Bloomberg News

Obama’s Next Transportation Chief Faces Highway-Funding Quandary

November 09, 2012

Obama Left With Highway-Funding Tax Quandary

Attendant Marv Aldridge fills a customer's car with gasoline at a full service pump at a Beck's station in Princeton, Illinois, U.S., on Monday, March 5, 2012. Photo: Daniel Acker/Bloomberg

The next U.S. Transportation secretary -- whether it’s Ray LaHood or someone else -- will confront a highway system starved for cash and financed by a gasoline tax almost no one wants to raise.

How President Barack Obama and his DOT leader respond may set U.S. transportation’s course for decades. Besides shoring up highways and transit systems vital to the economy, the president’s second term may provide another chance for him to push his vision for high-speed passenger rail, which was stalled by Congress’s refusal to keep paying for it.

Talks between the White House and Congress to avoid Dec. 31’s so-called fiscal cliff, when some tax cuts expire and automatic spending reductions are set to kick in, won’t have transportation as a main focus. Yet the last two gasoline-tax increases, in 1990 and 1993, only happened because of deficit- reduction deals, said Mort Downey, a former deputy transportation secretary who’s a senior adviser at Parsons Brinckerhoff Inc.

“They have a considerable opportunity to make a mark on transportation,” Downey said. “If they are serious about wanting to do something, it’s an environment in which it’s easier.”

Whether LaHood stays as secretary to lead the effort is an open question. During the past year, the former Republican congressman has suggested that he’d be open to staying if asked by Obama, a Democrat and fellow Illinois resident. LaHood’s also said he may leave.

Raising Money

Congress and Obama’s administration in June reached a two- year deal on roads and transit. Instead of raising the U.S. gasoline tax, the largest source of revenue for road, bridge and transit spending, the legislation used $18.8 billion in general taxpayer money, on top of fuel taxes, to keep spending at current levels -- about $52 billion a year -- through fiscal 2014.

Obama spent part of this year’s presidential campaign talking about the need to do “nation-building here at home” after spending years and billions of dollars on the wars in Iraq and Afghanistan. Last year, he proposed a six-year, $556 billion transportation plan.

The president hasn’t specified ways to pay for the plan. LaHood killed a 2009 proposal by Minnesota Democrat James Oberstar, then chairman of the House transportation committee, to raise the 18.4 cents-a-gallon federal gasoline tax, which has been the main source for highway, bridge and transit expansions since Ronald Reagan’s presidency.

Future Financing

Then LaHood was “blown out of the water” by then-White House spokesman Robert Gibbs for suggesting a willingness to consider a tax based on the number of miles driven instead of the amount of fuel purchased, said Emil Frankel, visiting scholar with the Bipartisan Policy Center, a Washington-based research group.

“The president will try to find some sort of funding to finance some increase in investment,” Frankel said. “I don’t see any indication the president is prepared to propose a federal gas-tax increase.”

The White House left it to Congress to work out most of the details on this year’s transportation law, known as Moving Ahead for Progress for the 21st Century, or MAP-21. Congress left long-term financing issues unresolved, meaning the $18.8 billion shortfall in that two-year plan will probably get bigger as the economy lags and fuel sales fall, with vehicles getting more efficient.

Funding Bridge

Unlike many business and construction groups, which favor taxes or user fees that make transportation self-financing, the Obama administration seems comfortable using general tax money, said Joshua Schank, president and chief executive officer of the Eno Center for Transportation, a Washington research institute.

“They are committed to the idea of increased infrastructure investment,” Schank said. “They are not hung up on how the money gets there.”

The National Surface Transportation Infrastructure Financing Commission, established by Congress in 2005 to solve the gasoline-tax issue, identified 15 viable alternatives, including taxes on car tires and truck trailers or tariffs on imported oil, said Janet Kavinoky of the U.S. Chamber of Commerce, which has supported raising the gasoline levy despite its aversion to higher taxes in general.

Most of those options would work best as long-term solutions, after an increase in the gasoline tax provides a bridge for the next several years, said Kavinoky, the largest U.S. business lobbying group’s executive director of transportation and infrastructure.

“We need to have the conversation now about what we’re going to do for sustainable, reliable growing revenue for highways and transit,” Kavinoky said.

Building Support

Part of the job entails building public support for any spending increase, said Marcia Hale, president of Building America’s Future, a non-profit group founded by former California Governor Arnold Schwarzenegger, former Pennsylvania Governor Edward Rendell and New York Mayor Michael Bloomberg, majority owner of Bloomberg LP, the parent of Bloomberg News.

The superstorm Sandy focused attention on essential systems, with Bloomberg, New York Governor Andrew Cuomo and New Jersey Governor Chris Christie all speaking about the need to rebuild, Hale said.

“We need to help people understand what’s at stake here,” Hale said. “If you do the right type of organizing, people will come around on it.”

LaHood’s tenure has also included advocacy for increased development of high-speed rail, which has been called a waste of money by opponents of the 2009 economic-stimulus plan. Republican governors in Wisconsin, Ohio and Florida gave back stimulus grants they received for high-speed rail development.

Showcase Projects

Obama has continued to express support, however. High-speed rail plans may be scaled back from a nationwide system to one or two showcase projects, such as in California or the Northeast, to show what can be done and boost public interest, Hale said.

If LaHood leaves, Rendell, the former Pennsylvania governor, and Los Angeles Mayor Antonio Villaraigosa, an advocate for California’s high-speed rail project, may be potential replacements, Kavinoky said. Possible candidates now in the federal government may include Deborah Hersman, chairman of the National Transportation Safety Board, and Peter Rogoff, head of the Federal Transit Administration, Schank said.

To contact the reporters on this story: Jeff Plungis in Washington at jplungis@bloomberg.net;

To contact the editor responsible for this story: Bernard Kohn at bkohn2@bloomberg.net


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