To delay or not to delay
Debate continues over the move to delay the federal transportation reauthorization. Should it be delayed? For how long? And at what cost?
By Maria Fuentes
When the American Recovery and Reinvestment Act of 2009 (ARRA) was passed in February, it was touted as landmark legislation that was going to create jobs and jumpstart the sagging economy. States – nearly all of them facing major budget crises – are using the funding to invest in infrastructure, and to shore up other programs that were being decimated by budget cuts resulting from the economic downturn. Transportation infrastructure, that was hailed as being the cornerstone of the stimulus package, made up a scant 7 percent of the total, with highways and bridges receiving only 4 percent. While transportation advocates would have preferred more, the funding was welcome news to most states, including Maine.
Now that much of the funding – at least in transportation – has been obligated, federal and state officials across the country continue to laud the results and their own success at getting the stimulus money out: all 50 states were able to deliver on what they promised, which was to get 50 percent obligated – or committed – by June 30th.
Some states – Maine was the first to do so – obligated the remaining 50 percent well before the federal requirements. Many thought the ability of states to get the money out was a litmus test for the upcoming federal transportation reauthorization, due to expire September 30, and if states could prove their ability to get the money into the economy, it would show Congress how important it is to get the federal bill through both houses of Congress and signed by President Obama.
The price of delay
While Congress has delayed action on reauthorizing SAFETEA-LU (Safe, Accountable, Flexible, Efficient Transportation Equity Act: A Legacy for Users), some in Washington are questioning the logic behind delaying the federal bill, particularly after hailing stimulus funding as a way to jumpstart the stalled economy.
In late July, three Senate committees approved an 18-month extension of current surface transportation programs, first the Environment and Public Works Committee and the Commerce, Science and Transportation committee, and finally the Banking Committee. All three committees have jurisdiction over surface transportation programs. The Obama administration also has signaled its support for the unusually long extension.
One of the notable leaders questioning the delay is U.S. Representative Michael H. Michaud (D-Maine), who represents Maine’s second district. Michaud sits on the House Transportation and Infrastructure (T & I) Committee, and has distinguished himself as a voice for rural states, and as a member of the conservative “Blue Dog” caucus in the house. Michaud recently told Maine Trails: “Delaying reauthorization is unacceptable. We plan to move full steam ahead; we need to get the job done now.”
He noted that the U.S. Department of Transportation (USDOT) recently testified before the T & I Committee, praising the impact of the stimulus – how it has gotten the economy going, how it has created and supported jobs – and he wondered why the administration now wants to put off the reauthorization. “That just doesn’t make sense to me. If the stimulus money has been so good for the country, why would they want to delay longer term, more sustainable investment?”
He continued: “Putting off critical transportation funding is going to hurt our economy, because it is going to hurt our businesses and our workers. If I were on the verge of hiring new employees or buying equipment and I knew that Congress was talking about extensions, I wouldn’t make those investments.”
Still, Michaud conceded that things are still “very much in the air. August break is coming up, and while the house is pushing this, we have a lot of convincing to do with the Senate and the administration.”
$7 billion compromise
Congress has a long history of delaying reauthorizations of transportation bills. In fact, SAFETEA-LU was signed into law nearly two years after its predecessor ISTEA (Intermodal Surface Transportation Efficiency Act) was set to expire. Instead, Congress typically passes continuing resolutions that enable programs to continue without interruption at previous funding levels.
But this time, the stakes are higher. Revenues going into the Highway Trust Fund have declined precipitously, requiring emergency funds from the federal General Fund. As Maine Trails was going to press, the U.S. House passed legislation to transfer $7 billion from the federal General Fund to the Highway Trust Fund’s (HTF) Highway Account. The bill was in response to USDOT estimates indicating the fund will reach a zero balance sometime in August without additional resources.
The transfer is similar to the $8 billion infusion Congress approved last September as a short-term fix to keep the trust fund solvent. It also serves as a compromise between U.S. Representative James Oberstar (D-Pennsylvania), chair of the T & I Committee, and the White House over how to move forward with transportation policy.
The White House and Senate have called for a $20 billion transfer to keep the account afloat until the end of March 2011, but Oberstar has taken issue with the way the administration has wedded the funding crisis to the authorization debate. He has said a temporary patch to carry the account through the end of the fiscal year is all that is needed to give Congress the time it needs to pass a full authorization, complete with new funding provisions. While Oberstar has led his committee’s efforts to pass a $500 billion bill before current legislation expires in September, the White House and Senate leaders prefer an 18-month extension of the current law to buy more time to find new financing mechanisms for highway, transit and rail work.
The Obama Administration says that there is too much on its legislative plate to deal with transportation funding. It cites controversial climate legislation, contentious health care reform, a Supreme Court confirmation and the challenge of coming up with the funding the House T & I has said is necessary.
The sticking point is how to raise $200 billion of the proposed $500 billion transportation program ($350 billion for highways and highway safety, $99 billion for public transportation and $50 billion for high speed rail). According to USDOT and Treasury Department estimates, the federal fuel tax is expected to generate only about $300 billion in revenue over the next six years.
Transportation Secretary Ray LaHood has said that the first priority must be to fix the Highway Trust Fund shortfall so that money continues to flow to the states without interruption.
For some programs, there could be a silver lining, as funding that was supposed to expire with the termination of SAFETEA-LU would now keep going under a continuing resolution until March 2010.
In Maine, the popular Downeaster passenger rail service receives the bulk of its operating subsidy from CMAQ (Congestion Mitigation and Air Quality Funds), created by ISTEA for states to invest in projects that reduce criteria air pollutants regulated from transportation-related sources. Thanks to U.S. Senator Olympia Snowe (R-Maine) and other members of the Maine delegation, an extension to continue using these funds for the Downeaster has been approved in the past. During the past legislative session, Governor Baldacci and the Maine Legislature had hoped to replace the money with state general funds in anticipation of CMAQ funds expiring, but were unable to, due to the state’s economic crisis. According to Patricia Quinn, executive director of the Northern New England Passenger Rail Authority (NNEPRA), the continuing resolution would buy the Downeaster much needed time, keeping its CMAQ funding in place until March 2011. This is welcome news to NNEPRA, which is working with MaineDOT and the congressional delegation to identify operating funding, along with capital funding for infrastructure improvements to extend passenger service to Brunswick, using discretionary grant money available through ARRA.
Submarining the stimulus?
In August, William Buechner, economist for the American Road & Transportation Builders Association (ARTBA), said that delaying congressional enactment of a six-year federal surface transportation program investment bill until March 2011 could “submarine the entire stimulus effort to use infrastructure investment to create new jobs,” adding that “stimulus investments will be undercut without near-term action on the federal highway/transit bill.”
“We learned the hard way over the period 2001 through 2005 that uncertainty about long-term federal funding . . . leads to an overall stagnated transportation construction market,” said Buechner. “Absent congressional action on a long-term surface transportation investment bill this year, the conditions are again lined up to kill job growth in the construction sector and related industries.”
The June 2009 “Fiscal Survey of the States,” conducted by the National Governors Association and the National Association of State Budget Officers, documents the funding problems now facing state transportation departments nationwide. The survey found nearly half the states already have cut – or plan to – their funding for transportation programs this year or next.
Fifteen states have cut funding this year and 19 states – including Maine – report they plan to cut their own transportation program funding in 2010.
“The only bright spot in the transportation construction market this year is the additional federal funding made available to the states and local governments through the American Recovery and Reinvestment Act,” Buechner says.
“The stimulus funds are saving a lot of jobs,” Buechner said. But to really boost new job creation in the near term, he said, will “require a strong signal soon to the states and private sector that the federal government is fully committed to a significant, sustained and multi-year investment in transportation improvements programs.”
“That is absolutely required to get states to begin putting the larger, multi-year construction projects out to bid that spur significant capital investments in materials and equipment and create new jobs,” Buechner said. “Otherwise, we’re looking at a constricting or flat market in most states for the next several years.”
The ARTBA economic team estimates the multi-year $337 billion highway and bridge investment called for in the House bill would generate almost 150,000 new American jobs during 2010 compared to status quo road funding, if the measure were enacted this year. About half those jobs would be in the construction industry or its supply chain. The other half would be created throughout the economy.
“If Congress is looking for a second stimulus, they need look no further than the highway/transit/high speed rail program authorization,” he said. “There is no other bill under development or consideration in the Congress that would stimulate anywhere near the same job growth.”
The best evidence for this is a 2003 study by Global Insight that calculated the economic effects of an increase in highway and transit investment. The study found that every $1 billion increase in highway and transit investment generated $2.2 billion of additional GDP as the demand for products and services worked through the economy, almost $1 billion of disposable income for households, and an increase in federal tax revenues of almost $770 million.
The funding question
The House T&I Committee bill shapes the reauthorization, but it doesn’t fund it. That is the responsibility of the House Ways and Means Committee.
Rep. Oberstar’s bill leaves few funding/financing options on the table. It explicitly short circuits tolling of the interstate – a potentially large source of revenue – even though consumer surveys show that tolls are generally viewed more favorably than higher gas taxes.
The bill also severely constrains the use of private investment capital and concession-based public-private partnerships, approaches that potentially could be a source of significant supplementary revenue for transportation infrastructure. The bill would establish a new Office of Public Benefit within the Federal Highway Administration to review and approve (or reject) state plans for toll roads and to oversee new federal requirements for public-private partnership agreements. Instead of doing its best to create a climate favorable to tolling and public-private partnerships, the bill would appear to set up new barriers that could seriously discourage private investors from participating in the nation’s infrastructure renewal.
Two different federal commissions have studied the funding issue and both concluded, to nobody’s surprise, that the HTF needs an infusion of new revenues. In addition to raising the federal fuel tax –at 18.4 cents, it hasn’t increased in 16 years – the menu of funding options includes:
- issuing $60 billion in 10-year treasury bonds to finance increases in funding provided during the first several years of the bill;
- requiring fuel tax exemptions to be reimbursed from the United States General Treasury Fund;
- increasing the per-barrel fee on crude oil and imported gasoline and diesel;
- instituting a transaction tax on speculative trading of crude oil futures;
- implementing other user fees, such as an increase in the Heavy Vehicle Use Tax, vehicle registration fees and container fees to finance freight related infrastructure improvements;
- assessing a freight waybill tax that would act as a sales tax on freight shipping costs, with a 0.1 percent tax on truck freight waybills that would raise $620 million per year and a similar tax on waybills for all transportation modes that would raise $740 million annually;
- and transitioning from a gas and diesel tax to a vehicle miles traveled (VMT) fee system that charges users for each mile driven.
Funding end game?
Whether the delay is a result of real time or political constraints, the extension is likely to pass. If it does, that will give members of both houses time to get through mid-term elections. With mid-term elections behind them, Congress also might be less reluctant to vote for tax or fee hikes.
Other motivation for the delay may lie behind Secretary LaHood’s proposal. The White House may be betting on there being a brighter economic picture by mid-2011. That could allow the administration to propose a gas tax increase without suffering serious political repercussions. Moreover, by pushing enactment of the new legislation closer to the next presidential election, the Obama White House could take credit for a major piece of legislation.
Delay or no delay, the answer to the funding question lies with the House Ways and Means Committee and not the T&I Committee. Ways and Means is taking its time to come up with a revenue title to the bill, but according to press reports a majority of the committee’s members are opposed to any tax increases as a means of filling the $200 billion gap in the $500 billion bill. The committee is not contemplating any substitute revenue measures, either. And without a revenue title, the T&I Committee bill cannot move forward to the House floor.
So, as states struggle to cut their transportation budgets in the face of funding uncertainty, there remain more questions than answers. The only certainty is that the longer it takes to solve the federal transportation funding puzzle, the longer the economy will flounder.
With the economy struggling, it doesn’t make sense to delay and lose the momentum that a post-stimulus boost in infrastructure spending would bring, said Maine Rep. Michaud, “But it may be the only option we have.”