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Prospectus Blog Funding Conundrum Persists For U.S. Transpo Overhaul

Congress has adjourned for the summer recess with neither house taking action to extend the federal surface transportation program. Hope for a timely enactment of a long term transportation bill this year all but vanished when Rep. James Oberstar (D-MN), chairman of the House Transportation and Infrastructure Committee, acknowledged that he does not favor raising the gas tax at this time to pay for the $500 billion transportation authorization ($450 billion for highways and transit, $50 billion for high-speed rail). He made this admission in testimony before a hearing of a House Ways and Means Subcommittee on July 23. “Although increasing and indexing the gasoline and diesel user fee is a viable financing mechanism,…I do not believe that the user fee should be increased during the current recession,” Oberstar stated, echoing the posture previously taken by the White House.
Instead, the T&I Committee chairman and Peter DeFazio (D-OR), chairman of the Highways and Transit Subcommittee, suggested several  potential  sources of additional revenue to supplement the gas tax and close the funding gap.


Among them were: (1) Restoring funds to the Highway Trust Fund owed to it for Emergency Relief and forgone interest ; (2) Issuing $60 billion worth of Treasury bonds (the bonds would be repaid over a period of ten years, possibly using additional revenue generated from indexing the gas tax); (3) Imposing a fee on barrels of imported and domestic crude oil; (4) taxing crude oil futures transactions (a bill to this effect has been introduced by Rep. DeFazio in the House, HR3379); (5) Freight-related fees to finance freight-related infrastructure improvements. None of the options, however, come near to raising the $214 billion in additional revenue needed to finance the six-year program.
Committee Ranking Republican John Mica (R-FL) took a somewhat different view. “The gas tax is basically dead,” he declared. Instead, he said, we should adopt a flat sales tax on the purchase of gasoline. Mica also saw added revenue potential in public-private partnerships, expansion of the Transportation Infrastructure Finance Innovation Act (TIFIA) credit assistance program, and the creation of an infrastructure bank.
U.S. Department of Transportation Undersecretary for Policy Roy Kienitz, testifying at the same hearing, threw cold water on all such proposals. The Obama Administration will not back any new funding sources at this time, he said.
In the end, Chairman Oberstar deferred to the Ways and Means Committee. “The Committee on Ways and Means,” he said in concluding his testimony, “must undertake the difficult task of identifying the revenue to finance this bill…We’ll take any dollar you can scare up for us for the trust fund.”
Meanwhile, in the Senate….
In the meantime, the three Senate committees with jurisdiction over the surface transportation program (Environment and Public Works (EPW); Commerce, Science and Transportation; and Banking, Housing and Urban Affairs) completed action on their bills to extend the existing program for 18 months, as proposed by the Administration. These bills are to be merged with a measure (S 1474) introduced by Finance Committee Chairman Max Baucus (D-MT) to replenish the Highway Trust Fund through a transfer of $26.8 billion from the General Fund. The funds are said to represent reimbursements for lost interest payments owed to the Fund since 1998 and for past disaster emergency expenditures.
Shortly before adjourning for a month-long summer recess, the House and the Senate approved a transfer of $7 billion from the General Fund to the Highway Trust Fund’s Highway Account to avert an immediate cash shortfall in the Trust Fund. The transfer represents about one-third of the amount requested by the Administration for its proposed 18-month extension. As approved by the House and the Senate, the bill does not contain an extension of authority for the federal surface transportation program. That issue will be considered in September, after Congress returns from its summer recess. In the Senate, committee action has been largely completed. All that remains is pulling the 18-month extension bill together (with its proposed $26.8 billion funding authorization, probably reduced by the $7 billion transfer) and bringing it up to the floor for a full Senate vote. Senate approval of the measure is virtually assured.
As for the House…
In the House, the situation is more complicated. Rep. Oberstar has announced that he will hold a full committee mark-up of his $500 billion, six-year surface transportation authorization bill when Congress returns from its summer recess. Sources tell us he has a commitment from the House leadership to bring the bill to the House floor by the third week of September if the Ways and Means Committee can come up with the revenue title to the bill. That’s a big “if”. So far, the W&M Committee has given no indication where the money might come from. According to press reports, a majority of the members of that committee are opposed to any tax increases as a means of funding the proposed $500 billion bill. Significantly, only 15 of the 41 committee members have gone on record in a letter to committee Chairman Charles Rangel (D-NY) supporting prompt action (i.e. in September) on a revenue package for the bill.
By taking the gas tax increase off the table, Rep. Oberstar acknowledged a political reality but also removed from consideration the most logical source of additional revenue. Other funding options are limited. One possible solution would be to use general tax revenue to fund a transportation-focused “Stimulus II” bill . Such a measure might conceivably be rationalized as helping to bring down the level of unemployment – should high joblessness persist. A second option could take the form of a major bond issue to be financed by additional revenue generated from indexing the gas tax at some future date. Both options have been hinted at by Rep. Oberstar and Rep. DeFazio in recent interviews. But political analysts consider them a remote possibility because of a lack of congressional or Administration support. Neither Congress nor the White House are eager to add to the already sky-high budget deficit.
There remains the Senate option: to postpone enactment of a multi-year authorization legislation for a period of 18 months. Supporters of this option argue that by early 2011, a more favorable economic climate might allow a significant boost in federal fuel taxes. To cover the full annual $35.6 billion shortfall in a $450 billion program would require an increase of 20 cents/gallon. In the meantime, the proposed authorization of some $20 billion in the continuing resolution, combined with the stimulus funding that still remains unspent, will provide more than an adequate level of funding in the interim period.
But others contend that delaying the bill past the midterm elections would solve nothing. As one colleague remarked, “The U.S. presidential race will begin in earnest the day after the November 2010 elections. Given this reality, do you really think getting a gas tax increase or any other new transportation revenues is going to be any easier politically? No way!”
This is essentially correct. There may be no such thing as “a good time” for passing a substantial gas tax increase. But postponing the multiyear authorization until 2011 would offer two other benefits. It would provide more time to develop a broad-based consensus among the stakeholders on the nature of the needed reforms; a consensus that has not been convincingly demonstrated to date. And it would give the Senate and the Administration a chance to participate more fully in the overhaul of the nation’s transportation policy. These two points, it may be argued, provide good reason for adopting a more deliberate pace of reform and not trying to rush an important piece of legislation without bicameral congressional support.