Perspectives



The Clock is Ticking...Again

Over the past years of writing this column, it seems that uncertainty has reigned more often than not. The period of time it takes to pass new legislation is sometimes longer than the period covered by the new bill. In planning for major new transportation investments, we would like to see stable funding ahead over the life of a project, but instead we see the potential for short-term allocation and uncertain cash flow. The passage of MAP-21 (Moving Ahead for Progress in the 21st Century) in July of 2012 gave the transportation sector funding through two federal fiscal years (FY 2013 and FY 2014) running through September 30, 2014. But now we are more than half-way through that period and beginning to ask what may come next.

The difficulty in gaining passage of MAP-21 is related primarily to the lack of revenue to cover its projected expenditures. With no prospect for being able to come up with new revenues, the House of Representatives tried to fund a two-year bill by reallocating all highway trust fund receipts to cover highway spending, leaving all transit programs to be paid for from the general fund.  The Senate bill put together a patchwork solution, extending current taxes long enough to cover the program authorization period and filling in the gap with general fund appropriations. Those general fund appropriations had to be offset with a menu of specific, one-time measures to expand non-transportation revenues. The fundamental gap between transportation revenues and transportation expenditures was not addressed, and the trends that caused that gap have not changed. Even with a modest degree of inflation, the costs of transportation construction rise while gas tax revenues are locked in at a fixed level per gallon. Adding

to the pressure is the steady rise in fuel economy, with the auto industry on a path towards doubling gas mileage and therefore reducing absolute revenues. Stir in a recent decline in miles driven based on economic and societal changes, and the result is a serious problem for transportation funding.

While the mix of taxes and appropriations provided in MAP-21 was thought to be enough to scrape through to September 30, 2014, there are indications that the highway trust fund may go dry at an earlier date, and certainly will not keep up with spending into a new authorization period that begins in fiscal year 2015. In that year, it is likely that incoming revenues will at best cover outlays for projects already underway, leaving no room for commitments to new projects. Suddenly, the normal expectation for a $50 billion level of new obligations, divided roughly $40 billion for highways and $10 billion for transit, would drop to zero for at least a year. That’s the prospect we face, and there is now only nine or 10 months to come up with a solution.

So what’s happening? Both the House and the Senate have begun a slow process to address the problem. The House Committee on Transportation and Infrastructure (T&I) has indicated its intent to draft legislation, but the timing of that action is uncertain. It has been working on a water resources bill, WRRDA (The Water Resources Reform and Development Act), and expects to turn next to a rail authorization bill to carry forward Amtrak and other rail programs whose authorization expired a few months ago. Only then will the committee turn to transit and highway legislation. The Senate has passed its water resources bill and a House-Senate conference is now underway, but there is no declared schedule for beginning to draft surface legislation by the three Senate committees that share jurisdiction over highway, rail, and transit programs. And the committees with jurisdiction over taxation—House Ways and Means, and Senate Finance—have maintained radio silence with respect to their intentions.

When the 113th Congress returns in January to begin its second session, the issue will begin to heat up, but can it overcome the partisan obstacles that stand in the way of any legislation in our currently divided government? The antipathy to any form of new taxation remains strong and most players have also pledged that they will not continue to provide general revenues to fill the gap. At the same time, the prospect of a zero-level program can create a momentum to get something done. Recent developments suggest that there is an underlying support for infrastructure programs on both sides of the political aisle. In the House, careful homework by the new T&I Chairman, Bill Shuster (R-PA) built a bipartisan coalition for passage of the WRRDA bill by a nearly unanimous 417-3 vote on the House floor. Shortly thereafter, the committee’s special panel on freight transportation issues put out a report calling for new investment in freight projects and asking the administration to come up with revenue recommendations. This report, like WRRDA, gained strong bipartisan support, with all 11 panel members, reflecting a diverse political spectrum, signing on to its recommendations. On the Senate side, the Chair of the Committee on Environment and Public Works, Senator Barbara Boxer (D-CA), has spoken favorably about revisions to the gasoline tax that would make it more responsive to inflation, and looking back to the passage of MAP-21, there were a few Senators who spoke up for an actual increase in gas tax levels.

While the climate for tax increases has not changed appreciably, there is a slight prospect for consideration as part of a broader tax reform package that both houses are quietly developing. The fact that several states have passed legislation to increase or otherwise diversify their transportation revenues suggests that it can be done. Looking to the prospect for tax legislation, Congressman Earl

Blumenauer has introduced legislation to raise fuel taxes by 15 cents over the next few years, matching the tax proposed by the earlier Simpson-Bowles budget reform commission. Blumenauer also introduced a bill to encourage the development of a mileage-based user fee (MBUF) system as a future replacement for the current fuel tax. See Jack Basso’s article in this issue of EFR (Long-Term Sustainable Surface Transportation Revenues: What is the Future?) for further information on MBUF’s.

There is no indication at this time that the Obama administration’s no-tax position has softened. When asked about the House T&I recommendation that he should propose revenues, US Transportation Secretary Anthony Foxx responded by saying that the administration would be glad to consider any ideas generated by the Congress. Clearly we are a long way from an agreement that would have the President and the Congress share the responsibility for obtaining necessary revenues. And as the debate will be taking place during the run-up to the mid-term congressional elections in November 2014, the reluctance will be strong on both sides.

On the substantive side, the barriers to legislation are arguably less than were faced in getting to MAP-21. There is a general belief that MAP-21 reforms, covering both program simplification and expedited project delivery, were substantial and that the key issues for a successor bill relate primarily to funding. However, there is still some ground to be covered. If there is not a free-standing rail bill enacted before the surface bill is done, unfinished business includes an extension of project delivery measures to rail projects, and there will be some pressure, particularly from Republican members, to go for additional steps to expedite projects. The MAP- 21 reforms are still being played out with many regulations and guidance still pending and there is still a belief that more reform is possible. Again, if rail issues become part of a surface bill, there will be debate over the future of Amtrak and intercity rail and a desire to reform the Railroad Rehabilitation and Improvement Financing (RRIF) program. Freight-related legislation, including some dedicated programs for freight investment, fell out of MAP-21 but will resurface in the current debate, particularly in light of the T&I panel recommendations previously referred to. There is also continuing interest in some form of an infrastructure bank, with new legislation recently proposed in the Senate and an innovative idea developing in the House to use revenues generated by encouraging US corporations to pay reduced taxes on offshore profits as a means of capitalizing such a bank. And, while federal investment remains critically important in light of our infrastructure needs, some important relief has come at the state and local levels. The several states that have recently increased or supplemented their fuel taxes, notably Maryland, Pennsylvania, Virginia, and Wyoming, will be expanding their investment programs to address their emerging transportation needs. At the local level, voters continue to support ballot measures for transportation investment.

There continues to be uncertainty with respect to overall budget and appropriations levels. Even though the core highway and transit programs have separate budget treatment, the overall need for deficit and debt reduction has considerable impact on consideration of transportation programs. In the fall, Congress and the administration reached agreement on temporary measures to end a government shutdown and temporarily increase the federal government debt limit. Part of the rationale for that agreement was to buy time for a more comprehensive solution, but no such “grand bargain” seems to be in the works. A more likely prospect is a much reduced set of measures that would alleviate some portion of the across-the-board sequestration cuts and provide a framework for enactment of regular appropriations bills after several years of continuing resolutions. A few key transportation programs are affected, including the level of general funds made available for certain transit activities such as New Starts and special aid to the Washington Metro, as well as the future of the popular TIGER (Transportation Investment Generating Economic Recovery) program which the appropriators have carried forward for several years despite its lack of a permanent authorization. Relaxing the sequestration cuts would help these transit programs, but if TIGER is not continued, there is no comparable way to support multimodal and other innovative investments.

Congress, in enacting a Budget Resolution to cover FY 2014 and FY 2015, has opened a door to additional transit investment, but at the same time made the task more difficult to achieve. The Resolution constrains the programs to their historical baselines, but includes a provision allowing for expanded program levels if new tax revenues or offsetting program cuts can be achieved. At the same time, another provision makes it very difficult to provide supplementary General Fund revenues, as was done in MAP-21. Any such enhancement of the trust fund would have to be offset dollar for dollar in the same fiscal year that the transfer is enacted—an almost impossible challenge to undertake in mid-year.

So, will we see action this year in light of all these barriers? Probably the greatest driver is the potential consequence of a “zero $” program for fiscal year 2015. Resolving the funding problems on a long-term basis is surely difficult, but explaining a short-term halt in transportation investment would also be problematic in an election year. While all the parties will express their desire to get something done before the September 30 deadline, we’ve seen before that extensions and stopgaps can result when no positive actions can be found. The clock is ticking… and don’t be surprised if it ticks into an overtime period.

 

Image Header Source: Ted Eytan (Creative Commons)