On the Front Line

The fate of the entire industry depends on transportation funding. The delay and cancellation of highway improvement projects, possibly thousands of jobs, not to mention the safety and security of the nation’s infrastructure and its millions of users is at stake.

Already, President Bush’s proposed FY2003 budget includes an $8.6 billion cut in the federal-aid highway program. More importantly, TEA-21 reauthorization takes place next year, and the efforts to ensure maximum funding levels are already under way.

Transportation Management + Engineering offered up a host of questions to the Federal Highway Administration administrator Mary E. Peters to find out what obstacles the industry may face in regards to the Revenue Aligned Budget Authority (RABA), TEA-21 reauthorization and meeting the challenges of traffic congestion.

President Bush’s proposed fiscal 2003 budget includes $8.6 billion in reduced spending for the federal-aid highway program. What is the administration and FHWA doing in response to criticism over the proposal?

First, I want to emphasize at the outset that the president’s budget proposal is not a political or a policy decision. The total in the budget is not a White House number but is, pure and simple, the result of a mathematical calculation established by Congress in TEA-21 that ties highway expenditures to tax receipts in the Highway Trust Fund.

I also think we should look at the overall picture. Over the last five years, our nation has reaped the benefits of record-level funding for surface transportation as promised in TEA-21. The Revenue Aligned Budget Authority provision in TEA-21 has alone provided some $9 billion more in federal highway funding to the states over fiscal 2000-02 than was expected at the time TEA-21 became law in 1998. Even with the downward adjustment of RABA in fiscal 2003 of $4.4 billion, the states will have experienced a net increase of $4.7 billion in additional funding over the life of RABA to help them meet critical transportation needs. So until now, RABA has been very good for us.

Someone suggested that I should say that the whole issue of RABA is a bad dream, and it will disappear when we wake up. It isn’t. I’m not going to sugarcoat RABA. There will be pain and some difficult adjustments. I’m a former state highway director, and I know the choices will be very, very difficult. But again, we need to put things in perspective. RABA has been a net positive, with some $9 billion in additional highway funds made available to states and local governments in the first three fiscal years in which RABA was in effect.

As you know, legislation has been introduced in the House and Senate to reduce the impact of RABA. Although the administration has not taken a position on specific bills, we will work with the Congress and our partners to meet the challenge. We do think that any legislative remedy ultimately should take place in connection with the reauthorization of TEA-21 that will address federal-aid highway funding in fiscal 2004 and beyond. We need to look at mechanisms that can help smooth out the extreme fluctuations in RABA funding such that state and local governments are able to develop transportation plans with a reasonable surety of funding over a period of time. Within DOT, we have begun exploring methods for doing so.

Did you offer any warning to the highway industry about the proposed budget?

The U.S. DOT had received indications in late summer 2001 that RABA was likely to be negative for fiscal 2003, and we shared this information with our state partners and other stakeholders throughout last fall, including at the annual AASHTO meeting in November 2001 at Fort Worth, Texas.

Only in the days preceding the announcement of the president’s budget on Feb. 4 did we learn of the actual number. Deputy Secretary Michael Jackson and the U.S. DOT modal administrators provided briefings on Feb. 4 to the media and to representatives of the highway industry and have continued to work with our partners in the states and in private industry to identify ways to lessen the impact of this reduction. We also are working with the Congress and state and local officials to address the issue in reauthorization.

What states will be affected the most/ least because of these cuts?

The reductions from the RABA calculation are applied across the board, so each state is affected proportionally based on its apportioned totals for program categories under TEA-21. Thus, no one state is affected more than another.

What kind of effects could this proposal have on the nation’s roadways? 

I want to re-emphasize that even with a downward adjustment of RABA in fiscal 2003, our state partners will have experienced a net increase of $4.7 billion in additional funding over the life of RABA to help them meet critical transportation needs. As we all know, expenditures at the program level continue to spend over a long period, supporting employment throughout. Because the federal-aid program spends slowly, we estimate that actual spending, in terms of outlays from the federal-aid program, will fall by only 3% in fiscal 2003 compared to fiscal 2002.

We base that on experience: highway projects are expended at 27% in the first year, 41% in the second year, 16% in the third year and 10% in the fourth year. So the flexibility of states to use their multi-year authority means that the impact of a reduction can be tempered, lessening the impact on construction, repair and other activities. And again I want to emphasize that we will work with our partners in the states and in private industry to identify other ways to lessen the impact of the reduction.

Could the Highway Trust Fund be tapped to support more spending?

Yes, more could be spent in the immediate future. Even though highway spending is linked to Highway Account receipts, a build-up of cash has occurred in the Highway Account of the Highway Trust Fund, mainly because of the slow spending nature of the highway program. The funding levels in TEA-21 ramped up over the life of TEA-21.

Obligations for highway projects are paid in outlays over a nine-year period on average. The peak year for outlays is the second year of the project. So, assuming continuation of the traditionally slow payout rate for the federal-aid highway program and the obligation limitation levels provided for in TEA-21, the Highway Account has some additional capacity. However, program levels in subsequent authorizing legislation must take that carryover balance and the expectations of future revenue into account when authorization levels for fiscal 2004 and beyond are considered.

The largest contributing factors to the relationship between obligation ceiling and the HTF balance are the rate at which income is coming into the HTF and the rate at which the HTF must supply cash reimbursements, “making good” on commitments to the federal share of a project’s cost. So the true status of the Highway Account of the HTF can be determined only by comparing outstanding and future commitments under TEA-21 to the balance at the beginning of TEA-21 plus predicted income through the end of the fund’s fiscal “life.”

The authority of the highway program to distribute new spending ends in 2003, but the authority to collect revenues extends through 2005.

We also must remember that the amount of the current Highway Account balance should not automatically be considered “excess” or “surplus.” We have current and potential commitments against the account’s balance and future income. These commitments reflect unreimbursed obligations, unobligated balances and undistributed authorizations. A balance is critical to the health of the HTF and the programs it supports. States have a right to expect their claims against the Highway Trust Fund will be paid promptly. The U.S. DOT thinks that the Highway Account should have a minimum balance of $8 billion, or about three months worth of outlays. 

Will fuel and truck taxes be increased in the near future to make up for the proposed budget cuts?

We are unaware of any proposals at the federal level to increase federal fuel tax rates. However, I also think we need to look at the question of our funding mechanism more broadly. Our funding mechanism has served us well, but I think we need to think of this news on RABA as a wake-up call. We need to think about how we will fund transportation in the future. We need to consider new sources of revenue for the Highway Trust Fund. Who thinks we will be financing transportation the same way 20 years from now?

We need to look to the future, even as we are deeply concerned about the present.

How does ITS fare in the new budget?

TEA-21 provides contract authority of $1.28 billion specifically for ITS research and deployment over the life of the six-year authorization. For fiscal 2003, the administration proposed $176.79 million for the ITS program, including $83.8 million for research and development and $92.97 million for deployment incentives.

Our ITS proposal for fiscal 2003 will promote national security, safety and mobility in America. For the deployment incentive program this year, the administration is placing an emphasis on deployment and/or integration of ITS to enhance the security of our nation’s surface transportation systems. In addition to the allocated funds, ITS projects are eligible for funding from the regularly apportioned federal-aid highway funds.

At this point, we are not sure what the final level of federal-aid highway funding will be for fiscal 2003. The im-pacts of decreased federal-aid highway funding on a state’s ITS plans likely will be similar to those experienced in a state’s other surface transportation programs.

With the proposed budget reduction in mind, what about TEA-21 reauthorization?

In terms of reauthorization, I expect that key elements of the department’s proposal will preserve and build on the overall reforms of ISTEA and the more specific financial reforms of TEA-21. In my opinion, this reauthorization cycle will not be revolutionary because we have a solid base to build from. I look for a continuing evolution to live up to the promise of both TEA-21 and ISTEA. Most of our partners in industry and government are generally in agreement on a few broad topics:

•               Protect the “firewalls” and RABA to ensure responsible investment levels. Funding dedicated to transportation purposes should be used for transportation to ensure an adequate level of investment;

•               Provide stable and predictable funding that will allow state agencies to confidently develop long-range plans. Keep the minimum guarantees in place and avoid wide swings in funding mechanisms; and

•               Enhance flexibility, which is important to me and to Secretary Mineta. Since decisions are best made closest to the people, we want to provide flexibility to state and local governments wherever possible. This is why I am so concerned about the limits to flexibility caused by extensive earmarking of apportionments, including RABA.

The reauthorization process gives us an opportunity to emphasize security while addressing our broad goals of mobility, congestion relief and economic growth. We plan to send the administration’s reauthorization bill to Congress after it convenes early in 2003. The framework of the administration’s proposal will be reflected in the fiscal 2004 budget, which will be submitted in February 2003. We are proceeding under the assumption that the authorization period will be six years, comparable to those of ISTEA and TEA-21. Over the next few months, the U.S. DOT will work with stakeholders and Congressional committees to shape proposals.

What do you plan to do in your role as FHWA administrator to improve congestion and traffic on America’s roadways?

Meeting the challenge of congestion in our nation is one of my top three priorities, along with safety and environmental streamlining. Congestion and bottlenecks damage air quality, slow commerce, increase energy consumption and threaten our quality of life. They waste significant time, money and productivity. As I’ve said, only a 16 year old with a new license drives for the fun of it. Most of us do so because we must.

We recognize that a “one size does not fit all” approach is best. We work with our partners to determine the best solutions to solve specific congestion problems. We also must consider technology, transit and inter- modal and multi-modal solutions. We also should encourage state and local governments to incorporate land-use considerations into their transportation planning process. At the same time, we must recognize that congestion is the result of de-mand significantly outpacing capacity. Although the solution is not just to add capacity, that option must be part of our toolkit. We need to break the anti-highway cycle of limiting capacity. Sometimes transportation is about asphalt, concrete and steel.

In addition to improving capacity when appropriate, we must maximize our system capacity via improved operations. For example, we are working very closely with our partners in the urbanized areas to develop a national architecture to support ITS and operations technologies. These technologies will be a key in reducing travel delay and improving mobility for the traveling public and the freight industry. They include things like traveler information systems, emergency response systems, electronic toll collection, traffic-responsive signal systems and transportation management systems.

At the end of the day, people should have choices, not mandates. So, meeting the challenges of congestion will require a true intermodal response in collaboration with the other U.S. DOT modes and our partners.     TME