At first glance, the Nov. 6 election barely changed anything in the nation’s capital. Voters gave President Obama four more years in the White House, kept Republicans in control of the House and Democrats dominant in the Senate.
Although few faces have changed, however, the tone on Capitol Hill has. With the election over, partisan rhetoric has given way to a sense that something must change if the United States is to put its fiscal house in order, become more globally competitive and preserve a slow but persistent economic recovery.
Starting in January, the so-called fiscal cliff — roughly $7 trillion worth of tax increases and spending cuts lasting a decade — will begin to take effect. Economic growth could shrink by 0.5 percentage point in 2013 as a result, pushing unemployment to 9.1 percent and putting the country back on the brink of recession, according to the Congressional Budget Office.
“The time for politics is over. The time for governing is now,” said Greg Casey, president and CEO of the Business-Industry Political Action Committee.
The failure to avert or significantly blunt the combination of spending cuts and tax hikes could cripple U.S. consumer demand, squeezing shippers’ supply chains. Many American businesses blamed election uncertainty for holding off on capital spending and hiring, and now the threat of the fiscal cliff is the new bogeyman.
Business concerns about Washington’s ability to get past political rhetoric and address the problem are estimated to already cost a 0.6 percent loss in GDP growth by the end of 2012, and that loss will expand to 12.8 percent over the next three years, said Jay Timmons, president and CEO of the National Association of Manufacturers. A weaker U.S. economy also would exacerbate the ailing European economy and slow Chinese production engines again — just as they have begun to regain momentum.
The pending federal cuts won’t endanger highway spending directly because transportation trust funds are exempt. Federal programs that directly and indirectly affect freight transportation, however, face more than $1.7 billion in cuts, according to an analysis of a White House report released in September.
The faint silver lining for shippers and transportation providers is that more infrastructure funding could come out of a so-called Grand Bargain to deal with the fiscal mess. The most straightforward way of boosting transportation funding would be to raise the federal fuel tax for the first time since 1993. Americans are driving less and operating more fuel-efficient vehicles, resulting in less money flowing into the Highway Trust Fund. Congress repeatedly has offset an annual funding gap of some $44 billion by raiding the general fund, but that alternative looks less feasible as the nation’s purse strings tighten.
Just maintaining spending levels isn’t enough, however. The U.S. spends about $52 billion a year on surface transportation, providing the bulk of dollars for state projects. The country, however, needs to spend at least $101 billion annually, taking inflation into account, over the next 20 years to maintain the U.S. highway system, according to the Department of Transportation. The U.S. needs to spend another $69 billion a year to improve its infrastructure, not just maintain it.
Unless funding increases or highway construction declines, the gap between federal revenue and planned spending will expand to about $147 billion by 2022, according to the CBO.
The underfunded freight system is reducing U.S. competitiveness, as evidenced by U.S. agriculture exporters losing global market share and mounting highway congestion that dampens productivity and creates a drag on the economy.
The devastating destruction of Hurricane Sandy and last summer’s drought-stymied transportation on the Mississippi River provided additional reminders of the cost of freight network inefficiency. In the World Economic Forum’s 2012 global competitiveness ranking, the U.S. fell two places to No. 7, with the fiscal debt and ailing infrastructure cited as causes.
And, although many reports decrying the “crumbling infrastructure” take too little account of the strong U.S. freight rail network and size of the country, the conclusion is the same: The U.S. is losing its competitive edge to move goods and materials.
While Congress and Obama show little appetite for raising the national fuel tax, local and state governments have had better luck convincing voters to get onboard. Sixteen of the 17 state and local ballot initiatives calling for more road and bridge funding passed on Nov. 6, according to the American Road and Transportation Builders Association. “The results show the American people are looking for solutions to address their transportation challenges and are willing to pay more if they know the revenue generated will be used for its intended purpose,” said Alison Premo Black, the association’s chief economist.
But breaking the states’ dependency on federal funding won’t be easy. More than half of the states rely on the federal government for 25 to 40 percent of their infrastructure dollars, according to a report by the Eno Center for Transportation and the Bipartisan Policy Center.
Major change comes from the top, though, as shown by President Eisenhower’s creation of the Interstate Highway System more than 50 years ago. The same goes for raising the federal fuel tax. President Clinton’s 1993 plan to reduce the federal deficit included a 4.3-cent-per-gallon fuel tax hike, the most recent increase, and President Reagan doubled the gas tax by hiking it 5 cents in 1983 as part of a broader effort to stimulate the economy.
Optimists take heart in that the Simpson-Bowles plan, a pitched roadmap to reduce the federal deficit, supported raising the fuel tax. Obama rejected the plan but has supported infrastructure spending, ranging from the $3.1 billion spent on transportation projects through TIGER grants to fast-tracking reviews of East Coast port projects.
But the president’s more expansive transportation investment plans have fallen flat. Congress, for example, blocked Obama’s plan to spend $48 billion more on transportation networks and create a national infrastructure bank. His pitch to boost investment by using the money saved through winding down of the Iraq war was widely seen as a non-starter on the Hill. Obama’s plan might still be feasible, but the president must give details on how it would work and push the idea harder, said Mortimer Downey, DOT deputy secretary under President Clinton and now chairman of the Coalition for America’s Gateways and Trade Corridors.
The chances of a fuel tax increase coming out of a Grand Bargain aren’t much better. The political will is still lacking and a transportation funding increase through a fiscal deal is still remote, said Jack Basso, director of program finance and management at the American Association of State Highway and Transportation Officials.
The odds of transportation funding needs being considered during bargaining likely would improve if Rep. Bill Shuster, R-Pa., heads the House Transportation and Infrastructure Committee. Shuster, who wants to replace John Mica, R-Fla., appears to be close with House leadership and could pressure House Speaker John Boehner to aid transportation funding through a Grand Bargain, said Joshua Schank, president and CEO of the Eno Transportation Foundation.
Whether Mica retains his spot as chair or Shuster takes the gavel, the committee will be key in crafting the next surface transportation bill and the long-delayed Water Resources Development Act. The two-year, $105 billion highway spending bill runs through Sept. 30, 2014, and Congress will have a tougher time plugging the funding gap because of scant budget offsets and increased pressure from fiscal conservatives to only spend what the HTF provides.
Transportation advocates hope the Senate again takes a bipartisan approach, even though the leadership dynamic in the Senate Environment and Public Works Committee also is changing. Sen. David Vitter of Louisiana is in line to replace to Sen. James Inhofe of Oklahoma as the ranking Republican committee member.
Transportation advocates hope that, despite their political differences, Vitter and Sen. Barbara Boxer, D-Calif., the committee chair, will continue to take a bipartisan approach like that of the latter and Inhofe. Boxer and Inhofe were influential in the Senate’s passing a surface transportation bill this year, while the Republican-controlled House failed and used a 90-day highway funding extension to begin conferencing with the opposing chamber.
Transportation policy experts also are keeping a close eye on Sen. Jim DeMint, R-S.C. The Tea Party champion is expected to become the ranking Republican on the Senate Committee on Commerce, Science and Transportation and has not been shy in trying to block legislation he doesn’t see as fiscally prudent. DeMint also tried to block the electronic on-board record mandate for the trucking industry and supports giving states more freedom to spend federal transportation dollars as they see fit.
Who heads the Transportation Department also will impact how well Republicans and Democrats work together on transportation policy. Secretary Ray LaHood, a former Republican congressman and transportation policy darling, initially said he wouldn’t serve more than one term, but recently hinted he’d be up for staying if Obama asked. Former Pennsylvania Gov. Ed Rendell and Los Angeles Mayor Antonio Villaraigosa, both transportation advocates, have been rumored as potential replacements.
Keeping LaHood as DOT chief could help the president achieve his goal of focusing on nation-building during his second term, and there would be no learning curve because LaHood already has displayed prowess in working with Congress, Downey said. He pointed to how former Transportation Secretary Norman Mineta succeeded in pushing key legislation, including SAFETEA-LU, after President George W. Bush kept him as agency head after his re-election.
Whoever heads DOT needs to “be very persuasive. (He or she) has a real opportunity, but that person needs to be someone who can work with both sides in Congress,” Basso said.
The first test to Democratic and Republican promises to work better to address the nation’s challenges will come with WRDA, the next major freight transportation bill. The legislation, last passed in 2007, is key to authorizing port and inland waterway projects, and to speed up construction by reforming the Army Corps of Engineers. With an earmark ban in place, Congress likely will struggle to rank potential projects, and reform of the Harbor Maintenance Trust Fund, the main engine for dredging funding, will come only when the country’s overall financial situation is remedied.
About half, or roughly $700 million, of the Harbor Maintenance Tax collected annually is used to plug other budget shortfalls, and a $7 billion surplus is expected by the end of fiscal 2013. Strongly worded language in legislation telling appropriators to back off likely won’t be enough, because those much-criticized offsets won’t end until the holes they plug aren’t filled or at least shrunk.
The challenges Congress and Obama face are historical in scope, but the sheer magnitude of the obstacles calls for bold solutions. Encouragingly, even in the midst of political gridlock this year, Congress still passed a two-year transportation bill, Schank noted.
“The first two years of (a president’s) second term are usually the most productive, and Republicans aren’t gunning for (Obama’s) head like they were,” he said. “The atmosphere is way better than it was in the last two years.”