Will Federal Transportation Funding Stop if Debt Deal Falls Through?

If a debt deal isn't reached and the government defaults, what might happen to transportation funding?

By Larry Ehl, Transportation Issues Daily

According to an analysis by the well-respected Bipartisan Policy Commission (BPC) there would be barely enough funding to pay interest, Social Security, Medicare and Medicaid, defense, and unemployment benefits.

In another scenario, a "safety net" analysis swaps defense spending for some social program spending.

Under either scenario transportation funding would be at the bottom of the list, and payments to states and local agencies presumably would stop. Or would they?

To get some insight, I conversed with three of the most experienced experts in federal transportation: Mort Downey (former USDOT Deputy Secretary), Jack Basso (former USDOT CFO and OMB Asst. Director) and Susan Binder (longtime USDOT legislative and policy expert). USDOT did not respond to a couple of email inquiries. I also conversed with a number of legislative/funding experts with longtime State DOT and congressional experience.

My questions were basic: "I know it would be speculating, but do you have any idea of the possible impact to federal transportation spending (including reimbursement) if the debt limit isn't raised? Are you aware of any analysis of this issue?

The bottom line: this is uncharted and complicated territory and it is impossible to predict how transportation funding would be affected. And no one seems have done an analysis of the impact.

It would be easy to assume that transportation funding would be interrupted. If that happened, projects would probably be stopped, as agencies would probably be reluctant to continue work without knowing for certain when they might be reimbursed by the federal government. Coming at the height of the construction season, this could possibly idle thousands of workers.

However, most federal transportation funding is in a trust account - protected - and thus possibly could continue to flow. But I don't see how, politically, the White House and Congress would allow that happen for very long, when funding is interrupted for other critical programs.

On the other hand, that surplus in the Highway Trust Fund may look attractive - could the President and Congress raid the HTF for other purposes?

Here's a glimmer of hope: there are reports that the Gang of Six debt limit proposal includes some tax code reforms that would add additional revenues to the Highway Trust Fund, and reportedly stabilize the HTF for the next decade. The Washington Post's Ezra Klein has a good summary of the proposal, which seems to be DOA.

Beyond the funding question, the debt limit debate affects federal transportation in other ways.

  • The debate is sucking up all the oxygen in terms of legislative floor time and attention and thus precludes the transportation bill from getting traction
  • The partisanship of the debt debate will further polarize other issues
  • The difficult financial environment contributes to the most difficult time in memory to consider a robustly-funded bill and eliminates options that tap the general fund to fill HTF gaps.

When things do settle down, the constraints of a budget deal will cut hard into transportation funding because it is "domestic discretionary" spending - the area cut the most.

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