Last week’s Congressional passage of the 1,301-page Fixing America’s Surface Transportation (FAST) Act represents, for the most part, a five-year extension of existing highway and transit programs with several steps backwards. Once a program that was entirely self-funded out of dedicated gasoline taxes and other highway user fees, over the past two-and-one-half decades the surface transportation programs has become increasingly dependent on deficit spending. The FAST Act does nothing to mitigate this, neither raising highway fees (which include taxes on Diesel fuel, large trucks, trailers, and truck tires) nor reducing expenditures.
If anything, deficit spending will increase under the FAST Act, which will spend $305 billion ($61 billion a year) over the next five years. Highway revenues, which were $39.4 billion in F.Y. 2015, are not likely to be much more than $40 million a year over the next five years, so the new law incurs deficits of about $20 billion a year. The law includes $70 billion in “offsets”–funding sources that could otherwise be applied to reducing some other deficit–which won’t be enough to keep the program going for the entire five years.
Aside from deficit spending, the greatest mischief in federal surface transportation programs come from competitive grants. When Congress created the Interstate Highway System in 1956, all federal money was distributed to the states using formulas. But in 1991 Congress created a number of competitive grant programs, supposedly so the money would be spent where it was most needed. In fact, research by the Cato Institute and Reason Foundation showed that Congress and the administration tended to spend the money politically, either in the districts represented by the most powerful members of Congress or where the administration thought it would get the greatest political return for its party.
The 2012 surface transportation law contained no earmarks and turned all but two major competitive grant programs into formula funds, thus taking the politics out of most transportation funding. This upset some members of Congress because they could no longer get credit for bringing pork home to their districts. So it is not surprising that the FAST Act goes backwards, putting more money into political grants than ever before.
After years of indecision and short-term extensions, the House of Representatives passed a six-year transportation bill yesterday. Since the bill is not much different from a bill passed by the Senate a few months ago, it seems likely that the two will agree on a final bill later this month.
One of the main obstacles to the bill has been fiscal conservatives (and some liberals) who objected to $80 billion of deficit spending over the next six years. Many of the conservatives wanted to cut spending to be no more than gas tax and other highway revenues; the liberals wanted to raise gas taxes to cover the deficits and provide revenues for even more spending on roads and transit. Instead, the House stayed the course of spending more than is available, using various accounting tricks to cover the deficits.
What really happened is that newly minted House Speaker Paul Ryan wanted to prove his worth, so he twisted enough arms to get the bill passed. The bill even includes reauthorization of the Export-Import Bank, which many conservatives hated. Apparently, the long-term opponents of this bank and transportation deficits just gave Ryan his honeymoon and allowed the bill to pass without a big fight: only 64 members of the House voted against the final bill.
After three months of debate, Congress has agreed to extend federal highway and transit spending for three weeks. Authority to spend federal dollars (mostly from gas taxes) on highways and transit was set to expire tomorrow. The three-week extension means that authority will expire on November 20.
Many members in Congress hope that the three-week delay will allow them to reconcile the House and Senate versions of a six-year bill. Among other things, the Senate version spends about $16.5 billion more than the House bill, $12.0 billion on highways and $4.5 billion on transit. The two bills also use different sources of revenue to cover the difference between gas tax revenues and the amounts many members of Congress want to spend.
To cover this difference, the Senate bill, known as the “Developing a Reliable and Innovative Vision for the Economy Act” or DRIVE Act, provides three years of funding by supplementing gas taxes with new customs, air travel, and mortgage-backed securities guarantee fees. The House bill, called the Surface Transportation Reauthorization and Reform Act, doesn’t offer any source of funds; instead, House Transportation & Infrastructure Committee Chair Bill Shuster merely expressed hope that the House Ways & Means Committee would find a source of funds.
Because authority to spend federal dollars on highways and transit expires at the end of this month, the House Transportation and Infrastructure Committee (or, to be precise, the chair of that committee, Bill Shuster) has proposed a new bill titled the Surface Transportation Reauthorization and Reform Act. Like the Senate bill proposed last July, the House bill authorizes spending for six years but only provides funding for the first three.
Although the bill promises to “streamline environmental review,” it also adds several new–and probably unnecessary–programs to the existing bureaucracy. These include:
- A “Nationally Significant Freight and Highway Projects Program.” Since we already have an Interstate Highway System, a U.S. Highway System, and a National Highway System, a National Freight Highway System seems redundant.
- A “National Surface Transportation Innovative Finance Bureau.” Unfortunately, all too often, “innovative finance” means finding a creative way to stick it to the taxpayers.
- Funding for vehicle-to-infrastructure communications equipment. However, in the opinion of many experts, such equipment will soon be rendered obsolete by self-driving cars.
Although the House and Senate now each have six-year bills, the two do not agree on many details. Most importantly, the two differ on where they will get the $10 billion to $15 billion a year needed to continue deficit spending. Thus, many observers believe that Congress will do little more than pass another short-term extension at the end of this month. The big question is whether it will be a two-month extension or a six- (or more) month extension. If the latter, little more (other than additional extensions) is likely to happen in 2016 as it is an election year. If they pass a two-month extension, however, it may signal that they are serious about resolving their differences so they can pass a true six-year bill before the end of this year.
The law that authorizes the federal government to collect gas taxes and spend them on highways and transit last expired in July. Normally, Congress extends the law for six years, but it is currently gridlocked and so in July it extended it through the end of October.
The Senate offered a six-year bill, but only had enough money to fund it for three years. Lacking a similar bill, the House passed the three-month extension and the Senate went along.
Now, the House Transportation and Infrastructure Committee is rumored to have a six-year bill, or possibly a three-year bill. A minor stumbling block is that Republicans were proposing to cut spending for bicycles, which left Democrats incensed. A bigger stumbling block is that there is still no consensus about where the money is going to come from to cover the $12 billion to $15 billion annual deficits in the bill, as Congress is not willing to either raise gas taxes or reduce spending.
Yesterday, the Senate passed a six-year transportation bill that increases spending on highways and transit but only provides three years of funding for that increase. As the Washington Post commented, “only by Washington’s low standards could anyone confuse the Senate’s plan with ‘good government.'”
Meanwhile, House majority leader Kevin McCarthy says the House will ignore the Senate bill in favor of its own five-month extension to the existing transportation law. Since the existing law expires at the end of this week, the two houses are playing a game of chicken to see which one will swerve course first and approve the other house’s bill.
As the Antiplanner noted a couple of weeks ago, the source of the gridlock is Congress’ decision ten years ago to change the Highway Trust Fund from a pay-as-you-go system to one reliant on deficit spending. This led to three factions: one, mostly liberal Democrats, wants to end deficits by raising the gas tax; a second, mostly conservative Republicans, wants to end deficits by reducing spending; and the third, which includes people from both sides of the aisle, wants to keep spending without raising gas taxes.
The Antiplanner has an op-ed about transportation gridlock in The Hill. It is similar to, but a bit more detailed than, my post here a few days ago.
One of the commenters says, “Is it any surprise that Obama and the GOP leadership are in agreement on the one truly indefensible position on this issue? ‘Just raise the spending and issue more debt to cover it’ is obviously what has put the federal government in the abysmal fiscal condition it is. It is the thinking of selfish politicians whose only concern is for their short term poitical benefit. . . . There are only two responsible positions. Either cut the spending or raise taxes to pay for the spending.” This reflects my view as well.
Continued and increased federal funding of highways and transit is vitally important, says Jack Schenendorf in a paper titled, The Case Against Transportation Devolution. Devolving transportation to the states “would conflict with the nation’s long and unbroken history of federal transportation investment, balkanize the nation’s transportation networks, cause a substantial drag on the economy, and bring about a host of other serious problems.”
Schenendorf may be a Republican, but that doesn’t make him a conservative, at least not in the fiscal sense. He was the chief of staff for the House Transportation and Infrastructure Committee from 1995 to 2001. Those happen to be the years when committee chair Bud Shuster (R-PA) made himself known as “one of the most shameless promulgators of pork-barrel spending in all of Congress.” Shuster has all sorts of highways, museums, and buildings named after him throughout his district and state, and he paved the way for his son, Bill, to take his seat when he retired. Today Bill also chairs the House T&I Committee.
Also during those years, Congress passed the 1998 transportation bill, TEA-21, which happened to be the first law that mandated increased spending every year even if revenues did not keep up. While that only became a problem in 2007, it is the main reason why Congress is gridlocked today. In other words, Schenendorf is part of the reason why the federal transportation funding process has broken down.
Congress has three work weeks to figure out what to do about the highways & transit law that expires on July 31. As noted here a month ago, Congress remains gridlocked over the issue. Two weeks ago, the Senate Environment & Public Works Committee bravely passed a bill that increases spending by 3 percent, but failed to spell out where that money would come from.
That’s the heart of the issue: Congress is spending $52 billion a year on highways and transit, but is collecting only $40 billion a year in gas taxes and other highway user fees. Though there are just two political parties, the gridlock results from the fact that there are four different factions, each with its own solution to the problem of how to reconcile the difference between spending and revenues.
First are those who want to raise highway user fees to cover the entire $52 billion, and maybe a little more. A six-cent increase in taxes would cover the $52 billion, while even a nine-cent increase would still result in a tax that, after adjusting for inflation, would be less than it was in 1994, the last time it was increased.
The Antiplanner is in Washington, DC, today, where Congress remains as gridlocked as ever over federal transportation programs. Though Congress traditionally passes highway and transit bills for six-year periods, the last six-year bill was passed in 2005 and since it expired in 2011 Congress has passed something like two dozen short-term extensions. The longest of these, MAP-21, made a few changes to the 2005 bill but lasted only two years. Shorter extensions, including the two-month extension passed last month, merely continue the status quo.
The federal government takes in about $40 billion in gas taxes per year, and these are dedicated to the Highway Trust Fund which funds both highways and mass transit. The problem is that Congress has been spending something like $52 billion on highways and transit per year and doesn’t know where the other $12 billion will come from. Congress is divided between those who want to cut spending to equal revenues, those who want to increase gas taxes to equal spending, and those who want to find some other source of revenues to cover spending.
Oregon Representative Earl Blumenauer, who favors a gas tax increase, wants to stop the pattern of short-term extensions to force Congress to make one of the three choices. Considering both the administration and most Republicans oppose a tax increase, his proposal was a bold move, and I can’t help but respect him for his stand even if I disagree with him on most federal transportation policies.