DALLAS — The decade-long series of short-term extensions of federal transportation spending is likely to continue through 2015 as lawmakers struggle with how to fund highway and transit projects with revenues from a gasoline tax that can't pay the bills.
There have been 21 short-term extensions to keep transportation projects going since the last long-term bill was enacted in 2005. The most recent patch, which will expire May 31, required a general fund transfer of $9.8 billion from the general fund and $1 billion from other funds to keep the Highway Trust Fund solvent for 10 months, as well as to avoid delays and a 28% curtailment in state transportation grants.
"One can always hope, but Congress is facing a big challenge in finding consensus on how to pay for transportation," said Joshua Schank, president of the nonpartisan Eno Center for Transportation. "There is no evidence so far that they are willing to grapple with it in a serious fashion."
Congress has transferred more than $65 billion of general fund revenues to the Highway Trust Fund since 2008 to supplement the gasoline tax's anemic revenues. Extending the HTF patch past its May 31 deadline through the end of fiscal 2015 on Sept. 30 would require supplementing the gas tax with another $6.5 billion, according to the Senate Commerce Committee.
The $1 trillion omnibus spending plan for fiscal 2015 that was passed by Congress in mid-December freezes highway and transit grants to the states from the HTF at 2014 levels of about $40 billion and $9 billion respectively.
Schank says to expect more fund transfers in 2015 when the 10-month HTF extension runs out this spring.
"Transfers from the general fund are going to be needed by May even with a new highway bill," he said.
The Congressional Budget Office said in 2014 that the HTF will continue to have a structural deficit of about $15 billion a year for the next six years due to the under-performing gasoline and diesel tax.
CBO estimated that a new six-year highway bill, which had been the norm, that keeps spending at fiscal 2014 levels would cost $330 billion and require at least $100 billion of additional revenue from the general fund or some other source, as little growth is expected through 2020 from the federal taxes of 18.4 cents per gallon on gasoline and 24.4 cents per gallon for diesel fuel.
Revenue from the fuel taxes dedicated to the HTF totaled $38 billion in fiscal 2014, but congressionally authorized expenditures topped $53 billion.
A significant increase in the gasoline tax of 10 to 15 cents per gallon would help with the shortfall, Schank said, "but I don't see it happening. "The House and Senate will be controlled by Republicans for the next two years, and they are basically anti-tax," he said.
Some form of corporate tax reform that would generate additional revenues that could be dedicated to transportation may be the only viable funding solution, Schank said.
The most likely long-term funding scenario is acceptance of some version of the corporate tax reforms proposed by President Obama in his $302 billion Grow America Act or a similar plan such as was proposed by the retiring Rep. Dave Camp, R-Mich., former chairman of the House Ways and Means Committee, he said.
"If we have corporate tax reform, we can probably get a four-year bill," he said. "Absent that, the short-term fund transfers will continue."
There are enough political signs to justify some hope that Congress can pass a fully funded, multiyear transportation bill before the end of fiscal 2015, said Joung Lee, associate director for finance and business development at the American Association of State Highway and Transportation Officials.
"Our hope is to be able to see a long-term transportation bill this year that fixes the insolvency problem with the Highway Trust Fund," Lee said. "We remain cautiously optimistic."
Lee said House Speaker John Boehner, R-Ohio, has talked about a "big highway bill" next year and Rep. Paul Ryan, R-Ohio, the incoming chairman of the House Ways & Means Committee, said he is willing to consider corporate tax reform as a way to support federal transportation spending.
"That sort of talk gives us hope that transportation funding is being given a high priority by congressional leadership," Lee said.
President Obama, who told business leaders in November he is skeptical that Congress would raise the gasoline tax, said at his year-end press conference on Dec. 19 that corporate tax reform could provide the revenues needed to increase federal highway spending.
House Speaker Boehner and new Senate Majority Leader Mitch McConnell, R-Ky., seem to be "serious about wanting to get things done," Obama said.
Traditionally, he said, infrastructure spending has not been a partisan issue. The U.S. must increase its investment in infrastructure, Obama said, and corporate tax reform can provide the revenue for that.
The president's $302 billion, four-year Grow America Act relied on $150 billion from tax reform to fill the funding gap while also increasing transportation spending.
"There is a way for us potentially doing corporate tax reform, lowering rates, eliminating loopholes so everybody is paying their fair share, and during that transition also providing a mechanism where we can get some infrastructure built," the president said.
"We've got a lot of infrastructure we've got to rebuild in this country if we're going to be competitive — roads, bridges, ports, airports, electrical grids, water systems, sewage systems. We are way behind." he said.
"The tax area is one area where we can get things done," Obama said. "And I think in the coming weeks leading up to the State of Union [in January], there will be some conversations at the staff levels about what principles each side are looking at."
Sen. Jim Inhofe, R-Okla., who will chair the Senate Environment and Public Works Committee in the new Congress, said in mid-December that fixing the HTF means eliminating the $15 billion/year shortfall.
The next highway bill must be longer than two-year measure enacted in 2012 that was extended through May, with more annual spending, Inhofe said.
Inhofe said he does not yet know how the revenue gap could be filled or additional funding could be provided.
Keeping federal transportation spending at a standstill will only continue the under-investment in infrastructure, Lee said.
"The current spending level is not sufficient to maintain the existing systems," he said. "We're coming up short, year after year."
A four- to six-year highway bill in 2015 would allow state transportation departments to fund and build complex and projects that can span many years, Lee said.
"States are in a less than ideal situation with a series of short-term extensions," he said. "When we had a situation like we had in August, with warnings that the HTF would go insolvent, states were announcing long lists of projects they would have to delay or defer if the payments stopped or slowed down."
States will look at other options to fund their infrastructure needs if federal spending is no longer reliable, Lee said.
More than 30 states have passed transportation-related fiscal initiatives in the past three years, including dedicated sales taxes, additional toll revenue bond authorizations, and increases in the state and local taxes on gasoline, according to the Council of State Governments.
The effort will move into legislative chambers from the ballot box in 2015, with lawmakers in at least 20 states expected to wrestle with transportation funding measures, the council said.
Congress could give states another revenue option in 2015 by using the next highway bill to allow tolls on existing interstate highway lanes, said Pat Jones, president of the International Bridge, Tunnel and Turnpike Association.
The group supports a provision in the Grow America Act that would remove the current ban on tolling existing interstate lanes. The measure would let states levy an interstate toll with approval from the federal Transportation Department and use the revenue to maintain any road or bridge in the state system.
"We have a 46,000-mile interstate highway system that is beyond its useful life, and the HTF is broke," Jones said. "States should be allowed the flexibility to put tolls on interstates if the revenues are dedicated to highway upkeep."
Interstate tolling may not be appropriate everywhere, Jones said, but it could be part of the solution.
"Interstate tolling might not make sense in rural states, but it would be useful along the coasts and in metropolitan areas where there's congestion and high traffic volumes," he said.
A 29-mile segment of express managed lanes on a congested interstate highway in northern Virginia that opened in mid-December is the future of highway funding, Jones said.
The I-95 project converted high-occupancy-vehicle lanes to tolls while maintaining the existing free lanes. The $950 million projects was financed and built through a public-private partnership that extends through 2087.
"I-95 is a significant project," Jones said. "Virginia is dipping its toes into interstate tolling, and there are a lot of other states eager to see how they do it."
