WASHINGTON - Congress yesterday passed legislation that would transfer $8 billion to the ailing highway trust fund after the federal government warned it would run out of money by the end of the month and states began cutting transportation projects, some of which relied in part on tax-exempt bonds.
The bill, expected to be signed by President Bush, ensures that states will continue to be fully reimbursed with federal money for transportation infrastructure projects through Sept. 30, 2009.
Despite earlier attempts by three Republican senators to block it, the Senate passed the bill on Wednesday night, but amended it to have an immediate effective date. The House yesterday approved the amended bill by a vote of 376 to 29.
The bill transfers $8 billion of general funds to the highway trust fund, which was nearly drained this year as falling gas tax revenues failed to keep up with payments to states for transportation infrastructure projects. The cash infusion is intended to last through the next fiscal year and to stave off a previously projected shortfall of $3.1 billion or more.
"Of all the numbers we looked at, $8 billion ought to be enough ... of a cushion to guard against future erosion," said Jack Basso, director of management and business development for the American Association of State Highway and Transportation Officials.
But Basso and others are concerned about whether the bill will give the fund adequate padding for what is expected to be a lengthy wait for reauthorization of transportation legislation. The trust fund is currently authorized through the Safe, Accountable, Flexible, Efficient Transportation Equity Act: a Legacy for Users law, which will expire at the end of fiscal 2009.
"We must begin immediately because the bill we're working on there expires next Sept. 30, and we have in place no mechanism to replace and replenish those funds," Rep. John Mica, R-Fla., said yesterday.
At the end of fiscal 2009, Congress must either immediately authorize a new transportation bill - which observers say is unlikely - or keep the fund solvent through short-term extensions.
"We predict we'll be back in a significant deficit at the beginning of fiscal year 2010," Basso said, adding that the trust fund could support only $23.5 billion in highway funding for that year.
The federal government announced last week that it would have to begin rationing reimbursements to states on an as-available basis unless Congress took action to replenish the fund.
After the announcement, states developed contingency plans that would have delayed highway projects. Maryland postponed the issuance of Garvee bonds on Tuesday. Market participants also questioned whether the rationing would have affected outstanding Garvee bonds.
Garvees, or grant anticipation revenue vehicles, are issued by states to finance transportation projects with the expectation that the bonds will be secured by future grants from the highway trust fund as well as by state tax revenue and other sources. Garvees are well-insulated enough that they could have sustained the blow from a diminished trust fund, according to transportation analysts.
"In a lot of states, the strength of Garvees is that they have really high debt service coverages now," said Standard & Poor's analyst Adam Torres said. "You might see slimmer debt service coverages in the future, but at this point, we don't expect it to have much of impact of our ratings."