Highway and airport officials are concerned that the cuts in federal spending mandated by sequestration could have some crippling effects if they occur, although most revenue streams crucial for bond-issuing transportation authorities would be safe.
The Office and Management and Budget sent Congress a report Friday detailing where the $1.2 trillion of cuts would be made early next year, if sequestration takes effect due to Congress’ failure to reduce the federal deficit.
Deposits of federal gasoline tax revenue to the Highway Trust Fund wouldn’t be hit by the sequestration cuts, according to Jack Basso, director of program finance and management at the American Association of State Highway and Transportation Officials.
However, he said, the OMB is taking the view that the billions of dollars of general funds slated to be transferred into the highway fund could be sequestered. The recently enacted two-year transportation law relies on the federal funds to prop up the fund.
Basso said that, in his view, any general funds to be transferred to the trust fund should be considered trust fund money and should be shielded from the sequester.
Allowing those funds to fall prey to sequestration cuts could be a big problem for state highway officials, he warned.
Highway trust funds can be used to back grant anticipation revenue bonds. OMB’s proposed cuts come one week after Fitch Ratings downgraded several trust fund-backed Garvees, citing uncertainty in federal policy.
The trust fund is already in a precarious position, Basso said, warning that “this thing is at the range of collapse.”
Alex Herrgott, director of transportation policy at the U.S. Chamber of Commerce, said the cuts could range between $4 billion and $8 billion over two years, potentially bankrupting the trust fund before 2014.
Basso said state highway officials knew it was possible that $471 million could be cut from trust fund payments, but noted that cuts to general funds to be transferred would be much greater.
There could be push-back if OMB doesn’t change its stance on the general fund transfers, he said.
Airport officials were relieved the Airport Improvement Program, a critical revenue stream funded by passenger ticket taxes, would be safe from any cuts.
However, they are still worried about the overall effect of sequestration on the financial health of airports, especially small ones.
The proposed cuts would be a major hit to Customs and Border Protection as well as the Federal Aviation and Transportation Security administrations, with the FAA facing some $377 million in potential operations cuts in fiscal 2013 alone.
“Airport revenues could be negatively impacted if flights are reduced because sequestration limits FAA air-traffic control services or inhibits TSA and CBP from performing security screening and facilitation services,” said Jane Calderwood, Airports Council International-North America’s vice president for government and political affairs.
Brad Van Dam, vice president of federal affairs at the American Association of Airport Executives, said smaller airports especially could potentially feel the effects of such a huge cut, even though the AIP has escaped so far.
Airport executives fear that the AIP could go under the knife sometime down the road, once cutting operations budgets isn’t feasible anymore, he said.
“Not a lot of good news in that report,” Van Dam added.
