FY 2007 budget proposal recommends $65 billion for U.S. DOT-administered programs

News ARTBA February 10, 2006
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The Bush Administration released its fiscal year (FY) 2007 budget proposal earlier this week, and while this $2.77-trillion federal spending plan includes an overall cut in non-defense discretionary spending, there are a number of bright spots in the $65 billion the measure recommends for the programs administered by the U.S. Department of Transportation.

Specifically, the budget recommends record funding for a number of federal transportation programs, including a $3.4-billion boost in federal highway investment. While an over $2-billion FY 2007 highway funding increase was called for by the Safe Accountable, Flexible and Efficient Transportation Equity Act: A Legacy for Users (SAFETEA-LU), an additional $842 million is recommended in the budget due to Highway Trust Fund Highway Account revenues that exceeded SAFETEA-LU’s estimates.

The measure also calls for increasing federal transit investment by $370 million to $8.88 billion. This amount, however, is $100 million below the FY 2007 funding level guaranteed by SAFETEA-LU. Unfortunately, the Administration’s budget recommends a $765 million, or 22%, reduction in federal airport construction investment from the current level of $3.52 billion.

It is important to recognize the Administration’s budget proposal is not binding, but rather represents the first step in the annual budget process. Federal spending decisions for each fiscal year are not finalized until the enactment of the 12 individual appropriations bills. A more detailed account of the budget follows.

Highway Program

The Bush Administration’s FY 2007 budget proposal requests $39.09 billion of “guaranteed funding” or obligation authority for the federal highway program. This request includes the FY 2007 guaranteed funding level of $38.24 billion in SAFETEA-LU, plus a positive revenue-aligned budget authority (RABA) adjustment of $842 million.

In addition to guaranteed obligation authority, SAFETEA-LU provides $739 million of contract authority each fiscal year in the Equity Bonus and Emergency Relief programs that is not subject to the obligation limitation. Adding this brings total highway funding for FY 2007 to $39.83 billion. This represents a $3.42 billion, or 9.4%, increase over the $36.41 billion total enacted for FY 2006.

RABA adjustment for FY 2007

RABA is an innovative provision, first incorporated in the federal highway program under TEA-21, which directly links guaranteed funding for the highway program to Highway Account revenues. Whenever Highway Account revenues are higher or lower than forecast in SAFETEA-LU, the RABA provision adjusts guaranteed funding up or down to reflect the difference.

The RABA adjustment is a complex calculation based partially on a comparison of actual Highway Account revenues for the most recently completed fiscal year—in this case, FY 2005—to the SAFETEA-LU revenue baseline for that year and partially on a comparison of the latest U.S. Treasury Department forecast for the current fiscal year—FY 2006—to its SAFETEA-LU baseline. The RABA adjustment is then computed as half of the difference, if any, for the immediately past fiscal year plus half of the difference, if any, for the current fiscal year.

For FY 2005, actual revenues were $1.35 billion above the SAFETEA-LU baseline. For FY 2006, the latest Treasury estimate is $339 million higher.

The additional $1.35 billion of Highway Account revenues in FY 2005 was due to two factors—more motor fuel tax revenues than originally forecast and increased truck sales. About $900 million was attributable to motor fuel revenues from higher personal travel and freight shipments than previously estimated. The rest was from taxes on large trucks. The federal government levies a 12 percent sales tax on large trucks and trailers as well as an annual highway use fee up to $550 per truck and a tax on large tires. Revenues are deposited into the Highway Account of the Highway Trust Fund and can be hard to predict from year to year. New truck sales hit a record in 2005, as did freight traffic on the nation’s highways, likely generating more revenues than Treasury had originally predicted.

Financing Pilot Program

While the Administration’s budget largely adheres to the distribution of federal highway funds directed by SAFETEA-LU, it also recommends the creation of a new pilot program intended to promote new ways to finance and manage highway improvement projects. The “Open Roads Financing Pilot Program” would provide $100 million for up to five states to develop initiatives using direct user charges, including congestion pricing, for specific facilities. The $100 million would be derived from an “off-the-top” proportional reduction in the Surface Transportation, Congestion Mitigation and Air Quality, National Highway System, Interstate Maintenance and Bridge Replacement and Rehabilitation Programs.

The Administration’s budget states the following about the proposed new program, “Predictions of declining Federal transportation revenues, deteriorating highway performance, and the emergence of viable non-Federal revenue alternatives that can significantly improve system management, require that we be proactive in exploring these alternatives.”

Highway Account Balance

The budget projects that the cash balance in the Highway Account of the Highway Trust Fund will be drawn down to $6.6 billion by the end of FY 2007 from $10.6 billion at the end of FY 2005. This decline is not due to the FY 2007 RABA adjustment, since the $842 million of additional spending is offset by higher-than-projected revenues in FY 2005 and FY 2006. Instead, the decline is due to the fact that Congress used almost all of the balance in the Highway Account to finance SAFETEA-LU, and the decline is expected to continue.

Public Transportation Program

For FY 2007, the Administration requests a total of $8.88 billion for public transportation. This represents an increase of about $370 million over the amount enacted for FY 2006 (after the 1% across-the-board cut), but is $100 million less than Congress guaranteed for FY 2007 under SAFETEA-LU.

The $100 million would come out of the New Starts program, which funds construction of major subway and light rail transit systems. SAFETEA-LU provided $1.566 billion for New Starts for FY 2007, including a $200 million setaside for a new “Small Starts” program. The Federal Transit Administration apparently will not finalize regulations for this program until the middle of the fiscal year, so the budget proposes only $100 million (or half) of its allotment for FY 2007. The New and Small Starts programs are financed out of general funds, so savings also help reduce the federal budget deficit.

Other elements of the public transportation program, including formula grants and the bus program, would be funded at the full $7.263 billion guaranteed in SAFETEA-LU for FY 2007.

Aviation Program

The Bush Administration’s budget requests a total of $13.8 billion for the federal aviation programs in FY 2007—a $500 million decrease from FY 2006. While the Federal Aviation Administration’s operational activities would see a 5% increase over the amount provided last year, the budget would impose a dramatic cut in federal airport construction investment. The Administration’s budget proposes $2.75 billion for the Airport Improvement Program (AIP)—a $765 million reduction from FY 2006.

The 2003 federal aviation program reauthorization law, VISION-100, guarantees a FY 2007 AIP investment level of $3.7 billion. As such, the Administration’s budget proposal for airport construction investment is $950 million less than the amount Congress authorized.

Under the budget proposal, the $765 million cut from the AIP would be used to “increase funding for FAA’s salaries and expenses program” to hire air traffic controllers and safety inspectors. The Administration proposed reducing AIP investment from $3.5 billion in FY 2005 to $3.0 billion in FY 2006 for similar purposes—but Congress provided $3.52 billion for the program last year.

Rail Programs

The Bush Administration FY 2007 budget proposes $1.1 billion for the federal rail programs. Of this amount, $900 million would be split into two pots of resources for Amtrak: $500 million for capital activities; and $400 million in “efficiency grants” for operating activities. Amtrak received $1.29 billion in FY 2006.

The Administration also proposes to terminate the Railroad Rehabilitation and Improvement Financing Program, which makes loans to private railroads for rail infrastructure improvement projects and other activities. SAFETEA-LU increased the loan guarantees permitted under this program from $3.5 billion to $35 billion.

Highway Safety Programs

The Administration requests $521 million for the Federal Motor Carrier Safety Administration (FMCSA), up from $490 million enacted for FY 2006, and $815 million for the National Highway Traffic Safety Administration (NHTSA), up from $806 in FY 2006. These requests would fund ongoing programs; the Administration is not proposing any significant program changes.

About $4 million of the FY 2007 funding for FMCSA comes from the FY 2007 RABA adjustment, the same provision that provided an additional $842 million for the highway program. This provides some unexpected funds to improve motor carrier safety.

The budget also proposes to finance NHTSA entirely from the Highway Trust Fund for FY 2007-2009. Under SAFETEA-LU, a part of NHTSA’s annual budget for operations and research is charged to the federal General Fund. In recent appropriations bills, Congress has paid these expenses from the Highway Trust Fund by transferring funds from the highway program. In FY 2006, this transfer amounted to $121 million. While this meant the entire cost of NHTSA was paid from the trust fund, it came at the expense of reduced highway investment. The FY 2007 budget proposes to continue funding NHTSA entirely from the Highway Account of the Highway Trust Fund, but to charge the fund directly and not take the money from the highway program. This proposed change would not reduce annual highway investment, but would require amending SAFETEA-LU.

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