Tuesday, July 5, 2011

Ken Orski's Latest Analysis of the Impending Transportation Budget Bill, including High-Speed Rail

What's under discussion here by Ken Orski is the Transportation Re-Authorization Bill.  That means, it would authorize a spending ceiling for six years. For many specific items it will also prescribe annual amounts. 

Our concern, of course, is with what will be authorized for high-speed rail.  We know that the House, which is about to release their version of this bill, has little use for high-speed rail and they have made that clear many times.  

This is not a time for wishful thinking.  The House could eliminate all HSR funding, or it could ask for an amount only appropriate for supporting the privatization of the HSR effort on the Northeast Corridor (NEC), thereby taking it away from Amtrak.  That privatization step is proposed in separate legislation, which I expect to fail. Or, there could be a larger amount for HSR, based on the endless negotiations that have been taking place between the two Parties.  We'll find out soon enough, this week.

However, upon its public release, that bill is now only the House version as opposed top the Administration's version, briefly described in Orski's NewsBrief. There will doubtless be reconciliation meetings where both sides barter and trade for a final version that passes through both Houses of Congress to reach Obama's desk.

Let me put it this way.  For California, I have no hope of having the state high-speed rail project brought under responsible, adult control.  This rail authority is like a very bad spoiled brat for whom there are only very negligent, over-indulgent parents.

If there is any hope whatsoever, it must be in the termination of funding from the federal government under the premise that such grandiose projects have no place in this time of economic duress.  And that's what we'll be watching for.

One critical factor to watch for is how responsive this bill will be to the concept of "pay/go" meaning the House majority will insist on not spending money which doesn't already exist or for which there is no identified incoming source. Expenditures will have to be supported by a revenue source; and that excludes any new taxes.

Vol. 22, No. 18


July 5, 2011

Reflections on the Impending Congressional Transportation Actions

With the House Transportation and Infrastructure Committee about to release its six-year surface transportation reauthorization bill, reportedly later this week, it's not surprising that there has been plenty of speculation among Washington insiders about the Committee's impending action and its consequences.

 While no one we have talked to would volunteer the precise level of funding the House T&I Committee is going to propose (or the sum the Senate Finance Committee will eventually come up with), we have found broad agreement in the Washington transportation community  that both Houses will be obliged to propose significantly lower annual levels of funding than either the current (FY 2011) surface transportation budget  ($41 billion for highways, $11 billion for transit, $8 billion for passenger rail) or the Administration's proposed budget for FY 2012 ($70.5 billion for highways, $22.4 billion for transit, $8.3 billion for passenger rail). Despite President Obama's and certain Democratic senators' recent rhetoric about the need for a new fiscal stimulus "that will put people back to work rebuilding our critical infrastructure," Republican opposition and the prospect of adding to the deficit, have all but erased any possibility of increased transportation spending. 

The declared policy of House GOP leadership to limit future transportation budget authority to tax receipts deposited in the Highway Trust Fund has set some clear fiscal boundaries to  future legislation. Those receipts are expected to amount to $37 billion in FY 2011 according to the Congressional Budget Office (CBO)— $31.8 billion to be credited to the Highway Account and $5.1 billion to the Transit Account (testimony of Joseph Kile, Asst. Director of CBO, before the Senate Finance Committee, May 17, 2011). Projecting this flow of revenue into the future, the Highway Trust Fund could be expected to receive approximately $220-230 billion over the next six-year period, 2012-2017— assuming CBO's projection of a modest one percent annual growth in HTF revenue due to a rise in travel (but no increase in the rate of fuel taxation). 

While the Senate Finance Committee has yet to make its own decision as to the level of transportation funding,  the senators may be expected to come to the same conclusion as their colleagues in the House, namely that deficit financing of the transportation program is no longer politically feasible  and, consequently, that "government has to learn to live within its means." Sen. Orrin Hatch (R-Utah), ranking member of the Committee, said it in so many words at the May 17 hearing on transportation financing when he challenged "those who want to finance infrastructure projects in excess of our ability to pay for them."   

No doubt, limiting future budget authority to tax revenues flowing into the Highway Trust Fund will necessitate significant cuts in spending. A figure of 30 percent is commonly cited as the expected reduction in expenditures from the current level of spending. However, current expenditures have been inflated by a massive injection of stimulus funds from the American Recovery and Reinvestment Act of 2009— a total of $44 billion (including $27.5 billion for highways, $6.8 billion for transit and $8 billion for high-speed rail). The stimulus almost doubled the annual amount of funding available for transportation, making existing baseline comparisons misleading. A more accurate measure would be to compare the expected FY 2012 funding with pre-stimulus funding levels. In this comparison, the highway program would suffer a drop of 17% — from an average of $38.6 billion/year during SAFETEA-LU (FY 2005-2009) to an expected $32 billion/year in FY 2012.  Adding the uncommitted HTF funds remaining in the Highway Account at the end of Fiscal Year 2011  ($14.8 billion according to a CBO estimate) would enable the annual highway allocation to be raised to about $34 billion — a drop of only 12 percent from the SAFETEA-LU level. (SAFETEA-LU data obtained from www.fhwa.dot.gov/safetealu/safetea-lu_authorizations.pdf,  4/6/2006),

Such reductions, while not insignificant, would not be catastrophic. The cut in budget authority could be absorbed by consolidating and narrowing the scope of the federal-aid program. Its primary mission would need to be refocused on traditional core highway and transit programs and on keeping existing transportation assets in a state of good repair.  

Proposals for major infrastructure spending (through a proposed Infrastructure Bank) would  have to be deferred. Discretionary awards such as the TIGER and high-speed rail grants would  have to be severely cut or entirely eliminated. So would programs that are deemed of little national significance or that do not serve the national need — such as various "transportation enhancements," categorical set-asides (e.g. "Safe Routes to School" program), and vaguely defined "livability" projects that cater to narrow constituencies. Most of these Trust Fund "hitchikers," as Sen. James Inhofe (R-OK) calls them, would have to be handed off to state and local governments.

Will states and local governments be willing and able to pick up the slack? There is speculation that some will while others may not. Certain fiscally-strapped states might be obliged to drop non-essential transportation programs. However, many other states and localities might be willing to approve significant locally-funded transportation improvements if  their objectives are clearly identified and voters perceive them of true benefit. Indeed,  77 percent of local transportation ballot measures were approved in 2010 according to the Center for Transportation Excellence.

While the size of the impending transportation cuts may sound alarming when set against the current inflated spending levels distorted by the stimulus spike, many fiscal conservatives view the new austere fiscal environment as an opportunity to return the federal-aid program to its original roots. Greater spending discipline, they say, will refocus the federal mission on projects of national interests, concentrate resources on legitimate federal objectives, restore the highway program’s lost sense of purpose and give states and localities more voice and responsibility in managing their transportation future. With a more constrained funding level, certain otherwise hard-to-attain reforms such as greater emphasis on asset preservation, expanded use of highway pricing and tolling, innovative methods of project delivery and higher levels of  private investment, will become more compelling and politically more achievable.

What about major new infrastructure investments? Undoubtedly, they will be necessary in the longer run because of the need to replace aging facilities and accommodate future growth in population. But major capital expenditures can be---indeed, will have to be ---deferred until the recession has ended, the economy has started growing again and the federal budget deficit has been brought under control. At that more distant moment in time, perhaps toward the end of this decade, the nation might be able to resume investing in new infrastructure and embark on a new series of "bold endeavors" — major capital additions to the nation’s highways and rail systems. For now, prudence, good judgment and the compelling need to rein in the  deficit, dictate that government should live within its means. And that means spending no more than what is paid into the Trust Fund.

We shall soon find out if these speculations turn out to be correct.



The NewsBriefs can also be accessed at www.infrastructureUSA.org

A listing of all recent NewsBriefs can be found at www.innobriefs.com

Please feel free to forward or reprint this item with appropriate citation. All correspondence, including requests to subscribe and unsubscribe, should be addressed to: C. Kenneth Orski, Editor/Publisher;  email: korski@verizon.net; tel: 301.299.1996; fax: 301.299.4425. Please make sure that your email account is set up to accept incoming mail from korski@verizon.net 

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