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Lacking New Revenue, Will the Focus Shift to Spending Restraint?

Posted by Ken Orski on Wednesday, August 18th, 2010

Innovation NewsBriefs
Vol. 21, No. 17

“Building America’s Future” (BAF), one of the more effective coalitions in the crowded field of public policy advocacy, held another of its forums aimed at rekindling interest in and drumming up support for increased infrastructure spending. As on former occasions, the sponsors assembled an impressive panel of well-known public figures. Chaired by Pennsylvania Governor Ed Rendell, one of the original founders of the group, the panelists in the August 10 forum held in Harrisburg PA included former New Jersey Governor Jon Corzine, former House majority leader Dick Gephardt, president of Laborers’ International Union of North America (LIUNA) Terry O’Sullivan and Google’s head of engineering, Andrew Moore.

Before a friendly audience of lobbyists and state and local officials, the panel talked forcefully about the danger of disinvestment in the nation’s infrastructure, the importance of rebuilding aging infrastructure and the benefits of greater infrastructure investment for the economy and the nation. To those who have attended earlier BAF forums and other similar gatherings — such as the September 2008 Transportation Policy Conference at UVa’s Miller Center of Public Affairs or the July 2008 Brookings Symposium on “Investing in America’s Future”— the proceedings had a familiar ring. As in the former events, there was a unanimous agreement that the nation must undertake an aggressive program of infrastructure modernization but different opinions on how to fund and finance the necessary investment. Speakers favored an array of funding options, notably long term borrowing, tolling and private equity capital, and various methods of financing the program, including public-private partnerships, capital budgeting and a National Infrastructure Bank. As for the possibility of raising the fuel tax, Gephardt said the chance for an increase “is less than zero.” None of the other panelists disagreed.

Increasingly, an element of impatience has crept into these discussions and the BAF forum was no exception. All speakers noted with a certain sense of frustration that no one seems to acknowledge the seriousness of the infrastructure crisis nor a willingness to do something about it— not the Congress, not the White House, not the general public. “We have to wake up the American people to the challenge and make sure that the general public understands the urgency of action,” one speaker remarked. “We should reach out to the elected officials to make sure the nation’s infrastructure is a top priority in the next Congress,” another participant echoed. “Energizing and mobilizing public opinion should be our priority,” added a third panelist, “let us use this conference as the spark to light the fire.” Gov. Rendell echoed these pleas when he joined his fellow co-founder of BAF Gov. Arnold Schwarzenegger on August 16 in California. “Congress and the Obama Administration,” he said, ” should make additional investment a priority to further improve our economic competitiveness and quality of life. I urge Congress to pass a robust and reformed transportation reauthorization bill to repair and modernize our rail, highways, transit and freight systems.”

The speakers’ sense of frustration with the current state of indifference and inertia is understandable. The federal surface transportation program has been limping along, propped up since last October by a series of short-term extensions. The Highway Trust Fund (HTF) has been kept solvent only because Congress has pumped $71.2 billion worth of general revenue into the Fund over the last two years, resorting in some instances to budgetary loopholes to reduce the deficit impact. (Disbursements from the general fund have been as follows: October 2008: $8 billion; August 2009: $7 billion; American Recovery and Reinvestment Act (ARRA): $36.7 billion [highways: $27.5 B, transit: $8.4 B, Amtrak : $0.8 B]; HIRE Act of 2010: $19.5 billion.)

Adding to the sense of frustration has been an unspoken realization that there may be no early resolution to the fiscal impasse. As noted in a previous NewsBrief, the obstacles standing in the way of enacting a new multi-year federal surface transportation program are of a long-term nature. They include the pressure not to increase the budget deficit in the next Congress, especially in the event of a potential Republican takeover; the receding hopes for climate change legislation and its potential revenue contribution to transportation; and a continued low priority given to the reauthorization by the Obama White House (see our NewsBrief of July 16, “New Political Realities May Sidetrack the Transportation Reauthorization”).

The fact that there are no signs of a popular outcry about the stalled transportation authorization strengthens the hand of go-slow proponents in Congress and the White House. Lack of grassroots political pressure suggests that people do not believe any additional money would result in tangible improvements in mobility. The modest results obtained from the $48.12 billion transportation portion of the stimulus program would seem to confirm this impression. Only $16.81 billion or 35 percent of the total has been spent to date according to the Wall Street Journal (“Breaking Down the $862 Billion Stimulus,” August 16; see also “Big Chunk of Economic Stimulus Yet to Be Spent, Washington Post, August 14). Nor does the public appear to be swayed by warnings of “crumbling infrastructure.” Most signs of aging infrastructure are kept largely hidden from view thanks to the determined efforts by state and local agencies to maintain their assets in a state of good repair.

“A Brutal Predicament”

In March of this year, the Congressional Budget Office estimated the Trust Fund receipts and interest in Fiscal Year 2011 to total $37.7 billion. The House chose to ignore this estimate and voted to appropriate $56.5 billion to fund the Fiscal Year 2011 surface transportation program ($45.2B for highways and $11.3 B for transit, a $4.6B increase over FY 2010). Filling the $18.8 billion gap will require dipping into general revenue, thus adding to the federal budget deficit. Is this the way that Congress intends to cover the Highway Trust Fund shortfalls in the years ahead? Or will it seek to reduce the Trust Fund shortfall by reining in spending? (As Jeff Davis, Editor of Transportation Weekly and an astute observer of the Congressional scene noted, even though the obligation levels in the House appropriation bill are unsustainable by the Highway Trust Fund, no House member offered an amendment at the Rules Committee to lower the levels.)

The answer to this question is of course only a minor part of the much larger issue of how this nation will tackle the challenge of reducing the annual federal budget deficit. “It’s a brutal predicament for politicians because the rhetoric of deficit cutting is enormously popular but the details are incredibly unpopular,” said an official of the Democratic group Third Way (quoted in the Wall Street Journal, “Voters Back Tough Steps to Reduce Budget Deficit,” August 17). To find a meaningful solution to the Highway Trust Fund shortfall, as well as to the larger challenge of reducing the global federal deficit, Republicans and Democrats would have to work together to cut spending or raise taxes.

So far, the leadership of both parties has offered no specific solutions to address the HTF shortfall other than to indicate near-unanimous opposition to increasing the gas tax. Indeed, the ongoing election campaign is revealing strong opposition to taxes of any kind. According to Grover Norquist, head of Americans for Tax Reform, a total of 173 members of the U.S. House and 412 candidates for House seats as well as 33 sitting senators and 70 candidates for the Senate have signed the so-called Taxpayer Protection Pledge. The Pledge commits them to oppose and vote against any and all tax hikes if elected or re-elected, and to focus on spending restraint rather than increasing taxes to pay for new spending. Unlike other similar promises this one is in writing, with a signature and two witnesses. The anti-tax faction would find a firm ally in House Minority Whip Eric Cantor (R-VA), who has been steadfastly championing fiscal discipline and a balanced budget and who would likely become House majority leader if his party wins back control.

The Policy Establishment Joins the Debate

Spending restraints are likely to play an increasing role in the future congressional efforts to control budget deficit, but their size and extent remain to be seen. Strong recommendations by the National Commission on Fiscal Responsibility and Reform (the “Deficit Commission) to cut the size of federal discretionary programs would be one way to encourage Congress (especially a Republican Congress) to begin eliminating or paring down selected programs, including transportation programs, of marginal benefit or those without a compelling national interest.

Also of influence could be the recommendations of two private non-partisan initiatives: the “Debt Reduction Task Force” established by the Bipartisan Policy Center, and the “Leadership Initiative on Transportation Solvency” launched in early August by the Carnegie Endowment for International Peace. Both initiatives are headed by respected veteran public servants: The first is co-chaired by former Senate Budget Committee chairman, Senator Pete Domenici and former Director of the Congressional Budget Office, Alice Rivlin. The second is led by former U.S. Senator Bill Bradley (NJ), former Pennsylvania Governor and Secretary for Homeland Security Tom Ridge, and former U.S. Comptroller General and now president of the Peter G. Peterson Foundation, David Walker. David Burwell, director of the Carnegie Endowment’s Energy and Climate Program and a long time environmental and transportation activist will provide staff support to the Carnegie initiative.

Both initiatives will aim to develop a balanced and politically-realistic package of spending reductions as well as revenue increases for congressional consideration. One explicit objective of the Carnegie Endowment project will be to identify opportunities “to sunset programs that have achieved their initial objectives or are no longer relevant.” Both initiatives intend to release their recommendations by the end of the year, more or less contemporaneously with the report of the Deficit Commission. As the new Congress reconvenes in January 2011, the role of spending restraints in controlling future budget deficits should become clearer. Whether the same can be said about the future of the Highway Trust Fund is less certain.

C. Kenneth Orski is a public policy consultant and former principal of the Urban Mobility Corporation. He has worked professionally in the field of transportation for over 30 years, in both the public and private sector. He is editor and publisher of Innovation NewsBriefs, now in its 21st year of publication.

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