Highway Bill Forestalls Hard Choices

With the current bill maintaining the status quo, questions about long-term federal funding mechanisms remain unanswered.

In an effort to prove it’s capable of accomplishing meaningful legislation in advance of the fall elections, Congress has at long last passed a federal highway funding bill. The construction industry seems to be heaving a collective sigh of relief after months of uncertainty. 

“The passage of the 27-month transportation bill ends nearly three years worth of temporary extensions that have made it increasingly difficult for state and local officials to plan for, fund and execute major new infrastructure projects,” stated Stephen E. Sandherr, CEO of the Associated General Contractors of America, following the bill’s passage. “The new highway and transit bill should allow construction to finally begin on many long-delayed, yet vital, projects.”

The bill provides $54.6 billion per year for two years, with about 80% of the funding dedicated to highways and about 20% to transit. It maintains the gas tax at current levels (18.3 cents per gallon), necessitating the creation of new funding mechanisms to cover the balance.

The Hill’s Floor Action Blog (“Congress passes highway funds, extends lower student loan rate”, 6/29/12, thehill.com) reports, “the highway portion of the bill authorizes spending of about $120 billion through 2014, and funds most of that by extending various fuel and highway taxes. But because those taxes don’t fully cover planned spending, the bill raises new revenues from companies by making changes to the way corporate pensions are calculated, and by increasing premiums paid to the Pension Benefit Guaranty Corporation.” How such revenue will be assessed and how much will be generated remains unclear.

Essentially, the new bill maintains the status quo. According to Pete Ruane, president and CEO, American Road & Transportation Builders Association, “In the short term, the [highway] bill will provide stability in federal funding for state and local transportation projects. The elimination of earmarks should also accelerate the speed at which federal funds impact the market for transportation improvements. That’s the good news.... The bad news is there is no new money. And even with their federal funds, we are now in a situation where 28 states have invested less in highway and bridge projects over the past 12 months than they did in pre-recession 2008, even when adjusted for inflation.”

The bill also leaves unanswered how the federal government plans to maintain revenue going into the Highway Trust Fund (HTF) long term. The HTF is dependent upon the federal gas tax, which has not been raised since 1993; incoming revenue continues to shrink due to reduced vehicle miles traveled and an increase in more fuel-efficient vehicles. Consequently, the Congressional Budget Office has predicted the HTF will be wiped clean by FY2014.

Clearly, the current Congress lacked not only the ingenuity, but the courage, to tackle the tougher issue of how to develop a sustainable funding mechanism for the HTF. It instead chose to implement a short-term stop gap, leaving the hard work to future legislators. We can only hope the next Congress will be better prepared to make the difficult choices ahead.