Horsley: Funding for Important Programs Is in Peril

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Across the nation, state transportation officials find themselves at a crossroads between promise and peril.

The promise of what transportation investment can mean to the economy is being delivered through the 1,500 highway projects already under construction, funded through the American Recovery and Reinvestment Act and creating thousands of jobs. The peril is represented at the state level as the collapsing economy has dramatically reduced state transportation revenues and forced cutbacks in planned transportation investments. At the federal level, the peril is represented by the recent message from the Department of Transportation that by early August, the federal government may not be able to honor the highway funding commitments states had been promised.

The American Recovery and Reinvestment Act, signed into law by President Barack Obama in February, provided $48 billion for transportation projects out of a total recovery package of $787 billion. Of the $27.5 billion targeted for highways, $26.8 billion was apportioned to the states.

These projects can help to preserve and upgrade crucial transportation infrastructure in communities all over the country. As of June 19, the Federal Highway Administration reported that 1,500 highway projects were already under way in 45 states. Those projects will create or sustain approximately 50,000 jobs. All of the state departments of transportation met the June 30 deadline for obligating half their highway economic recovery funds. As of July 6, the highway administration noted that 5,280 projects valued at $16.3 billion (representing 61 percent of the funds promised through state apportionments) have been approved and states can now move forward to get them under construction.

The bids that states have been receiving from contractors to do this work have been coming in from 5 percent to 30 percent below engineers’ estimates. So as Obama has remarked, states are delivering these economic recovery projects ahead of schedule and under budget. This verifies that, when given the task of putting urgently needed recovery dollars to work, the states have stepped up and delivered.

If implementation of the economic recovery act is the good news, the looming shortfall in the Highway Trust Fund is the bad news. A similar crisis took place less than a year ago. When insolvency faced the highway program last September, Congress transferred $8 billion from the General Fund back into the Highway Trust Fund to keep that program moving forward. It was hoped that this transfusion of funding would enable the federal government to keep the program going through October 2009.

The USDOT announced the last week of June that the highway account of the Highway Trust Fund will drop below the minimum cash level ($4 billion) necessary to continue daily payments in August. In the absence of an infusion of cash, the USDOT will be required to drastically slow state reimbursements. The implications of such a slowdown are negative for the already cash-strapped states.

Looking ahead to fiscal 2010, the administration has stated that the highway account can only support $5.7 billion or an 86 percent reduction in the highway program level.

In order to address the immediate fiscal 2009 crisis, a minimum cash transfer of $8 billion from the general fund to the highway account of the trust fund must be approved by Congress before the August recess. To do otherwise will leave the states with the need to float millions of dollars and incur substantial borrowing costs to meet their federal aid contractual obligations.

The trust fund’s fiscal 2010 revenue shortfall should be remedied by a multiyear reauthorization of the federal surface transportation program. If a reauthorization bill is not enacted by the end of the fiscal year, however, $10 billion in interim funding will be necessary to prevent devastating job losses that would result from cuts in each state’s federal highway funds.

Why is the trust fund unable to support current investment levels?

The revenue streams flowing into the Highway Trust Fund have not been adjusted in more than 15 years, and no new revenue sources have been created. Also, the last surface transportation reauthorization included annual investment levels well above incoming trust fund revenues.