Perspectives



Play Ball!

This Perspective was written in early May 2014.

After a long and hard winter, spring has finally arrived in Washington. With the coming of spring, two questions are on my mind and the minds of many in the nation’s capital. First, how will the Washington Nationals do this season? And second, will there be a surface transportation bill? Come fall, we will have the answers to both those questions, and there is a similarity between them. In the pre-season, it’s easy to have optimism about the outcome. Many sportswriters are listing the Nationals as prospects for at least the National League championship, based on a strong array of talent if not on past performance. And the outlook for a solid reauthorization bill is similarly based on hope rather than history. Infrastructure is being largely recognized as an important factor in our economy. The Administration and Congress are looking at the needs and the opportunities. As always, the industry groups are sketching out their desires for a new bill. And while there is far from consensus on a way to pay for investments, there is at least some debate around various potential sources.

The calendar is a constraint and needs to be recognized. The current surface transportation bill, MAP-21, expires on September 30th. Other related programs have actually exceeded their reauthorization cycle, with the legislation that authorizes Amtrak and other rail investment having expired in September of 2013 and legislation for water-related transportation having gone for years without action. The annual cycle of budget and appropriations is likely to go relatively smoothly this year, since the agreement last December that was reached with respect to budget levels for the current year (fiscal year 2014) included aggregate budget limits for fiscal year 2015, thus empowering Congressional appropriators to do their work on the normal schedule.

But overshadowing all of these schedules is the timetable relating to dwindling balances in the Highway Trust Fund. According to the “ticker” on the US Department of Transportation (USDOT) website, the highway account will reach a low point this summer at which the fund will not be able to offer timely reimbursement for state expenditures on highway programs. The Fund’s transit account will reach that point early in the next fiscal year. As we will discuss, the question is whether Highway Trust Fund insolvency will be an incentive for comprehensive action or whether the steps needed to shore up the Fund turn out to be the first in a series of temporary measures.

Lessons from the Water Resources Development Act

While there is only limited connection between surface and water-related legislation, the actions in recent months on reauthorizing Army Corps of Engineers’ programs, through a Water Resources Reform and Development Act (WRRDA), may offer some useful lessons. In what might be seen as a pre-season warm-up, many of the same players approach matters similar to the central issues in surface reauthorization.

The two major committees involved—Senate Environment and Public Works (EPW) and House Transportation and Infrastructure (T&I) have responsibility for all of the WRRDA issues as well as the core highway issues contained in surface transportation. Senator Barbara Boxer (D-CA) was the chief author of MAP-21 and continues as the EPW chair for this round. On the House side, there is a new Chairman of T&I. Congressman Bill Shuster (R-PA). Shuster is a seven-term veteran on the T&I Committee and son of former Congressman and T&I Chairman Bud Shuster, who managed the successful 1995 reauthorization bill known as TEA-21. In the WRRDA process, Senator Boxer and Congressman Shuster have developed working relationships that should help move surface reauthorization legislation along.

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The issues are similar: What should be the nature of the federal investment and how do Congress and the Administration participate in project decisions? How can the project development process be accelerated? And how should the program be paid for? In the water bill, the Trust Fund issue is the reverse of the surface bill, with a Harbor Maintenance Trust Fund that is not spending the revenues coming in and is therefore amassing large balances similar to those carried in the Highway Trust Fund prior to 2008.

Progress on the WRRDA bill bodes reasonably well for future cooperation on MAP-21 reauthorization. In a sign that infrastructure investment is considered important, advocates took heart from the 417-3 vote on House passage of its version. Final agreement was achieved in late May with a 91-7 vote in the Senate and the President’s signature. With WRRDA now in law, the surface issues can move into the spotlight.

Positioning for Surface Transportation

Looking forward to the development of surface transportation legislation, all sides are working to put together their case and set the stage.

Congress:

Individual leaders and committees have staked out some of the ground. There have been various hearings in both the House and Senate to identify key issues and shed light on what needs to be done. Public statements have been cautiously optimistic but with a sense of reality about the magnitude of the task, especially in light of the fiscal issues that need to be overcome. Almost all parties, except Congressman Earl Blumenauer (D-OR), have ruled out consideration of gas tax increases (at least before the November 2014 elections), but continue to say that “all other options are on the table”.

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In an interesting development, the House T&I Committee has been using the vehicle of special task forces to take a deep look at certain matters that may be dealt with in the MAP-21 reauthorization. The first of these task forces, which covered the issue of freight transportation and functioned for the six-month life permitted under House rules, held hearings in Washington and in the field and came forth with a detailed report with  recommendations for new policies and programs. This report, adopted unanimously by the bipartisan task force, is expected to play into the drafting of the bill. A similar task force, focused on public-private partnerships (P3s) for infrastructure, is now in business and has held a series of hearings and roundtables to educate members on where P3s do and do not fit in meeting infrastructure needs. Again, this may indicate an interest for a focus on P3s and related vehicles, such as an infrastructure bank, in the consideration of MAP-21 reauthorization.

The Obama Administration

During the development of MAP-21, the Administration played mainly behind the scenes, calling for various budget initiatives, but not following through with specific legislative proposals. In this round the Administration is taking a higher profile. In President Obama’s fiscal year 2015 budget, he outlined plans for a six-year reauthorization bill to be funded to a total of $302 billion, covering highways, transit, and rail programs under a new Transportation Trust Fund, as well as initiatives for freight transportation, for project acceleration, and for multimodal investments like those in the TIGER program. On April 29th, Secretary of Transportation Anthony Foxx submitted the actual legislation to Congress. The bill is entitled “GROW AMERICA,” an acronym for “Generating Renewal, Opportunity and Work with Accelerated Mobility, Efficiency, and Rebuilding Infrastructure and Communities throughout America”. Certainly they can claim not only the largest reauthorization bill in transportation history but also the longest title.

In preparation for the bill’s transmittal, President Obama had scheduled infrastructure related events and Secretary Foxx has been speaking out for this program across the country, including a week-long bus tour. While the Administration’s bill will not likely be accepted as the final law, it will influence the debate.

Most significantly, the Obama budget and the legislation outlines a way to pay for this bill—a controversial proposal but at least an opening for negotiations. President Obama favors, as do some in the Congress, action to reform the corporate tax structure in a comprehensive way, closing loopholes and creating incentives for economic growth. The proposal recognizes that such reform will create a potential windfall of one-time revenues as the system adjusts, particularly as US corporations “repatriate” overseas profits and pay reduced taxes on these past earnings. The Administration’s budget calls for dedicating a significant portion of this windfall both to offset the shortfalls under the current system of user taxes and to finance a major new level of needed investments.

The administration uses the $150 billion windfall, which will be collected over a 10-year timeframe, to support program increases over the four year life of their bill. In the fine print of the budget, the Administration had conceded that this approach is not a permanent, sustainable solution and notes that whoever is in charge when this program runs out will have to address what will by then be even a greater problem. Implicit in this concession is the assumption that future conditions will be more conducive to debate over a sustainable revenue source.

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Looking at the substance of the Administration’s bill, it shows continuity with policy positions they have taken over the past six years. It is a comprehensive bill, covering the highway, transit, and rail programs. It also addresses research programs as well as related safety issues for autos, trucks, and hazardous material transport, and proposes a modernization of railroad safety laws.

Discretionary programs, similar to the TIGER program begun under the Recovery Act, are given a greater funding increase than the traditional formula grants that were favored in MAP-21. Much of the growth in spending is dedicated to achieving a state of good repair across highway, transit, and rail assets. Some new funding is provided for a program to encourage innovation and policy change in highways and transit. Financing tools such as TIFIA, RIFF, and Private Activity bonds are continued and expanded.

The bill offers significant incentives to permit tolling existing highways both to finance reconstruction and to manage congestion. There are innovations in project delivery, extending the MAP-21 provisions to cover all modes of transport and creating an institution to expedite environmental reviews and permits through concurrent processing. A freight initiative takes the MAP-21 goods movement language and makes it multimodal, with an associated funding program to finance improvements. Throughout the programs, the Administration proposes new funding and authorizes support of workforce development, including the potential for limited “local hiring” preference in transportation projects.

There is a substantial revision proposed for passenger rail investment, with a dual emphasis on preservation of existing services as well as expanded investment in new corridors. As the year moves on, these initiatives will deserve scrutiny on their own.

Congressional Response

Congress is beginning to take action as well. Senator Boxer has consistently said that she wants to report out her portion of the bill soon and has achieved that in a late May markup of the Highway Title of a reauthorization bill. With the support of the committee’s bipartisan leadership—Committee Chair Boxer, Ranking Member David Vitter (R-LA), Subcommittee Chair Tom Carper (D-DE), and Subcommittee Ranking Member John Barrasso (R-WY). These leaders agreed on certain principles including a desire for a six-year bill at current levels adjusted for inflation, or about $325 billion over six years. The leadership group described their bill as maintaining existing formulas, better utilizing local resources, and improving transparency in how funds are used. In other words, they do not support any major changes to the framework authorized in MAP-21, and hence there should be little debate and possible quick action.

In a separate comment, Senator Carper indicated his desire to work across Senate committee lines to revisit issues involved in national freight movement. He followed through on this interest by scheduling a joint roundtable with his Senate Commerce counterparts to discuss national freight needs with a number of industry representatives (including myself). Effectively, the EPW leadership’s course passes much of the action to the Senate Finance Committee, which will need to work with its House Ways and Means counterparts to find the revenues needed to even sustain an inflation-adjusted baseline. With baseline revenues stagnant at around $40 billion a year, a six-year Senate bill would require as much as $100 billion in new Highway Trust Fund revenues from some source.

The House T&I Committee Chairman, Representative Shuster, has not established a schedule for action, other than to indicate that they would like to complete the WRRDA bill before moving on to MAP-21 reauthorization. Committee leaders have stated some preference for passing a rail bill separate from surface transportation, thus raising concerns about how multimodal provisions and reforms will be handled. And since the House was only a limited player in MAP-21, as it failed to pass a comprehensive bill, there may be more appetite for policy and program reform on that side of the Capitol.

The Senate Commerce Committee, which has jurisdiction over broad transportation policies and specifically for rail issues, has indicated at this point that its docket is full with other matters but the staff is proceeding to draft language for provisions best handled as part of reauthorization. Chairman Jay Rockefeller (D-WV) did indicate willingness to work with the aggressive EPW schedule. Whether this will go beyond the standard highway traffic safety program authorizations to include, for example, a freight emphasis, remains to be seen. If that does not occur, the final bill will have a hole in it similar to that that opened up in MAP-21 when Senate Commerce was unable to reach agreement on freight-related issues. If, however, the House includes such matters in its bill or bills it might spur Senate activity. Chairman Tim Johnson (D-SC) of the Senate Banking Committee, which has the jurisdiction for Federal Transit Administration programs, also indicated willingness to work toward the EPW schedule. Both Commerce and Banking have scheduled or held hearings on their element of a bill.

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Of course, the key issue continues to be finding the funds to support or increase the surface programs. The Administration proposal to draw on corporate tax reform is one idea, and a similar proposal was included in a draft plan put forth by House Ways and Means Committee Chairman Dave Camp (R-MI), calling for $125 billion of “repatriation” proceeds to go for transportation. Unfortunately, the Camp comprehensive draft is unlikely to proceed further, partly because Chairman Camp is in his last year of committee service and has announced his retirement from the Congress after the election. Some momentum may come from a bipartisan plan being carried by freshman Congressman John Delaney (D-MD). Delaney first proposed financing a new infrastructure bank through repatriation and has recently broadened his proposal to encompass providing the revenues for reauthorization.

On the Senate side, Senator Ron Wyden (DOR) has taken over the leadership of the Senate Finance Committee with the departure of Senator Max Baucus (D-MT) to become Ambassador to China. Chairman Baucus, who had also announced that he would not seek reelection in 2014, was looking at tax reform as a possible legacy, but Chairman Wyden so far has set his sights on more immediate matters. Without a prospect for tax reform and windfall revenues, it is less likely that major program increases are possible, and there is as yet no consensus about how existing revenue gaps can be filled.

 

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In prior years, many had hoped for a comprehensive budget agreement—the so-called “grand bargain” as a means to generate new revenues. If this ever happens, it will not be this year. The Senate has stated that it does not plan any action on a multi-year budget measure, noting the existence of the agreement that already covers fiscal year 2015.

House Budget Committee Chairman Paul Ryan (R-WI) has put forth his proposal, which at best will be a one-house version. Ryan’s term as Budget Committee chair ends with this Congress and he is widely expected to seek the Ways and Means Chairmanship next year. An indication of his thinking comes with his final budget resolution passed by the House in April. Noting the gap between income and expense in the trust fund accounts, he laid out the default proposition that this would have to be met by reducing new commitments for highways and transit to zero during fiscal year 2015 and thereafter restraining commitments to levels matching income. He left the door open for others to propose alternative solutions but did not make any proposal of his own—not a useful omen for a good outcome.

Outlook for October

With all of that said, what can we expect to see in October? Of course, I’m hopeful that we will see the Washington Nationals moving at least into the National League Championship Series. With a new manager in place, and with the hope that they can overcome some continuing issues with injuries, they have that potential. But I’m also realistic enough to say that come October the word will be “wait till next year.” And that could also be the fate of surface reauthorization.

Chairman Boxer has thrown out the first ball of the MAP-21 reauthorization, but there is a long season ahead. We saw in the hiatus between SAFETEA-LU and MAP-21 that Congress will usually take the actions needed to forestall program shutdowns but not those actions to achieve long-term sustainable solutions. A scenario that gets us into 2015 is relatively easy to sketch out.

First, Congress takes some temporary action to head off an August surprise in the Highway Trust Fund, assuring that just enough new revenues are provided to assure that bills can be paid in the short-term. A logical terminus for such a short-term measure would be November or December 2014, which would also mean that authorizations would be given a short-term extension on the rationale that Congress could come back to town for a “lame duck” session after the November elections. It’s not clear what conditions would allow action then that can’t be taken now. And if the complexion of the Congress is changed by the election, say by a Republican takeover of the Senate, those who will be in power in 2015 will want to control the solution.

Again, the need will arise for short-term solutions to kick the can into 2015, and these solutions will be harder to come by than they were in the SAFETEA-LU hiatus, since revenues will be needed and new rules require that these revenues be accompanied by offsets during the same time period. Once the new Congress takes over in 2015, there will be a period for organization of committees and assignments of new members.

Summing up, it’s altogether possible that next spring will find both the Nationals and the surface bill still in the dugout awaiting a turn at bat. Let’s hope that’s not the case! 

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