Outlook 2014: Transportation Funding Decisions Must Be Made

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DALLAS — Transportation infrastructure funding is at a crossroad in 2014, as lawmakers confront the necessity of finding ways to bolster the rapidly depleting Highway Trust Fund while supporting efforts to ensure the nation's airports and ports maintain a global economic edge.

The Highway Trust Fund, which supports roads and surface transportation projects across the nation, will be insufficient at current funding levels to pay for new projects in 2015 or to even keep up with wear and tear on existing roads.

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Revenue from federal motor fuel taxes, which supports the Highway Trust Fund, has been declining for years as cars became more energy efficient.

Cars with even higher fuel efficiency and a growing number of alternative fuel vehicles will keep down tax revenues generated by the federal gasoline tax of 18.4 cents per gallon and the diesel tax of 19.3 cents per gallon. The taxes are not indexed to inflation, so the buying power of the revenues steadily declines.

Alternatives to the excise tax on motor fuels are on the horizon, but there is little consensus yet on how to fund highways in the future.

The Moving Ahead for Progress in the 21st Century (MAP-21) Act extended funds for federal highways other surface transportation programs. It was enacted in 2012 and funded the Highway Trust Fund with transfers from the general fund. That law will expire on Sept. 30, the end of fiscal 2014, leaving funds for those programs in limbo.

The existing Federal Aviation Administration reauthorization and funding for federal airport infrastructure programs will expire in September 2015, but action to renew it must begin this year, aviation experts said. A water infrastructure bill was expected to come out of a congressional conference committee before Christmas, but reconciliation has been delayed until at least January. Bipartisan support in both the House and Senate augurs well for passage of a bill early in 2014, but several of the financial provisions are still in dispute.

Highway Trust Fund
Congress has to find some way to provide more revenue for the Highway Trust Fund, said Janet Kavinoky, executive director of transportation and infrastructure at the U.S. Chamber of Commerce. That does not mean it will happen, she said.

"The question is whether there will be enough political courage and will to deal with raising highway user fees," Kavinoky said. "It's a question of political leadership, in the White House and in Congress."

The Congressional Budget Office predicted earlier this year that the Highway Trust Fund will be unable to meet its funding obligations by 2015 and will need transfers from the general fund totaling $92 billion a year by 2023.

The looming insolvency of the Highway Trust Fund should spur action on a solution, she said.

"I hope so, but hope is not a strategy," she said. "We're spending the last dollars in the Highway Trust Fund."

Congress has transferred a total of $41 billion into the Highway Trust Fund since fiscal 2008, CBO said, including $13 billion in fiscal 2014. Maintaining the current funding level would require a $15 billion transfer in 2015.

"Lawmakers could also address that shortfall by substantially reducing spending for surface transportation programs, by boosting revenues, or by adopting some combination of the two," said Sarah Puro, a CBO analyst told the House Budget Committee in April.

"Bringing the trust fund into balance in 2015 would require cutting the authority to obligate funds in that year from about $51 billion projected under current law to about $4 billion, raising the taxes on motor fuels by about 10 cents per gallon, or undertaking some combination of those options," Puro said.

Some states, such as Utah, will see a cut in their highway budgets of 25% or so if federal highway dollars dry up in fiscal 2015, Kavinoky said, but others will have no capital funding at all next year.

"There is no avoiding this revenue question," Kavinoky said. "We don't have the money to build new roads, and the revenues are barely sufficient to maintain the roads we do have."

The best way to fund highways, at least over the next 10 years, is the conventional gasoline tax, she said, because it is paid by highway users.

The Chamber backs a proposal by Rep. Earl Blumenauer, D-Ore., who has introduced a bill raising the federal gasoline tax by 15 cents per gallon on a three-year phased-in basis, Kavinoky said.

"The excise tax is the simplest, most straightforward way of generating the needed revenue," Kavinoky said.

The gasoline tax currently generates $35 billion a year.

Over the long term, she said, highway funding may come from a tax based on vehicle miles or other source, she said, but until then the gasoline tax must bear the burden.

"The problem is that none of the other proposals are ready for prime time," she said. "The vehicle-miles-traveled idea probably needs to be looked at next time highway funding comes up, but at this point it is not ready."

In contrast to Blumenauer's proposal, bills introduced in November by Rep. Tom Graves, R-Ga., and Sen. Mike Lee, R-Utah, would lower the federal gas tax to 3.7 cents per gallon over five years. The Transportation Empowerment Act (HR 3846 and S 1702) would transfer most of the responsibility for highway funding to the states - something states probably would oppose.

Congress probably won't be able to raise the gasoline tax in an election year, said Pat Natale, executive director of the American Society of Civil Engineers.

"The proposed gasoline tax increase is not going to pass, but at least the attempt will get the conversation going," Natale said. "It's something the Congress and the American people need to get their arms around."

Unlike earlier federal highway funding packages that extended five to six years, MAP-21 covered transportation spending for only two years.

MAP-21 should not be extended but replaced when it expires at the end of fiscal 2014, Natale said.

"We have to have something different," he said. "There is no stability for state highway departments with a two-year funding time frame. Having such a huge unknown is not really helping anyone."

Congressional passage of the compromise budget plan before Christmas is a good sign that Congress will be able to bolster the Highway Trust Fund in 2014, said Jim Tyman, director of program finance and management at the American Association of State Highway and Transportation Officials.

"The budget vote was encouraging," said Tyman. "Congress really has to act on the Highway Trust Fund before it runs out sometime in 2014."

Tyman, who most recently served as senior advisor to the chairman of the House Transportation and Infrastructure Committee, said Congress must consider a wide range of ways to fund highway projects.

"They have to keep all the options on the table," he said. "Extending MAP-21 for a year or two might give Congress enough time to find longer-term solution, but they have to deal with the Highway Trust Fund first."

The U.S. transportation construction market will grow to $135.8 billion in 2014 from an estimated $129 billion in 2013, said Dr. Alison Premo Black, chief economist with the American Road & Transportation Builders Association. However, uncertainty about the level of federal support for state highway programs in fiscal 2015 is depressing the market.

"Absent congressional action to improve the revenue stream into the federal Highway Trust Fund before next October, federal support for state programs faces a potential $40 billion cut in fiscal year 2015," she said. "That uncertainty is already putting a damper on state project lettings. Congress needs to act."

Federal funding provided 52% of the capital investments by state highway departments over the past 10 years, Black said. That amount ranged from 35% in New Jersey to more than 70% in 11 other states.

Water Bill
A compromise water development bill that was expected out of a House and Senate conference committee before the end of the year is now likely to emerge in January, according to Kurt Nagle, executive director of the American Association of Port Authorities.

"We had been hopeful it would have been completed before the holidays, but it seems clear there will be an agreement on a conference bill in early 2014," Nagle said.

There are positive provisions in the water infrastructure bills that passed with overwhelming and bipartisan support in both chambers, he said.

"The House bill contains some streamlining provisions that would get projects under way and completed quicker. And the Senate bill will ensure that harbor fees go toward capital improvements as originally intended," Nagle said.

The Chamber of Commerce supports the Water Infrastructure Finance and Innovation Act for flood control and drinking water programs in the Senate bill, Kavinoky said. The five-year, $250 million loan program is based on the Transportation Infrastructure Finance and Innovation Act that funds transportation projects. Although the Senate water bill which is the only one of the two bills that contains WIFIA provisions, unlike TIFIA, would not allow WIFIA to be used in conjunction with bond-financing.

"WIFIA would help attract private sector investments in water projects, but we don't know the status of it in the conference committee bill," Kavinoky said. "It seems to be a struggle between the House and Senate over who gets their way.

"The dynamics of a conference committee are hard to explain to those outside the Capital Beltway," she said.

The U.S. has been and is continuing to bring its seaport infrastructure into line with the larger container ships that will be able to transit the expanded Panama Canal when new locks and dams become operational in 2015, Nagle said.

"Panama made the decision to make a $5 billion investment in a bigger canal, and now we have to recognize the realities of international trade," he said. "We need to invest significantly in our facilities if we want to compete as a maritime nation."

Focusing on port infrastructure as a separate aspect of international trade obscures the dependence of seaports on a robust domestic surface transportation system, Nagle said.

"If you have bottlenecks on the highways or inland waterways serving a port capable of handling the post-Panamax ships, what have you gained?" he said.

The framework for new airport programs has to be developed in 2014 before the current aviation law expires at the end of 2015, Rep. Bill Shuster, R-Pa., said in an Dec. 12 to the International Aviation Club of Washington.

The current aviation funding plan took five years to develop, he said, and required 23 short-term extensions before a new proposal was approved.

Shuster, chairman of the House Transportation and Infrastructure Committee, said he would not settle for small changes or a one- or two-year extension of the current law.

"To pass a new reauthorization that will keep us competitive, we have to begin laying the groundwork now," Shuster said. "I want to put all ideas on the table and listen to input from everyone."

Airports are pushing for flexibility to raise the federal passenger facility charge to $8.50 from the current $4.50. Revenue from the charge is often used to support debt for airport terminals and other projects.

The airlines will oppose the higher fee, said Nick Calio, chief executive officer at Airlines For America.

"Air travel is already taxed at a federal rate that exceeds those for alcohol and tobacco, products that are taxed to discourage their use," he said. "Raising the PFC tax will drive up the cost of flying for millions of Americans who rely on air travel, cost jobs, limit service options to small and medium communities, and ultimately harm the U.S economy."

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