the "panics" of the past - the country had experienced. Gordon summarized the problem:

World trade collapsed, corporate profits vanished, the incomes of the rich - the only people to feel the personal income tax in those days - steeply declined, and government revenues plunged.121

Calvin Coolidge had once told his energetic Secretary of Commerce, Herbert Hoover, that the Federal Government had no right to meddle in stock market matters. But Coolidge left office on March 4, 1929, leaving his successor, Hoover and his Vice President, former Senator Curtis of Kansas, to face the public's anxiety after the market collapsed and took the rest of the economy with it.

President Hoover was a mining engineer who became one of the most respected and beloved men in the world because of his work during and after World War I to relieve food shortages in Europe and the new Soviet Union. He had served as Secretary of Commerce under Presidents Harding and Coolidge.

Although President Hoover believed that a balanced Federal budget was essential for recovery, he viewed public works as a method of "pump priming" to create jobs for the millions of unemployed. The highway community was ready to help. The December 1929 issue of Highway Engineer and Contractor carried an editorial that had almost as positive a tone as the editorial at the start of the year:

While road building goes on almost regardless of business depressions... the high price of money during the past year has had an unfavorable effect on the financing of highway improvements due to the slowness in the bond market...

Never were conditions more propitious for a tremendous volume of highway improvement. While road improvements should be in advance of demand created by motor vehicles, we have a condition of lack of facilities which can and must be corrected. Money can be obtained for public works, President Hoover is in favor of expansion in the public works program, and industry is "rarin' to go."

The editorial guessed incorrectly that the stock market would revive quickly ("we find conditions more favorable for a bull market in stocks than have ever existed"), but correctly stated the situation facing the road builders:

Conditions are right for a big road building year.

The Depression triggered changes in the Federal-aid highway program and delayed consideration of the next stage for meeting traffic demands. However, a halt in road construction was not one of the changes, as Seely pointed out:

About the only elements of American society that are usually acclaimed for having had a "golden age" in the 1930s are radio, cinema, and streamlined trains, but road building also continued to merit that description. The highway boom of the 1920s continued despite the Depression, as road builders faced a sharp drop in funds only during 1932 and 1933. By 1934 both state disbursements and highway user-fee receipts were above 1929 levels and continued to increase through the end of the decade. Almost no other area of the economy "recovered" so quickly.122
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  1. "Federal Aid in Jeopardy," Motor Land, date unknown, p. 12, 40, 44.
  2. In 1919, Oregon became the first State to tax the sale of fuel for motor vehicles. "The tax was adopted by other States because it proved at least a rough measure of highway use, was relatively painless to the taxpayer, and easy for the State to administer." America's Highways 1776-1976, p. 242.
  3. America's Highways 1776-1976, p. 114-115.
  4. Gordon, John Steele, "The Federal Debt," American Heritage, November 1995, p. 86.
  5. p. 88.
Updated: 10/15/2013
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