Congress Faces Road Funding ‘Day of Reckoning’ Before Election
February 08, 2012, 4:12 AM ESTBy Carol Wolf
Feb. 1 (Bloomberg) -- The Highway Trust Fund, which finances U.S. road, bridge and mass-transit projects, may become insolvent just before the November presidential election unless lawmakers lock in additional funding sources.
The fund, which reimburses states for transportation projects, would be unable to meet its financial obligations as soon as October, according to an analysis of Congressional Budget Office data by the American Association of State Highway and Transportation Officials. The federal government could have to ration payments to the states to keep the fund solvent, according to the CBO.
That would gradually halt highway projects, leaving hundreds of thousands of construction workers unemployed, said Brian Deery, director of transportation at Associated General Contractors of America, an Arlington, Virginia-based industry group. Congress needs to pass long-term legislation that raises the U.S. fuel tax, transfers money from the government’s general fund or finds a new revenue source to keep transportation projects going, he said.
“This is the day of reckoning,” Deery said. “They have to come up with more money or make cuts. There are no two ways about it.”
The fund’s revenue, from U.S. fuel taxes, has declined as cars have become more fuel-efficient and Americans are driving less because of higher gasoline prices, according to the U.S. Department of Transportation.
States pay for transportation projects upfront and then apply for reimbursement.
Closing the Spigot
“This would have a real impact on the states if the federal government turns off the spigot to reimburse them for money they have already spent,” Deery said.
California has more than 600 construction projects under way, Tamie McGowen, a spokeswoman for the California Department of Transportation, said by e-mail. They include the Presidio Parkway, connecting San Francisco to the Golden Gate Bridge, and the world’s largest carpool lane on Interstate 405 in Los Angeles, she said.
“Disruptions in future funding could negatively affect ongoing projects and have adverse economic consequences,” McGowen said.
Surface-transportation legislation authorizing money for the Highway Trust Fund was last passed in 2005 and ran through 2009. Highway funding has continued through a series of extensions, the most-recent of which expires March 31.
The Highway Trust Fund has approached insolvency three times since 2008. Congress has moved $34.5 billion to it from the general fund to keep it solvent and to pass extensions of the surface-transportation bill.
Spending Drop
President Barack Obama and Congressional Republicans have ruled out increasing the 18.4-cent-a-gallon vehicle-fuel tax, last raised in 1993. The U.S. Chamber of Commerce and Obama’s deficit-reduction commission have recommended increasing the tax by as much as 15 cents a gallon.
House Republicans have also said they wouldn’t transfer money from the general fund again. Without funding, by law, Congress wouldn’t be able to extend the legislation without reducing authorized spending, said Jack Basso, AASHTO’s chief financial officer.
At current revenue levels, that would result in a 72 percent reduction in authorized spending to about $11 billion a year from $39 billion, Basso said.
“This is just straight math -- there is no guessing about it,” Basso said. “A couple of weeks wouldn’t cause any big economic disruptions, but if it goes on for a couple of months it becomes a huge cash flow problem for the states.”
The trust fund collected $36.9 billion in the fiscal year ended Sept. 30.
Widening Deficit
The fund will probably run a deficit of $10 billion this year, compared with $8 billion in 2011, according to the Washington-based CBO, which provides Congress with analysis on programs funded by the U.S. budget.
“Republicans have been pretty firm in saying there will be no more bailouts for spending money we don’t have,” said Paul Yarossi, president of HNTB Holdings Ltd., an engineering firm. “But with this kind of job loss at stake, no congressman wants to return to their district with these kinds of cuts associated with their name.”
Yarossi is also chairman of the American Road & Transportation Builders Association, a Washington-based industry group.
Senate and House committees have proposed surface- transportation bills authorizing the Highway Trust Fund to spend more than its income.
‘Real Money’
The Senate Environment and Public Works Committee, led by California Democrat Barbara Boxer, approved legislation calling for $109 billion in highway, bridge and mass-transit spending over two years. The House Transportation and Infrastructure Committee, led by Florida Republican John Mica, introduced a bill yesterday authorizing about $260 billion over five years.
Obama last week proposed funding infrastructure projects with money that had been previously allotted to the wars in Afghanistan and Iraq.
Obama will include “real money” to supplement the decline in Highway Trust Fund revenue in his budget, Transportation Secretary Ray LaHood said at the Aero Club of Washington yesterday without specifying further. Obama is scheduled to send his budget proposal to Congress on Feb. 13.
“Politicians are beginning to see the implications of the problem,” AASHTO’s Basso said. “We have had trouble passing transportation legislation in the past, but facing insolvency at the same time is a whole new world.”
--With assistance from Alison Vekshin in San Francisco and Alan Levin in Washington
--With assistance from Alison Vekshin in San Francisco and Alan Levin in Washington. Editors: Andrea Snyder, Bernard Kohn
To contact the reporter on this story: Carol Wolf in Washington at cwolf@bloomberg.net
To contact the editor responsible for this story: Bernard Kohn at bkohn2@bloomberg.net
