Perspectives



Life in the Slow Lane: Another Half a Year on the Long Road to Transportation Legislation

As we have tracked the slow progress in transportation funding legislation over the last several years, I’ve tried to look for actions that have occurred that would be worth reporting. But this time, it may be that the single most important development was something that did not occur, namely a multi-year budget agreement by the so-called “Super Committee”—established as a bipartisan working group under the Budget Control Act of 2011 (BCA) that embodied a pact to permit increase of the federal debt ceiling and avert national default. I’ll say more about that Super Committee failure later, and why it bodes ill for transportation investment, but first a quick sketch of where other matters stand.

Under the Constitution, a surface transportation bill must originate in the House of Representatives, since the bill will include provisions extending the fuel tax and related revenues, but no such bill has yet emerged. An outline issued by the Republican Chairman of the House Transportation & Infrastructure Committee, Congressman John Mica (R-FL), suggested that the House would seek some program reform, notably the reduction of funding categories, a prime focus on formula grants rather than discretionary programs and an effort to simplify project delivery by restructuring planning and environmental reviews. Chairman Mica also indicated that a House bill would contain substantially more funding for the TIFIA program under which federal loans or loan guarantees stimulate other forms of investment for revenue based projects—toll roads, sales-tax based transit projects, and the like.

But the news from the House also included a strong message that spending would have to be constrained, matching the levels called for in the Budget Resolution adopted by the House earlier this year. The Resolution called for trust fund programs to be constrained within actual revenues over a 10-year period, including retention of adequate balances for cash management. Translating into the standard six-year bill for comparison, this would imply a program level in the range of $240 or $250 Billion, an absolute reduction from the $286 Billion level of the predecessor SAFETEA-LU bill with no offset for inflation since 2005 and forward to 2016. This prospect did not gather significant support over the summer as Republican members went back to their districts, and more recently there has been an indication that the House will look for supplementary revenues to provide at least a program at current levels, probably for five years rather than six.

No specifics as to the sources of those revenues have been offered, other than the idea that they will be generated through increased oil and gas exploration and drilling, a policy that will not be acceptable for many on the Democratic side of the Congress. While work has progressed on the drafting of actual legislation by the House Transportation and Infrastructure Committee staff, no bill language has been publicized, and a recent scheduling decision by the House Leadership has put off definitive action until next year, leaving a relatively short window between the return of Congress in January and the expiration of the current surface extension on March 31st.

Over in the Senate, some progress is noted, but it is not clear when their work will be complete. Rather than waiting for a House bill to be sent over, the Senate Environment and Public Works (EPW) Committee, under Chair Barbara Boxer (D-CA), has drafted the highway elements of the bill and moved it through the committee on a bi-partisan 18-0 vote. Working with Ranking Republican James Inhofe (R-OK), Chair Boxer developed a proposal that includes program consolidation, a degree of process streamlining and an emphasis on use of TIFIA loans and loan guarantees to support major investments. The Senate bill does include a new program for freight investments and a general-fund authorization to cover Projects of National and Regional Significance, somewhat modeled on the TIGER program of recent years. As a part of reaching bi-partisan agreement, the Senate also made modest changes to the  Transportation Enhancements program, giving states some greater flexibility on applying these funds and limiting the eligible project categories. The bill contains no earmarks and does not accept President Obama’s proposal for a National Infrastructure Bank, and the House bill is likely to take a similar course on both these issues.

In the Senate, other committees must also act on the surface transportation bill. The Commerce Committee has reported its safety and research provisions, as well as a controversial title that would provide a framework for multimodal performance planning and particularly for freight related investments. The Banking Committee has not acted on the transit provisions, and more importantly, the Finance Committee has not spoken on what funding levels will be available to support the legislation. The highway title reported by EPW is a two-year bill, crafted at a level that would match the Congressional Budget Office “baseline,” a spending program under which current year spending would continue into the future with provision for inflation adjustment. If applied to the six-year bill length, this would imply a program level in the range of $320 to $330 billion. But to accomplish this, even for a two-year bill, at least $12 billion in new revenues will need to go into the Highway Trust Fund over and above the $35 billion in General Fund supplements provided in recent years, even so, fund balances will be inadequate to continue the program in future years. No source for the $12 billion infusion has been identified, although Finance Chairman Max Baucus (D-MT) has promised that one can be found and Republican Senators have offered a range of alternatives.

With the substantive provisions of the House and Senate bills likely within reach of each other, the prospects for agreement rest on some resolution of the length of the bill and its funding levels. A Senate bill at “baseline” levels for two years or a House bill at previously authorized levels for five years seem to be the bounds of reality, with the outcome controlled by the tightening constraints coming from the broader budget legislation. Thus the concern over the Super Committee, which effectively closed the door to any possible strategy for program increases.

After months of inconclusive negotiations behind closed doors, the so-called “Super Committee”— conceded that they could not meet the November 23rd deadline for submitting a proposal to reduce the deficit. Under the provisions of the BCA, the Super Committee was charged with finding at least $1.2 trillion in deficit reductions over a 10-year time frame. Had a majority of the evenly divided bipartisan committee supported an agreement, it would have been brought to the floor of the House and Senate for a final vote shortly before Christmas. As reported in the media, a major sticking point in the group’s negotiation was the Republican members’ position on taxes. Their strong preference was for no tax increases at all, although there was a last minute offer for a small amount of “revenue increases” (probably through loophole closings, but only if the agreement also included a provision establishing the so-called Bush tax cuts as permanent law). 

With no agreement in place, the provisions of the BCA require that automatic deficit cuts—totaling $1.2 trillion over the 10 years—be taken from the spending side of the budget and evenly divided between defense and domestic programs. These automatic cuts will begin on January 1, 2013 and will not be calculated for specific programs until after the 2012 election. 

While there may not have been any explicit discussion of transportation funding in the deliberations of the Super Committee, its failure cannot be a good sign for transportation programs, mired as they are in a search for additional revenues and continuing to operate on temporary extensions. 

The Super Committee failure takes away one possible path for transportation revenue increases and creates new problems as well. Some had hoped that a multi-year budget agreement could include an increase in fuel taxes to support transportation investment. This hope was not without reason since the two most recent bipartisan budget agreements in 1991 and 1993 had incorporated fuel tax increases that were first applied to deficit reduction and then transferred to transportation use. It was those increases that provided the basis for increased spending in the TEA-21 reauthorization enacted in 1997 and the sustained level of spending in the 2005 SAFETEA-LU bill. But since the latter bill was premised on a spend-down of Trust Fund balances and on tax revenues, that turned out to be illusory in the face of fuel economy gains and reduced travel during the Great Recession.

More recently, an effort at deficit reduction by the National Commission on Fiscal Responsibility and Reform—known by the names of its co-chairmen Erskine Bowles and former Senator Alan Simpson— dealt in part with transportation funding. The Bowles-Simpson report, submitted in 2010, did not lead to legislative action. Its ground rules required approval by at least 14 of the Commission’s 18 members in order to trigger Congressional action; this was not achieved when several Republicans dissented. 

The Bowles-Simpson proposals remain, however, as a model for deficit reduction. These recommendations included the enactment of a 15-cent increase in fuel taxes in order to fund transportation expenditures without the necessity of tapping general fund resources. 

As opposed to considering revenue levels as the floor for spending, the commission proposal would make revenues a firm cap on expenditures. Some had hoped that a similar plan could be enacted as part of Super Committee plan, but that vehicle will now not be available unless, as some have proposed, the Bowles-Simpson plan is brought back for a vote or if a formal plan is offered by the earlier “Gang of Six” group of centrist Senators. 

The problem of a lack of revenues is accompanied in the post-Super Committee era by a potential set of spending cuts. Under the so-called automatic triggers provision of the BCA, a cut of $1.2 trillion over 10 years, divided between domestic and defense expenditures, will be levied through a process known as sequestration.

Any spending authority put in place by Congress in a future fiscal year will be trimmed by an automatic formula that puts the totals within the caps that are consistent with the $1.2 trillion savings level. While the principle is an across-the-board reduction, there are exemptions for certain programs such as Medicare, Medicaid, Social Security and other benefits. The remaining programs, including transportation, will carry most of the domestic reduction.

While the precise cuts will not be known until calculated by the Office of Management and Budget, preliminary estimates suggest that reductions of at least five to eight percent from the Congressional Budget Office (CBO) baseline will be levied. The CBO baseline does allow for modest program growth to offset inflation, but the caps hold spending below the current levels for many years. Again on an aggregate basis, it is estimated that total spending under the caps will be constrained below the actuals for Fiscal Year 2012 until at least Fiscal Year 2019. No provision exists under current law to exempt trust funds from these caps, so in the absence of any future legislation, even an increase in the fuel tax would not allow for program growth.

It may be possible that certain transportation programs, those funded with contract authority out of user-based trust funds, may turn out to be exempt from sequestration. An analysis of this potential was offered by Jeff Davis, editor of Transportation Week, based on close reading of the BCA and its predecessor laws including the 1985 Gramm-Rudman-Hollings Act and the 2010 Statutory Pay- As-You-Go Act. The process for sequestration is controlled by procedures and definitions in these three separate statutes, and it appears that as drafted, the trust fund contract authority programs, which include the Federal Aid Highway Account, the transit formula programs and the Airport Improvement Program, may have fallen between the cracks. Without authority to trim these funds, other appropriated programs such as FAA Operations and transit New Starts will stand to get even greater proportional reductions.

Meanwhile, showing that any progress does not come easily, the FAA Reauthorization bill is still pending congressional action. FAA and its Airport Improvement Programs have been operating since 2007 on a series of short-term extensions—now numbering over 20. With big-ticket items like the NextGen air traffic control system, revenues are a very serious issue for the FAA. 

Aviation Trust Fund receipts cover a significantly smaller share of FAA’s budget. Specifically, the General Fund now covers nearly 30 percent of budget—up from 18 percent a few years ago. Some say this is an unsustainable course and raises profound questions about the schedule and ultimate cost of the NextGen program. 

How long will it take to resolve the future of transportation investment? This is a key question, but one difficult to answer at this time. We will likely see some form of a multi-year surface bill enacted around the time the current bill expires, if simply to allow Congress to say they have taken some action to create jobs. The key long term issue for the future of transportation investment is the outcome of the 2012 Presidential and Congressional elections. While there may be an agreement on a surface transportation reauthorization, it’s likely to be constrained by the budget caps as well as by the availability of sufficient revenues.

The prospect of any significant increases in either taxes or spending is well over the horizon at this time, likely not until the effects of the economic downturn are behind us. Development of transportation plans must presumably live within current revenues at best, and pressures on state, local and private funding will be extreme.

No action having occurred before Congress adjourned for the holidays, only a few legislative days remain before the aviation programs and funding again lapse as they did last summer.

 

Image Header Source: Source: Katie Harbath (Creative Commons)