Highway Funding Faces Bumpy Road
Daily News Article — Posted on May 15, 2014
(by Rebecca Kaplan, CBS News) – [Two major funding problems] are set to interrupt the construction boom that takes place each year during the warmer weather as states and cities set out to repair America’s aging and ailing infrastructure. The most pressing is the drying up of the Highway Trust Fund, which the Department of Transportation predicts will be depleted by late August. As a result, the funding that states get from the federal government for highway projects – about 45 percent – will start to shrink.
Transportation Secretary Anthony Foxx warned reporters Monday that letting the account expire could lead to 700,000 Americans losing jobs in road work, bridge-building and transit maintenance.
“All of these types of projects may be delayed or shut down completely — which means freight won’t move, which means trade will slow, which means businesses won’t hire. And, by the way, your morning commute will be longer because the roads you’re driving on will crumble and no one will show up to fix them,” Foxx said.
[In addition], the bill that governs all federal transportation policy [including authorizing taxes for and spending from the Highway Trust Fund], known as MAP-21, will expire at the end of September. …An agreement [in Congress] will be hard to come by. …
The looming funding cliff couldn’t come at a worse time. Last year, the American Society of Civil Engineers gave the nation’s public infrastructure a D+ on their annual report card and estimated that $3.6 trillion in investment will be needed by 2020.
[Money for] the Highway Trust Fund [comes from] the federal gas tax of 18.4 cents per gallon. It was last increased in 1993, but a combination of inflation and the increasing fuel efficiency of cars driven in the U.S. has slowly eroded the fund over the years. Since 2008, Congress has transferred in $54 billion to keep it afloat, according to the Wall Street Journal.
The Congressional Budget Office (CBO) shows a steadily increasing gap between the amount of money paid out of the fund and what it brings in [in tax dollars]. Starting in 2015, there will be a shortfall that would grow to more than 80 billion dollars by 2022 if there is no solution.
A six-year reauthorization of the MAP-21, meanwhile, would cost almost $100 billion in new revenue* (government funding) just to keep up with the current spending levels on road and transit projects, the CBO projects. [*Government gets revenue (money) from the taxes we pay.]
One option to raise more revenue would be an increase in the gas tax, a move that has been supported by organizations ranging from the Chamber of Commerce to the AFL-CIO [federation of trade unions] to AAA [motor clubs]. But a tax increase that would affect such a broad swath of Americans is a political non-starter, especially so close to an election year. Both the White House and Republican leadership in Congress have ruled that out.
So what would the White House do? The administration recently put forward a four-year, $302 billion transportation plan that would be funded in part by the existing gas tax, and in part by vaguely-defined “pro-growth business tax reform.” The proposal actually increases both highway and transit funding, and allows states to charge tolls on interstate highways as a way to raise funds. [Note: TaxFoundation.org reports: “Some interstates have grandfathered tolls (the New Jersey and Pennsylvania Turnpikes, for instance) but for the most part, interstates built with federal dollars cannot be tolled (at present). If a state wants the option, they have to get a federal bill passed, and reportedly, Congress will not consider such bills unless a state’s congressional delegation is unanimously behind it. In other words, it’s impossible.”]
At the time President Obama first laid out the plan in February, House Ways and Means Chairman Dave Camp, R-Mich., rolled out a comprehensive tax reform plan that includes an eight-year, $126.5 billion investment in the Highway Trust Fund. But lawmakers have already thrown cold water on the idea of embarking on a major tax overhaul in 2014.
Congress has also repeatedly shown that they [do not support] the Obama administration’s proposals.
…In the [Democrat-controlled] Senate this week Sens. Barbara Boxer, D-Calif., and David Vitter, R-La., the chairwoman and ranking member of the Environment and Public Works Committee, put forward a bipartisan six-year transportation bill which maintains current spending levels at about $105 billion per year, plus inflation. The committee will begin consideration of the bill in a hearing Thursday. The [Republican-controlled] House has not yet released its own proposal. …
Reprinted here for educational purposes only. May not be reproduced on other websites without permission from CBS News. Visit the website at cbsnews .com.
Questions
NOTE to students: Read the “Background” below the questions before answering.
1. What is the purpose of the U.S. DOT?
2. What is the Highway Trust Fund; where does its funding come from? Be specific.
3. a) What did U.S. Transportation Secretary Anthony Foxx say about the fact that the Highway Trust Fund will have no money by August?
b) What do you think of this dire warning: Is this the only way the Transportation Secretary can get Congress to increase funding to the Highway Trust Fund? or are these comments fear-mongering and an unacceptable way for the Secretary of Transportation to talk? Explain your answer.
4. a) For what reasons has the Highway Trust run out of money?
b) How much money has Congress given the Highway Trust Fund since 2008 to keep it afloat? Where did Congress get this money from?
c) What do you think of this solution? Explain your answer.
5. What solution has President Obama proposed?
6. Read the “Background” below the questions.
a) Solutions for taking in enough money to fund construction and much-needed repairs to roads and bridges include:
- raise federal tax on gas
- tax or eliminate tax breaks on corporations
- allow states to install tolls on interstate highways
- cut spending: Limit spending to the amount that is collected in current taxes on fuel and other transportation activities
- investigate fraud and waste in the current system to increase the effectiveness of money spent on transportation projects
Which solution(s) do you think would be best? (Which is/are the most fiscally responsible as well as the most practical solution(s)? - remember the government has been borrowing money to fund transportation; at the same time roads and bridges need to be maintained.) Explain your answer.
b) Ask a parent the same question.
Background
United States Department of Transportation:
- The U.S. Department of Transportation (USDOT or DOT) is a federal Cabinet department of the U.S. government concerned with transportation.
- It was established by an act of Congress in 1966. It is governed by the U.S. Secretary of Transportation.
- Its mission is to "Serve the United States by ensuring a fast, safe, efficient, accessible, and convenient transportation system that meets our vital national interests and enhances the quality of life of the American people, today and into the future."
The Highway Trust Fund:
- The Highway Trust Fund is a transportation fund which receives money from a federal fuel tax of 18.3 cents per gallon on gasoline and 24.4 cents per gallon of diesel fuel and related excise taxes.
- It currently has three accounts, the Highway Account which funds road construction, a smaller 'Mass Transit Account' which supports mass transit and also a 'Leaking Underground Storage Tank Trust Fund'.
- It was established 1956 to finance the U.S. Interstate Highway System and certain other roads. The Mass Transit Fund was created in 1982. The federal tax on motor fuels yielded $28.2 billion in 2006.
- Prior to the 1956 Highway Revenue Act and the establishment of the Highway Trust Fund roads were financed directly from the General Fund of the U.S. Treasury. The 1956 Act directed federal fuel tax to the fund to be used exclusively for highway construction and maintenance.
- During 2008 the fund required support of $8 billion from general revenue funds to cover a shortage in the fund. This shortage was due to lower gas consumption as a result of the recession and higher gas prices. Further transfers of $7 billion and $19.5 billion were made in 2009 and 2010 respectively.
- The Congressional Budget Office (CBO) says that although vehicles will travel more miles in the future (therefore consuming more taxable fuel), rising fuel efficiency standards and congressional refusal to increase the fuel tax or tie it to the rate of inflation means that the fund receives less money.
- In 2013, the U.S. Chamber of Commerce supported raising the federal gasoline tax to keep the fund solvent. (from wikipedia)
From the Wall Street Journal:
The federal Highway Trust Fund is rapidly running out of money because gasoline-tax revenue isn't keeping up with spending. Lawmakers from both parties say they want to find new funding. But they disagree over how much spending to approve and where the money would come from.
The highway fund provides nearly a quarter of the $216 billion annual total public spending on highway and mass-transit construction. That translates to roughly $1 billion a week funneled to states to pay contractors.
U.S. Transportation Secretary Anthony Foxx said he sent a letter to all states Wednesday urging them to prepare for the prospect of a slowdown in payments this summer. "As soon as August it will be nearly impossible for communities to keep their infrastructure safe and up to code," Mr. Foxx said Wednesday in testimony before the Senate Transportation Committee.
Mr. Foxx, in the Obama administration's push to get Congress to fund transportation spending, pointed out that the summer is a busy period for states to sign construction contracts. He said some states likely would delay deals and halt projects already in progress without new funding. He estimated that would cost as much as 700,000 jobs immediately.
The highway fund has run low repeatedly in recent years [spending more than it received in tax dollars], and Congress consistently has approved temporary cash transfers, typically through new borrowing that added to the national debt. Congress has transferred $54 billion into the fund since 2008 to cover shortfalls.
Highway Trust Fund Receipts: 1970-2009
from The US DOT Federal Highway Administration
