Federal Highway Program Dangles on a Fiscal Cliff
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The Fiscal Times
June 11, 2014

Speaker John Boehner and other House GOP leaders recently proposed a novel way to avert the bankruptcy of the federal highway construction program this summer: End most Saturday deliveries by the financially troubled U.S. Postal Service – and use the savings to prop up the depleted Highway Trust Fund. 

Sen. Barbara Boxer (D-CA), chair of the Senate Environment and Public Works Committee, dismissed the idea as “strange” and “unworkable.” 

Related: 700,000 Jobs at Risk If Highway Trust Fund Falters

Senate Democrats have yet to come up with a better idea. They’re deadlocked over a proposed corporate tax overhaul that could unlock billions of dollars of overseas corporate profits for use by the domestic highway program. Unless lawmakers and the Obama administration act soon, the federal highway program – the lifeblood of state highway, bridge and mass transit projects – could soon plunge over a fiscal cliff.

The administration said last month that failing to avoid a bankruptcy of the Highway Trust Fund could mean delaying about 112,000 roadway projects and 5,600 transit projects – and cost as many as 700,000 construction jobs in the next year. “The crisis is no longer a hypothetical,” Senate Budget Committee Chairwoman Patty Murray (D-WA) said in a floor speech Tuesday. “It has already caused states to plan for a construction shutdown if Congress doesn’t act.”

Sen. Carl Levin (D-MI) said in an interview that there is widespread concern in Congress that the trust fund could go belly-up this summer. “A lot of projects will stop right in the middle, so it’s essential we fill in that gap,” he said.

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

The Department of Transportation has projected that the trust fund, which finances more than $50 billion a year in highway, bridge and transit projects, will dip below the critical level of $4 billion by mid-July. Lawmakers, state officials and general contractors are warning this week that the economic stakes are high.

More than 70 transportation projects in Georgia alone could be delayed indefinitely, say officials there. In North Carolina, an engineer for the state’s Department of Transportation has said that if the trust fund runs dry, “that essentially stops our construction program.”

Earlier this year, Democratic Gov. Pat Quinn of Illinois announced a six-year transportation plan to finish dozens of key projects, but many may not make it off the drawing board without $6.99 billion in federal support.

The trust 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. Revenues have recently lagged behind highway project expenditures and the government has had to shift money from other accounts to keep the fund solvent. The Congressional Budget Office estimates a $12 billion shortfall in the fund this fiscal year, with only $33 billion of revenue to cover $45 billion of spending.

Related: Corporate Tax Reform: The One Big Fix Congress Could Get Done This Year  

Lawmakers face a Sept. 30 deadline for reauthorizing the government's surface transportation bill.  The Senate Environment and Public Works Committee approved a bill to provide roughly $265 billion for transportation spending over the next six years, but the panel left it up to the Finance Committee to figure out how best to fund it.

Senate Majority Leader Harry Reid (D-NV) is promoting a one-time “tax holiday” to coax corporations to bring home profits from overseas that could be used to finance the highway construction program. Under Reid’s approach, which was first reported by The New York Times, multinational companies could deduct 85 percent of the money their parent corporations in the U.S. receive from foreign subsidiaries.  

Such a change would generate $20 billion to $30 billion of new tax revenue for the Treasury over the next two years, while flooding the U.S. economy with money otherwise trapped overseas, according to The Times.

A number of Senate Republicans have expressed interest in this approach, including Senate Minority Leader Mitch McConnell and Sen. Rand Paul, both of Kentucky. “The way we tax overseas profits encourages them to stay over there,” McConnell said yesterday. “So figuring a way to get those profits home and dedicating that money to a good purpose is something we have under discussion.”

However, Reid’s idea is getting a cold shoulder from Finance Committee Chairman Ron Wyden (D-OR) and ranking committee Republican Orrin Hatch of Utah, who would rather use revenue from such a tax repatriation plan to implement broad-based tax reform.

Asked if he’d rejected Reid’s proposal, Wyden told reporters yesterday, “Nothing has been agreed to, nothing has been ruled out, nothing has been ruled in.”

He said the Finance Committee this week would start focusing on competing tax proposals and other measures to address the highway trust fund crisis, with an eye to taking action before a July recess.

Related: Obama Looks to Tax Reform to Save America’s Highways

President Obama, earlier this year, proposed a four-year, $302 billion highway and transit bill to raise $150 billion through taxes on overseas earnings and by closing loopholes that would normally allow companies to defer obligations. House Ways and Means Committee Chairman Dave Camp (R-MI) has also proposed corporate tax reform to pay for a new highway bill.

Maya MacGuineas, president of the Committee for a Responsible Federal Budget, dismissed the proposed repatriation holiday as “a poor and gimmicky offset” that raises money short term but loses significantly more over time. She said the alternative House GOP plan to use $12 billion primarily from USPS reform is another budget gimmick that would give only short-term relief.

“How about we have a moratorium on reckless budget gimmicks?” she said in a statement. “We should be working to find lasting solutions to close the structural imbalance between dedicated revenue and highway spending by reducing federal highway costs, increasing gas taxes, or identifying legitimate alternative sources of financing.”

Some, however, in the absence of anything else, are predicting a short-term fix in which Congress moves money around from the general fund to the highway trust fund, as it has done in the past.

“Both sides are kind of far apart on where they want to be, but I feel pretty confident they’re going to get some type of short-term fix done,” said June DeHart, a lawyer with Manatt, Phelps & Phillips who specializes in transportation and infrastructure issues. “My money would be on an extension as opposed to getting a bill done.”

Wyden, however, has said he was against passing a short-term extension by 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.”

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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.