The Obvious Solution to the Transportation Funding Crisis
Congress adjourned for the summer with neither the House nor the Senate passing Fiscal Year 2014 appropriations for transportation. The House bill ($44 billion) lacked the votes to pass it because some fiscally conservative Republicans abstained, feeling that the cuts weren't deep enough. The Senate bill ($54 billion) failed to obtain the necessary 60 votes because it exceeded the Budget Control Act levels -- the legislation that put in place the sequester cuts and requires Congress to meet previously agreed-upon spending levels.
With only nine legislative days in September left before the end of the fiscal year, the most likely outcome will be a continuing resolution that, in effect, will maintain federal transportation funding at current FY 2013 levels.
The inability of Congress to pass even a simple annual appropriations bill does not bode well for a congressional agreement on the much more complex and costly multi-year surface transportation bill that must be reauthorized by October 2014.
A July 23 hearing on the Highway Trust Fund made it painfully clear that neither the government witnesses -- U.S. DOT's Undersecretary for Policy Polly Trottenberg and CBO analyst Kim Cawley -- nor any of the participating members of the House Committee on Transportation and Infrastructure, had any clue as to how to pay for the hundreds of billions of dollars that transportation boosters say are needed to fund the next reauthorization.
Billions More Just to Maintain Levels
A six-year transportation bill would require roughly $320 billion ($53 billion a year) to maintain current spending levels. Trust Fund revenue and interest over the same period are expected to bring in only $240 billion according to CBO. This would leave an unfunded shortfall of $80 billion. Even a stop-gap one-year bill would require an extra $15 billion and increasing amounts in subsequent years to prevent future shortfalls if spending were maintained at the 2013 levels.
To be sure, the "peace dividend," a 10-cent-a-gallon federal fuel tax increase, a mileage-based user fee and general fund revenue were all dutifully mentioned as possible sources of additional money -- only to be shot down by one or more committee members as political non-starters.
Nor do the Senators have any better idea as to where the money would come from. This was the clear impression left by Sen. Barbara Boxer's (D-CA) comments, made in a meeting with transportation industry representatives on July 25. When asked to name some of the options for raising new money, she begged off saying she did not want "to get out in front" of her colleagues. Meanwhile, she added, the Senate Finance Committee, which will be in charge of coming up with a funding plan for the next transportation bill, is looking for ideas by reviewing how states are funding their transportation programs. Which brings us to our point . . .
Leave it to States, Localities
Neither the House and Senate members nor the government witnesses have thought of suggesting what is perhaps the most obvious solution to the impending funding crisis: Let individual states bring their transportation facilities (including deficient bridges) up to a state of good repair using their regular federal-aid highway funds, supplemented with locally raised revenue. As for large-scale reconstruction and system expansion projects that are beyond the states' fiscal capacity to fund on a pay-as-you-go basis, let them be financed with long-term credit and private investment capital.
While this might limit new investment to creditworthy projects (i.e. those that generate revenue or are backed by dedicated taxes or "availability payments"), virtually all transportation megaprojects already fall in that category. It looks like that is precisely what's happening across the land.
A growing number of states aren't waiting for the financially troubled federal government to come to the rescue with new money. They are taking control of their infrastructure agendas. There are as many as 24 such "Can-Do" states. This includes several states whose legislatures have raised motor fuel taxes or are considering doing so. In addition, 10 states are financing big-ticket highway and bridge projects (so-called "mega-projects") with long-term credit, "availability payments" and private financing, without direct federal funding.
Indeed, except for mass transit projects and the California High Speed Rail project, there are no regionally significant transportation facilities under construction or on the drawing board whose completion hinges on federal appropriations (elimination of congressional earmarks for transportation has had something to do with it).
States' Efforts Getting Attention
The states' drive toward fiscal independence in transportation is getting noticed. Both Rep. Bill Shuster (R-PA), chairman of the House T&I Committee, and Ranking Member Nick Rahall (D-WV) have made specific references to the new trend.
"I believe the states have the flexibility to do what they need to do, and I would hope that states make those investments," said Shuster when asked why he would not call up the proposed $5 billion "Safe Bridges Act."
Echoed Rep. Rahall at the July 23 hearing on the Trust Fund, "States are increasingly coming up with their own plans for raising additional transportation revenues."
Testifying to the same effect was a prominent infrastructure advocate, former Gov. Ed Rendell, co-chairman of the Building America's Future coalition.
"Many at the state and local levels are weary of waiting for Washington to act and have begun to take matters into their own hands," he said at a July 24 hearing of the congressional Joint Economic Committee.
Transportation Secretary Anthony Foxx also has noticed the states' growing role in infrastructure financing.
"America's governors are solving transportation challenges," he wrote in his blog, the Fast Lane, on August 6. He made it more explicit in his prepared remarks before the National Conference of State Legislatures' Transportation Summit on August 12.
"This year," he told the delegates, "half of all state legislatures have considered or approved measures dealing with transportation funding. Fourteen states have at least discussed raising their fuel taxes..."
"There has been a subtle shift in the tone of the Secretarial rhetoric," a veteran DOT watcher told us. "As a former mayor, Secretary Foxx is more attuned and sympathetic to what's going on in the state capitals, and he is more supportive of the states' increased assertion of fiscal independence. . . . He readily admits that the feds can't do it all."
States Partnering with Private Sector
A July 12 forum sponsored by the Brookings Institution shined a spotlight on another aspect of "Can-Do" states: their increasing efforts to partner with the private sector. So did ARTBA's 25th Annual "P3 in Transportation" Conference in Washington on July 25-26, where state efforts to deliver major transportation investment projects through public-private partnerships were featured in a plenary session.
Virginia, Texas, Pennsylvania, Florida and Indiana were singled out as leaders in the private delivery of infrastructure projects.
"What you are seeing is the governors' and state legislatures' pragmatic response to the dwindling federal capacity to fund major infrastructure," one attending senior state official told us. "We are convinced this trend will continue."
This also is the view of the transportation industry, six of whose leaders (Star America, Fluor, Kiewit, Skanska, Cintra and ACS Infrastructure) have launched a new organization -- the Association for the Improvement of American Infrastructure (AIAI) -- "to help shape the direction of the national Public Private Partnership marketplace."
Underscoring this sentiment on the legislative front has been the formation of a new bipartisan Congressional Caucus on Public Private Partnerships whose purpose will be to encourage and raise awareness of the use of public-private partnerships in building, financing and maintaining the nation's transportation infrastructure.
"We have a tremendous backlog of infrastructure needs, but the federal government simply can't fund them all," said Rep. Mike Rogers (R-AL) one of the founders of the caucus. He was being charitable. The truth is that Washington can only fund a shrinking fraction of the nation's backlog of infrastructure needs. It will be up to the states and the private sector to take up the slack.
States’ Moves Have Major Implications
States' growing involvement in funding transportation is a phenomenon of far-reaching consequences. In the short run, more state revenue dedicated to transportation will lessen the pressure on Congress to come up with increased resources to fund the next reauthorization. A one- or two-year bill is now a distinct possibility, according to congressional sources.
In the longer run, greater state fiscal autonomy and financial sophistication could modify the federal-state relationship in transportation. There would be less need for direct financial aid to state DOTs and more emphasis on credit assistance to support transportation investments of truly national scope and significance. (High-Speed Rail in the Northeast Corridor comes to mind).
At the same time, federal oversight of state transportation programs could be reduced to reflect the smaller federal fiscal footprint. This is not devolution. This is the new reality of states acting responsibly to preserve their transportation assets and modernize their infrastructure in the absence of adequate federal assistance and a coherent long-term national transportation finance strategy. And in the process of doing so, states will be helping to relieve the Congress of the politically embarrassing task of having to dip repeatedly into the General Fund to bail out the ailing Highway Trust Fund.
Kenneth Orski (email@example.com) is editor and publisher of the Innovation Briefs newsletter. Used with permission of innobriefs.com.