Congress Begins Moving Priority Legislation; States May Wish It Didn’t

In the last few days, Congress has moved forward on two sizable agenda items, the payroll tax cut extension and a long term surface transportation bill. As always, however, the devil is in the details and the details are open for interpretation. 

First, the payroll tax cut extension. House and Senate negotiators are slowly making progress toward a deal on extending the payroll tax cut, which has been extended repeatedly over the past few years. The package also would stave off a massive cut to Medicare and extend long-term unemployment insurance. At a time when the unemployment rate is declining, the amount of long-term unemployed people has remained stagnant at a whopping 5.5 million.

The discrepancy is over how to pay for the extension. Ideas currently on the table include selling broadcast spectrum, capping tax deductions for high-income people, capping oil company tax deductions and reducing direct federal spending such as a pay freeze for federal employees. All parties agree that negotiations will only creep along until the “pay-for” issue is resolved.

The surface transportation bill, on the other hand, has advanced more rapidly over the past few weeks. The most recently passed stop-gap transportation funding measure expires in a few weeks, and Congress is attempting to pass a long-term bill. The House version of this bill is advancing to a full vote, and the Senate version is expected to do so as early as this week.

The House version differs from past transportation bills in that it includes no earmarks, and the formula for how states receive funding has been altered. According to a report by Bloomberg, 27 states would get more federal funding, while 23 states would lose funding. Kansas and Maryland would see the biggest gains, while Alaska and Montana would feel the most significant losses. The Senate bill has some similarities, but serious differences remain over the length of the extension and overall funding levels.

The public may be pleased that Congress is doing something, even if it is only a blip on the collective radar as the presidential campaign gains momentum. States, however, should be cautiously optimistic at best. The “pay-fors” that the payroll tax extension conference committee negotiates could have huge negative consequences for states, depending on what committee members are willing to sacrifice. Though none of the ideas on the table would have a direct impact on state balance sheets, last minute negotiations could yield more onerous results, such as taxing municipal bond interest.

The same goes for the transportation bill. While the general consensus is that the dark days of earmarking road projects are over, that means funding formulas will rule the federal funding debate, at least as far as states are concerned. For better or worse, that comes with a lot more finality, and a state that is losing funding will find it all the more difficult to regain it. 

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