Senate Passes Transportation Bill

Yesterday, the Senate passed a two-year $109 billion transportation bill by a 74-22 vote. Since 2009, when the last five-year transportation bill expired, Congress has used short-term extensions to dole out transportation funds. But there are pressing needs for Congress on surface transportation spending: the need to enact a new transportation bill before March 31, when current authorization for transportation funding expires and the need to put the Highway Trust Fund on a solvent path. 

The bill passed by the Senate yesterday would address the first issue, but unfortunately would not make the changes necessary to put the Highway Trust Fund on more solid footing where dedicated revenue levels are in line with spending.

Surface transportation spending is largely funded through the Highway Trust Fund, where the 18.4 cent federal gas tax is meant to cover spending levels. However, incoming revenues from the gas tax have been below actual spending levels. Ensuring that future spending is fully financed is important for controlling deficits and debt. As CRFB discussed last week, lawmakers have three options:

• Limit transportation spending levels to incoming revenues in the Highway Trust Fund
• Increase Highway Trust Fund revenues
• Transfer general revenues from the Treasury to the Highway Trust Fund to make up the gap

Ideally, lawmakers would go with one of the first two options. However, the Senate transportation bill falls short.

Senate Transportation Bill

As mentioned above, the Senate bill is a two-year $109 billion extension for transportation. The package essentially continues previous funding levels, but contains a few loophole-closers to close the Highway Trust Fund financing gap and also relies on a transfer from the Leaking Underground Storage Tank trust fund. These transfers (including the revenue-raisers, which come from general revenue) total about $10 billion.

CBO projects that the bill would reduce the deficit by about $7 billion over ten years, but it would do little for long-term Highway Trust Fund solvency (note that CBO's baseline assumes Highway Trust Fund insolvency). The bill would continue the trend of plugging the HTF with outside transfers, rather than doing one of the first two options mentioned above to bring spending and revenues in line. Even with the bill, the trust fund would be insolvent in 2014.

What Happens if Lawmakers Go Past March 31?

Both Wonkblog and POLITICO had informative articles in the past few weeks on the consequences of the looming end of the current surface transportation funding. Interestingly, breaching the deadline could actually cost the government more.

If March 31 rolls around with no bill, not only will transportation projects come to a grinding halt but the shut down may even cost the government more in disruption fees. Most of the 18.4 gas tax will expire and states will be unable to use money from the Highway Trust Fund. Given how tight state budgets are at the moment, most states would be forced to contract and lay off workers. In addition, construction companies have demobilization and mobilization fees for stopping and resuming work, adding to the cost. Finally, there is $50 billion in already-approved projects, which the government would have to pay for through general revenue.

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However lawmakers choose to fund transportation projects, it is important that they make the necessary changes to ensure Highway Trust Fund solvency. The options are clear, and as Sen. Bob Corker (R-TN) said in a recent op-ed:

"These alternatives will require the kind of tough choices many Americans make every day...For Congress to spend more than it is taking in is not rational and would demonstrate that neither party is ready to lead."