Holler for Dollar

July 15, 2008

Walls of fire are supposed to trigger alarms. It appears nothing was going off in the heads of those behind the Transportation Equity Act for the 21st Century (TEA-21). When lawmakers were pushing the legislation through, firewalls were built into the rhetoric to assure the cuffing of any stray hands attempting to dip into the Highway Trust Fund. That enforcement has ended up costing the industry billions of dollars.

Walls of fire are supposed to trigger alarms. It appears nothing was going off in the heads of those behind the Transportation Equity Act for the 21st Century (TEA-21). When lawmakers were pushing the legislation through, firewalls were built into the rhetoric to assure the cuffing of any stray hands attempting to dip into the Highway Trust Fund. That enforcement has ended up costing the industry billions of dollars.

Initially $8 billion was transferred out of the HTF for the firewalls. A group of lawmakers is attempting to rope that money back in. A good chunk of financing, however, went up in smoke.

“There is a legitimate claim for [the $8 billion],” Greg Cohen, president and CEO of the American Highway Users Alliance, told Roads & Bridges. “In fact, there probably is a legitimate claim to considerably more because the other part of the deal was not only would we lose $8 billion but that we would lose the interest collected on the balance of the Highway Trust Fund, which was substantial at the time.

“It has been 10 years, but at this point there is recognition that it was an error to transfer that money out.”

Senate Finance Committee Chairman Max Baucus (D-Mont.), Ranking Member Charles Grassley (R-Iowa) and Transportation Appropriations Subcommittee Chairman Patty Murray (D-Wash.) developed a plan that would at least transfer that initial $8 billion from the U.S. Treasury back into the HTF. The bipartisan plan was included in H.R. 3540, which would extend authorization for Federal Aviation Administration (FAA) programs, which expired on June 30.

At press time, Cohen believed this Highway Trust Fund Solvency Plan carried enough spark to pass.

“I think there is a good chance of it being done,” he said. “One of the reasons is that they got information from the Congressional Budget Office that they don’t have to offset any of the spending out of the general fund with new revenue because it is just a matter of a unified budget changing the money from one account to another.”

The House of Representatives, however, did not think the move was as smooth. On June 24 it dropped the fix from the bill that would provide a three-month extension of taxes and spending authority for FAA programs. The Solvency Plan was cut following strong opposition from Republicans—namely Jerry Lewis (Calif.), the ranking Republican on the Appropriations Committee, and Paul Ryan (Wis.), the ranking Republican on the Budget Committee.

“This bill just exacerbates our transportation funding problem by using an $8 billion taxpayer-funded Band-Aid on the terminally ill Highway Trust Fund,” Lewis said in a statement. “We need real reform and practical solutions, not more buck passing.”

With the buck now stuck, states are facing a $14 billion shortfall in federal transportation funding in 2009. Then there is the daunting task of ungluing dollars to fund the next five years of highway and bridge construction.

Raising money

Before the next reauthorization bill is dressed for the Congressional floor there are miles of legwork that need to be churned out. A new administration will want to dive deep into the funding legislation before anything is released into the House, which may not come until May. Then the Senate takes over, which usually is a painstakingly slow process.

“It is going to be a very, very difficult task, and there will be a lot of late nights to make it happen,” said Cohen.

It seems the federal gas tax will continue to be the primary caregiver of the next reauthorization bill. House Transportation & Infrastructure Committee Chairman Jim Oberstar (D-Minn.) proposed the need for a two-tier approach to raise money for future projects. Maintaining the federal gas tax would serve as the “cornerstone of financing through the Highway Trust Fund,” but supplemental revenue sources—like vehicle-miles traveled, vehicle weight, tolls and congestion fees—also will play a role.

But the amount of money the federal gas tax could squeeze out continues to be questioned. Some believe an ongoing spike in gas prices will force more people to cut back on consumption, which would infect federal funding over the course of the next five years.

Motorists drove 1.4 billion fewer miles in April 2008 than at the same time in 2007. It marked the sixth consecutive month of driving decline.

If consumption does drop, an increase in the federal gas tax becomes of vital importance. At the very least, the tax would have to be matched with inflation.

“It is politically difficult to raise it,” said Cohen. “I think it is very, very tough politically.”

The best-case scenario, according to Cohen, is that a strong Republican and Democrat come forth together to raise the issue. “Fortunately in transportation that has been more the tradition than the exception.”

Oberstar’s second tier, which consists of charging users by the mile and weight, hinges on technology that is far from being developed. The state of Oregon has made headlines for its pay-by-the-mile pilot program, but so far it is the only one in existence. The next reauthorization will most likely include more pilots that charge motorists by the weight or trip, with full implementation included in the 2015 or 2021 bill.

Some sort of customs or container fee for freight and a tax tacked on to rail tickets also have been discussed, even a tire tax slapped on bicyclists that would help pay for new bike paths that are built with federal dollars.

“Currently those users just take; they don’t give into the federal program at all,” said Cohen. “I think it is reasonable to diversify the revenue source a bit.”

The idea of handing out bonuses to states also is still on the hot plate. The hope is this performance-based program encourages states, cities and counties to make an extra effort to do things like reduce congestion and increase traffic safety.

“This gives them a legitimate bonus system rather than saying here is 10 pots of money and pick whatever you like. That contributes to the lack of understanding of what this federal program is really for,” remarked Cohen.

The program really was not made for earmarking, either, but that has not stopped politicians from going wild with personal financial favors. Cohen said the issue needed to be addressed with the next reauthorization bill if Congress was serious about starting with a fresh slate.

Financial developments from the House Transportation & Infrastructure Committee look more to be acts of going through the motion than acts of legitimate legislation.

The National Infrastructure Bank Act would establish a National Infrastructure Bank as a federal government entity to finance publicly sponsored projects of regional and national significance. The bank would be authorized to issue up to $60 billion in infrastructure bonds. The money, however, is expected to spread out beyond highway and bridge infrastructure, which has critics wondering how much punch it will provide.

The National Infrastructure Development Act would establish the National Infrastructure Development Corp. The corporation would receive $9 billion in initial capitalization from the federal government over its first three years.

The U.S. Commission on Rebuilding America for the 21st Century Act would create a 17-member commission to hold at least 50 public hearings across the country to identify priority infrastructure needs and articulate a national vision.

Oberstar commended the committee on its efforts, but was not entirely thrilled. He would like to see a long-term commitment to crucial national projects such as the 27-member European Union has done with a $350 billion effort to construct 30 major projects.

Cohen also was not blown away, saying the solutions depended more on borrowing money, which was not a viable solution.

Making out

With the federal government flirting with a possible solution, the states are quickly becoming married to ideas that improve cash flow now. Virginia is the true Casanova of the bunch. Almost $590 million in tax-exempt private-activity bonds were issued for the first time ever in mid-June by sponsors of the I-495 Capital Beltway High Occupancy Toll Lanes Project in northern Virginia. The private-activity bonds, issued by the Capital Beltway Funding Corp., a non-profit Virginia outfit, is part of an estimated $1.9 billion finance package to fund a 14-mile project. Two private companies, Transurban and Fluor Enterprises, will finance, operate and maintain the express lanes using facility revenues to repay the $589 million. It is the second public-private partnership Virginia has executed in the past three months.

“This completes the funding package that will enable us to connect with the HOV lanes on I-95 and I-395 up with the HOV lanes on I-66 and will allow us to deliver transit for the first time and provide HOV service along the Beltway,” Deborah Brown, director of Innovative Finance and Revenue Operations for the Virginia Department of Transportation, told Roads & Bridges.

Public-private partnerships will continue to remain strong in Virginia. Plans are already in place for more tunnel construction that would connect urban networks.

Virginia Gov. Tim Kaine also called state lawmakers into a special session on June 23 to consider a plan to raise about $1 billion annually through a series of tax and fee increases that would go toward transportation projects.

Minnesota is going after the state gas tax for an increase in road and bridge construction funding. The state legislature was able to override a veto from Gov. Tim Pawlenty on legislation that raised the state gas price a nickel a gallon in 2008. It could be bumped up another 3.5 cents by 2013.

Nebraska has chosen to get creative with its gas tax. State lawmakers there also rejected a veto from Gov. Dave Heineman to pass a measure that would create a new fuel-tax mechanism and divert $15 million from state cash reserves to spur stalled highway construction projects. The new fuel-tax mechanism is based on the wholesale price of gasoline. By basing a portion of road revenues on fuel prices, rather than the number of gallons sold, state legislators hope the new mechanism might stabilize future highway construction funding.

Pennsylvania is tossing and turning over the prospects of privatizing the Pennsylvania Turnpike or continuing to pursue Act 44, which would toll I-80. The Pennsylvania Turnpike Commission strongly opposes leasing its land, stating tolls would generate just as much revenue at a fraction of the risk.

Gov. Ed Rendell, however, is pushing the lease. Cohen does not think either path is very green. Leasing the turnpike would only lead to funds being diverted to other budgetary items, “like bailing out the endless hole the mass transit system seems to always find itself in.” Tolling would be unfair for drivers from neighboring states who travel through Pennsylvania on business or pleasure.

The best already came

Whatever size hammer Congress uses to pound out the next reauthorization bill, Cohen believes there will not be any new tools added to the shed.

“Listening in on meetings recently, they are not thinking of things we haven’t talked about yet,” he said. “Their big long-term goal is vehicle-miles traveled, but nothing will come out that is, ‘Wow, nobody ever thought of that before.’”

New solutions might have stalled, but the commitment will continue to flow.

“I do see the commitment. I think they are going to work very, very hard, and everyone that I have spoken to over there understands that a high commitment is going to be required and it is what’s expected,” said Cohen.

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