Money and roads

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"If we're going to change dramatically the way we spend transportation dollars, let's do it right." –Brian Imus, director of the Illinois Public Interest Research Group, from an interview with the Chicago Sun Times

For a moment there, transportation infrastructure issues seemed to be finally getting some long overdue recognition at the federal level. With the Highway Trust Fund now poised to run out of money for the second time in less than a year – it’ll be empty by the end of August – everyone seemed to finally realize that transportation infrastructure not only costs money (and BIG money at that) but we can’t just keep applying the equivalent of fiscal band aids to keep it working efficiently.

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And then …

President Obama’s administration quickly applied the brakes to U.S. House Transportation Chairman Jim Oberstar’s (D-Minn.) ambitious – maybe overambitious – effort to hammer out a $450 billion, six-year surface transportation authorization act by Sept. 30. Instead, the White House is seeking an 18 month delay in that reauthorization effort and is now scavenging about for $20 billion in stopgap funding to keep transportation projects moving along in the interim.

This merely puts off making decisions about that most fundamental and overarching issue in transportation right now: money. Yes, it all comes back to that lovely green paper emblazoned with the faces of past presidents, now doesn’t it? We simply don’t have nearly enough money to cover the true cost of transportation needs for many reasons, but here are a few key ones: 1. Government tax revenues earmarked for transportation are too low and 2. Many states take funds meant for highways and spend it elsewhere, like on building bicycle paths.

So what it transportation now requires is a new direction – a way to generate dedicated revenues sufficient to maintain current infrastructure while expanding where needed.

“This challenge is of vital national importance. It is in the interest of us all to take on the challenge as vigorously and effectively as we can,” said Deb Miller, secretary of the Kansas Department of Transportation and chairwoman of the standing committee on planning for the American Association of State Highway and Transportation Officials (AASHTO), in recent testimony on Capitol Hill. “To provide the revenues needed, Congress will need to utilize a diversified portfolio of revenue options.”

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To be sure, a lot of transportation funding mechanisms have been discussed in this space. But I’d like to share Miller’s perspective on this critical issue, if only to illustrate how funding decisions – and the lack of them – literally affects what’s happening on the ground. Here’s what Miller thinks are the critical short term problems:

First, there’s short-term Highway Trust Fund insolvency to deal with. Spending from the Highway Trust Fund is exceeding revenues. Last September, Congress transferred $8 billion back into the Trust Fund from the General Fund to enable U.S. Department of Transportation (DOT) to honor the commitments made to states in SAFETEALU. However, as revenue continues to lag expenditures, the $8 billion may not sustain the program through September, 30. Interim relief may be required as early as July. “We must also ask what happens in Fiscal Year 2010 if more time is needed to complete a new authorization,” Miller said in her testimony. “Interim funding should be provided in the second quarter of this year to assure that there is no interruption in the highway program in either FY 2009 or FY 2010.”

Second, the feds must cancel $8.7 billion worth of “rescissions.” On September 30, unless Congress acts, $8.7 billion of contract authority will be rescinded from the highway program. That will be on top of almost $20 billion in rescissions since 2002. “We have now reached the point that these rescissions will result in the cancellation of vital projects across the country by a similar amount,” she noted. “Cancellation of this $8.7 billion rescission must take place prior to September, 30, or we will effectively wipe out the benefits of approximately one third of the $27.5 billion in highway funding provided in the American Recovery and Reinvestment Act."

Third, highway and transit program contract authority must be sustained. Turning to the upcoming authorization, the Congress has the benefit of two years of research that produced well-documented reports on the nation’s highway and transit investment needs, said Miller. “SAFETEA-LU established two national commissions to study the future of the highway and transit programs. Their reports are now in,” she pointed out. “The National Surface Transportation Policy and Revenue Study Commission said that the nation needs to invest $225 billion per year through 2050 to meet highway, transit and passenger rail needs. The U.S. is currently investing at only 40% of this amount. The National Transportation Infrastructure Finance Commission this February put future highway and transit needs at $200 billion per year. Those highly regarded commissions have clearly outlined for Congress the scale of the investment needed for the country’s future.”

Once those issues are addressed, mid-term funding strategies must be formed – for the next six years or so will be critical, Miller believes.

Sustaining current highway and transit programs. Revenues are flowing into the Highway Trust Fund at a rate billions of dollars below the current rate of obligations for future spending. Come October 1, unless Congress closes this gap, the highway program will face a cutback of $20 billion or more for FY 2010. The transit program will face similar drastic reductions one year later in FY 2011. “Just when the economic recovery program is in the midst of creating thousands of jobs through highway and transit investments, the bottom will drop out from under the core highway and transit programs and thousands of workers will have to be laid off,” she explained. “No matter what, it is vital at a minimum to sustain the current highway and transit programs at not less than their current levels of funding.

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Meeting skyrocketing construction costs. In reality, the current levels of funding are far from what they used to be and what they used to buy [and no truer words have been spoken by a government official in a long while.] In addition to years of steady growth in inflation, from 2004 to 2008 construction prices soared for steel, concrete, asphalt and construction machinery, Miller noted. “It is estimated that between 1993, when federal fuel taxes were last adjusted, and 2015, construction costs will have increased by more than 80%. To restore the purchasing power of the program to that of 1993, federal highway funding will have to be increased from $43 billion in 2009 to $75 billion by 2015, and federal transit funding would have to be increased from $10.3 billion in 2009 to $18.5 billion in 2015.”

Address freight funding needs. Miller also thinks the U.S. is entering the early stages of a freight transportation capacity crisis. “Highways, railroads, ports, waterways, and airports all require investment well beyond current levels to keep our freight system competitive,” she said. “We must invest in a ‘national freight system’ that connects all sectors of the economy, all regions of the country, to national and international markets.”

So, how do we get all of this done? More importantly, what is the estimated price tag? This is what Miller thinks:

Over $545 billion in funding needed. Based on these considerations, in order to sustain the federal highway and transit programs, restore their purchasing power, and begin needed investment, Congress should:

• Fund the federal highway program at $375 billion between 2010 and 2015, with the annual program funding level reaching $75 billion by 2015.

• Fund the federal transit program at $93 billion between 2010 and 2015, with the annual program funding level reaching $18.5 billion by 2015.

• Fund the freight program at $42 billion between 2010 and 2015, from resources outside the Highway Trust Fund.

• Fund intercity passenger rail program at $35 billion between 2010 and 2015, from resources outside the Highway Trust Fund. [Note: I highlighted the word “outside” here – about time highway taxes funded roads and ONLY roads for a change.]

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How to provide the revenues needed. To provide the revenues needed, Miller believes Congress must use a diversified portfolio of revenue options:

• Congress should maintain at least the current federal share (45%) of total capital investment in the highway and transit and state and local governments must maintain their investment levels as well.

• Congress should eliminate earmarking or reduce it to no more than 5% of the total program.

• Congress should grant states maximum access and flexibility to use a mix of funding and financing tools including use of public-private partnership opportunities.

All of this is a lot to chew on no doubt – and just looking at all the billions mentioned in Miller’s testimony is staggering, to say the least, faced as we are with federal deficits piling up red ink as far as the eye can see. It certainly isn’t going to be easy to get all the fiscal ducks lined up for transportation infrastructure needs. We’ll just have to wait and see what comes to fruition.

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