Highway Funding Still Under Construction

Congress’ efforts to fund highway spending look like a driver trying to extricate a car from the snow. Lawmakers move an idea into first gear, then slip it into reverse, then back to first, hoping the back-and-forth-motion generates enough momentum to get off the slick spot and move some legislation.

Congress first encountered this particular snowdrift about seven years ago. In 2008, with reluctant support from the Bush administration, lawmakers transferred $7 billion to the Highway Trust Fund — where most of the federal government’s transportation spending comes from. Back then, the country was grappling with a deep recession and a devastating fiscal crisis that threatened to make the trust fund insolvent.

Today, circumstances have changed. The government’s budget deficit as a share of gross domestic product has dropped to its lowest level in seven years and the economy is on an upswing. Even so, Congress has relied on more than 30 short-term extensions to keep highway programs afloat. Lawmakers all agree that America’s roads and bridges are in terrible, even dangerous, condition. But the temporary funding patches are likely to be their only response.

On its face, the problem is about numbers. The Highway Trust Fund, funded largely by a gas tax whose rate hasn’t changed since 1993, is facing a $13 billion shortfall in fiscal 2016. Hiking any taxes is an enormous lift. And lawmakers never indexed the gas tax to inflation, which means it has been declining in real terms.

Then there’s the shift in most Americans’ consumption of gasoline. For decades, as more and more people got behind the wheel, policymakers could expect gas tax revenues, the primary driver of highway funding, to steadily rise. Now, with people driving more fuel-efficient cars, gasoline consumption is set to stall, leading to a widening gap between gas tax revenues and funding needs.

But at the heart of the debate is another, deeper divide over the proper role of the federal government. Should Washington, which spent some $46 billion on highways in 2014, still be in the business of building and maintaining roads? If so, how should those roads be paid for?

The current debate demonstrates just how much the GOP has changed. Not long ago, Republicans were pretty reliable backers of infrastructure spending, a priority that routinely united business and labor groups. Nowadays, the GOP is undergoing soul-searching over the issue, even though businesses, the U.S. Chamber of Commerce and state governments are still adamant that infrastructure spending is a good use of public dollars.

All this has made Congress unable to muster the political will to enact a long-term highway bill. And nothing looks likely to shift this year. Whereas six-year surface transportation measures once got bipartisan backing, these days lawmakers have to keep highway programs afloat through regular short-term infusions of cash, keeping funding going for barely a few months at a time and infuriating state officials who need the promise of federal dollars to embark on expensive multi-year projects.

At stake is not just the health of the American infrastructure network and the country’s continued economic competitiveness, but the future of federal spending and the federal-state relationship. The latest transportation authorization bill expires May 30 and the money will run out a few weeks later.

“We cannot let this moment pass,” Rep. Earl Blumenauer of Oregon told a group of transportation design and construction officials this month. “Unless we do something different, in about, oh, two years, we’ll be right back at it.”

Almost nobody, however, is betting on any kind of grand solution by the end of May.

Multiple Divides

Unlike many battles in Congress, the fight over transportation doesn’t fall neatly along party lines. Instead, lawmakers fall into roughly four camps.

On one side are advocates of raising the gas tax, who argue that slightly higher tax rates will provide enough revenue to keep transportation programs afloat for the next decade or so, while policymakers look for a new funding source to complement or replace the gas tax for the long term. This group includes not only liberal Democrats such as Blumenauer and California Sen. Barbara Boxer, but also some Republicans, including Sen. Bob Corker of Tennessee.

“Raising the gas tax is the only proven solution that is sustainable, that is dedicated, and it’s big enough to give you a six-year reauthorization,” said Blumenauer, who left the Transportation and Infrastructure Committee to join Ways and Means and engage on the tax side of the debate. “All this other stuff is smoke and mirrors.”

Republican Sen. James M. Inhofe of Oklahoma has also said he might be open to a gas tax increase. Inhofe prefers to use the term “user fee,” however, to emphasize the connection between the people who pay for the highways and those who use them. That rebranding could be an effort to get around the GOP’s opposition to tax hikes, but Inhofe makes the case that people who use the roads should pay for them.

“You have to go back to the Eisenhower days and decide whether or not you believe in the federal highway system. I do,” he says.

But some of the most ardent transportation boosters in Washington argue that raising the gas tax — or user fee — is a political dead end in a Congress controlled by Republicans hostile to tax increases. This group, which includes President Barack Obama and House Transportation and Infrastructure Chairman Bill Shuster, a Pennsylvania Republican, says it makes more sense to use another, somewhat less controversial funding source. Their chief candidate is a tax on corporate profits held overseas.The White House has a plan to raise $238 billion through a one-time tax cut on overseas profits, and Shuster has identified tax repatriation as the most promising offset for a highway bill.

“The money is the difficult part of it,” Shuster told a transportation group this month.

Shuster said he sees a funding fix as part of a bipartisan tax overhaul effort led by Ways and Means Chairman Paul D. Ryan, a Wisconsin Republican, and “along the way he’s going to have a fix in there for the trust fund.”

“I think repatriation’s probably part of that. But that’s going to be up to Paul,” he told reporters after his speech.

Ryan and Senate Finance Chairman Orrin G. Hatch of Utah are part of a group that insists repatriation should only happen as part of a broader corporate tax overhaul. Congress almost certainly won’t get around to that by the summer, which means that transportation programs will have to rely on another source of funding.

Hatch has said he’s working on a highway funding proposal but has yet to spell out the details.

The fourth side in this debate is made up of conservative Republicans who want to unwind much of the federal government’s involvement in transportation funding.

One camp, including Rep. Thomas Massie of Kentucky, wants Congress to stop funding public transit systems, freeing up more money for roads. Others, such as Utah Sen. Mike Lee and Rep. Tom Graves of Georgia, want to devolve responsibility for highway funding down to the states.

Conservatives in Congress and at Heritage Action have been pushing a plan to slowly reduce the federal gas tax from its current 18.4 cents per gallon to 3.7 cents per gallon and let the states decide if they want to raise their own state gas taxes to compensate.

Lee argues it’s time to reevaluate the federal government’s involvement in state transportation decisions.

“With the interstate system now largely complete and most transportation issues that we see today existing at the local level, there is no longer the same need for Washington to serve as the central coordinator,” he said in a floor speech last year. “We have become an intrusive middleman.”

Inhofe, who claims to have fathered the idea of devolution 25 years ago, now says it would be an irresponsible abrogation of one of the main responsibilities of Congress.

“The conservative position is to go ahead and do an authorization bill,” he said in February. “Quoting the Constitution, the two elements that are the most basic responsibility of the federal government are national defense and the development of a national transportation infrastructure.”

Inhofe was referring to the Commerce Clause, which calls on Congress to build and maintain “post roads.”

End of Life

Despite all these disagreements, lawmakers haven’t been willing to let the trust fund run out of money, even if that money comes in fits and starts. The main reason: Everyone agrees the nation’s roads and bridges are in bad shape, either congested or in need of repair or both.

“This has been bubbling for a long time,” says Donald Kettl, a public policy professor at the University of Maryland.

Kettl points to interstate highway bridges as the “canary in the coal mine,” many of which were built in the 1950s and 1960s as part of the Eisenhower interstate system.

“The engineers who built these things knew that their building structures had a certain useful life to them,” he says. “It wasn’t any surprise to them that after 40 or 50 years, these bridges were going to need work.”

But even the fatal 2007 collapse of the I-35W Mississippi River bridge in Minneapolis didn’t really change the dynamics in Congress on the issue.

The American Society of Civil Engineers gave American roads a D grade in a 2013 report. The group, which stands to benefit from more infrastructure spending, said 42 percent of urban highways are congested, costing the economy $101 billion a year in wasted time and fuel. The Federal Highway Administration also estimated in a 2013 study that federal, state and local governments would need to invest $65 billion to $86 billion a year to keep roads in their current state, depending on whether people drive more or less in the future. To improve conditions, the study said, highway capital spending would have to be between $124 billion and $146 billion a year.

Those improvements would cost far more than the $91.9 billion in capital spending from all levels of government in fiscal 2014, according to the Congressional Budget Office. It’s not clear that Congress can muster that kind of money.

State officials have felt the brunt of the lack of funding. Ordinarily, states sign contracts for construction projects, then ask the federal government to reimburse them. In the era of six-year fully funded highway bills, states knew that they could expect a steady stream of money, giving them the confidence to embark on expensive long-term projects.

Now that Congress relies on short-term funding bills lasting barely more than a few months, state officials are much more nervous about signing multi-year contracts. Take California, for example, where the state is working on a $3.2 billion I-5 improvement project in Los Angeles County and a $1.3 billion replacement of the Gerald Desmond Bridge in Long Beach.

“The federal reimbursements pay back the state highway account,” says Mark Dinger, a spokesman for the California Department of Transportation. “We pay the bill first, and the reimbursements are sent to us.” It could be a big problem if federal funding isn’t there, he adds.

Until Congress resolves its philosophical questions, California and other states have no choice but to wait. At this point, it appears they are not likely to see any resolution in the near term. Instead, states will probably have to make do with another short-term infusion of cash from the general fund as Congress continues to wrestle with its own role.

Since 2008, those general fund transfers have totaled $63.1 billion to meet the spending needs. That number is likely to grow.

Nobody on Capitol Hill likes this way of paying for highways. Lawmakers say these patches are only temporary fixes. But they represent the only way to fund highways that lawmakers can agree on. Absent any other option, the general fund has become the de facto source for federal highway spending, says Emil Frankel, a former assistant secretary at the Transportation Department in the George W. Bush administration.

“Congress through its inaction and these patches or transfers has basically decided that a substantial portion of the trust fund should come from the general fund,” he says. “Policy is being set by inaction.”

This piece originally appeared as the cover story of the April 20 CQ Weekly.

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