DALLAS — The looming insolvency of the Highway Trust Fund could soon force states to shut down or defer highway projects beginning in fiscal 2015, which starts Oct. 1, transportation experts told members of a Senate committee working to reauthorize federal transportation funding.
States may see a delay or reduction in reimbursements from the Federal Highway Administration by late summer and total cutoff in fiscal 2015, Kentucky Transportation Secretary Michael Hancock said at a hearing held on Wednesday by the Senate Environment and Public Works Committee.
The U.S. Department of Transportation said last month that the highway account of the HTF would run out of money in August at current expenditure levels, said Hancock, who is currently president of the American Association of Highway and Transportation Officials.
"If this is allowed to happen, states may not be reimbursed for work they have already paid for," Hancock said. "In addition, failure to ensure the solvency of the HTF will prevent states from being able to obligate any new federal highway funds in fiscal 2015."
"That's a 100% drop from fiscal 2014, going from $40 billion to zero dollars" in funds from the HTF, he said.
Committee chairman Sen. Barbara Boxer, D-Calif., said she will work with the Senate Finance Committee to develop a sustainable solution for the HTF before the current funding bill, Moving Ahead For Progress in the 21st Century or MAP-21, expires on Sept. 30.
"We can get this done if we work together," she said.
Congress has prevented projected shortfalls in the HTF by transferring a total of $53 billion from the general fund to the HTF since 2008, the Congressional Research Service said in a recent report.
About 90% of the HTF funding comes from federal gasoline and diesel fuel taxes, the CRS said.
Federal highway funding has historically accounted for about 45% of what state transportation departments spend on highway and bridge capital improvements, Hancock said. If funding is cut to zero by the cash shortfall in the HTF, he said, states will see a 45% cut in their capital programs in fiscal 2015.
HTF revenues are expected to total $34 billion in fiscal 2015, the Congressional Budget Office said in a recent report, but current expenditures total $54 billion.
"This means a significant portion of much-needed highway and transit projects in every community and congressional district will either be delayed or cancelled outright," Hancock said.
Kentucky receives some $650 million in federal funding from the HTF each year, he said. If the state cannot obligate any new federal funding in fiscal 2015, it will have to postpone more than $350 million in contract lettings and shift its six-year transportation improvement program at least one year into the future, Hancock said.
Another concern for Kentucky if federal reimbursements decline, is the state's extensive use of grant anticipated revenue vehicle financings supported by annual federal highway grants, Hancock said.
Kentucky carries between $150 million and $200 million of regular pre-financed project activity, he said, and has committed more than $675 million of GARVEE bond proceeds to major interstate reconstruction.
"As we approach fiscal 2015, Kentucky is having to slow the rate of advance construction commitments in order to avoid a greater commitment of state resources to support those projects until federal funds are available again," Hancock said. "Our agreement with FHWA to repay the GARVEE bonds comes directly 'off-the-top' of HTF apportionments to Kentucky, and amounts to almost $60 million annually."
California, which receives $3.6 billion each year in federal highway funds, would be unable to move ahead with planned projects even if reimbursements continue for existing highway projects, Hancock said.
"In total, the lack of new obligations would imperil current year planned construction of $2 billion for 250 state-sponsored rehabilitation projects, about $700 million in capacity improvement projects, and billions more on local streets and roads," he said.
Some of the revenue shortfall could be mitigated with additional emphasis on public-private partnerships for transportation projects, said Thomas Donahue, president and CEO of the U.S. Chamber of Commerce.
P3s can deliver projects quicker and cheaper than can conventional government efforts, Donahue said.
"Governors and mayors, and other elected decision makers, need to embrace P3s as a way of doing business," Donahue said. "Every state should have laws that not only allow but welcome private investment."
The Chamber of Commerce favors an increase in the federal gasoline tax as the best, most-effective temporary solution to the HTF woes, he said.
"The federal government should not pass the buck to states and locals, nor should it wait for money to grow on trees, or wish and hope that things will get better," he said.
