reauthorization

Transportation Bill Steps Backwards

This week’s Congressional passage of the 1,301-page Fixing America’s Surface Transportation (FAST) Act represents, for the most part, a five-year extension of existing highway and transit programs with several steps backwards. Once a program that was entirely self-funded out of dedicated gasoline taxes and other highway user fees, over the past two-and-one-half decades the surface transportation programs has become increasingly dependent on deficit spending. The FAST Act does nothing to mitigate this, neither raising highway fees (which include taxes on Diesel fuel, large trucks, trailers, and truck tires) nor reducing expenditures.

If anything, deficit spending will increase under the FAST Act, which will spend $305 billion ($61 billion a year) over the next five years. Highway revenues, which were $39.4 billion in F.Y. 2015, are not likely to be much more than $40 million a year over the next five years, so the new law incurs deficits of about $20 billion a year. The law includes $70 billion in “offsets”–funding sources that could otherwise be applied to reducing some other deficit–which won’t be enough to keep the program going for the entire five years.

Three Months of Work to Write a Three-Week Bill

After nearly three months of debate, Congress has agreed to extend federal highway and transit spending for three weeks. Authority to spend federal dollars (mostly from gas taxes) on highways and transit was set to expire tomorrow. The three-week extension means that authority will expire on November 20.

Many members in Congress hope that the three-week delay will allow them to reconcile the House and Senate versions of a six-year bill. Among other things, the Senate version spends about $16.5 billion more than the House bill, $12.0 billion on highways and $4.5 billion on transit. The two bills also use different sources of revenue to cover the difference between gas tax revenues and the amounts many members of Congress want to spend.

To cover this difference, the Senate bill, known as the “Developing a Reliable and Innovative Vision for the Economy Act” or DRIVE Act, provides three years of funding by supplementing gas taxes with new customs, air travel, and mortgage-backed securities guarantee fees. The House bill, called the Surface Transportation Reauthorization and Reform Act, doesn’t offer any source of funds; instead, House Transportation & Infrastructure Committee Chair Bill Shuster merely expressed hope that the House Ways & Means Committee would find a source of funds.

Despite the use of the word “reform,” the House bill doesn’t reform much other than to streamline environmental review, thus making it easier for cities and states to waste money faster. However, the bill does create new competitive grant programs, including a $4.5 billion program for “freight and highway projects” and a return to using competitive grants for buses and bus facilities. The Senate bill, meanwhile, creates a new “competitive grant” program aimed at “funding major projects.”

More Gridlocked Than Ever

Yesterday, the Senate passed a six-year transportation bill that increases spending on highways and transit but only provides three years of funding for that increase. As the Washington Post commented, “only by Washington’s low standards could anyone confuse the Senate’s plan with ‘good government.’”

Meanwhile, House majority leader Kevin McCarthy says the House will ignore the Senate bill in favor of its own five-month extension to the existing transportation law. Since the existing law expires at the end of this week, the two houses are playing a game of chicken to see which one will swerve course first and approve the other house’s bill.

As I noted a couple of weeks ago, the source of the gridlock is Congress’ decision ten years ago to change the Highway Trust Fund from a pay-as-you-go system to one reliant on deficit spending. This led to three factions: one, mostly liberal Democrats, wants to end deficits by raising the gas tax; a second, mostly conservative Republicans, wants to end deficits by reducing spending; and the third, which includes people from both sides of the aisle, wants to keep spending without raising gas taxes.

Transportation Cliff or Pothole?

Recent news reports have zeroed in on Washington’s next “cliff,” the “transportation cliff” that is expected to happen when the federal Highway Trust Fund runs out of money sometime this summer. Most of those articles have a hidden agenda: to increase spending for transit even though transit now gets 20 percent of federal surface transport dollars but carries little more than 1 percent of the travel carried by automobiles (about 55 billion passenger miles by transit vs. 4.3 trillion passenger miles in cars and light trucks). This post will explain some of the politics of the transportation cliff.

1. Why are we about to go off a transportation cliff?

Since 1956, federal highway programs have been financed with federal gasoline taxes. Those revenues go into the so-called Highway Trust Fund (“so-called” because it’s no longer very trustworthy) and then are distributed to the states for highway construction and maintenance. In 1982, Congress began dedicating a small but growing share of gas taxes to transit. Today, more than 20 percent of federal gas taxes are spent on transit, and there is no guarantee that the remaining 80 percent goes for highways, as Congress often diverts some of that money to such things as bike paths, national park visitor centers, museums, and other local pork barrel projects.

Congress reauthorizes this spending every few years. Traditionally, an authorization bill provides a spending ceiling. But the 2005 reauthorization bill made spending mandatory, meaning the ceiling was also the floor. (In 2012, Congress passed another reauthorization bill. That one didn’t mandate spending, but Congress went ahead and spent to the limit anyway, knowing full well that this would mean the Highway Trust Fund would be exhausted by sometime in 2014.)

When the 2008 financial crisis led to a reduction in driving, gas tax revenues failed to keep up with spending. Since then, Congress has had to supplement gas taxes with about $55 billion in general funds in order to keep the Highway Trust Fund from running out of money.

Anti-auto interest groups often portray these supplements as highway subsidies. But they would not be necessary if Congress weren’t diverting 20 percent of gas tax revenues to transit. Although more money goes to highways than to transit, because highways are so much more heavily used, federal subsidies to transit are about 80 times as great, per passenger mile, as federal subsidies to highways.

Will Republicans Make a Principled Stand Against Ex-Im Reauthorization in 2014?

Jobs are good. Exports create jobs. We create exports. Renew our charter.

Such is the essence of the marketing pitch of the U.S. Export-Import Bank, whose officials have begun ramping up their lobbying efforts ahead of a 2014 vote concerning reauthorization of the Bank’s charter, which expires in September.  Last go around, in 2012, Ex-Im ran into some unexpected turbulence when free-market think tanks, government watchdog groups, and limited government Republicans in Congress raised some compelling – but ultimately ignored – objections to reauthorization.

The ostensible purpose of the Ex-Im Bank is to assist in financing the export of U.S. goods and services to international markets. Even if that were a legitimate role of government, the public must keep a watchful eye on how much and to whom loans are made – especially given the current administration’s tendency to bet big on particular industries and specific firms, and in light of its commitment to seeing U.S. exports reach $3.14 trillion in 2014.

From the U.S. Export-Import Bank’s 2013 Annual Report:

The Ex-Im Bank’s mission is to support American jobs by facilitating the export of U.S. goods and services. The Bank provides competitive export financing and ensures a level playing field for U.S. exporters competing for sales in the global marketplace. Ex-Im Bank does not compete with private-sector lenders but provides export financing that fill gaps in trade financing. The Bank assumes credit and country risks that the private sector is unable or unwilling to accept. It also helps to level the playing field for U.S. exporters by matching the financing that other governments provide to their exporters. The Bank’s charter requires that the transactions it authorizes demonstrate reasonable assurance of repayment.

The defensive tone of this mission statement anticipates Ex-Im critics’ objections, but it certainly doesn’t answer them. The objectives of filling gaps in trade financing passed over by the private sector and expecting a reasonable assurance of repayment are mutually exclusive – unless the threshold for “reasonable assurance” is more risk-permissive than the private-sector’s most risk-permissive financing entities.  Therefore, Ex-Im is either putting taxpayer resources at risk or it is competing directly with private-sector lenders for customers in need of finance. And if the latter, then as it seeks to create the proverbial “level playing field” for the U.S. companies whose customers it finances, Ex-Im is un-leveling the playing field for the finance industry, as well as for the U.S. firms in industries that compete globally with these U.S-taxpayer financed foreign companies.

Timber Payments and Logrolling

Since 1908, the U.S. Forest Service has paid 25 percent of its gross receipts to the states for spending on roads and schools in the counties where national forests are located. In the Pacific Northwest, receipts started to decline in the late 1980s due to lower timber sales as a result of efforts to protect the spotted owl. In 1993, Congress responded with additional “spotted owl payments” to the affected states. A 2000 law spread these payments to all national forests, but the bulk continued to go to the Pacific Northwest.

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