The Outlook for the Federal Transportation Program in the Next Congress

Posted by Ken Orski on Monday, December 20th, 2010

Innovation NewsBriefs
Vol. 21, No. 32

Remarks by Kenneth Orski, Editor-Publisher of Innovation NewsBriefs before the Transportation Leaders session at the National Conference of State Legislatures, Phoenix, AZ, December 9, 2010

Broadly speaking, we can expect the changing balance of power in the next Congress to manifest itself in two ways: a strong push to trim federal programs and an equally determined drive to cut federal discretionary spending. This new policy climate on Capitol Hill can be expected to reshape the federal surface transportation program in significant ways.

Stabilize the Highway Trust Fund

One objective of the next Congress will be to stabilize the Highway Trust Fund. As one senior congressional aide told us, “predictable revenues rather than undocumented ‘needs’ will dictate the level of future transportation budgets.” This may sound like a pretty sensible notion to you, state legislators who must balance state budgets each year, but living within your means is still a pretty novel idea inside the Beltway.

If spending is to be limited to the projected tax receipts, my calculation tells me that the future annual highway program would need to be cut back by $7-8 billion and the transit program by $3 billion from the current FY 2010 levels, once the funds from the recent transfer of general revenues are exhausted (I have assumed future Highway Trust Fund income of approximately $35 billion/year in the highway account and $5.5 billion/year in the transit account, as projected by the Congressional Budget Office. The projection assumes no increase in the current gas tax rate)

How would Congress go about trimming the size and scope of the federal transportation program? The most likely candidates for reduction or outright elimination will be activities that are deemed not to be of national significance, such as various “transportation enhancement” and “livability” programs that cater to local political objectives and are primarily of benefit to local communities. Those programs will have fewer advocates and defenders in the next Congress because of changed demographics of congressional representation and a more conservative complexion of the House Transportation and Infrastructure Committee in the wake of the November 2010 elections.

Another possible target could be the so-called “executive earmarks” such as the TIGER grants. These are vulnerable because the next Congress is expected to rein in the Administration’s authority to make discretionary grants—and not just to save money but because many Republican lawmakers have grown to distrust the way the Obama White House has been making funding decisions without consulting Congress. Rep. Mica has been quite outspoken about what he sees as a lack of consultations and transparency in U.S.Transportation Department’s decisionmaking.

Leverage Existing Resources

Another likely objective of the next Congress will be to work toward revenue self-sufficiency through a better leveraging of existing resources. To compensate for the dwindling revenue-raising power of the gas tax, Congress is likely to encourage greater use of public-private partnerships and tolling (but probably not on existing interstates) and facilitate expanded use of innovative financing techniques such as state infrastructure banks, TIFIA, and Private Activity Bonds.

On the other hand, the National Infrastructure Bank (NIB), an idea championed by the Obama Administration, is not expected to be endorsed by the next Congress. As proposed by the White House, the NIB is not a true bank but an entity with powers to make grants as well as loans. As such, the proposed “bank” has run into bipartisan opposition in the Senate because lawmakers do not want to create a new semi-autonomous body with powers to make capital grants. The lending function, they assert, can be adequately handled through the TIFIA program (Transportation Infrastructure Finance and Innovation Act).

Also expected to be discarded is the proposed Office of Public Benefit, a brainchild of Congressman Oberstar who wanted to retain closer federal control and supervision over state-initiated toll concessions and other public-private arrangements. This would be opposed by many Republican lawmakers in Congress who do not wish to throw obstacles in the way of closer public-private cooperation or stem the flow of private capital into public infrastructure.

In my judgment, neither the Infrastructure Bank nor the Office of Public Benefit will be part of any congressionally-sponsored surface transportation legislation in the next Congress.

Another financing technique that will no longer be available next year is the “Build America Bonds” (BABs)— taxable debt instruments offering issuers a federal interest rate subsidy to reduce borrowing costs. Concern was expressed that BABs could become a new federal entitlement enabling states to live beyond their means and adding to the federal budget deficit. Authority to issue these bonds is set to expire at the end of this year. (Note: an extension of BABs was not included in the approved package of tax extensions.)

Cancel/Reprogram Unspent Stimulus Funds

A third announced objective of the Republicans House leadership will be to cancel or reprogram uncommitted stimulus (ARRA) funds. There have been early indications of the congressional determination to do so. Rep. Jerry Lewis (R-CA) has introduced a bill that would rescind any unobligated ARRA funds and return them to the U.S. Treasury. According to incoming Appropriations Chairman Harold Rogers (R-KY), new spending restraints will be introduced for FY 2012 discretionary programs, such as a rule requiring any legislation creating a new spending program to be offset by eliminating an existing program of equal or greater value. Other programs that are already underway could be effectively terminated by being denied further funds.

Both the high-speed rail and the TIGER grant programs will be vulnerable. Rep. James Sensenbrenner (R-WI) has introduced a bill to rescind unobligated funds from the high-speed rail projects, while several California congressmen including Rep. Kevin McCarthy (R-CA), the Majority Whip in the next House of Representatives, want to rescind the funds awarded to the California high-speed project. Echoing these intentions, Rep. Mica has announced that he will revisit all the high-speed rail projects and refocus the unspent and uncommitted money on places “where it makes sense.” The Northeast Corridor is expected to be the main beneficiary of any such reprogramming since Mr. Mike has been quite vocal in criticizing the Administration for not paying enough attention to the Boston-to-Washington corridor. “Ignoring development of true high-speed rail in the Northeast Corridor would be a monumental failure,” Mica wrote last year (“U.S. Musn’t Squander High-Speed Rail Funds,” The Hill, October 15, 2009)

This, in essence, is how informed opinion in the nation’s capital views the prospects for the federal transportation program in the next Congress. If this sounds like a rather somber outlook, it is brightened by the prospect of getting a multi-year transportation bill enacted next year. While the next authorization will almost surely be more modest in size and less “transformational” than many in the transportation community would like to see, it might contain some positive features from the states’ perspective, such as less federal prescription and more local discretion to manage transportation resources. For example, the new law could offer states more flexibility to toll highways and provide a more generous package of financing tools in the form of Private Activity Bonds and TIFIA loans.

A Postscript

Congress took two important transportation-related actions during the lame duck session : (1) it kept the money flowing and (2) it extended the existing SAFETEA-LU authorization which was set to expire on December 31.

A continuing resolution (CR) will keep federal agencies and programs funded through March 4, 2011, essentially at existing fiscal 2010 levels. This will allow Republicans an early opportunity in the next Congress to shape federal expenditures for the remaining seven months of Fiscal Year 2011. Rep. Boehner and his leadership team have vowed to eliminate about $100 billion spending out of about $400 billion in FY 2011 domestic programs.

An earlier Senate measure, consolidating 12 appropriation bills into one “omnibus” bill, was abandoned after failing to obtain the necessary 60 votes. Included in that bill was $41 billion for the Federal-Aid Highway program, an increase of $559 million from 2010 levels; $500 million for new TIGER grants; $250 million for “livability” initiatives; and $1 billion for high-speed rail grants. It’s safe to assume that these appropriation requests will fall victim of the spending restraints in the next Congress.

Also extended through March 4 of next year has been the surface transportation program . Early in the next congressional session, Rep. Mica plans to hold a series of “listening sessions” following which he is expected to introduce a multi-year authorization bill. One can only speculate what the bill will contain, but this much already is certain: it will be far less ambitious – in size as well as reach – than the bill contemplated by Rep. Oberstar.

In other news, the House Transportation and Infrastructure (T&I) Committee which will be responsible for writing the next surface transportation bill will be reduced from the current 75 members to 59. It will be comprised of 33 Republicans and 26 Democrats. Of the 33 Republicans, 20 will be newly elected House members and only 13 will be committee veterans with transportation experience. Subcommittee chairmen will be named by Rep. Mica in January after consultation with the House Republican leadership.

We wish our readers a Merry Christmas and a Happy, Healthy and Prosperous New Year !

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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