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Capitol Watch: Mind the (Highway Trust Fund) Gap

By Anna Denecke, Associate, Blakey & Agnew

The streamers and champagne have been put away and we're settling into the five-year tenure of the Fixing America's Surface Transportation (FAST) Act. The bill, which was signed into law on Dec. 4, 2015, includes modest increases in federal transportation spending. It also boasts several new programs, including a $4.5 billion, freight-specific discretionary grant program to support large-scale projects that stand to benefit regional or the national economy.

While passage of the FAST Act – the first long-term surface transportation bill in nearly a decade – is reason to celebrate, reality is setting in: if additional revenue is not identified and collected, the next surface transportation bill will be all the more difficult to enact. The law's policy and programs are paid for with proceeds from the Highway Trust Fund, a firewalled account supported by a federal excise tax on gasoline and diesel fuel. The 18.4 cent-per-gallon gasoline tax and the 24.4 cent-per-gallon diesel fuel tax haven't been raised since 1993. Meanwhile, inflation and better vehicle fuel economy have taken their toll, contributing to chronic insolvency of the Highway Trust Fund.

Rather than raise the gas tax, in recent years Congress repeatedly authorized transfers from the General Fund of the Treasury to the beleaguered transportation fund. In December, drafters of the FAST Act again declined to raise the gas tax, instead relying on a series of budgetary offsets to transfer enough from the General Fund to augment anticipated gas tax receipts and pay for the five-year bill. Baring the identification and collection of new revenues, by the next reauthorization round the Highway Trust Fund will be facing over $100 billion of a projected shortfall. To put that in perspective, the heavy political lifting this time resulted in a $70 billion General Fund transfer, or $30 billion short of what will be needed in 2020.

Adding to the transportation fiscal headache is the FAST Act's $7.5 billion rescission. Rescissions have become common in transportation bills because
they lower the overall cost of the legislation and improve a bill's Congressional Budget Office score. While it might be tempting to brush this rescission

off as far into the future and avoidable, the adjustment has an impact on state planning.

A rescission written into SAFETEA-LU law caused real dollar losses to state transportation departments. Most entities predicted that Congress would be able to reverse the 2009 rescission before it took effect, but ultimately, the Federal Highway Administration was unable to dole out an additional $8.7 billion in anticipated funds. Many states had already programmed these dollars for specific purposes and the rescission caused project delays and even cancellations.

The July 1, 2020 FAST Act rescission could cause damage to state transportation departments and the national economy. It could also hurt progress made by the five-year surface bill. The rescission has the effect of resetting baseline spending levels, meaning that programs that benefited from augmented spending in the FAST Act, as well as new programs such as the freight discretionary grant program, would face cuts or even elimination in future years.

In 2020, or even earlier should Congress choose to act, there's always the option for repeal of the rescission. That, combined with the ever-growing gap between Highway Trust Fund receipts compared to outlays, means future Congresses will face a wealth of transportation-related budgetary headaches. The hard-fought FAST Act could seem like a walk in the park by comparison. Alternatively, Congress could get to work now on identifying sound financial solutions to steady the shaky foundation on which surface transportation rests.

Blakey & Agnew, LLC is a public affairs and communications consulting firm based in
Washington, DC.