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The Fiscal Implications of the Senate Highway Bill (S.1813)

Posted by Ken Orski on Friday, March 16th, 2012

Innovation NewsBriefs
Vol. 23, No. 11

By a vote of 74-22 on March 14,  the Senate passed an 18-month highway bill (S. 1813) reauthorizing the federal surface transportation program through the end of FY 2013. Twenty-two senators, all Republican, voted against the final bill.

While Washington stakeholder interests and advocacy groups applauded the Senate action as a “victory for bipartisanship,” the question of the House response and the possibility of another temporary extension cast a shadow on the celebration. As of this week, the House goal is still to move a five-year bill, according to House Speaker John Boehner’s spokesman. But many conservatives in the House (and probably in the Senate as well) would be just as content with another extension past the November elections, expecting that a hoped-for  Republican takeover of the Senate would give them more leverage in crafting a long-term bill next year.

The congratulatory mood among the Democrats and their industry allies was also tempered by a realization that the bill is essentially a short-term fix. In six months’ time “we’ll have to start all over again,” Sen. Boxer herself reportedly acknowledged.

Nor has it escaped any one’s notice that coming up with the money for the bill required some creative thinking. As one Senate aide told us, ” The measure is popular with the members because they see it as a jobs bill. That’s why so many of them were willing to hold their noses and vote for it, knowing full well that the bill uses budget gimmicks to cover up the [$12 billion] shortfall.”

Sen Bob Corker (R-TN) put it more diplomatically: “The highway bill is so popular that members on both sides of the aisle are willing to kick the can down the road … But passing a bill that spends money over 18 months and tries to recoup it over a 10 year period is a road to insolvency.”

Sen. John Cornyn (R-TX) summed up what many of his colleagues are probably thinking when he noted, “The Highway Trust Fund is broke and we’re trying to figure ways to deal with that, but unfortunately we seem to be piddling around the edges rather than dealing with the root causes.” (Quoted in Politico’s Morning Transportation)

The Highway Bill’s Tortured Arithmetic

How, exactly, is the Senate bill funded? We owe the explanation to our colleague, Gary Hoitsma, editor of the widely-read Washington Letter on Transportation (published by the Carmen Group). Hoitsma delved into the murky details of the Finance title of the bill (including the “Manager’s Amendment”  that was released just minutes before  the Senate vote), and came up with the answers in the latest  issue of his newsletter. (See also  Joint Tax Committee report of March 14, JCX-25-12)

According to Hoitsma’s analysis, the 18-month bill would be paid for with a combination of fuel taxes, direct transfers into the Highway Trust Fund and a series of offset provisions. Part of the $12 billion funding gap  ($7.9 billion) would be covered with funds transferred within 2-3 years  from “money in the Treasury not otherwise appropriated” and from a trust fund established to clean up leaking underground storage tanks (LUST); the remainder ($5.9 billion) would be transferred over 5-10 years from certain import tariffs and gas guzzler taxes. Net offsets to the General Fund in the amount of  $15.6 billion would be obtained from 11 different sources over a period of 10 years.  It is these latter transfers and offsets— extending over a period of up to 10 years to cover 18 month’s worth of expenditures— that have drawn the most pointed criticism among the Senators and that might  become a potential bone of contention in the House-Senate conference negotiations on the bill.

What does all this portend for the future? The contortions that the Senate Finance Committee had to go through to come up with offsets to cover a mere $12 billion funding gap, pressages an even more difficult challenge in the years ahead. By October 2013, when the 18-month bill (if approved by both Houses) will have reached its end, new offsets will be even harder to find—especially for a multi-year bill. What we may be faced with, one House staffer speculated, is a permanent condition of serial short-term (one- or two-year) reauthorization bills each of which would require only modest amounts in offsets or transfers from the General Fund. If a greater degree of funding certainty were desired, entirely new methods of raising multi-year sums of transportation revenue would need to be devised. For now, it is widely agreed, Congress is merely using a band-aid solution.

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 22nd year of publication.

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