It’s 2020 and, once again, transportation agencies nationally have their eyes on Washington, D.C., to see whether or when a new federal transportation funding package will emerge. Existing funding from 2016’s Fixing America’s Surface Transportation (FAST) Act expires in September, and many worry that deep political divisions and election-year dynamics will prevent a replacement bill from being agreed to and signed before that deadline.
This potential scenario creates a sense of déjà vu for transportation veterans. Several recent transportation packages – SAFETEA-LU, TEA-21, MAP-21 – expired before Congress managed to pass replacement bills. In the interim, they passed continuing resolutions to sustain limited funding for short periods, always in the nick of time.
But, what if that stop-gap strategy were to fail in 2020? What if federal transportation funding actually were to stop completely? It’s not so far-fetched when you consider that one year ago we had a month-long federal government shutdown, and just weeks ago we narrowly averted another shutdown. At the risk of sounding like Chicken Little, here’s what would happen after September 30 if federal transportation funds run out:
1. Federal workers who support transportation would stop their activities
The people in affected transportation agencies would be furloughed and, according to the Office of Personnel Management, these agencies would have to “shut down any activities funded by annual appropriations that are not excepted by law.” In effect, no permits or project approvals would be issued and federal reimbursement payments to the states would likely cease. Also, any state-funded projects with a federal nexus – such as those needing air quality or endangered species impact reviews – would be affected. Almost immediately, any new transit projects nationally would be stopped in their tracks.
Nationally, projects that were close to being put out for bid would have to be put on hold. This means that improvements that might have saved lives or reduced congestion might have to wait many more months or even years to be completed. Budgets would also be impacted due to cost creep caused by inflation.
The contractor community would also experience serious setbacks. Imagine a young woman who owns a construction company and gets a message from the DOT: “We’re not taking bids on several planned new projects.” This contractor is forced to take preventive steps to protect her business, such as selling off equipment or laying off workers. And those workers may never come back, taking with them irreplaceable skills and experience.
More broadly, such disruption creates ripple effects in terms of lost opportunities for jobs and economic growth. By just one estimate, a $1 investment in transportation maintenance and construction can drive $2.00 and $2.20 in economic activity across all sectors of the economy.
2. State programs that rely on federal revenues might have to halt existing projects
With very few exceptions, states fund their transportation programs on a cash-flow basis, meaning that they start projects before they have all the necessary funding in the bank. They award contracts based on projections for their state-level revenues, supplemented by a regular flow of federal dollars. If those federal funds stop coming, some states might have to put construction projects on hold, resulting in such things as closed lanes on certain facilities, unfinished pavements on roadways, bridge columns standing with no further progress, and other similar impacts.
The effect on jobs on the ground would be immediate and severe, affecting the livelihoods of contractors, material providers, vendors who support construction and maintenance companies and, of course, the amount of taxes these talented people pay to their states and cities. And the cost of remobilizing these employees, equipment and materials to projects once funds are restored can be substantial. In other words, everybody loses.
Saved by the bell? Not really.
In the absence of a new transportation bill by September, I’m hopeful that our leaders in Washington will provide at least temporary relief in the form of a series of continuing resolutions. But, this approach is by no means a suitable response to the funding issue, and it has consequences that are well known to anyone who works on the ground in the transportation system.
When states are unable to predict the level of future federal funding it may receive, it makes it much harder for them to plan. Their mindset leans away from starting their higher priority large, consequential projects that might take a decade to complete. They can’t rely on federal dollars to prime the pump so that, for example, private investors take a more positive view of their risk. Instead, states peel back their view, and begin to put more focus on maintenance programs or on construction projects that might take just a few years to complete. Also, because they have no certainty of the policy changes contained in the future bill, states begin taking a costly “all of the above” approach to planning, envisioning any variety of new or different regulations that could impact their projects, timelines and budgets.
This federal funding uncertainty, which has been persisting now for decades, has driven many states and municipalities to increase their own revenue sources through increased fuel taxes, sales taxes, fees and other mechanisms. Today, states are taking on about two-thirds of the financial burden for transportation, with the remainder being shouldered by the federal government. This asymmetry has caused many state leaders to question whether the federal government’s role should change, or even return to its original charter of supporting economic development and national security.
Hopefully, as our federal leaders hammer out a new transportation bill in the months ahead, they can also set out a new vision for the role of the federal government in transportation. If they can addend federal policy, in addition to addressing the stop-and-start nature of the funding process, it would have huge benefits for every American. And it would show that Washington, despite its rivalries, can deliver value for people in red and blue states alike.