Senate Finance Committee chairman Max Baucus, D-Mont., has introduced a bill to restore the federal highway trust fund's ability to accrue interest on its revenues and prevent the federal government from delaying payments to states for transportation projects.
The bill would amend the Internal Revenue Code to allow the fund to once again earn interest on its balance. That ability was removed by Congress in 1998.
The bill would also provide $19.5 billion of back interest that would have accrued since 1998. The $19.5 billion would be divided between the highway and mass transit accounts, with highways receiving $14.7 billion and transit receiving $4.8 billion.
In addition, the bill would provide $7.3 billion to replenish the trust fund - an amount that could help sustain the trust fund for another couple of months after the end of the fiscal year on Sept. 30.
The proposal does not alter the deadline for Congress to pass a multi-year transportation spending reauthorization bill. The current law expires Sept. 30, but a bill to replace it has not been completed in the House or Senate, partly due to disagreements over how to fund transportation.
House Transportation Committee chairman James L. Oberstar, D-Minn., introduced a replacement bill that was approved by the committee's transportation panel. But the House Ways and Means Committee has not yet added the revenue provisions.
Witnesses at a Ways and Means hearing tomorrow are scheduled to address long-term transportation financing and discuss an increase in gasoline taxes and the implementation of a vehicle mileage tax, according to a committee source.
Meanwhile, the Transportation Committee is hopeful an agreement can be reached on the trust fund solvency issue, said committee spokesman Jim Berard.
The Obama administration and key transportation lawmakers in the Senate are pushing for an 18-month extension of the current transportation authorization. The administration has proposed restoring about $20 billion to the trust fund by making unspecified changes to the federal transportation program.
The trust fund receives most of its revenues from gasoline and diesel fuel taxes. The Treasury Department makes payments to states from the trust fund as reimbursements for their eligible transportation-related expenses.
But the revenues have not kept pace with spending needs, so the fund is expected to dip below a critical $1 billion marker sometime in late August and run dry by early September. At that point, the Treasury Department would have to begin rationing payments to states on a cash-available basis. Most likely, the payments would be made to states weekly or would be stretched out over two-week periods, sources in the market and in Congress said yesterday.
If a trust fund crisis occurs, states with outstanding Garvees - grant anticipation revenue vehicle bonds that are repaid with grants from the federal government - may need to use secondary sources such as their own funds, or to reshuffle their transportation spending priorities in order to avoid missing debt service payments, sources said.
"That in and of itself wouldn't necessarily trigger a default on the Garvees," said Fitch Ratings analyst Mike McDermott. "There is some protection there in terms of the total federal dollars that come to the state [but] internally they'll have to stop working on a project or pull resources from elsewhere."
States with Garvee debt would need to ensure that their requests from the trust fund would cover debt service, at a minimum, he said.
McDermott added that if the federal government does ration payments to states, it "would be a precedent at the federal level."
Peter Schroeder contributed to this story.
