U.S. Transportation Secretary Anthony Foxx on Tuesday sent letters to state transportation departments outlining how the Department of Transportation on Aug. 1 will shrink payments for construction aid to preserve cash as the Highway Trust Fund nears a zero balance.
President Obama, in a speech at the Key Bridge connecting Washington, D.C., and Virginia, said "700,000 jobs could be at risk next year" if states have to scale back road and transit modernization projects because of the funding shortfall.
The level of money in the trust fund to help pay for highway, bridge and transit improvements has steadily decreased in recent years, as inflation has whittled away the purchasing power of money collected from fuel taxes and excise taxes on motor carriers. Motor fuel taxes have not been raised since 1993; since then, the value of the 18.4-cent per-gallon gas tax and the 24.4-cent diesel tax have gone down by a third. At the same time, more fuel-efficient cars on the road means the government is collecting less money, while the need for infrastructure repairs and upgrades remains high.
The Congressional Budget Office projects the Highway Trust Fund will need $8 billion in additional revenues to meet its 2014 obligations.
The situation is especially frustrating for businesses that depend on a reliable and safe highway system to quickly and reliably get their goods to market at reasonable cost.
Foxx urged Congress to address the shortfall.
“There is still time for Congress to act on a long-term solution,” Foxx said. “Our transportation infrastructure is too essential to suffer continued neglect, and I hope Congress will avert this crisis before it is too late.”
The two-year spending plan for transportation programs expires on Sept. 30, but with little possibility of a multi-year bill being passed this session, the focus has turned to a short-term bill meant to inject money into the Highway Trust Fund. Many transportation advocates and economic policy experts favor raising the fuel tax as the easiest and quickest way to restore the HTF's solvency, but there is widespread opposition within Congress to any tax increase — at least one that is not offset by other spending cuts — and the Obama administration does not favor a gas tax hike, either. Proposals from a handful of senators last month to raise the motor fuel tax by 12 cents over a two- or three-year period are not expected to gain much support. Without consensus on any other revenue-raising mechanism, the most likely scenario is for Congress to bail out the trust fund again with a transfer from the Treasury's general fund, according to political observers.
Congress has transferred $54 billion of general fund dollars into the HTF since 2009 to make up for the shortfall, but conservatives are balking at doing so again through more borrowing. The Transportation Department said the HTF's Highway Account will reach a critical point in a few weeks, requiring the implementation of cash-management practices.
Each year, the DOT apportions funding to the states for their highway programs based on an annual federal formula. Money is used for new construction, as well as rehabilitation, repaving and restoration of interstate and state highways. States spend money on bridges and highways, chipping in between 10 percent and 20 percent toward the cost, depending on the type of project, and forward the remaining bills to the DOT. The bills are subtracted from the state's allotment. A key point is that the money is used to liquidate previous obligations — the Federal Highway Administration makes payments to states for actual costs incurred — not as up-front grants.
Starting in August, the DOT will use those same percentages to determine how much each state will receive of whatever amount is left in the HTF. Reimbursements to states will be limited to the available cash in the trust fund, and new revenues will be added every two weeks as money from the gas tax flows into the fund. That means the DOT will have to stop reimbursing states for each bill as they come in. A similar process will be implemented for transit funds in the fall, when the transit account is expected to become insolvent, the DOT said.
"The department will continue to take every possible measure to fully reimburse your state for as long as we can. However, as we approach insolvency, the department will be forced to limit payments to manage the reduced levels of cash available in the Trust Fund. This means, among other things, that the Federal Highway Administration will no longer make 'same-day' payments to reimburse states," Foxx wrote to state transportation chiefs. He also ordered the DOT to restrict travel and administrative spending until the funding crisis is resolved.
States are expected to direct the reduced payments to their highest-priority projects. Already, many have cut back on construction plans for this year because of the uncertainty of reimbursement.
Obama reiterated in his Key Bridge speech
that his four-year, $302 billion GROW AMERICA Act, proposed earlier this year, would responsibly replenish the HTF by plugging corporate tax loopholes on overseas profits. The president's plan, however, would only provide a one-time infusion of money compared to an ongoing revenue stream.
"It’s not crazy; it’s not socialism. It’s not the imperial presidency — no laws are broken. We’re just building roads and bridges like we’ve been doing for the last, I don’t know, 50, 100 years. But so far, House Republicans have refused to act on this idea. I haven’t heard a good reason why they haven’t acted; it’s not like they’ve been busy with other stuff," he said, jabbing at Congress for the paucity of legislation passed during the past year.
"No, seriously. I mean, they’re not doing anything. Why don’t they do this?"
He claimed Republican obstructionism on a host of issues is hampering the middle class.
Although debate on a long-term surface transportation re-authorization bill is expected to spill into next year, the National League of Cities on Tuesday asked that any new legislation address more local funding priorities since local governments own 78 percent of the nation's road miles and half the bridges, and operate most transit systems.
In a letter to leaders of the House and Senate transportation committees the NLC complained that local governments only see a quarter of the $41 billion in federal funds spent on highways each year and have little say in how federal transportation dollars are invested.
The state municipal leagues called on Congress to pass a multi-year spending program that includes an increase in the federal gasoline tax or an alternative source of additional revenue. Local leaders should have a larger role in selecting projects, the letter said.