Monday, June 9, 2014

Eliminate the Highway Trust Fund and Empower the States

Saturday's Tribune had a commentary courtesy of the Washington Post, No road work ahead, that states:
The federal Highway Trust Fund is set to run out of money this summer. Without a fix, federally backed transportation projects all over the country — not just highways — would be in danger of severe disruption or cancellation.
Yes, the Highway Trust Fund is running out of money - soon.  The Highway Trust Fund was funded exclusively through our federal gas taxes, user fees, until 2008 when Congress began transferring monies from the General Fund to cover deficits in the Highway Trust Fund. This allowed spending to continue (with borrowed dollars) and basically kick the systemic problems of the Highway Trust Fund deficit spending down the road.  

How did we get here? CATO Institute provides a Dept. of Transportation Timeline of Growth from 1787 - 2009. 

The federal gas tax was implemented in 1956 under President Eisenhower to fund roads, highways and bridges and to specifically build out our Interstate system.  Gas taxes are a "user fee" paid for by those who use our roads. The federal gas tax today, which has been in place since 1993, is 18.4 cents per gallon for gas and 24.4 cents per gallon for diesel. The tax was originally set to expire in 1972 but instead has been extended ever since and it's scope greatly expanded well beyond the Interstate system and roads. 

In 1983 Congress created the Mass Transit account within the Highway Trust Fund. This act began the diversion of our road user fees, federal gas taxes, to mass transit. This enabled greater expanded siphoning of our federal gas taxes to rail and bus transit, ferry boats, bike paths, sidewalks and recreational trails.  Today our federal gas taxes are expanded beyond even those activities and includes air quality mitigation, historic resources, environmental goals and other ancillary purposes.
Today HTF allocations fund much more than just highways 
At the same time the scope for the use of our federal gas taxes was being greatly expanded, vehicles continued to become more fuel efficient and vehicles fueled by other types of energy began to be introduced:  hybrids, electric, natural gas, etc.  As CAFE standards increase fuel efficiency and the public uses more non-gasoline powered vehicles, the funding problem gets worse. The circular logic of heavily subsidizing mass transit and other ancillary activities through dwindling vehicle user fees eventually becomes unsustainable and reality hits.  

Have you heard of earmarks?  The first earmarks EVER, which began the use and abuse of earmarks, was in the Federal Aid Highway Act of 1982. That bill included 10 earmarks for funding transportation projects in certain Congressional districts. Ironically, that same year, 1982, then President Reagan proposed ending the federal gas tax and federal highway funding. Congress refused to support Reagan's proposal because apparently they did not want to give up their power and control over this huge pot of tax dollars. The House Transportation Committee, who oversees the Highway Trust Fund, is the largest committee in the House. That's a lot of power, influence and control.

President Reagan vetoed a transportation bill in 1987 because it had too many earmarks - 151.  Earmarks continued to grow and grow as Congress continued earmarking pork barrel projects for their home districts. Transportation funding became the poster child for earmark pork projects.  The last long term 5 year Transportation bill passed by Congress in 2005 had a record breaking 6,371 earmarks in it.  This pork laden bill brought public outrage with the infamous "Bridge to Nowhere" earmark for Alaska. The "Bridge to Nowhere" earmark became a national symbol of Congressional porkmania wasteful spending.

Earmarks were banned in 2010 when the Republicans took control of the House.  But the Fed system is such a mess we now have "orphaned earmarks" according to this USA Today article in 2011:
During the past 20 years, orphan earmarks reduced the amount of money that states would have received in federal highway funding by about $7.5 billion, USA TODAY found. That's $7.5 billion that states could have used to replace obsolete bridges, repair aging roads and bring jobs to rural areas.
It's 3 years later in 2014 and Rep. James Lankford (R-OK) introduced a bill last month, HR4715, and we're not making this up, called the Orphan Earmarks Act, "to rescind and remove idle earmarks for Department of Transportation (DOT) projects, some of which were approved more than 20 years ago." 
Lankford’s bill would void earmarked funds in DOT accounts with 90 percent or more of the original dollar amount left unobligated after ten fiscal years. The bill also requires DOT to submit a report each year detailing which projects were funded through earmarked dollars and which funds remain available for funding at the end of the fiscal year. Additionally, it provides flexibility to DOT to ensure projects slated to begin in the immediate future can still take place.
Isn't that the least we could do in this funding crisis?  Clean up the orphaned earmark funds!

The rubber is hitting the road with our current Highway Trust Fund situation. According to this CBO testimony on the Status of the Highway Trust Fund presented to Congress last July:

  • The current status of the Highway Trust Fund is unsustainable.  Starting in fiscal year 2015, the trust fund will have insufficient resources to meet all of its obligations, resulting in steadily accumulating shortfalls.
  • Since 2008, the Congress has avoided such shortfalls by transferring $41 BILLION from the General Fund of the Treasury to the Highway Trust Fund.  The Congress has enacted an additional transfer of $12.6 BILLION that is to be included in 2014.  If lawmakers choose to continue authorizing such transfers, they would have to transfer an additional $15 BILLION and increasing amounts in subsequent years to prevent future shortfalls, if spending was maintained at the 2013 level, as adjusted for inflation.
  • Lawmakers could also address the projected annual shortfalls by substantially reducing spending for transportation surface programs, by boosting revenues, or by adopting some combination of the two approaches.  Bringing the trust fund into balance in 2015 would require entirely eliminating the authority in that year to obligate funds (projected to be about $51 BILLION), raising the taxes on motor fuels by about 10 cents per gallon, or undertaking some combination of those approaches.

CBO HTF projected shortfalls
This is not a pretty picture as we must maintain our existing infrastructure and our gas tax revenue is declining.  So what do we do?  Doing nothing will only create a bigger mess to dig out from. The easiest thing to do is keep spending and continue bailing out the Highway Trust Fund with General Funds. That truly shoots user fees and user pays out the door. We could raise the tax. According to The Hill, a bill has been submitted to almost double our federal gas tax and it's been endorsed by the US Chamber of Commerce:
Rep. Earl Blumenauer (D-Ore.) is introducing legislation that would nearly double the 18.4-cents-per-gallon federal gas tax that is traditionally used to pay for federal transportation projects.

Blumenauer's bill would increase the gas tax by 15 cents, matching a proposal that was included in the 2011 Simpson-Bowles budget reform recommendations.

The legislation would result in drivers paying an extra 33.4 cents per gallon on their purchases, in addition to state taxes.
The Oregon lawmaker is scheduled to appear with representatives from the AFL-CIO's Transportation Trades Department, the U.S. Chamber of Commerce, Labors International Union of North America, the American Society of Civil Engineers, Reconnecting America and the American Public Transportation Association.
Blumenauer's bill would also index the federal gas tax to an inflation index. Indexing the gas tax would conveniently enable it to go up, up and up without having to hold future Congressional reps accountable. The organizations Blumenauer was appearing with to tout this bill looks like the typical organizations who support tax increases because it will benefit "them".

Even Senator Barbara Boxer who chairs the Senate Transportation Committee said at a legislative briefing in February, "I don't see support for raising the gas tax".  She's right.  A Gallop poll taken last year found two-thirds of Americans opposed a gas tax hike even it went toward infrastructure improvements.  

A big problem today is that taxpayers do not trust how the federal government is spending our current gas tax dollars so why should we give them more to waste or spend on pet projects. Taxpayers are wiser today as we witness our exploding federal debt approach $18 TRILLION. That is unsustainable.

But we have a transportation funding problem so is there a better solution? Yes! There are bills in the House and Senate that would do what President Reagan wanted to do in 1982 - kill the federal gas tax.  In an article, Death to the Gas Tax at these bills (HR 3486 and S1702) would "kill the gas tax and remove Washington from transportation policy":
Last November, Graves introduced the Transportation Empowerment Act, which was cosponsored through Senate legislation by Republican Mike Lee. By drastically reducing the tax, it would enable states to manage their own transportation policies, improving a process that has become massively inefficient under federal oversight. 
“It's rather silly,” Graves told the Atlanta Journal-Constitution, that “taxpayers pay taxes at the pump that go to the federal government, [which] then tells our state how it must spend the money,” even though it doesn't “give you all the money you submitted.”
Graves' bill would reduce the tax over five years to 3.7 cents/gallon, which could produce around $7 billion, and that money would be sent to states through block grants with few regulatory strings attached. States could then make up the difference by raising their own gas taxes.
The Transportation Empowerment Act (TEA) would empower states to pursue their own unique transportation solutions because the states know better what their transportation needs are. The TEA bill would help reduce duplicity, overhead, costly federal strings and regulations and a costly federal bureaucracy. TEA would help stop the current perversion to pursue the most expensive transportation solutions because federal tax dollars are somehow "free".  Reason states:
...Federal Highway Administration that largely duplicates the responsibilities of state DOTs. Every federally-funded transportation project, for example, is subject to Davis-Bacon laws that mandate the payment of local prevailing wages. An executive order from President Obama in 2009 requires federal projects of over $25 million to use Project Labor Agreements, which discourage open bidding in favor of unionized collective bargaining.

Other regulations require redundant environmental reviews and over-demanding construction standards. Former FHWA head Robert Farris has estimated that, altogether, federal regulations increase project costs by 30 percent.

Federal oversight also encourages construction of projects that make little economic sense. Before the ban in 2010, large chunks of gas tax revenue went for earmarks. Although Republicans have extended the earmark ban, there's no guarantee that it will be safe if Democrats reoccupy the House.

...infrastructure becomes most pragmatic when funded by those who actually use it. This is in contrast, writes Nicole Gelinas in City Journal, to the impression of “free money” that localities get when receiving federal grants from taxpayers nationwide.
There is no "free" lunch or "free" money. Due to the chaotic financial mess the Feds have made in DC, the states are not waiting for DC. The states are figuring out themselves how to pay for their own infrastructure needs. Transportation expert Ken Orski was on a recent panel hosted by the Heritage Foundation at a Capital Hill briefing for Congressional staff regarding the Highway bill and posted some of his remarks at the Heartland Institute.
...individual states, far from standing idly by, are responding to the fiscal uncertainties in Washington by stepping up and augmenting their transportation budgets. 
...governors, state legislatures and local governments are taking aggressive steps to make themselves fiscally more independent. They are increasing fuel taxes, passing local bond referenda, financing costly construction projects with long-term credit, and entering into investment partnerships with the private sector.
As for the states, greater fiscal independence will help them gain a substantially enhanced role in transportation and more freedom and flexibility to manage their transportation programs on their own terms and free of burdensome federal oversight.
From porkbarrel spending to expanding the Highway Trust Fund's scope way beyond its ability to pay to orphaned earmarks that sit idle in the Dept. of Transportation coffers, the Feds have turned the Highway Trust Fund into a big funding mess. Congress cannot fix it. The way out is the TEA bills. Let's get the Feds out of the way, stop sending our gas tax dollars to be siphoned through the DC waste filter and empower the states to be responsible for their own transportation policies and funding. 

Florida has always been a federal gas tax donor state sending DC far more than what they doled back to us. Where was the outrage from our elected officials about this, at any level of government, especially as Florida's population was growing exponentially? We heard from some of them loudly when President Obama wanted to "throw" federal debt dollars at Florida for a costly High Speed Rail between Orlando and Tampa.  We certainly did not hear that kind of response and outrage that Florida, a leading tourist destination of the world, should be keeping our own gas tax dollars to improve our roads.  Have you ever been to West Virginia to see the huge highways former Senator Byrd built with our road money?
Gas Tax Donor States
Transportation policy should promote mobility and not be based on politics. The closer our transportation solutions get to "user pays" the better. That is the fairest way to pay. 

Transit needs its own funding source, including riders paying a more market priced fare, so vehicle user fees are not subsidizing transit. Our gas taxes should be used as originally implemented - to pay for our roads, highway and bridges. Even doing that, over time those dollars will dwindle and new funding sources must be found. States are the innovative incubators where reform occurs first and as previously stated, are already taking a lead in how to fund their own transportation projects.

We know the TEA bill is a long shot as too many in Congress do not want to give up their influence and control over large buckets of our tax dollars.  

We are in an election year.  Get your Congressional candidates to agree to sign on and support the Transportation Empowerment Act. 

At some point common sense must prevail.

1 comment:

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