By Edward Walsh
Washington Post Staff Writer
Tuesday, May 26, 1998; Page A03

RALEIGH, N.C.—Like his counterparts in 49 other states, E. Norris Tolson is eagerly awaiting a windfall from Washington. As North Carolina's recently appointed secretary of transportation, Tolson can soon expect to get his hands on more than $700 million a year from the new highway and mass transit legislation that Congress passed on Friday.

By far, the largest chunk of the more than $200 billion in the six-year reauthorization bill will be spent on the nation's highway system. But spent for what? The answer to that question may not be known for years, but here and in other state capitals across the country, the surge of new federal money is likely to set off renewed debate over how much should be spent expanding the highway system to relieve congestion and propel economic development, and how much should go to preserving what is already in place.

To a large extent, it will be state officials like Tolson who will make those decisions. For while the highway measure has numerous well-publicized pork barrel projects -- "high priority" items in congressional parlance -- there is far more money at stake in other categories in the bill that allow state officials wide latitude in deciding how to spend it.

The debate over expansion versus preservation of the highway system has become more intense since the virtual completion of the Interstate Highway System, the focus of federal transportation policy since the 1950s. To critics of state transportation departments such as the Surface Transportation Policy Project, a Washington-based advocacy group, in the past states have been too willing to widen roads and build new ones at the expense of maintenance and preservation.

"For the last 40 years, we have been engaged in building the Interstate System and the National Highway System [which consists of the Interstate highways and other designated primary roads]," said Hank Dittmar, the organization's executive director. "It is an enormous investment and to fail to maintain that system is criminal. You're essentially throwing away your capital."

Dittmar contends that a hefty portion of projected highway construction spending will only encourage more suburban sprawl. "You begin to wonder if we weren't building the roads that generate the sprawl, would you need to build the roads to serve the sprawl," he said.

Tolson agrees that there is "an element of truth" to the sprawl argument but says in high-growth areas such as the high-tech Research Triangle around Raleigh, Durham and Chapel Hill, the traffic "is going to go there anyway. You either accommodate it or you strangle your city with traffic and air pollution."

Like most state officials, he also sees economic growth -- which means building roads, sewers and other parts of the physical infrastructure -- as an imperative. "A lot of what you do in new construction is related to economic development," Tolson said. "As industry moves out from the urbanized areas, you've got to build the infrastructure to take care of it or encourage it."

According to the most recent figures available from the Federal Highway Administration, the instinct to widen and build may be diminishing.

Between 1993 and 1995, the FHA said in its last annual report on the condition of the nation's surface transportation system, the share of federal and state spending on road and bridge projects that expanded the system dropped from 49 to 41 percent. During the same period, the share of capital expenditures to preserve the system increased from 45 to 50 percent. The remainder of the spending was for other measures such as safety improvements.

In the same report, the FHA also said that the condition of the nation's highway system has remained stable or improved slightly.

But there is no guarantee that these trends will continue when higher levels of federal transportation funds under the new legislation begin to flow to the states. Strong local political and economic pressures always have encouraged road building in the country as an engine of economic growth, and soon there will be even more federal dollars available to pursue that goal. The funding formula that the federal government uses to help the states meet their highway needs is also an incentive to take on large capital improvements.

Except for interstate highways, the federal government generally does not pay to maintain the highway system, leaving that obligation to the states. But the federal government does offer $4 of its money for every $1 in state funds that go for "capital projects." These do not necessarily have to involve widening existing roads or building new ones, but in practice that is often what happens. In effect, the federal financing system encourages states to spend the maximum on capital projects in order to receive the maximum in federal matching funds.

"Most states' gas tax revenues go into two large buckets -- one for maintenance and a second bucket to match the federal aid money," said David T. Hartgen, professor of transportation studies at the University of North Carolina at Charlotte. "When I wiggle in front of your nose $4 for every $1 in one bucket and zero dollars for what comes out of the other bucket, it doesn't take a PhD in transportation finance to understand what you're going to do. You're going to put as much money in the $4 bucket as you can."

The money in the $4 bucket comes from the 18-cent federal gasoline tax, much of which is returned to the states according to a formula set by Congress. In the revised formula in the new highway legislation, so-called "donor states" such as North Carolina -- which have been sending more in gas tax receipts to Washington than they've gotten back in federal grants -- are among the big winners. North Carolina will get more than a 50 percent increase in highway funds.

No one disputes the need for road-widening and new highway construction in many parts of the country, especially in high-growth states such as North Carolina. In 1989, the state legislature here embarked on an ambitious building program by creating a special Highway Trust Fund with a portion of its state gasoline tax revenue. The fund, along with matching federal money, was to be used to build "loop roads" around seven cities, widen two-lane highways to four lanes and pave unpaved rural roads.

At the time, according to data compiled by Hartgen, 33 percent of North Carolina's highway spending went for maintenance, one of the highest ratios in the country. But by 1996, the maintenance share had shrunk to 24 percent, still more than many other states but a precipitous shift in priorities.

"As the capital focus diverts funds from maintenance, the overall quality of the existing system declines," Hartgen warned in a report last December. "At some point, the decline accelerates, so that it becomes impossible to maintain the system at current levels or improve it without great cost."

In another report for the state auditor's office issued last week, KPMG Peat Marwick LLP reached a similar conclusion. While North Carolina is spending more than ever to maintain its highway system, the report said, "when adjusted for inflation and system growth, maintenance funds have not increased to meet these additional demands."

It is not difficult to understand the attraction of road building to highway engineers, contractors and their local civic boosters. "It's the sexy part of the business," said Tolson. "That's what everybody gets excited about."

"What's driving this is the visibility of those projects," said Hartgen. "Every community in the state believes it has a worthy project either for capacity needs or for urban development. They believe a four-lane road will bail them out of whatever economic situation they find themselves in."

Even when doubts occur about the wisdom of a highway project, the allure of the money -- state funds usually matched four-to-one by the federal government -- can be irresistible.

"In Winston-Salem, the loop road was not particularly popular even among city council members," said Nat Mund, director of governmental relations for the Conservation Council of North Carolina. "However, the idea of being left out of the money that was coming was unpalatable."

In his brief tenure heading the transportation department, Tolson has received high marks from Mund and leaders of other environmental and conservation groups. He had been the state's commerce secretary, but in January, Gov. James B. Hunt Jr. (D) turned to Tolson for help with the troubled Transportation Department, where three Transportation Board members had been forced to resign amid conflict-of-interest allegations.

Tolson estimates the highway maintenance backlog is about $170 million and he has asked the legislature for additional funding to begin closing the gap. North Carolina plans "a huge amount of new construction" with its share of the new federal transportation funds, he said, but in the longer term also recognizes that there is a limit to road building and a need to focus more on mass transportation in and between its major cities.

"We know that 15 or 20 years from now -- and some of our cities are already in this situation -- urbanized North Carolina will not be able to continue to move traffic around safely with just more lanes on the highways," he said. "You can't do it."