‘The Cavalry is not Coming’ for the Highway Trust Fund

Hundreds of state transportation projects could be in jeopardy if Congress fails to act on the federal Highway Trust Fund, which is expected to run out of money this summer, well before the Sept. 30 expiration of MAP-21, the 2012 federal surface transportation authorization bill. Most states rely on the trust fund for a significant portion of the revenues they use to fund transportation projects.
That was the concern expressed by many at the annual meeting of the Transportation Research Board, which brought more than 12,000 transportation professionals from around the world to Washington, D.C., in January.
“The current trajectory of the trust fund is unsustainable,” Sarah Puro of the Congressional Budget Office told members of the board’s Revenue and Finance Committee. “Sometime in 2014, the highway account could have problems meeting obligations. … The question is: what’s the Congress going to do and what are states going to do to respond to that?”
Congress has some choices, Puro noted. It could come up with a revenue solution—a gas tax increase or other mechanism—to shore up the trust fund, but bipartisan consensus on a permanent fix has proved elusive. One short-term fix Congress has relied on frequently in recent years—a transfer of general fund dollars to the trust fund—may be off the table this time around. Since 2008, more than $50 billion has been transferred to keep the trust fund afloat.
The federal budget resolution passed in December requires any general fund transfer to the highway trust fund to be offset.
“It may or may not be possible politically for the Congress to make some sort of general fund transfer,” Puro said.
Congress also could consider a third option.
“They could cut spending if they wanted to cut spending,” Puro said. “However, in 2015, (Congress) would need to zero out the (surface transportation) program.”
That’s something some states may not be prepared for.
“Our plan has been built upon a projected drop in 2015 that it would go back to just ‘gas tax in, gas tax out’ basically,” said James Bass, interim executive director and chief financial officer at the Texas Department of Transportation. “We never envisioned a zeroing out in 2015. … A majority of states still get the majority of their (transportation) funding from the feds and so therefore the thought is that (Congress) won’t allow for that reduction to happen short term or long term.”
The American Association of State Highway and Transportation Officials, known as AASHTO, asked members about plans to prepare for a worst case scenario in a survey last year. 
“States plan to stay the course—at least a majority of them—in that they expect … a continuation of at least current funding levels beyond the expiration of MAP-21,” said Joung Lee, AASHTO’s deputy director of management and program finance. “(States) can’t just take their foot off the pedal, essentially.”
But some state DOTs are hedging their bets, developing two separate budgets for the 2014 legislative sessions, where the second budget shows a greatly diminished federal program. That kind of document can be used to strike fear in the hearts of state officials and to engage Congressional delegations to focus on the issue in Washington, Lee said. But the reality is that doesn’t always happen.
Tennessee Transportation Commissioner John Schroer presented two budgets to the governor this year.
“One was if we had level funding from the federal government and one if the fiscal sinkhole happened, which means in 2015 I’d get no money,” he said. “It was an eye-opener to some of the people in the room. It got almost no press and very few people paid attention to it.”
Like Bass, Schroer said most people believe Congress would never let such a scenario transpire.
“But how many of us remember sequestration?” Schroer said. “That was the poison pill that was going to make (Congress) get together and get a budget passed because sequestration … (would be) so devastating. Not only did sequestration happen, … but no one even noticed. It came and it’s still here and no one’s paying any attention to it. And my fear is that will be the attitude when it comes to funding transportation. … We have to be prepared for it.” 
The uncertainty about the future of the trust fund is one reason Tennessee, unlike a number of other states, hasn’t considered increasing transportation revenues at the state level, Schroer said.
“It’s hard to talk about funding at the state level when we don’t really know what’s going to happen at the federal level,” he said. “… I don’t want to go through this battle twice. I don’t want to attack a funding issue now and then attack a funding issue next year or the following year when something happens at the federal level.”
But even states that have addressed their transportation revenue situations in recent years aren’t prepared for life without a substantial federal component to their overall capital programs.
“The threat of the highway trust fund not being there in 2015 is still a big issue,” said Scott Bennett, director of the state highway and transportation department in Arkansas, where voters approved a sales tax increase for transportation in 2012. “Federal funds made up about 70 percent of our total (transportation) revenue. Now, with this half-cent sales tax, it’s about 50 percent of our total revenue. … The federal program is still critical.”
“Without federal funding, it would be catastrophic for Wyoming,” said John Cox, director of that state’s department of transportation. 
Wyoming raised its gas tax in 2013 but prior to that, the state had relied on the federal government for as much as 85 percent of its transportation funding. Wyoming’s small population means a limited tax base. Yet many residents must drive long distances along essential corridors that must be maintained. 
So while states may be raising revenues on their own, they are still counting on having a strong federal partner, said Nick Donohue, who recently stepped down as policy director for Transportation for America, a Washington, D.C.-based alliance of elected, business and civic leaders from around the country.
“I think we need to look at why states are doing these revenue increases and a lot of times it’s to supplement what they’re getting from the federal government; it’s not to supplant it,” Donohue said.
Wyoming and Vermont are among the states that raised their gas taxes in 2013 to match federal dollars. Donohue said legislators who supported those increases likely would not appreciate having to vote for a similar size tax increase next year to fill the hole left by federal funding.
But with so many states considering new transportation revenues at home, some analysts wonder whether Congress could be taking away a message state transportation officials had never intended.
“I think in the short run, it is conceivable that more state revenue dedicated to transportation could lessen the pressure on Congress to come up with increased revenues to fund the next transportation reauthorization,” said Ken Orski, a former federal transit official and public policy consultant who pens the Innovation Newsbriefs blog. “(Some Congressional sources) cite evidence of this growing ability and willingness of states to fund their transportation needs as the reason for why increasing federal spending on transportation is not necessary.”
Other experts said the federal budget is simply on a trajectory that appears unlikely to ensure a robust federal transportation program going forward and states would be wise to plan accordingly.
“We are getting more and more in the business as a federal government of spending money on Social Security, Medicaid and Medicare, (and) the military. And all other discretionary spending is going to continue to get squeezed out,” said Patrick Sabol, senior policy/research assistant in the Metropolitan Policy Program at the Brookings Institution. “Our perception on this is that the cavalry is not coming. The federal government is not coming through with more revenue. They’re not going to come through with more funding sources. …We are in a new environment and we are going to have to adjust our priorities and the way we work.” 

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