Warning: Bumpy Road Ahead for Highway Drivers
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The Fiscal Times
May 7, 2014

The Senate got down to business on Tuesday to begin crafting a solution to a looming highway-spending crisis, but they were met almost immediately with troubling news.

The non-partisan Congressional Budget Office told lawmakers they would have to either increase the federal gasoline tax by 10 or 15 cents per gallon – a nonstarter in an election year – or find between $13 billion and $18 billion per year from other sources to maintain current spending on road and transportation projects.

Related: Why You’ll Need a Tank to Drive America’s Highways

During a hearing of the Senate Finance Committee to explore “new routes” for financing highways and transit, CBO Assistant Director Joseph Kile said there were few good options to shore up the Department of Transportation’s (DOT) near-bankrupt Highway Trust Fund, according to The Hill

Kile said lawmakers could close the funding gap by cutting federal spending on highways and transit, increasing the federal gas tax or transferring money to the trust fund from other areas of the federal budget.

“If lawmakers chose to address the projected shortfalls solely by cutting spending, no new obligations from the fund’s highway account or its transit account could be made in fiscal year 2015; that would also be the case for the transit account in fiscal year 2016,” Kile said in written testimony.

Kile’s testimony likely exacerbated the panic of state and local officials, the construction industry and labor groups, who are all bracing for a virtual shutdown of new highway, bridge and other infrastructure projects this summer unless Congress authorizes billions in new spending.

Related: A Glimmer of Hope for Ending Highway Construction

“America’s economy can’t afford Congress’ duct-tape approach, which has left our pothole-ridden roads and bridges deteriorating and unsafe,” said Terry O’Sullivan, general president of the Laborers’ International Union of North America, in a statement several days ago. “Massive shortfalls threatening our nation’s Highway Trust Fund are already destabilizing the construction industry and creating ripples in our economy because states are being forced to cut back on new projects that are critical to keeping our roads and bridges safe.”

The trust fund that finances more than $50 billion annually in highway and bridge construction is running out of cash and will be bankrupt by late July or early August, at the height of the construction season, according to DOT projections. The fund has been financed by receipts from an 18.4 cents per gallon gas tax and a 24.4 cents per gallon diesel fuel tax, though more recently the government has had to shift funds from other accounts to keep the fund solvent.

Some state and local governments, after a dreadful winter, have already begun pulling back on plans for filling potholes and paving highways. Things could get much worse if Congress and the Obama administration allow a four-year transportation funding authorization law to expire this fall without a replacement.

Last month, key senators from both parties offered a ray of hope by announcing the broad outlines of a six-year surface-transportation measure that would put an additional $16 billion a year into the trust fund.

The plan, crafted by Senate Environment and Public Works Committee Chair Barbara Boxer (D-CA) and Sen. David Vitter (R-LA), the panel’s ranking Republican, would peg highway funding at current levels, adjusted for inflation. Boxer said she hopes to begin marking up a new transportation authorization bill next week, even as lawmakers struggled to find a way to pay for it.

“Our bill is current funding plus inflation,” Boxer said at Tuesday’s hearing. “We need you [members of the Finance Committee] to figure out how to pump $18 billion into the Highway Trust Fund.”

Senate Finance Committee Chairman Ron Wyden (D-OR) declined to take a position on the funding source during the hearing. He said he was against passing a short-term extension at the Sept. 30 deadline for reauthorizing the current surface transportation-funding bill. “It would be a tragic mistake to let highway funding become another stop-and-go extender,” Wyden said. 

Wyden, who only recently assumed control of the Finance Committee, also said Congress needs to explore innovative solutions to bring more private capital investment to infrastructure projects.

“You can’t have big-league quality of life or big-league economic growth with little-league infrastructure,” Wyden said. “Congress needs to find a sustainable source of funds that keeps this crunch from happening again. Failure is not an option.”

In the House, Transportation and Infrastructure Committee Chairman Bill Shuster (R-PA) has said he hopes to have his panel vote on a highway and transit policy bill this spring or summer. Meanwhile, President Obama and House Ways and Means Committee Chairman Dave Camp (R-MI) have promoted ideas to use corporate tax reform to generate the additional funds.

Related: Obama Floats Interstate Toll Option to Fund Road Repair

Last week, the Obama administration opened the door for states to collect tolls on interstate highways to raise revenue for roadway repairs. The proposal, part of a four-year, $302 billion White House transportation bill, would reverse a long-standing federal prohibition on most interstate tolling.

While some older segments of the interstate network — notably the Pennsylvania and New Jersey turnpikes and Interstate 95 in Maryland and Virginia — are toll roads, most of the 46,876-mile system has been toll-free.

Whatever the solution, highway spending proponents contend that replenishing the trust fund is critical to keeping the economic recovery on track and creating more jobs.

A new study by Standard & Poor’s Ratings Services estimates that a $1.3 billion investment in infrastructure in real terms in 2015 would likely add 29,000 jobs to the construction sector and even more jobs to other infrastructure-related industries. That investment would also likely add $2 billion to real economic growth and reduce the federal deficit by $200 million in constant dollars for that year.

After an initial increase in aggregate demand, the economy’s productive capacity and output typically increase once the infrastructure is built and absorbed into the economy, the report stated. “That means increased growth and more job gains long after the project ended,” it said.

This finding aligns with estimates by the Federal Highway Administration, which found that a $1.25 billion investment in infrastructure supports 34,779 jobs related to the project.

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Washington Editor and D.C. Bureau Chief Eric Pianin is a veteran journalist who has covered the federal government, congressional budget and tax issues, and national politics. He spent over 25 years at The Washington Post.