Obama's Transportation Proposal Under Fire

WASHINGTON - President Obama's fiscal 2010 budget request proposes what some see as an enormous and potentially damaging shift in the way state and local transportation projects are funded, and the idea is already drawing opposition from key lawmakers.

The Obama administration's budget summary that was released Thursday proposed moving the funds for transportation programs out from under a so-called firewall, and into a year-to-year discretionary spending system that would make them subject to an unpredictable annual appropriations process. Currently, those programs are funded through the highway trust fund, which mostly consists of gasoline and diesel fuel tax revenues.

Administration officials said in the summary that the proposal would not affect outlays and would add transparency to the process of highway funding.

But a group of 14 lawmakers claim the shift would have a destructive effect on transportation programs and sent the president a letter Friday to "strongly oppose" the rule change.

The group includes House Transportation Committee chairman James L. Oberstar, D-Minn, Senate Commerce, Science, and Transportation chairman John D. Rockefeller 4th, D-W.Va., Senate Environment and Public Works chairwoman Barbara Boxer, D-Calif., Senate Banking, Housing, and Urban Affairs chairman Christopher J. Dodd, D-Conn., and Senate Finance chairman Max Baucus, D-Mont.

"While proponents of such a scorekeeping rule change argue that it would increase trust fund transparency, it would in fact do the opposite," the letter said. "We urge you to reconsider [the Office of Management and Budget's] ill-advised proposal."

Oberstar said in his committee's statement Friday that the change "could lead to a blurring of the distinction between the two types of funding, as well as the potential for co-mingling of the two and the loss of the dedicated funds for transportation improvements."

Unlike other federal programs, funding for highway, highway safety, airport, and transit programs is provided to states and localities through mandatory contract authority, which essentially spells out how much money state and local governments can expect to receive from year to year for those specific kinds of projects.

In its budget outline description, the Obama administration deemed this method too confusing, saying that funding levels authorized in multi-year legislation are controlled by the appropriations process anyway.

"You have to make some extrapolations," said Jack Basso, director of management and business development for the American Association of State Highway and Transportation Officials.

"What they don't say is what logically follows from that," which is that funding is subject to year-to-year appropriations, possibly hindering each state's ability to make long-term plans for transportation infrastructure, he said.

The change could also give appropriations committees the ability to cut highway and transit funding to states by setting obligation limits - or dollar amounts that could be obligated - that would be lower than funding amounts authorized.

The committees could then use the apparent cost-savings to divert unobligated highway trust fund revenues to other non-transportation programs. That happened in 1993; the highway program level was $20 billion but the obligation limit was set at $15 billion, Basso said.

Sources were reluctant to say that the actual outcome of such a budgetary change would be financially devastating to state transportation programs or the issuance and payment of muni bonds, instead noting that the Obama proposal is still just a proposal and that current credit markets are unpredictable.

"If the government is changing the way that it distributes local aid for highways, then the [grant anticipation revenue vehicle] bond structure might have to change as well," said Matt Fabian, managing director of Municipal Market Advisors.

States can issue Garvee bonds, backed by future federal grant monies, and have done so as recently as last month. The Georgia State Road and Tollway Authority began pricing $600 million of Garvees on Feb. 17.

"It's never too early to worry, but it's too early to sort of act on those worries," Fabian said.

"I'm a little bit skeptical of coming out and saying Garvee bonds will be destroyed. I don't believe that," Basso said. But at the same time, he added, "there is no particularly good reason to change that budget structure."

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