Congress Readies Another Transportation Patch

August 1 Update: On July 29, the Senate passed (79-18) a short-term extension to keep the Highway Trust Fund solvent through December 19, eliminating use of deferred corporate pension contributions as a funding offset (the House bill uses "pension smoothing" to extend HTF funding through May 2015). The Senate version of the bill would have raised pressure to complete a long-term authorization by the end of 2014, before the new Congress begins, and before states let their contracts for the 2015 construction season. However,two days later the House voted 272-150 to eliminate the Senate provisions and revert the bill to the same lanuage that the House had passed earlier in the month, sending the bill back again to the Senate. Rather than let the Highway Trust Fund’s low balance cause payment delays to the states starting the next day, the Senate passed the House version of the bill by a 81-13 vote that same evening. The bill now goes to President Obama, who is expected to sign it. This avoids a shutdown of public transportation and highway investments for now, but state and local governments still cannot commit to projects that require federal funding beyond the early part of next construction season. Congress need not wait until May 2015 to solve this problem with a long-term bill funded with sustainable sources, and at a level that enables improvement of the nation’s infrastructure and its economy. 

NOTE: The table in the article below has been updated to reflect the bill passed by the full Senate, the remainder of the article was left unchanged.  

Original Article: The House of Representatives and the Senate Finance Committee recently approved separate bills which would avert the immediate crisis in surface transportation funding. Both bills would move about $11 billion in general funds into the Highway Trust Fund (HTF), including $2 billion for transit, and extend authorization of current spending levels past  the current September 30 deadline. The funding is offset with increased tax receipts using methods shown in the table below. Without action, the Highway Trust Fund will be depleted, primarily because its main funding source, the fuels tax, has not been raised for inflation in 21 years. Without action, the federal government will be forced to make delayed or partial payments to state and local governments for transportation projects beginning in August, throwing the summer construction season into turmoil.

Comparing the Surface Transportation Extension Proposals

Bill	LUST* fund transfer	Extend import fees beyond 2021	Pension contribution reduction	Rules to enhance tax compliance	End date of authorization extension
HR 5021 (the final bill)	$1B	$3.5B	$6.4B	$0	5/31/15
Senate-amended HR 5021	$1B	$2.9B	$0	$4.3B	12/19/14

*Leaking Underground Storage Tank

Given this crisis, these bills sound like good news. So why did 62 organizations respond by signing a letter to Congress last week imploring leaders to agree on a long-term solution before the end of the year? These national organizations represent members whose livelihoods depend on quality transportation infrastructure, including manufacturers, retailers, truckers, tourists, farmers, engineers, laborers, governors, landscape architects, electrical contractors, schools, travel plazas, airports, bicyclists, movers, parks, warehouses, real estate, and many more.

The bills currently being considered are temporary extensions rather than a long-term solution, and they use funding sources that are not sustainable. Senator Bob Corker (R-TN) called the pension contribution reduction (often referred to as “pension smoothing”) provision “a blatant budget scheme,” adding, “Not only does it allow Congress to spend money today and pay for it through savings accrued in the future, but the gimmick actually loses money.”

Federal surface transportation policy has been plagued by short-term extensions, with 27 deals over the last five years to “kick the can down the road.” These have led to increasing deterioration of the nation’s infrastructure, higher costs for both individuals and commercial operators, and helped slow the pace of job growth and economic recovery. Extensions, like those currently being discussed in Congress, cause state and local governments to delay multiyear projects because of uncertainty over whether federal funds will be available for the duration of the projects. The House bill’s eight-month extension would likely result in delaying a long-term solution until May, after many contracts would be awarded for the next construction season. It is unclear if the Senate will instead attempt to force a three-month extension, which would provide an opportunity for a long-term deal after the November elections but before the new Congress begins in January. Competition in the global economy requires a more robust, efficient national transportation network, to optimize interstate and international commerce. Every month a long-term solution is delayed creates more self-inflicted damage to the nation’s economy.

Most of the extensions have come from an inability to agree on sustainable funding sources for infrastructure. Sustainable funding would enable Congress to return to adjusting surface transportation policy every six years, rather than sniping every few months on how to pay to maintain current spending levels. The funding sources currently in play for the extension patch are not sustainable. ’Pension smoothing’ relies on 10 years of future savings to pay for six months of spending, and does so by putting private employee pensions at more risk by enabling employers to delay contributions to pension funds. Reduced pension contributions during the next 10 years (the period which is used to determine a bill’s cost and savings) result in higher corporate earnings and in turn, more corporate tax collected. After the 10-year period, however, corporations will have to contribute more to pension funds, reducing their earnings, and in turn, the taxes paid. Otherwise. there will not be enough money in pension funds to pay retirees. But that will be outside the 10-year window of the bill, so it is largely dismissed in current Congressional discussions.

The current bills would set up yet another transportation crisis a few months down the road, and will exacerbate the national deficit a decade down the road. Is this the right way to strategically build national infrastructure? Solutions are available and have already been discussed in Congress, but our representatives have yet to show they have the political will to enact them.