The Highway Bill: A Realistic Appraisal of its Year-End Prospects

Posted by Ken Orski on Tuesday, August 4th, 2015

Innovation Newsbriefs
Vol. 26, No. 7

Congress has approved and the President has signed a three-month extension of  the federal highway program through October 29 —but with enough funding ($8 billion) to keep the Highway Trust Fund solvent through December. When the lawmakers reconvene in September, attention will shift to the bigger struggle over how to craft and pay for a long term highway bill.

The road ahead is far from clear. The House and Senate remain far apart on how to shape a long-term bill and provide for its funding.  House Speaker John Boehner’s low opinion of the Senate bill, expressed in colorful language, has been widely publicized–and is well justified. The six-year bill is only partially funded and its offsets involve budgetary gimmicks, notably counting  revenues and savings over 10 years to finance spending over three years. The Speaker wants to see a a long-term highway bill  that is “fully paid for.”  That means having to come up with $85-90 billion according to a Congressional Budget Office (CBO) estimate, to cover a six-year spending-revenue shortfall. To find the necessary funds, House leaders are looking to an overhaul of the international corporate tax system and its one-time tax windfall on repatriated earnings. They see it as a more credible source of funds than the questionable Senate “pay-fors.”  

Senate Majority Leader Mitch McConnell (R-KY) is equally skeptical (though using more moderate language) about the House approach. He does not think a bipartisan agreement on a tax overhaul can be reached by November of this year.  McConnell’s skepticism may be well founded. House and Senate work on international corporate tax reform has barely begun. “To assume that it (a tax reform bill) will be ready for the President’s signature by the first of November defies all credibility,” one Democratic lawmaker told reporters. 

Thus, the two chambers will enter into negotiations in September with vastly different approaches and critical of each other’s position. They will be negotiating in a climate of partisan controversy on many other issues such as a debt ceiling increase, reauthorization of  the  Export-Import Bank and a contentious vote on President Obama’s Iran nuclear deal. 

The transportation industry, eternally hopeful, has been encouraged by assurances from Senators Jim Inhofe and Barbara Boxer, the architects of the Senate bill, that the House willingness to go to conference with the Senate was an important signal that the long term bill was now “within reach.” 

But finding nearly $100 billion to pay for a six-year bill remains a daunting challenge.  With enough funding to keep the Highway program going through December, the pressure to meet the October 28 deadline will be largely gone. Congress will have in effect an extra two months to come up with a bill. But unless the lawmakers make substantial progress on the corporate tax reform by mid-December, Speaker Boehner’s hopes of passing a “fully paid-for” six-year bill  will come to naught. Instead, expect the familiar pattern of another round of interim funding  —this time probably carrying program authority beyond the 2016 election cycle and into the next Congress. . 

The continuing impasse (now in its tenth year) over long-term highway funding is leading some observers to consider a radical solution: namely, to restructure the federal-aid highway program so as to gradually bring Trust Fund spending into balance with incoming fuel tax receipts— thus placing the Trust Fund on a self-sustaining basis. 

 Such a move would not be without precedent. Indeed, until 2005, Trust Fund outlays were kept at or below incoming tax revenue and a positive Fund balance was maintained at all times.  But over the past ten years Congress has begun to deliberately overspend Trust Fund income, initially in order to draw down a large accumulated fund balance. Baseline budgeting has perpetuated this practice ever since, necessitating a cumulative injection of  $65 billion in general revenue into the Trust Fund in order to keep it solvent. 

In a restructured federal-aid highway program, expenditures would be curtailed by progressively shifting funding responsibilities for local transportation and for improvements of local benefit to the States and localities. Trust Fund outlays would be confined to projects and programs that represent core federal responsibilities or are of truly strategic or national significance. Such a reallocation of funding responsibilities has now become feasible because states are raising significantly more transportation revenue than in the past, having concluded that they can no longer count on Congress for stable long term funding.

While some might regret seeing the federal role in transportation thus diminished, the fiscal realignment would offer some undeniable  benefits. It would restore  the Trust Fund’s fiscal integrity, do away with the need for periodic bailouts of the Trust Fund with general revenue, eliminate  uncertainties over long term federal funding and  put an end to the constant lurching from one funding crisis to another. In sum, a balanced, self-sustaining Highway Trust Fund would offer a permanent end to the transportation funding crisis. 

More on this idea in a future column.  

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 26th year of publication.

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