Lawmakers are running out of tricks to prevent a looming bankruptcy of the Highway Trust Fund, and shippers and transportation operators need to prepare for the nation’s ailing surface transportation network, so critical to the movement of their goods and materials, to grow even worse.
Last year, legislators scrambled to find “pay-fors,” or budget offsets, to fill the gap between what the Highway Trust Fund could finance and what was needed to maintain construction spending. The budgetary tricks — including nearly sapping the Leaking Underground Storage Tank Trust Fund, and tapping tariffs on imported vehicles — are key to maintaining surface transportation spending through September 2014. An $18.8 billion injection from the general fund is also integral to propping up the two-year bill, Moving Ahead for Progress in the 21st Century, or MAP-21, to $109 billion.
With “pay-fors” harder to defend and House Republicans pushing back against general fund spending, Congress is looking beyond Capitol Hill for help with the next surface transportation bill. Talk among legislators is ramping up about how to boost project financing, and allow states take a growing role in funding their own infrastructure and attract more private investment.
But make no mistake, these proposals, which have been discussed in both houses of Congress, won’t solve the funding mess. They could alleviate the woes, however, until Congress can stomach a fuel tax hike — either through legislation, or more likely, a grand fiscal bargain.
The Highway Trust Fund will become insolvent in fiscal 2015 unless Congress raises the motor fuel tax by 10 cents, transfers $15 billion from the general trust fund or some combination of both, Kim Cawley of the Congressional Budget Office told Congress last month. The CBO forecasts the Highway Trust Fund will face an $8.7 billion deficit in fiscal 2015 that will expand each year until it reaches a $132.6 billion shortfall in fiscal 2023.
“Today we are sounding a wakeup call, because the country’s economy, transportation systems and construction industry are at stake,” Sen. Barbara Boxer, D-Calif., said at a July 25 press conference. The Environment and Public Works chair didn’t offer a solution, however, saying only that there were many options.
The HTF faces a shortfall largely because light-duty vehicles have become 10 percent more fuel-efficient in the last 24 years, and per capita vehicle miles traveled peaked in 2005; today, Baby Boomers and Millennials are driving less, said Polly Trottenberg, undersecretary for policy at the Department of Transportation. The rising cost of construction materials — they’ve risen 73 percent since 1993 — has only exacerbated the situation, she said.
To solve the funding conundrum, Congress must raise the federal fuel tax or charge highway and road users by how far they drive using GPS tracking or another technology. The short-term outlook for either option doesn’t look good. Transportation and business interests that include the U.S. Chamber of Commerce can push all they want for the first federal fuel tax hike since 1993, but the bottom line is this: Most legislators, including President Obama, can’t risk being painted by their rivals as tax-raising bureaucrats out of touch with the plight of average Americans.
Trottenberg downplayed prospects for a vehicle-miles-traveled tax in the short term. Aside from needing its own technology infrastructure, the concept faces severe criticism over privacy concerns.
“They are unwilling to reach an agreement on increased (fuel) taxes, so by default they are going to shift the balance between the state and federal roles,” said James Burnley, who served as transportation secretary during President Reagan’s second term and is now co-chair of the transportation practice at Venable, a global law firm. States and local governments fund about 75 percent of road, bridge and highway construction, with Uncle Sam taking care of the rest.
The Obama administration’s latest transportation funding proposal — part of a grand bargain that would cut the corporate tax rate in exchange for more money for highway and bridge repair — isn’t a long-term funding fix. The new proposal won’t be an easy sell in Congress, but it has a better chance than the president’s pitch to use savings from the winding down of the Afghan and Iraq wars to pay for infrastructure projects.
Obama’s recent infrastructure statements highlight the nation’s needs, but “continuously recycling old ideas offers little substance in moving forward,” said House Transportation and Infrastructure Committee Chair Bill Shuster, R-Pa.
Congress and the Obama administration are far more enthusiastic about expanding infrastructure financing capacity than about sticking their necks out for a fuel tax hike. Expanding infrastructure financing doesn’t make up for declining HTF revenue, but it does help states and local governments get more out of the funding they have. Congress expanded the financing for the Transportation Infrastructure Finance and Innovation Act, or TIFIA, program in MAP-21 and wants to expand the federal loan program further.
Republicans also appear to be warming to the idea of creating a national infrastructure bank. The Obama administration’s push for a $10 billion national infrastructure bank stalled last year after Republican critics said it would take too long to implement, that states already had their own banks and seed money was available.
Nineteen House Republicans, however, support a proposal by Rep. John Delaney, D-Md., to create a $50 billion national infrastructure bank. The bill would allow corporations to repatriate money back to the U.S. tax-free in exchange for kicking into the infrastructure bank. A nongovernmental board would decide which projects receive financing through the bank.
“It can’t replace the totality of the (HTF), but it would take the financing responsibility out of DOT and give it to the states,” Burnley said. “It makes sense economically and is a very creative bill.”
The bill’s passage is far from certain, though. Some members of Congress would rather use repatriated money for debt reduction, while other groups, including Citizens for Tax Justice, say a “repatriation holiday” would only encourage companies to avoid U.S. taxes by using offshore tax havens. That some of the members of the infrastructure bank would come from the very companies that repatriated earnings riles the Washington-based nonprofit.
Delaney’s infrastructure bank proposal isn’t the only one Congress is kicking around. Sen. Mark Warner, D-Va., said he plans to introduce legislation again that would create a national infrastructure financing authority, a $10 billion lending entity that could leverage $500 billion in loans. Warner, chairman of the Senate subcommittee on Surface Transportation and Merchant Marine Infrastructure, Safety and Security, said a $10 billion base would come through self-financing fees, but he declined to elaborate on what type of fees.
As the harsh reality of less federal funding takes hold, the drum beat for privatizing infrastructure and forging public-private partnerships is getting louder. Too often, however, state and local governments don’t understand how to meet with their private sector counterparts to execute or even how to explore the prospects of a deal. A national public-private partnership unit could help government officials get up to speed, said Robert Puentes, a senior fellow at the Brookings Institution. For no more than $3 million annually, the federal unit would mirror those used in France, Germany and other European countries that have had far more success than the U.S. in attracting private investment to transportation infrastructure projects.
As more states raise their fuel taxes, sell bonds and enter P3s, some transportation advocates are calling for Congress to allow them to turn existing interstate highways into toll roads. Language in MAP-21 allowed states to do just that on new interstate lanes and gain exemptions on some existing lanes, but more is needed, they argue. The trucking industry, unsurprisingly, isn’t enthused about paying more tolls.
Giving local and state governments more control over their transportation infrastructure would reduce federal bureaucratic inefficiency and allow those closest to the projects to prioritize work, said Robert Poole, director of transportation policy at the Reason Foundation, a conservative think tank. Forfeiting federal control risks eroding national freight planning that takes in the networks of many states, critics contend.
But if the DOT succeeds in creating a national freight plan that serves as a roadmap to state transportation departments, then Uncle Sam could still keep his hand in state planning even if he gives out less money. But if money talks, the federal government would then have a lot less to say.