Lawmakers struggle to save a Highway Trust Fund on the brink of extinction

Source: Julia Pyper, E&E reporter • Posted: Friday, February 28, 2014

Bridges are collapsing, commuters are locked in traffic, rail passengers are underserved and many local economies have stagnated because of America’s crumbling transportation infrastructure.Meanwhile, the U.S. Highway Trust Fund, which provides critical funding to the transportation network, is degenerating even faster than the country’s roads and railways. The fund could become insolvent as early as this summer, while the existing highway bill, dubbed MAP-21, expires in September.To address this shortfall, President Obama yesterday launched a four-year, $302 billion surface transportation funding proposal to replace MAP-21. The plan, to be outlined in the president’s fiscal 2015 budget request, includes a one-time infusion of $150 billion from corporate tax reform to address the funding crisis.

The proposal will “not only allow States and local units of government to effectively plan their project pipelines, supporting millions of good paying jobs over the next several years, but also will enable more transformative transportation projects that improve our global competitiveness,” according to a White House memo.

The Highway Trust Fund is currently supported by the 18.4-cent-per-gallon national gasoline tax. But the tax was last raised in 1993 and continues to lose earning power as vehicles become more efficient and use less fuel.

“The gas tax is not keeping up with inflation and not keeping up with the wonderful innovations that we have to save gas,” Senate Environment and Public Works Chairwoman Barbara Boxer (D-Calif.) told members of the American Association of State Highway and Transportation Officials (AASHTO) at a meeting in Washington, D.C., yesterday.

Boxer said the trust fund is now “threatened with extinction.”

Insolvency by September?

According to the Congressional Budget Office, the trust fund could be insolvent as early as September. But, in practice, imminent bankruptcy would likely cause spending to freeze by midsummer as states and localities scramble to get their hands on the last remaining dollars, said John Schroer, chairman of AASHTO’s finance committee.

In the absence of new revenue streams, CBO also forecasts that federal transportation programs would be zeroed out by 2015, meaning no new projects could receive funding that year.

A $47 million renovation of the Uptown train station in Normal, Ill. — a project that brought in $160 million in new investments — was made possible by federal transportation support, said Mayor Chris Koons at an event yesterday on Capitol Hill. If the trust fund becomes insolvent, these are the types of projects that will go unfinished, he said.

“Local governments are simply not equipped to take on these transportation initiatives by themselves,” said Koons.

In his much-anticipated tax-reform bill released yesterday, House Ways and Means Chairman Dave Camp (R-Mich.) put forth a new proposal that would generate $126.5 billion in revenue for the Highway Trust Fund through a tax on foreign income.

AAA, one of the country’s largest membership organizations, praised policymakers for drawing attention to the transportation funding crisis but expressed cautious optimism for solving it.

“AAA is encouraged that President Obama and Congress are finally focusing on the funding of our nation’s transportation system and the goal of a long-term reauthorization bill, however corporate tax reform and other one-time patches must not be the only funding solutions considered,” said Kathleen Bower, AAA’s vice president of public affairs, in a statement.

Little hope to raise gasoline tax

Boxer, who led the development of MAP-21, said she intends to mark up a highway bill to replace current legislation in April. She said she’s driving for a five- or six-year bill that will keep funding at current levels, plus inflation.

Finding the proposal will be the tricky part. The president’s proposal to raise transportation revenues from corporate taxes is “visionary,” said Boxer. But, she added, “I don’t think we can get it through this particular group of members.”

She also said there is little hope for raising the gas tax and “absolutely no way we’re going to cut spending,” increasing the need for creative solutions. Boxer said she supports levying a tax on oil refiners to pay for surface transportation projects, but the notion has received nominal support.

Rep. Earl Blumenauer (D-Ore.), meanwhile, is intent on raising the gas tax. Late last year, he introduced legislation (H.R. 3636) that would increase the gas tax by 15 cents a gallon over three years (ClimateWire, Dec. 6, 2013).

The bill has received support from a diverse set of groups, including AAA, the U.S. Chamber of Commerce, the AFL-CIO and others. But it has been less popular with Congress.

“This is something Congress needs to stop avoiding,” Blumenauer said at an event yesterday on Capitol Hill.

To keep the Highway Trust Fund solvent since the last increase in 1993, “we’ve been kicking over tin cans, looking behind seat cushions; we’ve transferred from the general fund; we have used some of the money with the Recovery Act,” he added. “Enough!”

More efficient cars mean lower revenues

But even bolstering the gas tax won’t solve America’s transportation funding woes in the long term. For that reason, Blumenauer recently introduced a second bill (H.R. 3638) that would extend Oregon’s pilot program testing a tax based on vehicle miles traveled (VMT) to other states.

Increased adoption of hybrid cars and electric vehicles (EVs), as well as more fuel-efficient conventional vehicles, is reducing gasoline use and eroding the gas tax’s ability to generate revenue. According to the Energy Information Administration, energy demand from the light-duty vehicle sector is expected to drop an average of 1 percent per year through 2040.

Stringent new fuel economy regulations implemented by the Obama administration are largely responsible for that projected decline.

“We’ve now instituted really ambitious fuel economy standards that are going to improve the efficiency of new vehicles on the market,” said Anup Bandivadekar, program director at the International Council on Clean Transportation. “So you see real projections of … demand for motor gasoline down pretty much steadily from here on for the next 20 years.”

“The least we could do today is raise the gas tax and index it to inflation,” he added — then, over time, “charge a fee to vehicles based on how much they drive.”