American Association of State Highway and Transportation Officials

Only One Week Remains for Congress to Fix Highway Trust Fund Crisis

AASHTO Journal
July 24, 2009

With the House of Representatives scheduled to recess next Friday to begin its five-week-long summer break, only one week remains for Congress to put more money in the Highway Trust Fund or states could begin seeing reduced reimbursements around Aug. 31.

The House and Senate remain far apart as the trust fund's insolvency draws closer. The Federal Highway Administration has estimated the trust fund's Highway Account will run short of cash needed to fully reimburse states for federally funded road projects in August. FHWA has set up procedures to slow payments to state transportation departments if a cashflow shortfall occurs as projected.

Senate Finance Committee Chairman Max Baucus, D-MT, introduced a bill (S 1474) this week that would infuse the Highway Trust Fund with $26.8 billion from the government's General Fund. That would reimburse the trust fund for $19.5 billion in interest not received since 1998, when federal law was changed to put Highway Trust Fund interest into the General Fund. Baucus' bill would also reimburse the trust fund for $7.3 billion in emergency spending paid out between 1989 and 2004. The measure is designed to pay for an 18-month extension of surface transportation programs (from Oct. 1 of this year to March 2011) that three Senate committees have recently approved. (see related story on Page 5)

"We are faced with the difficult question of how to beat the clock and restore the solvency of the Highway Trust Fund to avoid stalled infrastructure projects, job losses, and an unsafe highway system. This proposal represents a clear way to address the projected shortfalls we face," Baucus said. "I will work with my colleagues to move this bill forward in the coming days and weeks, to improve our transportation system, and to help ensure the job security of millions of American workers."

House leaders, however, continue to push for a much-smaller short-term infusion for the Highway Trust Fund while continuing to work on passing a full six-year surface transportation authorization to replace the current law known as "SAFETEA-LU" that was enacted in 2005 and expires Sept. 30 of this year. The House is expected to support a small cash infusion for the trust fund next week and then return after Labor Day to complete work on the six-year authorization.

House Transportation and Infrastructure Committee Chairman James Oberstar, D-MN, told a House Ways and Means subcommittee Thursday that he supports a $3 billion short-term deposit into the Highway Trust Fund. This would cover the estimated $1.9 billion shortfall through September plus a $1.1 billion cushion, Oberstar said.

The Obama administration has asked Congress to transfer $20 billion from the General Fund to the Highway Trust Fund as part of an 18-month authorization extension.

AASHTO Stresses Importance of Temporary Infusion and Long-Term Authorization

AASHTO President Al Biehler, Pennsylvania transportation secretary, was one of 20 witnesses who testified Thursday before the House Select Revenue Measures Subcommittee, which is part of the Ways and Means Committee. The subcommittee convened to hear specific proposals from 10 representatives to raise more revenue for the Highway Trust Fund. An additional 10 witnesses representing various transportation organizations spoke about various funding options and all stressed the critical importance of quickly putting more money in the trust fund so states are not forced to cancel construction projects this fall if federal funds run short of what had been pledged.

"The two concerns of state DOTs are the immediate threat of Highway Trust Fund insolvency and the need to enact a well-funded long-term surface transportation authorization measure," Biehler told the subcommittee. "We estimate that $7.5 billion should be transferred into the trust fund to cover commitments in Fiscal Year 2009."

Biehler stressed that if the Highway Trust Fund becomes insolvent around the end of August, "states will likely suspend new contract awards, halt right-of-way acquisition, and look for ways to stop ongoing construction projects. ... Given the severity of the current recession, states will not be in a position to step in and fill the void. ... Congress' failure to fix the short-term trust fund crisis will undermine the economic recovery."

In the long-term authorization measure, Congress must sufficiently increase trust fund revenues to begin to address the well-documented national surface transportation infrastructure investment needs, Biehler said. He presented the subcommittee with a matrix detailing 26 possible revenue increases that AASHTO has examined. Biehler also noted the urgency of moving forward with a comprehensive national testing program for a vehicle miles traveled fee. (James Whitty, manager of the Oregon Department of Transportation's Office of Innovative Partnerships and Alternative Funding, testified in detail about his state's pilot project that tested implementation of a VMT fee.)

Subcommittee Chairman Richard Neal, D-MA, asked Biehler how states are preparing for the loss of construction money should the trust fund run short of cash to pay its obligations in full.

"We'll have severe cuts throughout our entire industry," Biehler responded, noting Pennsylvania alone faces a 70 percent reduction in its highway construction program if no additional money is pumped into the Highway Trust Fund this year.

Rep. Patrick Tiberi, R-OH and the subcommittee's ranking minority member, asked Biehler how he could support additional funding for the Highway Trust Fund without addressing how federal highway programs shortchange states such as Ohio and Pennsylvania, returning less money to their state DOTs than their residents pay in federal fuel taxes.

Biehler responded that the "donor state/donee state" matter is a "tough issue for all of us, but the bottom line is you should certainly advocate for additional money no matter if you are a donor or donee." He pointed out that greater Highway Trust Fund revenues would increase federal road funding for all states regardless of their percentage of fuel-tax payments received.

Prepared testimony submitted by Biehler is available at tinyurl.com/ABtestimony0723.

Subcommittee Chairman Expresses Support for Six-Year Authorization

After hearing from the 10 representatives who spoke about their funding proposals (including Oberstar and House Highway and Transit Subcommittee Chairman Peter DeFazio, D-OR), Neal said he supports passing a six-year authorization rather than an 18-month extension. He added he is awaiting guidance from House Speaker Nancy Pelosi, D-CA, on how to proceed next week with an emergency transfer of funds into the Highway Trust Fund to prevent insolvency in late summer or early autumn. The subcommittee did not act on any legislation at Thursday's hearing.

During his testimony to the Select Revenue Measures Subcommittee on Thursday, Oberstar outlined his committee's $500 billion Surface Transportation Authorization Act, which the Highways and Transit Subcommittee adopted last month. Oberstar is waiting for the Ways and Means Committee to identify revenue sources before moving the bill to a mark up in the T&I Committee.

Without additional revenues, a six-year transportation bill could only include $236 billion in spending authority, Oberstar said, falling way short of the amount needed. Though the federal gasoline and diesel taxes have not been increased since 1993, Oberstar said he does not support increasing the taxes during a recession - matching the policy stance President Barack Obama has taken. Oberstar supports raising fuel taxes once the economy has shown two quarters of positive growth, but he did not cite a specific cent amount that he desires.

To close the funding gap, Oberstar outlined six other options and the estimated revenue levels they could produce for the six-year bill:

  1. Restoring money taken from the Highway Trust Fund for emergency spending, vehicle safety research, and foregone interest: $27.4 billion
  2. Issuing U.S. Treasury bonds to be repaid over 10 years with HTF revenue ($60 billion)
  3. Requiring fuel tax exemptions be reimbursed by the General Fund ($6 billion)
  4. Increasing the per-barrel fee on crude oil and imported gasoline and diesel ($24 billion)
  5. Instituting a transaction tax on speculative trading of crude oil futures ($190 billion)
  6. Implementing other user fees including increasing the heavy truck tax (which has not been adjusted since 1983), imposing a federal vehicle registration fee similar to existing annual state levies, and adding a container fee on freight shipments (revenue varies depending on specifics).

Oberstar said no revenue increase will be popular.

"However, without new revenues, our highway, highway safety, and public transit programs face enormous cuts at a time when the nation's surface transportation network requires a substantial increase in investment just to maintain current standards," he said. "By making this investment, we will transform the future of surface transportation in the United States, and put Americans back to work in jobs that can never be outsourced." In his testimony Thursday, DeFazio cited AASHTO's "Rough Roads" report that found deteriorating highways add $335 annually to the typical American motorist's vehicle operating costs. The report is available at roughroads.transportation.org.

"The current economic climate is certainly not an ideal time to raise revenue to pay for needed investment in our failing transportation infrastructure," DeFazio told the Select Revenue Measures Subcommittee. "However, investment and reform cannot be put off - our economy is too dependent on an efficient system to wait."

DeFazio expressed his support for indexing the gas tax to the construction cost index, imposing a fee on barrels of crude oil and refined gasoline and diesel imported into the United States, and enacting a transaction tax on speculative crude-oil trading.

Administration Outlines Guiding Principles for Highway Trust Fund Revenue Raisers

Roy Kienitz, undersecretary for policy at the U.S. Department of Transportation, appeared at Thursday's subcommittee hearing to represent the Obama administration. Kienitz did not mention any specific revenue ideas, but described a set of "guiding principles" the administration has established for future Highway Trust Fund revenue options.

"We want a transportation system that will enhance the nation's economic competitiveness, improve transportation safety, improve energy efficiency, and enhance livability," Kienitz said. "We need a transportation funding system that will support the achievement of these goals."

Kienitz acknowledged that "there is considerable reason to believe that our current funding system is not adequate to our needs." But the administration does not support increasing fuel taxes during a recession, he said, and noted there are serious concerns about the ability of fuel taxes to support funding requirements in the future as vehicle fuel efficiency increases and more cars run on alternative fuels.

"The revenue generated by the fuel tax is vulnerable to these changes in fuel prices, technology, and environmental concerns," he said. "We will probably need a more diverse, flexible funding system to enhance the sustainability of our surface transportation funding system.

Tiberi, the subcommittee's ranking minority member, asked Kienitz whether a $3 billion transfer to the Highway Trust Fund would be sufficient to pay for road projects through the end of this fiscal year. Kienitz replied $3 billion would not be enough.

Questions regarding this article may be directed to lwall@aashto.org