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Prospectus Blog A Fresh Look at the Prospects for Transportation in the New Congress

Last month we conducted an informal survey among colleagues in the transportation community about the outlook for the federal surface transportation program in the year(s) ahead. (“Prospects for Transportation Legislation and Other Infrastructure Ventures,” InnoBriefs, October 29). One comment from a veteran transportation insider summed up concisely the collective mindset: “There will be nothing ‘transformational’ about the future program,” he opined. As more details begin to emerge about the Republican strategy in the next Congress, his observation is proving to be right on target. What follows is a fresh look at the prospects for the transportation program in the 112th Congress, based on new information — and in some cases, speculation — from congressional and other Washington-based sources.

“Stabilizing” the Highway Trust Fund

Among the preliminary recommendations of the National Commission on Fiscal Responsibility and Reform (the “Deficit Commission”) there are two proposals that pertain to the federal surface transportation program. One proposal is to gradually raise the gas tax by 15 cents beginning in 2013; another proposal is to limit transportation spending to existing revenue collections and prohibit general fund bailouts of transportation trust funds. While the first recommendation is widely considered as going nowhere in the next Congress, the second one stands a good chance of being embraced by the fiscally conservative lawmakers taking charge next January.

As one senior congressional aide told us, “predictable revenues rather than undocumented ‘needs’ will dictate the level of the transportation budget in the next Congress.” The practical implications of this policy will be a significant reduction in the scope and reach of the federal surface transportation program. If spending is to be limited to existing revenue collection, the highway program can expect to be reduced by $7-8 billion/year and the transit program by $3 billion/year from the curent (FY 2010) level. (These estimates assume future Highway Trust Fund income, including tax revenues and interest, of approximately $35 billion/year in the highway account and $5.5 billion/year in the transit account, as projected by the Congressional Budget Office.)

Most likely victims of the fiscal retrenchment will be programs that are not deemed of federal interest or national significance and are primarily of benefit to local communities. These include various “transportation enhancement” programs and “livability” initiatives such as pedestrian and bicycle facilities, acquisition of scenic easements, historic preservation, rails-to-trails, and highway beautification. Such programs will be considered as prime candidates for devolution, to be funded at local discretion by state and local authorities.

Another possible victim of a budgetary retrenchment could be the “executive earmarks” such as the popular (at least with their recipients) TIGER grants. The next Congress is expected to rein in Administration authority to make discretionary grants, both to save money and because many lawmakers have grown to distrust the TIGER project selection process as lacking in transparency.

Will the Democratic majority in the Senate go along with the new Republican House policy of fiscal retrenchment?  With a reduced Democratic majority and as many as 23 Senate Democrats running for reelection in two years, it will be difficult for Sen. Majority Leader Harry Reid to keep his troops in line, a senior Senate aide speculated.  A certain number of defections will be inevitable, especially when matters of “runaway spending” and deficit reduction are concerned.

Better Leveraging of Existing Resources

To compensate for reduced revenue and to make up for the dwindling revenue-raising power of the gas tax, the next Congress is expected to try and better leverage existing revenue sources. It might do so by seeking to facilitate public-private partnerships; encourage the use of tolling (but not on existing interstates); and expand opportunities for innovative financing such as state infrastructure banks, TIFIA, and Private Activity Bonds.

Expected to fall out of favor with the lawmakers is the National Infrastructure Bank (NIB). As proposed by the Obama Administration, the NIB is not a true bank but a semi-autonomous entity with powers to make grants as well as loans. As such, the proposed “bank” runs into bipartisan Senate opposition because lawmakers do not want to cede the power to make major public investment decisions to an “unelected body of bureaucrats” over which they would have limited oversight.

Also expected to meet with disfavor is the proposed Office of Public Benefit, a brainchild of Congressman Oberstar who wanted the federal government to exercise closer control and supervision over state-initiated toll concessions and other public-private arrangements. Such an office would be opposed by many Republican lawmakers and by the National Governors Association who do not wish to throw obstacles in the way of closer public-private cooperation and greater participation of private investors in funding public infrastructure. Neither the Infrastructure Bank nor the Office of Public Benefit are expected to be part of any future congressionally-sponsored surface transportation legislation.

Also hanging in the balance is the future of another Administration financial initiative, the “Build America Bonds” (BABs). BABs are taxable bonds that offer a federal interest rate subsidy to the issuer to reduce borrowing costs. Authority to issue these bonds is set to expire at the end of this year unless it is permanently extended during the lame-duck session. Concern has been expressed that BABs could become a new federal bailout and add to the budget deficit.

Cancelling and/or Reprogramming Uncommitted Stimulus (ARRA) Funds

House committee leaders in the next Congress are likely to come under strong pressure to retrieve whatever remains of the unspent and uncommitted stimulus funds. The prospective Republican Appropriations Committee chairman, Rep. Jerry Lewis (R-CA),  introduced a bill (H.R. 6403, the “American Recovery and Reinvestment Rescission Act”) that would rescind any unobligated ARRA funds and return them to the U.S. Treasury. Lewis warned that he will reintroduce his bill in the new Congress, if necessary.  Even already obligated funds may not escape rescission. Congressional GOP aides are reported to be closely reviewing agency records to identify particular stimulus-funded projects that could still be “reasonably” halted because work on them is only beginning.

The Lewis bill is the strongest signal yet of how the new House Republican majority intends to use its legislative power of the purse to nullify elements of the Obama transportation agenda. Acting on this strategy, the future chairman of the House Transportation and Infrastructure Committee, John Mica (R-FL), has announced that he will revisit all pending high-speed rail (HSR) projects, and refocus the unspent and uncommitted money on high-speed rail “where it makes sense.” “The last thing we want is to build a dog that has to be highly subsidized by taxpayers,” Mica said in reference to the Florida Tampa-to-Orlando HSR project and indirectly casting doubt on dozens of other HSR grants.

According to a Wall Street Journal analysis, of the $46 billion in stimulus funds originally allocated to transportation, around $6.3 billion (14%) still remain unobligated and $24 billion (52%) have not been paid out. Most of the unobligated transportation money is in the high-speed rail program. These funds have been released slowly because of delays encountered in concluding cooperative partnership agreements between states and the freight railroads. De-obligation of the grant awards to Wisconsin and Ohio will further increase the savings. Meanwhile, Florida’s Governor-elect Rick Scott is not making a final decision on the Tampa-to-Orlando project until he determines how much of a fiscal burden the high-speed rail project would impose upon the state. He has been reported to be concerned that the line could be more of a liability than a benefit to the taxpayers. The lack of a transit distribution system at either end of the high-speed line compound the questionable nature of the investment.

Also risking cancellation is a $2 billion grant to California’s high-speed rail line, according to press reports. In sum, as one editorial observed, “the high-speed train appears to be stuck at the station.”

A $4.3 Billion “High-Speed Train to Nowhere”

In the meantime, the California High-Speed Rail Authority announced on November 24, that the first 65-mile leg of California’s  high-speed rail line will be built from Fresno (pop. 505,000)  to Corcoran (pop. 14,500) in Central Valley. The staff recommendation  follows a directive by the Federal Railroad Administration that the federal funding awarded to the project  must be dedicated to a single section of the project in the Central Valley. Roelof van Ark, the Authority’s CEO said this segment “would make the best use of the $4.3 billion currently available construction funds.” But if Congress fails to authorize future funds to extend the line, the money would be largely wasted.

The project  was quickly dubbed by critics as “a high-speed train to nowhere.” If confirmed by the Authority’s Board, the decision to spend $4.5 billion on an isolated route not serving any large population concentration could become a huge embarassment  for the Administration and undermine the credibility  of the entire high-speed rail program.

FY 2011 Appropriations and the Surface Transportation Program Extension

Two immediate decisions are facing Congress during the lame-duck session: to keep the money flowing and to extend the existing SAFETEA-LU authorization, which will expire on December 31.

Funding for the surface transportation program expires on December 3 with the termination of the continuing resolution. Congress is expected to pass another short-term extension of the continuing resolution at Fiscal Year 2010 funding levels. Early next year, the new Republican House of Representatives is expected to address the funding for the remainder of FY 2011.

As for the surface transportation authorization, congressional leaders are discussing the possibility of a six-month program extension. Early in the next session, Rep, Mica plans to hold a series of “listening sessions” following which he is expected to introduce a multi-year authorization bill. If a bill is not passed by the end of 2011, it will likely be delayed beyond the next presidential election.

Innovation Briefs, now
in their 20th year of publication, are published by Ken Orski. Cascadia
Prospectus reprints them with permission. The content of Innovation
Briefs does not necessarily represent the views of Cascadia Center.