[Senate Hearing 114-276]
[From the U.S. Government Publishing Office]
S. Hrg. 114-276
DEAD END, NO TURN AROUND,
DANGER AHEAD: CHALLENGES
TO THE FUTURE OF HIGHWAY FUNDING
=======================================================================
HEARING
before the
COMMITTEE ON FINANCE
UNITED STATES SENATE
ONE HUNDRED FOURTEENTH CONGRESS
FIRST SESSION
__________
JUNE 18, 2015
__________
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Printed for the use of the Committee on Finance
______
U.S. GOVERNMENT PUBLISHING OFFICE
20-336-PDF WASHINGTON : 2016
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COMMITTEE ON FINANCE
ORRIN G. HATCH, Utah, Chairman
CHUCK GRASSLEY, Iowa RON WYDEN, Oregon
MIKE CRAPO, Idaho CHARLES E. SCHUMER, New York
PAT ROBERTS, Kansas DEBBIE STABENOW, Michigan
MICHAEL B. ENZI, Wyoming MARIA CANTWELL, Washington
JOHN CORNYN, Texas BILL NELSON, Florida
JOHN THUNE, South Dakota ROBERT MENENDEZ, New Jersey
RICHARD BURR, North Carolina THOMAS R. CARPER, Delaware
JOHNNY ISAKSON, Georgia BENJAMIN L. CARDIN, Maryland
ROB PORTMAN, Ohio SHERROD BROWN, Ohio
PATRICK J. TOOMEY, Pennsylvania MICHAEL F. BENNET, Colorado
DANIEL COATS, Indiana ROBERT P. CASEY, Jr., Pennsylvania
DEAN HELLER, Nevada MARK R. WARNER, Virginia
TIM SCOTT, South Carolina
Chris Campbell, Staff Director
Joshua Sheinkman, Democratic Staff Director
(ii)
C O N T E N T S
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OPENING STATEMENTS
Page
Hatch, Hon. Orrin G., a U.S. Senator from Utah, chairman,
Committee on Finance........................................... 1
Wyden, Hon. Ron, a U.S. Senator from Oregon...................... 4
WITNESSES
Kile, Joseph, Ph.D., Assistant Director for Microeconomic
Studies, Congressional Budget Office, Washington, DC........... 6
LaHood, Hon. Ray, senior policy adviser, DLA Piper, Washington,
DC............................................................. 7
Moore, Stephen, visiting fellow in economics, The Heritage
Foundation, Washington, DC..................................... 9
ALPHABETICAL LISTING AND APPENDIX MATERIAL
Hatch, Hon. Orrin G.:
Opening statement............................................ 1
Prepared statement........................................... 39
Letter to Hon. Max Baucus from Senator Hatch et al., December
2, 2011.................................................... 41
``Democrats Steer Towards Highway Funding Cliff,'' by Burgess
Everett and Heather Caygle, Politico, June 3, 2015......... 43
``The Road to Sustainable Highway Spending,'' Committee for a
Responsible Federal Budget, May 13, 2015................... 45
Kile, Joseph, Ph.D.:
Testimony.................................................... 6
Prepared statement........................................... 53
Response to a question from Senator Hatch.................... 73
LaHood, Hon. Ray:
Testimony.................................................... 7
Prepared statement........................................... 74
Responses to questions from committee members................ 78
Moore, Stephen:
Testimony.................................................... 9
Prepared statement........................................... 79
Wyden, Hon. Ron:
Opening statement............................................ 4
Prepared statement........................................... 82
Communications
American Association of Port Authorities (AAPA).................. 85
American Association of State Highway and Transportation
Officials...................................................... 94
American Council of Engineering Companies (ACEC)................. 102
Associated General Contractors of America........................ 103
American Highway Users Alliance.................................. 109
American Public Transportation Association (APTA)................ 110
American Society of Civil Engineers (ASCE)....................... 114
California Transportation Commission............................. 118
Concrete Reinforcing Steel Institute (CRSI)...................... 120
Fry, Dean........................................................ 121
Great Lakes Metro Chambers Coalition............................. 124
Highway Materials Group.......................................... 126
Institute on Taxation and Economic Policy (ITEP)................. 128
Mileage-Based User Fee Alliance (MBUFA).......................... 131
National Association of Manufacturers............................ 132
National Automobile Dealers Association.......................... 133
National Conference of State Legislatures........................ 135
Orski, Kenneth................................................... 137
PeopleForBikes Business Network.................................. 141
The Real Estate Roundtable....................................... 142
Tire Industry Association........................................ 145
Transportation Equity Caucus..................................... 147
DEAD END, NO TURN AROUND,
DANGER AHEAD: CHALLENGES
TO THE FUTURE OF HIGHWAY FUNDING
----------
THURSDAY, JUNE 18, 2015
U.S. Senate,
Committee on Finance,
Washington, DC.
The hearing was convened, pursuant to notice, at 10:03
a.m., in room SD-215, Dirksen Senate Office Building, Hon.
Orrin G. Hatch (chairman of the committee) presiding.
Present: Senators Grassley, Crapo, Enzi, Thune, Isakson,
Toomey, Coats, Heller, Wyden, Schumer, Stabenow, Cantwell,
Nelson, Menendez, Carper, Cardin, Brown, Bennet, Casey, and
Warner.
Also present: Republican Staff: Chris Campbell, Staff
Director; Mark Prater, Deputy Staff Director and Chief Tax
Counsel; and Nicholas Wyatt, Tax and Nominations Professional
Staff Member. Democratic Staff: Ryan Abraham, Senior Tax
Counsel; Robert Andres, Research Assistant; and Jocelyn Moore,
Deputy Staff Director.
OPENING STATEMENT OF HON. ORRIN G. HATCH, A U.S. SENATOR FROM
UTAH, CHAIRMAN, COMMITTEE ON FINANCE
The Chairman. The committee will come to order. Before we
begin the hearing, I just want to take a moment to express my
sorrow for the horrific events that took place last night in
Charleston, SC. I am sure that those sentiments are shared by
everyone on the committee and everyone here. I have no words to
express that would adequately address the senseless violence
and loss of life. I simply ask that everyone join me in a
moment of silence so that we can offer our thoughts and prayers
to the victims and their loved ones.
[Moment of silence.]
The Chairman. Thank you.
Well, good morning, everyone. Today we will be discussing
the challenges Congress faces as we work to provide funding for
the Federal Highway Trust Fund. Right now, when it comes to
highways, we find ourselves caught in a familiar dilemma
between raising taxes or cutting back on the highway program.
As always, a long-term, bipartisan solution to this dilemma
will be difficult to achieve, and, some days, it almost seems
out of reach. However, in the past, this committee has
consistently stepped up to the plate to find ways to keep the
Highway Trust Fund solvent. I am confident that we can do so
again.
I want to make it clear at the outset that my goal as
chairman of this committee is to find a way to fund a long-term
infrastructure bill. Chairman Ryan over in the House said much
the same thing in yesterday's Ways and Means Committee hearing.
And, while some friends on the other side of the aisle have
suggested that it would be politically advantageous to force
votes on a series of very short-term extensions, virtually
everyone in Congress agrees that we need to get to the point
where we are no longer facing a highway cliff every few months.
We have all heard that the gold standard for a long-term
highway bill is 6 years. That is what everyone apparently wants
to see happen. Of course, according to CBO, a 6-year highway
bill that maintains the current spending baseline will cost
roughly $92 to $94 billion. You do not find that kind of money
by sifting through the cushions on your couch. It is going to
take hard work and real policy changes to get us anywhere near
that level of funding. And, once again, that is if we maintain
current spending levels. I know that some of my colleagues
believe we should raise the spending baseline at the same time,
which would put even more pressure on highway funding and
require us to find even more offsets to keep the trust fund
solvent.
Long story short, a 6-year highway bill is a great goal. I
am committed to working to get us as close to that goal as
possible.
Earlier this week, some of the leaders in the Senate
Democratic Caucus sent a letter to the Senate Majority Leader
spelling out a list of demands for enacting a long-term surface
transportation reauthorization bill. The letter purported to
dictate to Senate Republicans precisely when hearings should
occur in the various committees, when those committees should
hold their markups, and when the final bill should come to the
floor.
Of course, any specific proposals or ideas on how to fund a
long-term highway bill were noticeably absent from the letter.
Instead, we were treated to a discourse on how previous
Congresses had dealt with highway funding and how the current
Senate leadership is, in the eyes of some of the Senate
Democrats, falling short.
I do not want to spend too much time deconstructing this
letter, but I would like to point out a few simple facts. First
of all, neither party should point fingers and try to lay blame
when it comes to the now-common practice of passing short-term
highway extensions. Between the 110th and 113th Congresses,
when the Democrats controlled the Senate, we enacted 11 short-
term highway extensions. That does not include the 2012 MAP-21
legislation, which, according to the Senate Democrats' letter,
was the paragon for how Congress should consider and pass a
long-term extension of highway funding. Of course, MAP-21
extended highway funding for only 2 years, far short of the
goals that are being cited in Congress these days.
As I recall, during that same period, when Republicans were
in the minority, we did not turn the struggles over highway
funding into a political football. In fact, we approached these
negotiations in a spirit of cooperation as much as possible. We
came to the table with specific and concrete proposals that
included both revenue and spending options.
Now, I ask unanimous consent that a letter dated December
2, 2011, from Finance Committee Republicans to then-Chairman
Baucus be inserted in the record, and I will do that.
[The letter appears in the appendix on p. 41.]
The Chairman. This letter did not dictate a path forward to
Chairman Baucus. Instead, it spelled out in detail policy
proposals that Republicans could support to address an imminent
shortfall in highway funding. This was a constructive
contribution to the debate over legislation that eventually
became MAP-21, which was, once again, recently cited by our
friends on the other side of the aisle as important. MAP-21 was
the product of bipartisan work on the Finance Committee and was
evenly split between taxpayer-friendly revenue raisers and
spending reductions.
For example, it was Republicans who first advanced the idea
of transferring unobligated funds from the Leaking Underground
Storage Tank Trust to help pay for highways. Now, whatever one
may think of this particular pay-for, it has become a go-to
revenue source in recent highway bills, including the last two
highway bills enacted under the Democrat-controlled Senate.
And, by contrast, one of the very few specific highway funding
proposals I have seen from any of the signatories of this
week's letter is the so-called repatriation holiday, which,
according to the Joint Committee on Taxation, actually loses
nearly $120 billion over 10 years. In other words, it is not a
serious proposal to pay for a long-term highway bill.
Put simply, the rhetoric we are hearing from many of my
friends on the other side of the aisle--which was exemplified
by the letter they sent earlier this week--is not really
helpful. It is not constructive. It is, I suspect, intended to
have a political impact, not to actually lead to good policy.
Now, to this point, I will request that an article from the
June 3, 2015, edition of Politico be entered into the record.
[The article appears in the appendix on p. 43.]
The Chairman. This article, titled ``Democrats Steer
Towards Highway Funding Cliff,'' basically spells out the
political strategy being employed here and even quotes members
of the Senate Democratic leadership saying that they plan to
force frequent votes on highway funding to make the process as
politically difficult as possible.
Now, if we are going to address these challenges, we need
people to set aside the politics. We need people to do more
than just talk about a long-term highway bill. We need people
to bring actual ideas to the table and to come together to work
toward a real, lasting solution. I hope that is what we can
talk about during today's hearing. I hope we can have a
productive conversation about what solutions are out there,
which ones can work, and what ideas need to be put to bed. Once
again, my hope is that we can focus on solutions that can
actually work, that can actually be enacted into law to pay for
highways.
For example, while I know the idea has some support, I do
not think a massive increase in the gas tax could be enacted
into law. Of course, anyone who believes otherwise is free to
publicly correct me and to try to make their case. That is the
type of discussion I want to have here today--one that will
actually lead to solutions. To facilitate this discussion, we
have assembled a distinguished panel of witnesses who I think
will all bring a unique perspective to these issues. I look
forward to hearing from all of you at the table here on today's
panel.*
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* For more information, see also, ``Overview of Selected Tax
Provisions Relating to the Highway Trust Fund and Related Excise
Taxes,'' Joint Committee on Taxation staff report, June 16, 2015 (JCX-
93-15), https://www.jct.gov/publications.html?func=startdown&id=4791.
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With that, I will turn to Senator Wyden for his opening
statement.
[The prepared statement of Chairman Hatch appears in the
appendix.]
OPENING STATEMENT OF HON. RON WYDEN,
A U.S. SENATOR FROM OREGON
Senator Wyden. Thank you very much, Mr. Chairman.
Mr. Chairman and colleagues, America's transportation
arteries--our roads, our highways, our ports, our bridges, our
railways--give life to America's economy. Now those arteries
need major surgery, but instead the patient is bleeding out.
And short-term funding Band-Aids will not help without a solid
long-term plan in place to solve this challenge.
My belief is, you cannot have Big League economic growth
with Little League infrastructure. The way Congress has limped
from one short-term funding patch to the next more than 30
times unquestionably reflects a Little League strategy. The
stop-and-go approach without a viable long-term funding source
lowers America's sights in terms of what our transportation
system can do. It forces States and Federal agencies into
making little plans--barely keeping up with the potholes and
falling far behind on new railways, ports, and highways.
Oregonians are now driving across bridges that are
structurally deficient or functionally obsolete. They are
swerving around ruts on mountain passes that threaten to cause
dangerous accidents. And Oregonians sit in traffic jams,
burning through gas and wasting time, and these traffic jams,
not just in my State but across the country, are being seen in
places nobody could have even imagined a traffic jam even a few
years ago.
The infrastructure crisis hurts our businesses and
discourages investments in Oregon and across America. China
invests more than four times the amount our country does in
infrastructure. Europe invests twice as much as we do. The fact
is, the costs associated with transportation and infrastructure
are always a part of the calculus when a company is deciding
where to invest and who to hire.
A recent report from the American Society of Civil
Engineers said that the United States needs to invest $3.7
trillion in infrastructure by 2020--and $1.7 trillion in
transportation infrastructure alone--just to reach what they
have termed ``good condition.'' Another series of short-term
patches is not going to meet the bar. In the meantime, the same
report found that Oregonians spend more than $650 million a
year on auto repairs and other costs because our highways and
roads are crumbling.
It is my view that funding a transportation network is
right up there with maintaining a fair judicial system and a
strong national defense among the most basic and necessary
functions of government. There is a bipartisan understanding
that our transportation system needs major investments, and you
hear this from members of both parties. So Congress and this
committee have a responsibility to now find a pathway that
leads to long-term funding sources, and I hope today's hearing
reinforces the enormous need to accomplish this goal and help
us move closer to a solution.
Next week, the committee is going to continue its
consideration of this crucial topic of how to get private-
sector dollars off the sidelines and into funding American
infrastructure. Several weeks ago, Senator Hoeven and I
introduced a bipartisan proposal, the Move America Act, to
kick-start the use of effective financing tools to solve this
crisis. The Move America Act would unlock $200 billion of
private-sector investment and could be a big part of getting
America's infrastructure back up to the big leagues.
So I say to our witnesses, our guests, and our colleagues,
today we are going to focus on funding transportation. In a
week, a week from today, we will focus on financing approaches
to pay for infrastructure. Both of them are extremely
important. I look forward to our witnesses. It is always good
to see Ray LaHood here. He has distinguished himself by always
trying to bring people together with particularly innovative
thinking on transportation. So I welcome all of our guests, and
I have had a chance to talk with several of them. I usually
talk with Mr. Moore about something like tax reform, but we are
happy to have all of you here today, and thank you, Mr.
Chairman.
The Chairman. Well, thank you, Senator.
[The prepared statement of Senator Wyden appears in the
appendix.]
The Chairman. Today we have an excellent group of
witnesses, people whom all of us respect.
Our first witness will be Dr. Joseph Kile, Assistant
Director of Microeconomic Studies at the Congressional Budget
Office. Dr. Kile came to CBO in 2005 following 16 years at the
Government Accountability Office. And while at GAO, Dr. Kile
led the Center for Economics within the Applied Research and
Methods team. Before that, he was a Senior Economist and
Assistant Director within GAO's Office of the Chief Economist.
His analyses focused in particular on the issues of
transportation, energy, natural resources and the environment,
and the pharmaceutical industry. He has both a master's degree
and a doctorate from the University of Wisconsin, Madison, and
a bachelor's degree from St. Olaf College.
We are really happy to welcome you here today, Doctor, and
we look forward to hearing your testimony.
Our second witness is a man we all respect and have a great
deal of love and respect for: Secretary Ray LaHood. He served
as Secretary of Transportation for the Obama administration
from 2009 to 2013. Before heading the U.S. Department of
Transportation, Secretary LaHood served from 1995 to 2009 in
the U.S. House of Representatives, representing the 18th
Congressional District of Illinois. Today he is here as a co-
chair of Building America's Future, a bipartisan coalition of
elected officials working to advance infrastructure investment.
Secretary LaHood has a bachelor's degree from Bradley
University.
And last, we are going to hear from the wonderful
economist, Stephen Moore. From 2005 to 2014, Mr. Moore served
as the senior economics writer for the Wall Street Journal
editorial page and as a member of the Journal's editorial
board, and he continues to be a regular contributor at the Wall
Street Journal and other media outlets like Fox News, CNN, and
CNBC. Before that, he served as founder and president of the
Club for Growth and served as Grover M. Hermann Fellow in
Budgetary Affairs at the Heritage Foundation. Mr. Moore has a
bachelor's degree from the University of Illinois at Urbana-
Champaign and a master's degree from George Mason University.
I want to personally thank all three of you for making time
in your busy schedules to be with us today, and we will have
you proceed, Dr. Kile, and then go right down the line.
STATEMENT OF JOSEPH KILE, Ph.D., ASSISTANT DIRECTOR FOR
MICROECONOMIC STUDIES, CONGRESSIONAL BUDGET OFFICE, WASHINGTON,
DC
Dr. Kile. Thank you, Chairman Hatch, Senator Wyden, and
members of the committee. I appreciate the very warm welcome
and the opportunity to testify today about the status of the
Highway Trust Fund and about options for paying for highways.
Let me first turn to the trust fund. In 2014, the Federal
Government and State and local governments spent about $165
billion to build, operate, and maintain highways. Those same
governments spent another $65 billion on mass transit systems.
About three-quarters of that total came from State and local
governments; the other one-quarter came from the Federal
Government, and most of that was through the Highway Trust
Fund.
For decades, the trust fund's balances were stable or
growing. However, more recently, the amount of money collected
from taxes on gasoline, diesel fuel, and other transportation-
related activities has been less than spending. To address that
shortfall, lawmakers have transferred $65 billion from the
general fund of the Treasury to the trust fund since 2008.
The Highway Trust Fund's current sources of revenue cannot
support spending at the current rate. By the end of this fiscal
year, CBO estimates that the balance in the highway account
will be about $2 billion, and the balance in the transit
account will be about $1 billion. Because of those declining
balances, the Department of Transportation would probably need
to delay payments to States before the end of the current
fiscal year, and, beyond that, the shortfall in the trust fund
would steadily accumulate in the future.
Turning to options to pay for highways and transit,
lawmakers have three broad options. One option would be to
reduce Federal spending on highways and transit projects. If
lawmakers choose to eliminate the shortfall entirely by cutting
spending, all of the money credited to the fund next year would
be needed for obligations that were made this year and in
previous years. Beyond that, the authority to make new
obligations from the highway account would decrease by about
one-third over the next decade, and the authority to make new
obligations from the transit account would decline by about
two-thirds compared with CBO's baseline.
A second broad option would be to increase revenues
credited to the trust fund, and that could be done in several
ways. For instance, one way to increase revenue would be to
raise existing taxes on gasoline and diesel fuel. JCT has
estimated that a 1-cent increase in those taxes would raise
about $1.7 billion next year, but that amount would decline to
about $1.5 billion by 2025. Increasing those taxes by roughly
10 cents per gallon would eliminate the projected shortfall
over the next decade. Another way to increase revenues would be
to impose new taxes on using the highway system, such as one
based on vehicle miles traveled. Still another way to increase
revenues would be to impose taxes on activities that are
unrelated to transportation.
A third broad option for addressing the shortfall would be
to continue to transfer money from the general fund to the
trust fund. Unless spending were cut or revenues were
increased, that would require a transfer of about $3 billion
before the end of this fiscal year. After that, the amounts
needed each year would start at $11 billion next year and grow
to $22 billion by 2025.
In addition to those approaches to paying for highways, the
shortfall in the trust fund has generated interest in borrowing
by State and local governments and by private companies. The
Federal Government encourages such borrowing through tax
preferences, loans, and loan guarantees that provide a subsidy
for financing highway projects. Through those channels, the
Federal Government bears some of the costs of such financing.
Despite prominent examples, the experience with private
financing in the United States is fairly limited. In
particular, highway projects that have used private financing
have accounted for less than 1 percent of all spending for
highways over the last 25 years. Some of those projects have
failed financially because the revenues for the projects were
overestimated. Perhaps because of that experience, projects
that are now under construction rely less on tolls as a revenue
source. More commonly, private partners are compensated from a
State's general fund. That reduces the risk to the private
partner that it will not be repaid, but as a result, the risk
of lower-than-expected revenues remains with the public sector.
Finally, borrowing is only a mechanism for making future
tax revenues or user fees available to pay for transportation
projects today. It is not a new source of revenues. In the
future, money used to repay borrowed funds will be unavailable
for new transportation projects or other government priorities.
Again, Chairman Hatch, Senator Wyden, thank you for the
invitation, and I would be delighted to answer any questions
you might have.
[The prepared statement of Dr. Kile appears in the
appendix.]
The Chairman. Thank you.
Now, Mr. LaHood?
STATEMENT OF HON. RAY LaHOOD, SENIOR POLICY ADVISER, DLA PIPER,
WASHINGTON, DC
Mr. LaHood. Mr. Chairman, thank you, and thank you for your
leadership in holding this hearing and inviting people like
myself and others who have been speaking out on the crisis that
we have in America, which every member of this committee and
really every member of Congress knows about, because all of you
come from States and cities that have crumbling roads and
bridges that are in a very bad state of repair, the worst that
we have seen ever in America. I have described our country as
``one big pothole.''
I come from Illinois. We have had some brutal winters, and
those of you who come from States that have had brutal winters
know that our roads are crumbling and our bridges are in a
very, very bad state of repair. Fifty-year-old transit systems
need replacement of cars and infrastructure.
The other part of the crisis is not just in infrastructure
but in funding. How are we going to pay for all the things that
America needs? And in coming up with proposals, I am certainly
one who has been very open-minded about the idea that you need
a variety of ways to pay for infrastructure, just like we have
done for years in America. America used to be number one in
infrastructure. We are the country that built the Golden Gate
Bridge, the Hoover Dam, the Erie Canal, and the Interstate
System.
Those days are gone. When can any of you remember, except
for maybe Senator Bennet, the last time we built an airport?
The last time we built an airport in America was when the
Denver airport was built. Now, there have been some
modernizations but--and all of you have traveled around the
world, and what has happened around the world? Every time you
go to China, you see a new road, a new bridge, a new airport, a
new high-speed rail. And what does that do? That attracts
economic development. It attracts companies that need the
infrastructure to be able to locate their businesses there.
When you build infrastructure, you build economic
opportunities for cities and States all along the corridors,
whether it is a rail corridor, a roadway, a bridge. And we have
come to a crisis in our country because we have run out of
money. The Highway Trust Fund is broke. Our transportation
system is broke. And America is looking to Congress for
leadership, the same kind of leadership that they are finding
in cities and in States. The cities are the incubators for
innovative, creative approaches to transportation. The Mayors
are the innovators. The States where you have Governors who are
willing to go to their legislatures and ask for increases in
revenues, particularly in the gas tax, are making huge amounts
of opportunities to put friends and neighbors to work.
Look, the revenue that comes in from the gas tax goes back
to the States. It helps hire friends and neighbors. When people
see the orange cones, what do they see? They see their friends
and neighbors building roads and building economic
opportunities. That money does not stay here in Washington. It
goes back to Governors and State DOTs and Mayors.
So what I am suggesting is, we should look for many
options, but, if you want to create an opportunity to rebuild
America, we need a big pot of money--the same big pot of money
that built America over the last 50 years--and that is the
Highway Trust Fund. We have to come to grips with the idea that
we have to raise the gas tax. It has not been raised in 20
years. None of you can think of anything that has not been
raised in 20 years. Think of the cost of a stamp, the cost of
an automobile, the cost of a gallon of milk, the cost of a
dozen eggs. Everything has gone up--except the gas tax, except
the pot of money that funds our infrastructure.
So I am for tolling. We did a bunch of tolling projects,
some in Virginia, some in other States, while I was DOT
Secretary. I am for public-private partnerships. The Silver
Line, which will connect downtown Washington with Dulles
Airport, is a great example of a public-private partnership. We
helped fund that, with the help of Senator Warner and others.
The Tappan Zee Bridge in New York is a great public-private
partnership, funded through the Transportation Infrastructure
Finance and Innovation Act loan program. I am for all of that.
But if you want to get back to rebuilding America, you have to
have a big pot of money. And the Highway Trust Fund is broke.
Come to grips with it. Fourteen States, including yours, Mr.
Chairman, which--I do not need to tell you this--is a very
conservative State, all Republican, Senator Enzi's State, a
very conservative State, they raised the gas tax. They did it,
with all Republicans in conservative States.
Wyoming, Virginia, New Hampshire, Maryland, Pennsylvania,
Vermont, Massachusetts, Rhode Island, Georgia, Iowa, Idaho,
Nebraska, South Dakota, and Utah all have raised the gas tax.
Why? Because they are getting no activity, no action here in
Washington. And they need the money to fix up their
infrastructure.
So what I say to people in Washington--and I was an elected
official. I served in the House for 14 years. Do not be afraid
to raise the gas tax. Make it a part of the funding formula. Do
not just discount it. It is the big pot of money that will get
us back in the game again. It will get us back to being number
one in infrastructure and being able to attract businesses to
our communities.
Thank you, Mr. Chairman. I am sorry to get a little
overreactive here, but I just feel so strongly about this, and
I look forward to your questions.
The Chairman. Well, we allow for that. This is the
committee where everybody gets overreactive from time to time,
on both sides. So we are happy to have you here and happy to
listen to you.
[The prepared statement of Mr. LaHood appears in the
appendix.]
The Chairman. Mr. Moore, we are looking forward to your
testimony too.
STATEMENT OF STEPHEN MOORE, VISITING FELLOW IN ECONOMICS, THE
HERITAGE FOUNDATION, WASHINGTON, DC
Mr. Moore. Thank you, Mr. Chairman. I was heartened by your
comment about tax reform. I have believed for a long time that
if we could just lock the two of you in a room for about 2 or 3
hours, I mean, seriously, you could come up with a tax plan
that would be so much more pro-growth and productive for our
economy than what we have right now. And, by the way, that is
relevant to this discussion. I believe if we had the right kind
of tax system, we could add 1 percentage point of GDP.
The Chairman. Well, you are absolutely right. We could do
that. Too bad we have 98 others to deal with.
Mr. Moore. So why is it not happening? It could be one of
the great bipartisan reforms that we have seen in 30 years.
I am pro-roads. I agree with you: we need more roads in
this country. But I am firmly against raising the gas tax at
the Federal level to pay for it. So ``yes'' to more
infrastructure, but ``no'' to a Federal tax increase. And one
of the reasons for that is simply that it is not fair to the
middle class. If you look at who gets hit hardest by a gas tax
increase, there is no question that the middle class is the
group that gets hammered by this. So I did some statistics. For
every 1-penny increase in the Federal gasoline tax, you are
going to pull about $1.5 billion out of the hands and
pocketbooks of middle-class workers, and everyone in this room
knows that the middle class is financially strained right now.
If you were to raise the gas tax by, say, 10 cents a gallon,
you are talking about taking $15 billion out of the pockets of
people who need that money. And I think it is an unfair way to
finance this situation. By the way, it would be a negative
stimulus to the economy to raise the Federal gas tax at this
time.
Now, Federal funding peaked, as the Congressman said, in
the late 1980s, but there is a reason for that, and that is, we
have built a 42,000-mile interstate highway system, one of the
great Federal achievements of all time, but the Federal
interstate highway system is built; it is done. It is like
saying, you know, we should continue to spend money on the
Apollo system to send someone to the Moon. We did it. No one
talks about continuing to fund NASA for something that has
happened.
What I believe we ought to do as a strategy going forward
is allow the States to do exactly what Mr. LaHood said. If they
want to finance their local and State road projects and
infrastructure projects, they ought to do it. And one of the
ways you can facilitate that happening, by the way, is not only
not raising the Federal gasoline tax but talking about
judiciously lowering the Federal gas tax and allowing the
States to fund these projects.
Now, why is that a better system? Because we believe in
federalism. Because we believe that the people in the State of
Oregon and the people in the State of Utah can make much, much,
much better decisions about what road projects and bridge
projects should be funded in Oregon and Utah than people here
in Washington, DC. It is that simple.
By the way, there is a second reason for this. We believe,
I think we all believe, that a fundamental principle of a good
transportation project is that the user pays. The person who
benefits from the project pays for it. And, when you make it
more locally and State-financed, you move closer to that kind
of funding system.
Now, what could we do at the Federal level to make these
dollars that come in through the Federal system--which is close
to $40 billion a year--stretch further? And I would argue that
a couple of things need to be done.
One is, I believe that it is high time we stop stealing
money from motorists, people who drive their car to work in the
morning like I do, taking my Federal gasoline tax money and
using it to fund transit projects that I do not use. People who
use the highways should pay a gas tax for the roads. People who
use transit systems should pay fares or other kinds of charges
for that. Right now you are diverting, I think--I may not be
exactly right about this--about 15 percent of Federal gasoline
tax money for transit projects that people who use the roads do
not use. And we have a great example of that here in the State
of Virginia, where people like myself are going to have to pay
for the Silver Line system, which, I am sorry, Congressman, I
think is one of the biggest wastes of money in history, and I
do use the toll road, and our tolls are going to go up, up, up,
up, up to pay for a Silver Line system that very few people are
going to use.
Second of all, let us take a very serious look at repealing
the Davis-Bacon law. This is a law that was passed 60 years ago
specifically to keep minorities off of Federal road projects.
It is discriminatory in effect, and it was discriminatory in
its intention, and it is high time we repeal this law. And, if
we do that, for every four bridges and roads that you build
across the country, you get a fifth one for free. You get a
fifth one for free. So, if we want to solve the infrastructure
problem, let us do that.
One other thing that I will bring up for you all to
consider is that, you know, we have this whole discussion about
how to finance roads, and no one is talking about efficiency
and productivity gains, and how do we make sure we are getting
the most roads and the most transportation projects for the
money that is going to Washington? Now, the reason this is
important is, my friend Art Laffer and I did a book that came
out about a year ago where we looked at what States are
spending on highway projects, and it is amazing. I just want to
give you a statistic about the difference between two States--
Texas and California.
California spends about $250,000 per mile of road
projects--$250,000. Texas spends $100,000 per mile of roads.
What explains the difference there? The explanation is, Texas
is much, much, much more efficient in the way it spends its
money. There are ways we can rebuild our infrastructure in a
much more efficient way and a much more productive way without
sucking more money out of the pockets of taxpayers.
Thank you.
[The prepared statement of Mr. Moore appears in the
appendix.]
The Chairman. Thanks to all three of you. We appreciate
your being here and appreciate listening to you.
Secretary LaHood, the bipartisan deficit reduction think
tank, the Committee for a Responsible Federal Budget, or CRFB,
on May 13, 2015, issued a pamphlet entitled, ``The Road to
Sustainable Highway Spending.'' Now, the pamphlet provides a
menu of trust fund solvency options, big, medium, and small,
drawing on revenue raisers and spending cuts. I ask unanimous
consent to insert a copy of the pamphlet in the record, and I
will.
[The pamphlet appears in the appendix on p. 45.]
The Chairman. I am assuming you are familiar with that
particular pamphlet.
Mr. LaHood. Yes, sir.
The Chairman. Okay. Now, Mr. Secretary, it is clear from
your testimony and that of Mr. Moore that the two of you do not
agree on a gas tax increase. Your testimony is clear that you
do not believe we should reduce current trust fund spending to
line up with current trust fund receipts. I am going to ask you
whether we should look to proposals that score as outlay
reductions to offset the deficit impact of a general fund
transfer.
Now, here is one of the many examples from CRFB's report.
The proposal is to ``allow for drilling in ANWR and the Outer
Continental Shelf.'' Now that proposal, which is divisible
between ANWR and OCS pieces, CRFB scores at $5 billion in
savings--as $1.5 billion in savings from the OCS piece, and the
ANWR piece scores at roughly $2.5 billion. Now, CRFB indicates
adopting both pieces would mean 4 months of solvency.
Now, Mr. Secretary, if it is not politically feasible to
raise the gas tax, would you agree that policymakers should
consider spending reduction proposals like the ones listed by
the bipartisan think tank as part of an interim or long-term
resolution of the Highway Trust Fund deficit?
Mr. LaHood. Senator, I think that almost every member of
this committee has a good deal of experience--or they would not
be here--in terms of budgeting and finances. I think you have
to look at all alternatives. I do not think anything should be
off the table. I really do not. I am sorry, and I am
disappointed that some people have taken raising the gas tax
off the table. I do not think it should be taken off the table,
just as I do not think this proposal should be. We have to find
new ways, creative ways, to fund our roads and bridges. This is
an example of it. I think it should be on the table.
The Chairman. All right. I appreciate that.
Now, Mr. Moore, as a gas tax opponent, I am going to ask
you the flip side of the question I just asked Secretary
LaHood. If Secretary LaHood's view that restricting current
spending to current highway receipts is not politically
possible is valid, would you agree that policymakers should
consider compliance revenue-raising proposals like the ones
listed by the bipartisan think tank as part of an interim or
long-term resolution of the Highway Trust Fund deficit? And let
me just provide one example from the bipartisan CRFB report.
The proposal is to ``increase mortgage reporting.'' That--
--
Mr. Moore. I am sorry. Increase what?
The Chairman. ``Increase mortgage reporting.'' That
proposal would yield $2 billion, which would mean 2 months of
trust fund solvency. What do you think?
Mr. Moore. I cannot speak to that proposal. I have not
really thought about it. But let me simply say this. On your
question to Secretary LaHood, this is a huge pot of money that
we are talking about, and it is not just drilling in ANWR, sir.
We could be drilling all over this country, and we have been
doing some analysis of this at Heritage. I mean, the Federal
Government, if we drill everywhere, you know--and I am not
talking about Yosemite and Yellowstone, but on Federal lands
that are not environmentally sensitive--over the next 20 years
we could raise somewhere in the neighborhood of $2 to $3
trillion--$2 to $3 trillion--in Federal money that would come
in through royalty payments and other fees that we could charge
these energy companies. Now, my God, that is gigantic. I mean,
we could use a huge percentage of that to reduce our national
debt. We could use some of that money to build the kind of
infrastructure that the Secretary is talking about. So we have
a gigantic opportunity here.
And I forgot to mention one other quick thing. You know, we
keep hearing all of this talk in Washington about how we need
infrastructure. We need infrastructure. We need to spend more
on infrastructure. There is one area that we need
infrastructure desperately on, even more than we need roads.
What we need in this country is an interstate system of
pipelines so we can get the natural gas resources and the oil
resources that are so abundant in this country. I mean, the
shale oil and gas revolution is big, and we are just hitting
the beginning stages of it. We have to build pipelines all over
this country so we can get it to the market and we can sell it
abroad. And I bring that up because--I mean, we have an
infrastructure project that would create 15,000 jobs, that
would be free. It would not cost the Federal taxpayer one
penny, and it would be good for our national security and our
energy policy, and that is the Keystone Pipeline. And that is
just one of these--you know, there are about 20 major pipelines
that are being held up at the Federal level.
Yes, we need more infrastructure. Let us start with the
easy ones that do not cost taxpayers a penny. Let us start with
Keystone.
The Chairman. Thank you. My time is up. Senator Wyden?
Senator Wyden. Thank you very much.
Secretary LaHood, let me start with a proposal that has
been advanced in the Senate and has elicited a fair amount of
discussion in the transportation area called ``devolution.''
This is a proposal, Secretary LaHood, that would not only
eliminate the Federal highway program, but would also
significantly reduce funds for the States. And I do not know
how they would proceed, but I assume they would just raise
their taxes. What do you think of this? It has been introduced
in----
Mr. LaHood. I think it is a very, very, very, very, very
bad idea. We would--look, if devolution had been in existence,
we would not have an interstate system, because if you look
back on the history of the interstate system, there were some
Governors, when President Eisenhower signed the interstate
bill, who said, ``There will never be a road through my
State.'' Fifty years later, we have an interstate system. Our
country is connected with the best road system in the world,
bar none. Devolution would never allow that to happen.
And, if we want to fix up our interstates--every one of you
has an interstate running through your State, and you all know
what they look like. They are crumbling. They need some Federal
resources to fix them up, and we owe it to the States, to the
Governors, to the communities to do that. That is what a
national program does. Devolution would destroy that kind of
opportunity.
Senator Wyden. Let me see if I can capture your philosophy,
which I think is very attractive on this point. What you are
saying is, this committee needs to get funding right. That is
our first assignment.
Mr. LaHood. Correct.
Senator Wyden. But you are also saying that we ought to be
looking at the whole toolbox, and finance ought to be part of
it. And because I have you here and I respect your views, let
me ask you: were you surprised that $188 billion worth of Build
America bonds were sold in less than a year and a half?
Mr. LaHood. Of course not. It is a great program, not just
because you were one of the authors of the legislation, but
because it worked. And that should be part of the solution. Put
that in the highway bill. That ought to be a part of it, ought
to be a part of the funding.
Senator Wyden. Good. A question for you, Dr. Kile, if I
might. On the question of budget issues, what I think people
really are interested in is, as it relates to the budget--and
this is in your bailiwick--what is your best analysis there
about the economic effects of public investment in
infrastructure? From the seat of my pants, I always say, if
there is a town hall meeting, that investing in infrastructure
is a big economic multiplier. You see it with people working.
You see it with people buying equipment. You know, restaurants
have to make sandwiches for the folks who are doing the work.
There is clothing, cleaning. It is a big economic multiplier.
But what is important is that we have really thoughtful
analysis like you all do in terms of the economic effects of
public investment in infrastructure, and I would just like to
wrap up with your thoughts on that topic.
Dr. Kile. Thank you, Senator. Yes, in the past we have
analyzed the work of the Federal Highway Administration and
concluded that, to maintain current levels of highway services,
spending would need to be raised from the current level. Also,
just yesterday, CBO issued its long-term budget outlook, and,
in that outlook, we talked about the importance of
infrastructure spending and how that contributes to economic
growth and how that is included in our models.
Senator Wyden. So, can you give us a little bit of the
highlights?
Dr. Kile. In the report that was issued yesterday, we
talked about the returns to Federal investment in
infrastructure spending being about half as productive as
similar investment spending by the private sector. But, of
course, there are things that the public sector will invest in
that the private sector might not choose to.
Senator Wyden. Okay. Thank you, Mr. Chairman.
The Chairman. Senator Grassley?
Senator Grassley. Mr. Chairman, instead of asking
questions, I prefer to use my time just to make a short
statement.
The Chairman. Okay.
Senator Grassley. Congress is once again faced with the
task of reauthorizing our Nation's surface and transportation
laws. The Finance Committee, as always, will play a vital role
in this process, as we have to make the important decisions
about the future of the Highway Trust Fund.
Transportation is essential to the economy, trade, and
vitality of all of our States. In Iowa, it is fundamental to
moving our agricultural products, manufactured goods, and
people. We do not have a lot of inner-city transportation
otherwise. Iowa also has a large number of trucking companies,
and truck traffic through our State is very high. Therefore,
Congress must be in pursuit of sound, sustainable highway
policies that provide certainty to businesses, States, and the
transportation community.
I am a former chairman of this committee, so I know how
hard it is for Senator Hatch and Senator Wyden to find a
consensus on both sides of the aisle and in both chambers on
this issue. However, I urge all those involved in these
negotiations to come to the table, including this Senator, to
give and take, including all three aspects--and most often we
talk about spending and the revenue side, but I follow along
what our witness Mr. Moore says. We also have a regulation side
of this that ought to be dealt with, and we ought to do the
negotiations to have a timely solution.
I am dedicated to continuing to work with the chairman and
my colleagues on both sides of the aisle to get this done.
However, it is also important that Congress hold up our end of
current law and keep the Highway Trust Fund funded in the short
term so that we can focus on the long-term policy and financing
solutions.
So, I would like to be very clear. Everyone wants to get a
long-term reauthorization bill. However, there are serious
discussions and negotiations that need to take place within
this committee on how to raise at least $90 billion if we are
to maintain current law. But, as I just indicated on
regulations, some of that $90 billion can surely be made up by
having less Federal Government dictation to the States on how
that Federal dollar can be spent.
Now, this $90 billion is not an insignificant amount of
money. A short-term extension should not be used as a pawn in
the political gamesmanship when States like Iowa are in the
middle of a construction season. The unrest that multiple stop-
gap measures create, as well as the uncertainty, causes havoc
for State Departments of Transportation. It is imperative that
there be some continuity throughout the rest of the year.
So I thank all the witnesses--even though I do not have
questions, that does not mean your testimony is not important--
and the chairman for having this hearing to highlight and
provide the facts of the current financing situation.
Thanks to all my colleagues and the witnesses for
listening.
The Chairman. Well, thank you, Senator.
Senator Thune is next.
Senator Thune. Thank you, Mr. Chairman.
I would like to just ask the panel what the impact is on
the economy--we talk about economic impacts of these various
alternatives that always get discussed. What is the impact on
the economy of borrowing, of additional debt? We already have a
very high debt-to-GDP ratio, whether you compute that using
just publicly held debt or total debt--historically high
levels. And, if you look at the 10-year outlook, according to
the CBO, it gets increasingly worse over time.
So if we were to, as you pointed out, Dr. Kile, borrow, as
we have, $65 billion since 2008--I mean, it is a general fund
transfer, but it is in effect debt, right? I mean we are
passing it on to the next generation. We are just borrowing the
money.
Dr. Kile. The general fund is paid for with a mix of
current revenue and borrowing, yes.
Senator Thune. Okay. So tell me, what is the economic
impact of just continuing to do what we are doing today, which
is add these things to the debt through general fund transfers?
Dr. Kile. The long-term effect of increased debt is
something that CBO has written about, and I am not terribly
familiar with that work. But as a general statement, it is
something that is not sustainable in the long term, and it will
impose an eventual drag on the economy.
Senator Thune. All right. Well, here is the thing. To me
there are really three options. You can spend at the current
level of receipts coming into the Highway Trust Fund, which
would represent about a 30-percent reduction over existing
commitments that we have in the Highway Trust Fund. You can
find savings, which we all ought to do, through reforms, and
look for ways to do things more efficiently. And I would love
to get rid of some of the things that we spend out of the
Highway Trust Fund today, for example, transit, but that was
tried a couple years ago in the Republican-controlled House,
and they could not pass it. There are certain things that are
just politically realistic, that are practical in light of
where we are, and I do not think reducing spending by 30
percent is one of those. I think people are going to want to
make sure that we are taking care of our infrastructure and
highways.
So you can spend at that lower level. You can figure out a
way to find the revenues to pay for the $92 to $94 billion that
we would need just to keep funding at the current level. Or you
can borrow it, which is what we have been doing. And to me,
that is unacceptable. We cannot just keep, as a matter of
practice, borrowing money from the general fund and handing the
bill to our children and grandchildren. If we are going to have
things in this country, we ought to pay for them.
Now, it gets very complicated, I know, on how to do that,
but our State of South Dakota has to balance its budget every
year. I mean, here in Washington, we do not labor under that
uncomfortable proposition. We can just borrow it and continue
to add it to the debt. But our State of South Dakota is one of
those that did this year raise the gas tax, and they did it
because they felt that they had obligations that they had to
meet. They were trying to plan for the future.
And so I guess I am sitting here left with, what do we have
in terms of alternatives, because nobody around here wants to
make the hard decisions, and politicians generally follow the
path of least resistance, and the path of least resistance, at
least in the recent years, has been to borrow it, because that
is the easiest thing to do. And that is just not right. We
cannot keep doing that.
So I guess, as I look at this issue and you all look at
this issue, we have had a user fee-based program for a lot of
years, and it seems to have worked pretty well, but it is
inadequate to the job today for what we have in terms of
demands. And so, if we could figure out a combination of
spending reforms, we ought to start there, figure out how we
can spend less, but--I guess I would just put it all out there
for you. Secretary LaHood, you have suggested an increase in
the gas tax. Mr. Moore says no gas tax. Dr. Kile, you have
talked about a vehicle-miles-traveled approach. But there has
to be a user fee-based way of making this work, and it has to
be a national system. I do not think you can back out and say
we are just going to devolve all this to the States. I mean,
certainly that does not work if you are going to have a
national transportation system.
So, as you look at all these options and all these
alternatives and you think of a vehicle-miles-traveled or some
sort of approach like that, what would you think about that,
Secretary LaHood? If you had some sort of different approach--
--
Mr. LaHood. I think that there is at least one State, the
State of Oregon, that has put that into a demonstration program
to see how it works. The demonstration is for 5,000 vehicles to
see how it works.
But, Senator, number one, this is truly a user fee. That is
why it does not cause that much irritation when you say to
taxpayers, ``We are going to raise the gas tax, which has not
been raised in 20 years, and we are going to give it back to
the States. We are going to give it back to Americans. We are
going to give the money to State DOTs and to Governors, who
then transfer it back to contractors and road builders and
bridge builders.'' And what do they do? They pay middle-income
people to reconstruct, to rebuild our interstates and our
bridges.
This money is invested in America. It does not stay here in
Washington. It does not go into some pot somewhere where nobody
ever sees it. It is reinvested in our friends and neighbors,
and reinvested in infrastructure. This infrastructure becomes
the economic engine that attracts businesses. The first thing a
business looks for when it goes to a State is, what kind of
roads do you have? What kind of sewers and water do you have?
How are my people going to get back and forth to work? And that
is why Texas is one of the fastest-growing States in the
country, because they have great infrastructure. That is why
China is attracting so much business, because every day they
are building a new road, a new bridge, a new high-speed rail.
When the national government invests in its people, it is a
winner.
The Chairman. Okay. Senator Cantwell?
Senator Cantwell. ``LaHood for President.'' [Laughter.]
I wish you would jump in the race of multiple people on the
other side of the aisle and express that, because I certainly
agree with you. And I am sorry I missed your testimony earlier,
but I wanted to ask you, Mr. Secretary, about the freight
activity that your administration led, when you were Secretary,
and how important is it that, if we move forward on
infrastructure financing, that freight and multimodal
investments be made so we can be competitive in how we move
products, given the infrastructure investments being made in
other parts of the world that are going to challenge our
delivery system?
Mr. LaHood. Well, first of all, Senator, thank you for your
leadership on freight. Freight really is multimodal. Obviously,
a couple years ago you really got that, tried to get it
included in the MAP-21 bill, and, for whatever reasons, money
reasons primarily, people around here thought it probably could
not get done.
But I think what you were able to do is get a commitment
from the leadership and from our administration to create a
Freight Council at DOT. You have put together, I think, a very
comprehensive program, and, because it is multimodal, it means
it includes all modes of transportation. Freight capacity is
the next generation of transportation. It is where the country
is going. And with the new channel opening at the Panama Canal,
we know we are going to have to--right now there are only two
ports in America that can handle the Panamax ships that are
going to be coming through. Now, that is a disgrace in our
country. With all the ports that we have, only two can accept
these Panamax ships?
But because of the kind of very comprehensive freight
policy that you have developed, what I encourage you to do,
Senator, is see if you can get your bill into the next
transportation bill. It needs to be there. If we are going to
take advantage of the Panama Canal adding a new channel and all
the multimodalism that goes with that, whether it is trucks or
rail or ports, we need a program. And we cannot use the excuse
that we cannot afford it. We cannot afford not to do it. That
is the answer, particularly with what is going on at the Panama
Canal. And every one of you who has a port needs to be thinking
about this. We need a multimodal, strong freight policy. It
ought to be included in the next transportation bill, and I
hope you will keep pushing for it and keep pushing Secretary
Foxx, my successor, to make it a part of the administration's
priorities.
Senator Cantwell. Well, I appreciate that, and ``Ports Are
Us'' when it comes to the Pacific Northwest. I guarantee you,
we get it, and we see incredible competition from Vancouver,
British Columbia, and other ports on the west coast all the
time. So if we lost that freight business, obviously it would
hurt our economy immensely.
But I think it was best said by one of our local providers
in Vancouver, WA. The second largest grain elevator in the
entire world is right there at Vancouver. And I said, ``Why is
the second largest grain elevator in the entire world right
here?'' And he said, ``Because the rising middle class in Asia
wants to eat beef, and we have to sell them grain.'' And that
says it all. There is a rising middle class around the globe.
The U.S. has a tremendous economic opportunity to ship product
to them, a new customer base, if you will. But if our
infrastructure chokeholds them and they can get product from
South America or someplace else easier, we are going to lose
critical business. And I already see, because we have this
complexity of moving so much oil product now and other
products, basically we are pushing good agricultural products
off the rails.
So we have to get an infrastructure solution here that
helps us move forward, so thank you for your leadership.
Mr. LaHood. Thank you.
The Chairman. Okay. Senator Coats?
Senator Coats. Thank you, Mr. Chairman.
Just to follow up on the presidential aspirations here,
since my colleagues said there might be some, we have all we
need on our side and more. [Laughter.] It appears that the
other side is looking for an alternative. You have served both
as a Republican Congressman but in a Democratic administration
as Secretary of Transportation. Without being too pun-ish here,
you could be the bridge that gets us on the road to the
presidency.
The Chairman. There you go. [Laughter.]
Mr. LaHood. Here is the bottom line for me. My oldest son
is running in a special election for Congress in the 18th
District. The last thing he wants is his father talking about
running for something.
Senator Coats. Okay. Mr. Chairman, thank you. I did not
mean to start with that, but there it is.
First of all, I want to thank you and the ranking member
for the selection of witnesses. I have sat through a lot of
boring hearings, but this one is really dynamic, because
everybody is speaking their mind straight out, giving us the
alternatives. They are passionate about it. It is a project
that has the reality to it that we need to get something done.
To me, it is a lot more than just finding the cost to pay for
the gap, but there really needs to be some policy changes here
if we are going to really address this larger program.
Now, economic growth was mentioned, and my colleague here,
Ron Wyden, left, but I know both the chairman and the ranking
member are intent on moving us to comprehensive tax reform.
That, combined with regulatory reform and some fiscal reform--
and by that, I mean finally getting to the point here with our
Federal revenues where we separate the essential from the,
``Yeah, we would like to do that, but we cannot afford it right
now,'' from the, ``Why are we doing that in the first place?''
That is how I kind of evaluate fiscal reform here, and,
clearly, infrastructure falls in the top line. And maybe we
could pay for this through fiscal reform combined with tax
reform and regulatory reform, but those are long-term issues
that we fight over, and we cannot seem to get there. But
economic growth can solve an awful lot of problems here,
whether it is medical research or whether it is paving roads
and building bridges and everything else in between.
The shift to the States--I would like your responses
relative to how much we could shift to the States. My State
tells me, the Department of Transportation tells me, that they
could save up to 25 percent if they had more flexibility
relative to what they now have to comply with at the Federal
level, giving them more flexibility on this. On MAP-21, I had
several amendments. They all went down in flames relative to
giving States more flexibility. But you have all mentioned
that; you have all talked about that. But how essential is it
that, as a policy reform, we give some flexibility and
devolution to the States in terms of how--I can go through all
the statistics, but I think that you know what they are. And if
we did that, what are the top priorities? Where would you
start? I had an amendment on separating mass transit, and that
was mentioned here. For building roads, you pay the gas tax to
build roads. For mass transit, you pay a tax because you jump
on the mass transit. And separating those two would make a big
difference.
But anyway, let's have the three of you give a quick
answer--my time is running out--to that question as to if we
did that, given the political realities, what would be the top
two or three things you think we could accomplish. Just go down
the line here.
Mr. Moore. Well, this is something I very strongly endorse.
I am not talking about total repeal of the Federal gas tax.
There is no question--I think Secretary LaHood and I agree that
there are certain elements of the Interstate Highway System
that are properly federally funded. And what I am saying is
that, when we are talking about funding of local roads and
local transit projects and local bridges and things like that
that are totally contained in one State, why in the world do we
want to have the Federal Government collect the money and tell
the States what they should build?
The one thing I find that I disagree with the Secretary on,
as he said, look, we are going to collect all this Federal
money from the gas tax, and we are going to give it back to the
States. Well, why? Why does the Federal Government have to be
in that role at all? Why not have the Federal Government fund
the portions of the road system that are truly interstate, and,
for local roads, let States build them and fund them
themselves? And you are exactly right, Senator, that you are
going to see efficiency gains, no question about it.
I mean, the biggest boondoggle, in my opinion, in the
history of the United States, the biggest, biggest waste of
money--you know, and that is saying a lot--is probably this
high-speed rail project in California, $70 billion. And there
is nobody who is going to ride this thing. You are talking
about a State that is completely virtually bankrupt with
pension problems, and they are going to spend $70 billion on a
high-speed rail system that nobody is going to ride.
Then you ask the question: why? Why would the people in
California build such an absurd project? And the answer is very
simple, Senator. The reason they are building this is that the
Federal Government, people in Wyoming, people in my home State
of Illinois, people in Florida, are going to fund this project.
And, if California had to fund it themselves, I guarantee you
this big white elephant project would never be funded. And that
kind of thing happens all the time in our transportation
sector.
What I would do--and this gets to what Senator Thune was
talking about. We have a massive debt problem. You are right
about this, Senator. We ought to take, you know, five areas--
transportation, education, health care, job training, labor--
and just create five giant block grants and just give those
Governors the money. They can save 20 percent right off the
top. And you know what? I will bet you, because I have talked
to the Governors, and I have asked them: if we said we would
give you the money with more flexibility, would you take 80
cents on the dollar? And almost all of them have said ``yes.''
The Chairman. Senator, your time is up.
Mr. LaHood. Senator, I just need to say one word about
high-speed rail. I think it is a little funny here that Mr.
Moore is suggesting that we ought to give more responsibility
to Governors. The reason that California wants high-speed rail
is because the Governor wanted it. A Republican Governor,
Governor Schwarzenegger, started that program. You cannot have
it both ways here, Mr. Moore. You cannot say, well, let us give
the Governors all this responsibility and give them the money
back, and then when they decide they want to use it on high-
speed rail, well, you do not like that idea, so it is a bad
idea.
Hey, it does not work that way. If you want the Governors
to have it, let them choose. What did Schwarzenegger choose?
What did Governor Brown choose? High-speed rail. Why? Because
you think they ought to have the responsibility to do it,
except when you do not like their idea.
Mr. Moore. No, but the reason they are building it is
because the Californians are not paying for it. People from all
of the other States are paying for it.
Mr. LaHood. The California Assembly has passed millions of
dollars of California taxpayer money to fund this project. That
is how it is getting funded.
Senator Coats. Like I said, Mr. Chairman, this is a great
hearing. [Laughter.]
The Chairman. Ray, I want you to keep your health here now.
[Laughter.] All of us get worked up on this issue.
Senator Menendez is next.
Senator Menendez. Thank you, Mr. Chairman.
Look, I would like to say that if I followed Mr. Moore's
thinking, Eisenhower would not have opened up a national
highway system; we would not have been at the point when we
were the envy of the world in infrastructure, in ports, in rail
connections to get people to work, to get product to market, to
get product shipped internationally. That is just not going to
be done by the private sector.
And I will tell you, as a person representing the highest
per capita income in the Nation, we send a lot of our money to
a lot of other places, including your State, Mr. Moore. So the
reality is, that is not a particularly compelling argument to
me.
Let me just say we have heard today a lot about the focus
on highway programs, which are important, but our Nation's
transit programs are equally, in my view, if not even more
critical to our mobility and economic competitiveness.
Now, there are some interesting assertions in today's
testimony, including a comment that transit should not be
funded by motorists who, by definition, do not use the trains,
subways, and buses. Well, let me make it clear. I am a motorist
who uses mass transit. And given the fact that, under a
conservative estimate, there are more than 860,000 park-and-
ride spaces at transit stations, I do not think I am the only
one.
In fact, 82 percent of U.S. transit riders live in a
household with a car, and, of the transit riders with access to
a car, 87 percent use the vehicle more than three times a week.
These people are all paying into the Highway Trust Fund, and
they all rely on more than roads just to get around.
A modern transportation system cannot be about highways
alone. We need a system with safe and efficient roads and rails
and transit lines and ports, and we need to think about it
holistically, with each mode of transportation working together
in concert to increase efficiency and synergism. And we have a
long way to go to get there. I saw the House debating about $1
billion for Amtrak versus $1.3 billion. China spent $121
billion in 1 year on their rail and transit systems, and their
economy is going pretty strong.
So I would like to ask--and before I do, I would like to
recognize somebody who I think is very prescient in today's
debate that we are having. It is a quote that says, ``Anyone
who has driven the family car lately knows what it is like to
hit a pothole: a frustration, an expense, a danger caused by
poor road maintenance. Our cities need new buses, new and
rebuilt rail cars, and track improvements. Common sense tells
us that it will cost a lot less to keep the system we have in
good repair than to let it disintegrate and have to start over
from scratch. Clearly, this program is an investment in
tomorrow that we must make today.''
Now, that quote did not come from some radical liberal or
even a moderate Democrat. It came from a Republican, and not
just any Republican: Ronald Reagan at the presidential signing
ceremony for the 1982 transportation bill, a bill that both
raised the gas tax and created the mass transit account of the
Federal Highway Trust Fund. So, despite the passage of time, we
find ourselves today facing many of the challenges that he
acknowledged nearly 3 decades ago. And I hope we can do it in a
bipartisan way.
Secretary LaHood, I would like you to get to two points, if
you can, in the time I have left. There is this myth that
transit is only used in urban, Democratic areas of the country.
You served as a Republican member of Congress--I was pleased to
serve with you--representing an area that included Peoria,
which has had a transit system for decades. Can you speak to
the importance of Federal investment in transit services for
communities of all sizes? And can you also speak to the fact
that your testimony notes that, in the three transportation
bills prior to MAP-21, Congress increased investment levels in
the range of 40 to 45 percent, but in MAP-21 we only did a
small increase to keep up with inflation? What are the real-
world impacts of the economic consequences of doing that?
Because I see that half of our entire Nation's GDP is generated
in 23 metropolitan areas, between the realities of rural
America and suburban America that very often need rail, and the
realities of so much GDP generated in these more metropolitan
areas, this is an economic imperative, isn't it?
Mr. LaHood. People who are middle-income people or
certainly people below middle income, people who are working
people, many of these folks cannot afford a car. They rely on
mass transit. They rely on buses, light rail--and mass transit
is their lifeline to their job, to their doctor's appointments,
to the grocery store. This is how they get around. And not just
in places like Chicago or New York or other big cities. In
places like Peoria, IL, where I still have a home, we have a
great mass transit system. It is all buses. But people rely on
it every day because it is cost-efficient. They do not have to
have a car, they do not have to pay insurance for a car, and,
frankly, they cannot afford it.
So, for all of the talk about how we are going to help
people raise their ability to have a good income and to live
the American dream, part of that is making sure that they have
the kind of transportation they need. A lot of people cannot
afford a car, and particularly people who are just coming out
of college, who are moving to cities like Chicago or
Washington, DC. They are going to rely on mass transit. They
are going to rely on buses or Metro systems or the CTA, or
whatever it is. And certainly in the State you come from,
Senator, I do not have to tell you how many people use mass
transit. Thousands. What happened during Sandy? Thousands of
people could not get to work. And how did they do it? Buses
were rented so they could get to work.
This is an important part of our transportation system. We
are not going to give up on it, and we should not--for the
people, not for us. We all own cars. But for the people, the
working people----
The Chairman. Senator, your time is up.
Senator Cardin, you are next.
Senator Cardin. Thank you, Mr. Chairman. I want to thank
our witnesses, and I want to thank you for holding this
hearing, because it is particularly important that we deal with
the 6-year reauthorization of the transportation program, and
it has to be done by the current deadline of the end of next
month. It is critically important. If we do not get it done
now, then we know we are going to be punting again, and it is
going to have an incredible impact on my State, on Utah, and
every State in this country.
The Chairman. If I could just interrupt, I will give you
some additional time. One of our problems, Mr. LaHood--and I
have great respect for you, as you know. One of our problems is
that we do not believe we can get a tax increase through, and
the House is not going to take it. They made it very clear to
us. And frankly, a lot of the Senators do not want to do it
that way either. So we are going to have to come up with a way
of solving this problem, hopefully to all of your satisfaction,
really in the next number of weeks, it seems to me.
Sorry to interrupt you. I will give you----
Senator Cardin. That is all right. I appreciate it, Mr.
Chairman, and we understand the political realities, and I am
going to talk a little bit about that, and hopefully have time
for some questions.
But I really want to underscore--I was out in western
Maryland on Saturday. Mr. LaHood, as you point out, on the
economic development, that north-south highway in western
Maryland is critically important to the economic future of the
western part of my State. If they do not complete the
Appalachian Highway, it is going to be very difficult to
attract the type of industry they need. So a 6-year
reauthorization is the only way they are going to accomplish
the completion of the Appalachian Highway.
Or I could go to the Eastern Shore of Maryland, where we
have 301, an incredibly important road with real safety issues
that have to be addressed. We cannot do it under just the State
funds or a short-term patch. You need to have a multi-year
commitment as a Federal partner in order to be able to move
forward in those programs.
I could talk about our two urban areas, Baltimore and
Washington. I was with Senator Warner yesterday as we got a
briefing from the FTA as to the safety issues on the Metro
system here, and they need to be held accountable. They must
make safety a priority. This is a 40-year-old system. It costs
money to replace cars to make them more safe. It costs money to
put in the communications systems they need. They need
resources. There is no question. They need accountability also.
We understand that. The expansion of the Metro system here, the
Purple Line, is critically important for the congestion, or the
Red Line in Baltimore--all the transit programs.
I commute back and forth from Baltimore. This region is the
second most congested region in the Nation outside of New York.
So if we cannot get a 6-year reauthorization, we are putting
our communities at risk. There is no question about it. I want
to start with the fact that there is no option but to pass a 6-
year reauthorization if we want to deal with the safety issues,
if we want to deal with the economic issues, if we want to deal
with the quality of life issues that we are confronting.
So let me deal with the chairman's comment. If we just hold
our own, it is going to cost about $100 billion. If we pass a
bill that represents the current needs--and you can use the
President's budget as a recommendation--then we are about $250
billion short. And we need to find the money to go into the
transportation system that provides the permanent way to deal
with it. And I must tell you, there have been many suggestions
made by my colleagues that I am prepared to support, but I am
mindful of what the chairman said, that we have to find a
common way to move this forward.
So, Mr. Chairman, let us look at some of the
recommendations that have been made by both Democrats and
Republicans. We have international tax reform that has been put
on the table. We know that our corporate tax rates are not
competitive, and we have money trapped overseas, and we have to
deal with how that money is going to be brought back to this
country.
The President has made a recommendation in this area that
will provide some permanent revenues as well as one-time-only
revenues. I want to make sure that we have enough permanent
revenues in the Transportation Trust Fund so that we can have a
6-year reauthorization without another cliff.
The Chairman. Well, as you know, that is going to have a
very rough time flying, especially with the Joint Tax report
that says really it will lose $120 billion over 10 years. So,
you know, we are going to go through every possible way of
funding this, and we have gone through that as well. And I
just--this is not an easy job, I am telling you. But we are
going to solve this problem.
Senator Cardin. And I agree with the chairman that it is
not an easy job. I would suggest that some of our colleagues
working across party lines, Democrats and Republicans, have
come up with recommendations that overcome some of the scoring
problems that have been raised.
I agree, bottom line, we have to find the revenue so that
we have a 6-year reauthorization that does not create another
cliff at the end of the 6 years. That is absolutely essential.
And I understand the chairman's concerns as to the political
realities here. If it were up to me, I am prepared to use some
pretty direct ways to get the money into the trust fund. I
think that is what we should do. But I want to make sure that
we accomplish, by the end of next month, a 6-year
reauthorization that not only allows us to maintain the Federal
partnership, but to meet the needs that are out there.
And I would just urge us to take a look at some of these
numbers that Joint Tax has come back with on the international
tax side. They are well beyond the revenues necessary to
accomplish these goals. The monies are there. And, by the way,
we unleash additional activity here in the United States. We
will not get credit for that in the scoring. I understand that.
But when we bring the money from foreign corporations back into
the United States, that is going to generate more economic
activity here, which is going to also produce more revenues for
this country.
So I think there are ways that we can work together,
Democrats and Republicans, to do it, but we must be committed
to this goal. We cannot let this July date go without a 6-year
reauthorization, and the level has to be adequate to deal with
the growing transportation needs in this country--enough
permanent revenues so we do not create a cliff and creative
uses of one-time-only revenues. And my colleague Senator Warner
has recommendations on how we can use one-time-only seed money
to supplement the transportation program.
That is the creative way that we can get Democrats and
Republicans together, but I would just urge all of us--and I
serve on the Environment and Public Works Committee, and we are
working in a bipartisan way for a 6-year reauthorization, and I
know the Banking Committee is also working on this area. We
cannot let next month go without accomplishing those goals. And
I understand the political realities. Let us, though, not lose
this opportunity, because if we do, you are putting the
citizens of Maryland at risk on the safety projects that are
not being done. You are putting the people of Maryland at risk
for the economic opportunities in western Maryland that will
not be done. And you are putting us at risk every time we spend
2 hours trying to go 2 miles in this region in order to be able
to get from our home to work. We can do better for the American
people.
The Chairman. Thank you, Senator. Let me just say this: I
am for a multiyear resolution here, whether it is 2, 3, 4, 5,
or 6. We are going to have to live with reality. But I am for
getting this done, and we will see what we can do.
Senator Warner, you are next.
Senator Warner. Thank you, Mr. Chairman. I have been
chomping at the bit.
First of all, I want to say, Secretary LaHood, when you
mentioned ports, you said only two ports in America are ready,
post-Panamax, one of them in Virginia.
Secondly, Mr. Moore, you and I have had lots of back and
forth over the years, Governor and Senator, but I do find--and
Senator Menendez has already raised this. You know, we might
have never built an Interstate Highway System because there was
massive wealth transfer from certain States to less populous
States over 40 years, and suddenly to say now that it is built
we are going to go to devolution, I think is not an appropriate
approach.
Number three, I very much appreciate what you are doing,
Mr. Chairman, and next week I know we are going to have a
financing issue. I simply want to indicate that we have, I
think, a very
business-focused financing vehicle that we reintroduced
yesterday called The BRIDGE Act. We have 11 original
cosponsors--5 Republicans, 6 Democrats. It would generate $300
billion-plus in financing. Financing is not a silver bullet,
but it has a business background, unlike some of the other
proposals that have been put forward. And I hope it gets
serious consideration because--let us bear in mind, vis-a-vis
our competition, China is putting together a $100-billion
infrastructure bank. The fact that we have in our government
right now an office in the United States Treasury that advises
American pension funds on how to invest in European and foreign
infrastructure, because there is no ability for American
pension funds to invest in a broad way in American
infrastructure, is ludicrous. And at record-low interest rates,
we, I think, do not take up that option at our peril.
I wish Senator Thune was still here, because I support
repatriation, but I do believe that we are going to have a hard
time saying to our domestic companies that we have just given
multinationals whatever blended rate, and they are still paying
35 percent. And where I have, Mr. Chairman, enormous, enormous
respect for you, I do not think we can start with the premise
that we cannot generate new revenues.
Senator Thune, I think, was open to this. Senator Thune
mentioned the fact that we are borrowing. We are having a
debate right now about, you know, the funny money around
Overseas Contingency Operations. If we had not had to transfer
$56 billion from the general fund into the Highway Trust Fund,
we would have a sufficient amount to plus-up on defense or on
the domestic side without such borrowing techniques. But
remember, this is robbing Peter to pay Paul in our current
approach.
I do think there are some ideas that a number of us, in a
bipartisan way, are looking at that maybe have not been in the
full debate yet that would look, Mr. Chairman, at revenues, but
in a way that would be phased in over a period of time, that
would not be disruptive to the economy or, frankly, disruptive
to any of us who have to run in 2016.
So again, I just ask you, because I know you are always, I
think, willing to take a broad-based look. Let us not take
things off the table before we start this discussion. We are
all willing to give some, but revenues--I have not met anyone,
echoing Secretary LaHood and all the folks involved in the
business side, who thinks that we can borrow our way one time
into fixing our infrastructure needs without an ongoing,
permanent revenue source.
And that will bring me to my question, and I am going to
actually go to Dr. Kile, since you seem to have been left out
of a lot of these questions. Your projections over the next 10
years, I think, are good and sobering, but the irony, of
course, here is that we have two policy constraints
contradicting each other. We have a gas tax, but we have
increasing fuel efficiency standards. Have you looked beyond
the 10-year window in terms of how much further the existing
revenue source of the gas tax decreases as fuel efficiency
continues to improve? And I support electric vehicles or
natural gas vehicles. But the fact is, as our fleet becomes
more distributed, what that completely does is further hollow
out the Highway Trust Fund.
Dr. Kile. Senator, we have a report on that that I do not
have on the tip of my tongue that I will be happy to send to
you. Over time, the increase in vehicle efficiency does erode
the revenues into the trust fund, both within the window and
beyond it.
Senator Warner. I will close up with this and not go over
my time, but to my Republican colleagues, we also have in our
financing approach--and, again, financing does not solve the
window. You have to still pay it back. It often translates to
tolls. But one of the things that we also include is--time is
money--and we put in a provision for an expedited National
Environmental Policy Act process, one of the things that
actually Mr. Moore and I would agree on. As a former Governor,
you know, it should not take 7 years to do a NEPA review before
you build any project. And I would be anxious to talk with all
of my Republican colleagues to join the five or so other
Republicans who have already joined in this effort.
Thank you, Mr. Chairman.
The Chairman. Thank you.
Senator Brown, you are next.
Senator Brown. Thank you, Mr. Chairman. Thank you all for
joining us.
Secretary LaHood, I would like to address my comments,
brief comments, and questions to you. You know, when we look at
sort of the post-World War II history of our country, we know
that in the 1940s, 1950s, 1960s, 1970s, and into the 1980s we
had the greatest infrastructure the world had ever seen. Yet
today, when we think about what our parents and grandparents
bequeathed to us, this incredible infrastructure, we have
failed to modernize it, we have failed to upgrade it, and we
have really failed to maintain it. We have problems in States
where--in my State, as an example, but other States too--State
government has cut funding to local communities. So, we see the
condition of our infrastructure and what it means to
everything. We know that the Brent Spence Bridge, a huge
infrastructure project, mostly in the State of Kentucky
technically, but across the Ohio River, carries 4 percent of
GDP every day across that bridge because it is I-75 going from
Detroit south.
But it seems we are making this whole--and I have watched
some of the questions and comments. It seems we are making this
more complicated than it has to be. There is a bipartisan
proposal you know about, Mr. Secretary. We can fund a 6-year
bill at the level that a 21st-century infrastructure system
demands without raising taxes on small business owners and
working families. We can reform our international corporate tax
system to make it more competitive, shut down tax havens, grow
investment in the United States. We can use a one-time
mandatory tax on those overseas earnings. Not to, again, as we
do it, encourage more companies to go overseas, but do a deemed
repatriation with a lower tax rate that would be ongoing so
companies would act differently.
Talk about that, why we should move to something like that.
We have seen some support in both parties. We have seen
administration support. Does that make sense to get us where we
need to go?
Mr. LaHood. You are all very, very astute lawmakers, and I
think you are going to have an awful lot of heartburn from the
business community to move in that direction. They are the ones
who are putting this money offshore. They have their own ideas
how they want to use their money, and I do not know if every
one of these companies is going to want to use their money to
pay for infrastructure. They have lots of other ideas. And so I
think you are going to get a lot of pushback.
But I will say what I said earlier to the chairman. Put it
on the table. See how much revenue you can get from it. See how
much pushback you get, and if you can include it, do it,
because it is a good pot of money.
But I would also urge you--and I heard what the chairman
said, and I know there are people on the other side of the
Rotunda who have said absolutely no increase in the gas tax.
That has to be on the table. That is the pot of money that
built America, and that is the pot of money that can rebuild
America again. Why should we turn a blind eye to the pot of
money that built our country? Ronald Reagan raised the gas tax.
George Herbert Walker Bush under reconciliation raised the gas
tax. Bill Clinton raised the gas tax. It has not been raised in
20 years. Stamps have gone up, eggs have gone up, milk has gone
up, cars have gone up. Everything in America has gone up except
the gas tax. If it had been indexed in 1993, we would not be
having this debate. So think about indexing it.
So my answer is, if you can get some repatriated funds,
take a look at it. I do not think the business community is
going to be all that gung-ho about it, but, you know, maybe you
do not take it all. Maybe you give them some kind of a tax
break. But do not take the gas tax off the table, Mr. Chairman.
Please do not.
Senator Brown. Okay. Thank you, Mr. Chairman.
The Chairman. Senator Isakson, you are next.
Senator Isakson. Thank you, Mr. Chairman.
Mr. Chairman, I was just thinking, I think you and I are
the only two people in the room old enough to remember before
there was an interstate highway system. I was born in 1944, and
we have all talked about the interstate highway system. But the
reason Eisenhower proposed it was to evacuate the major
population centers in the event of a nuclear attack because of
Nagasaki and Hiroshima. It became the greatest economic
catalyst for growth, and it created the new South. Atlanta
would not be Atlanta and Florida certainly would not be Florida
if it was not for the interstate highway system, because nobody
could get there. All those Yankees moved south, and we made a
lot of money. [Laughter.] We gave them a way to do that.
But my point is this--and Mr. Moore made the point about
the pro-growth tax policy. Transportation improvements are pro-
growth, and, if you expand prosperity, you raise revenue, not
by raising rates but by raising economic activity. And I think
Mr. Moore referred to that and recognized that there is a role
for a gas tax at the Federal level, but not as the sole answer,
not as the sole solution.
I agree with Secretary LaHood, and I agree with you, Mr.
Chairman. We have to put everything on the table and stop
talking at each other and by each other and start talking to
each other.
At one point in time in this room today, in this hearing--
and Senator Coats is right: every potential solution in
collection has been mentioned. All we have to do is pull the
trigger. And, if we pull the trigger, not by picking them off
one at a time like ducks in a shooting gallery, but instead
putting all the ducks in the tub and saying, okay, what is the
best formula to make transportation work in the 21st century,
to raise prosperity, to make ease of transit easier, and to
expand our opportunities, we have the chance to do it. But if
we try to find one place to do it, we are going to make a
serious mistake.
Now, Secretary LaHood, it was a privilege and pleasure for
me to serve with you in Congress and on the Transportation
Committee. I have one loaded question for you. You are the only
former Secretary of Transportation in the room and a former
member of Congress. In talking about economic growth and
opportunity, there is a lot to be said about fast-tracking road
construction in the United States and breaking away the
labyrinth of time-consuming regulations of the Federal
Government. As a former Secretary of Transportation and as a
former member of Congress--and as one advocating road
improvements--do you not think part of this reform that gets us
revenue ought to be less cost of Federal regulations and
Federal delays in building roads in our States?
Mr. LaHood. Absolutely. And it can be done at the
Department; it can be done at the Secretary's office. I met
with every Governor in the country. We knew every Secretary of
Transportation in the country. We worked with them day in and
day out. They were our best partners. And when they brought
egregious regulations and rules to us that did not make any
sense, we tried to get them changed to speed up the process so
people could go to work and roads could be built. And it is
possible and should be done.
Senator Isakson. And, if we do put everything on the table
to solve the crisis--and it is a crisis that we are facing
right now in terms of our Highway Trust Fund--should that not
be one of the things we consider to contribute to the solution?
Mr. LaHood. Absolutely. It should be a part of the bill.
Find the things that are egregious and get rid of them.
Senator Isakson. I rest my case, Mr. Chairman. Thank you.
The Chairman. Thank you, Senator.
Senator Stabenow?
Senator Stabenow. Well, thank you very much, Mr. Chairman.
I think this has actually been a very, very good discussion,
and I thank you. And I think the majority of us are saying that
we want to get something done. We have 43 days, and in
legislative time that is a long time, if people really want to
get things done.
Let me start out by saying, Mr. Moore, I am really glad
that, when I was doing the farm bill, our colleagues in urban
States did not share your view about not caring what happens in
other States, because the western States were huge
beneficiaries. Our livestock disaster assistance program is
absolutely critical, and on the transportation front, short
rail for agriculture is absolutely critical but does not go
through every State. And so we really are in this together as a
country, and there are things that certainly we do better at
the State and local level. But we are in this as a country, and
in Agriculture, I sure saw that, with a lot of my colleagues
saying, ``I do not have a lot of farmers. Why should I care?''
But you eat, and so you should care. So we all are connected in
some way, and I think we have to keep that in mind.
Mr. Chairman, I also think that we are coming to terms with
what has been years now of trying to pretend we do not have to
pay our bills and do not have to pay for things. And I am all
for streamlining and looking for better ways to do things.
Again, I have to say, going back to the farm bill, we cut 100
different programs that were duplications or did not work and
actually saved $23 billion in total, and then we increased the
things that were working. So I am all for doing that. But it
does not take the place of paying our bills. And it does not
matter whether it was President Eisenhower talking about
national defense and transportation equaling economic defense,
bringing that together, or whether it is the chairman of the
EPW Committee, Senator Inhofe, whom I greatly respect on this
issue, who has said that both the Department of Defense and
infrastructure are absolutely critical responsibilities of the
Federal Government. And I appreciate what he and Senator Boxer
are doing to bring forth a robust 6-year bill, which it is our
responsibility to figure out how to fund.
And I do not in any way pretend this is not challenging.
But I also know there are multiple ways to do it and that, if
we all decide that this is important for jobs and economic
growth and all the other things that have been talked about
today, as well as just saying to people that they are not going
to have to pay for their roads by a realignment of their car--I
talked to one constituent of mine who had to buy seven new
tires last year. He said, ``Please, there has to be a cheaper
way to fund what is happening here in terms of highways than my
continuing to buy new tires or get my car realigned,'' which I
had to do just by taking the vehicle I have here back to
Michigan for a month last fall. I had to pay for an entire
realignment. So, please, there are certainly cheaper ways to
pay for that than what constituents, all of us, are doing right
now.
So, Mr. Chairman, I think, while we are talking about the
big push on trade, not to understand the infrastructure needs
that relate to effectively exporting our products makes no
sense. I would love to see the same focused, bipartisan push on
infrastructure, on jobs, roads, bridges, rail, airports, ports,
and so on, that we have seen in this major push on trade. And
maybe we ought to put them together. Maybe we ought to actually
say we are going to make sure that we have the millions of
jobs, American jobs, that come from that and the infrastructure
to be able to actually do this.
I want to share one other thing with colleagues. As a
northern State that has the largest border crossing in the
north, which is through Detroit to Windsor, we saw what
happened after 9/11 when we temporarily had to shut that down.
Over $1 billion--I think it is $1.3 billion in goods that cross
every single day back and forth, not counting people who are
working going back and forth. And we realized that we needed to
have a second bridge, both for national security as well as for
economic reasons. And, Secretary LaHood, thank you for being
such a wonderful partner with us, a terrific, important partner
for us in Detroit and in Michigan and in doing a whole range of
things, but certainly the bridge.
What is still terribly embarrassing to me is that the only
way we could get the bridge done is for the Canadians to
completely finance it. Now, they have something called a
``P3,'' a public-private partnership, and they are financing
the bridge, because America could not come up with part of it
to finance a bridge that we desperately need to have. And then
on top of that, we could not even produce the money for the
Customs plaza on our side, because we do not have the
bipartisan will to fund infrastructure in our country. So the
Canadians are doing that too, Mr. Chairman.
And so I would hope that we could take this moment of
opportunities--we have 43 days, and, Mr. Chairman, we are
willing to work night and day with you on a bipartisan basis to
step up and decide we are really going to invest in the future,
we are going to take that next step, we are going to decide to
truly pay our bills, not send it on to our kids in the form of
deficits, but actually step up and do something that everybody
tells their kids they ought to do, which is work hard and pay
your bills and make good decisions. And we can do that, and we
have 43 days to do it, and I certainly hope that we are going
to be able to get it done.
Thank you, Mr. Chairman.
The Chairman. Thank you, Senator.
We will turn to Senator Casey now.
Senator Casey. Mr. Chairman, thank you very much, and I
appreciate you having this hearing, and I appreciate the focus
you have brought on this issue to get a bipartisan solution. I
think it is good we have some passion here.
The chairman exhibits passion on some things. He is from
Pittsburgh, so he has Pennsylvania in him, and we appreciate
that. We need more than just talk in this. We need to get folks
together in a bipartisan fashion.
One area that is of particular concern to me as a
Pennsylvanian--and I think it is true of a number of States,
and maybe unfortunately is most emblematic of the challenges we
have--is our bridges and the number of structurally deficient
bridges. We have in our State over 5,000 at last count. I am
just looking at some other States, and these are not east coast
States. Oklahoma has, at last count--these are December 2014
numbers from the Federal Highway Administration--4,216;
Missouri, 3,310; Iowa is similar to Pennsylvania, over 5,000.
So it is a huge issue. I know, Mr. Moore, in your testimony you
said the number had come down, and we are at about 10 percent
nationally. It is right around that percentage. But it is very
high in some States, and we have a major challenge.
So I guess, Secretary LaHood, I would start with you, and,
in addition to your testimony today and your passion, we
appreciate the work you have put into this as a public
official, as Secretary, and now as a citizen. And I want to ask
you about just that challenge alone: the challenge of our
bridges.
And then, second, to reference a part of your testimony, I
think it was on the top of page 4, you cite there the impact on
a family budget would be a little more than $1,000. Talk about
that in terms of the impact on families, the overall
transportation challenge, but specifically the----
Mr. LaHood. Well, first of all, Senator, thanks for all
your leadership in Pennsylvania. During our time, we were able
to get a lot of really good things done for the people of
Pennsylvania.
I think that the reality is that every one of these bridges
that is deficient and in a state of bad repair was built under
the interstate system. So we owe it to the Commonwealth of
Pennsylvania and every other State to have a national program
to fix up our bridges. And we are not going to do it with the
resources we have now because they are not there.
So, again, I know you all have the tough job of finding the
money, but we need to find the money so that people are not
fearful of crossing bridges in the Commonwealth or in any other
State in our country. And some people are fearful of crossing
bridges. People have seen the ``60 Minutes'' report where
former Governor Rendell is standing under a bridge with Steve
Kroft, and it is falling down. The bridge that connects
Arlington Cemetery to the District of Columbia, it is in a
terrible state of repair. Underneath, the girders are
crumbling. Where is the money to fix it? That is what we need
to do.
With respect to revenue-raising opportunities, you know, I
mentioned what happens with the gas tax. It does not stay here
in Washington. It goes back to the Governors and the State
DOTs, and they spend it, and they put it back into the American
worker, the ones who are fixing the roads and bridges. And that
helps them. The highest segment of unemployment in America
today is in the building trades, people who build roads and
bridges. And they are middle-income people, and they are out of
work. They are waiting for Congress to take action.
We need to have some leadership here and some vision and
some courage to say, this is what we have to do to help the
American people, to help our country. So I do not see the
increase in the gas tax as an impingement on middle-income
people. I see it helping a lot of middle-income people who are
building the roads and bridges.
Senator Casey. I would also say, in reference to just the
terminology here, when you talk about structurally deficient,
part of that definition is ``significant defect.'' So in some
places it may mean that they are a long way from something
actually collapsing, but in your experience as Secretary, I
guess there is also a segment of that which would be much more
grave.
Mr. LaHood. That is right, and we work with the State DOTs,
and they actually have to do--you know, they have closed some
bridges because people cannot travel on them.
The Chairman. Senator, your time is up. Senator Carper, you
are next.
Senator Carper. Thanks, Mr. Chairman. To our witnesses,
welcome one and all. Great to see you. And, Mr. Secretary, I am
especially happy to see you again.
Mr. Chairman, I would like to cite a statement by the
American Road and Transportation Builders Association. The
group study in 2014 looked at reelection rates of State
legislators who voted for increases in user fees to fund
transportation projects in their States, and they found that,
surprisingly to a lot of folks, 95 percent of the Republicans
who voted to do that in their States won their primaries. They
won their general elections. They were reelected. That is a
higher percentage than those who voted not to raise those user
fees. On the Democratic side, it turns out, in the last year in
those half-dozen or so States, 90 percent of the Democrats who
voted to raise the user fees for transportation projects were
reelected. That is more than the percent who voted against
them.
I was Governor for 8 years, and three times during those 8
years I called for raising user fees. We created a
transportation trust fund. We did not just finance it, we did
not just borrow money. We actually leveraged that money to fund
our improvements. But three times during my time as Governor, I
said, let us raise the user fees--not by a dollar, not by half
a dollar or 25 cents, but let us raise them. And I ran for
reelection, and I won. I only won by 70 percent, so it did not
hurt me too badly. And then in 2000, I ran for the U.S. Senate
against a fellow who was the chairman of this committee, and I
won there too. But when the Bowles-Simpson Commission was
formed, George Voinovich and I suggested that the Bowles-
Simpson Commission--the Commission reached out and they said,
give us ideas for reducing our deficits, and Voinovich and I
put together a letter that said, ``Why don't we raise the gas
and diesel tax by a penny a month for 25 months?'' A penny a
month for 25 months, with 10 cents for deficit reduction, 15
cents for infrastructure.
The very next day--the very next day--it leaked. This
letter leaked, and it was a news story. And one of my
Republican colleagues said to me, he said, ``You have just
written your first 30-second commercial to be used against you
when you run for reelection next time.'' You know what? He was
right. And I won by 70 percent.
I mean, you can make these tough decisions. People want us
to do stuff, and actually they are looking to us to provide, as
you say, Mr. Secretary, some leadership and some courage. And
if you do, you do not get punished for it. You get rewarded.
You get rewarded.
And this idea that the States want us to devolve this stuff
back to them--I was chairman of the National Governors
Association for a while. I was a leader at the NGA for the
better part of 8 years. I loved doing that job--loved doing
that job. But we never came to the Congress and said, ``Get out
of our way. We can handle all this.'' We never did that.
In fact, I got a letter last month from the NGA that said
just the opposite. I do not think I have the actual quote here,
but maybe I do. Here is what the NGA said to us last month:
``We believe that a commitment to surface transportation at all
levels of government is necessary and that each level,
including the Federal Government, has a crucial role to play to
achieve overall success and keep America competitive in the
21st-century economy.''
I live in a little State. We have New Jersey to the east,
Pennsylvania to the north, and Maryland to the west. We do not
just build transportation systems to meet our needs in our
State. We are a region, and we are part of a country. I had a
meeting this morning with a manufacturing group, and they said,
``Please do something on transportation. For God's sake, do
something on transportation.'' I said, ``Give me a good example
of why you need it.'' And we were talking about trade in that
meeting, and I am a big advocate of the President's proposal,
the Trans-Pacific Partnership. But this one fellow said, ``We
export a lot of what we make, and we have a window of time when
we can get our goods or products to a port when a ship is
there. We have a short window. They are in and they are out,
and if we do not meet that window, then we lose out.'' And he
said, ``For God's sake, give us a chance, a fighting chance to
get our goods, our products, to that port so that we can make
the window.''
Here is my question--enough proselytizing from me. Dr.
Kile, for you, some people think that we can finance our way
out of this and we do not have to fund our way out of this. And
I think funding has to be part of it. And financing obviously
makes some sense. People get confused when we talk about how we
will just finance our way out of this. What do you think? And
in the Navy, we used to talk about the straight skinny. Give us
the straight skinny. Is this something we can do just by
financing our way out of it?
Dr. Kile. Well, Senator, ultimately that is a choice for
you and your colleagues. The way I think of funding is coming
up with a set of revenues to pay for a set of highway spending
that would be desirable. And the amount of that is a choice for
you and your colleagues. And then financing is a way of
encouraging borrowing by State and local governments or others,
or the Federal Government if it is Federal spending, to pay for
highways. But those are ultimately not sources of revenues and
would be a call ultimately on future taxpayers or future users
of the system.
Senator Carper. All right. Mr. Chairman, could I have 30
more seconds?
The Chairman. Sure.
Senator Carper. I just want 30 more seconds, if I could. I
do not think we are going to raise the gas tax by a penny a
month for 25 months. We are not going to raise it a penny a
quarter for 25 quarters or even 15 quarters. At the end of the
day, we may do something that the President is calling for,
which is international tax reform, and out of that deem some of
the money that is held overseas to be brought back and used for
infrastructure. If that happens, that is terrific. But if it
does not happen, we need to do something. And if someone was
going to suggest a way to do something, to do it gradually over
a period of time, that would include indexing the gas and
diesel tax. I think at the very least we can do that, and we
should do that. And the key is leadership. We need leadership
here, and that includes all of us here in this room.
Thank you.
The Chairman. Thank you, Senator.
One last Senator, and then maybe I will have a question.
Senator Heller?
Senator Heller. All right. Saving the best for last, Mr.
Chairman. Thanks for having this hearing, and thanks for all
your hard work. I know this is not an easy topic. We have heard
some great ideas here, and we have some great witnesses here
also. Thanks for taking the time. I know it has been a long day
for you, and I will try to finish this up on a positive note.
Myself and Senator Bennet from Colorado have been working
on the chairman's subcommittee, the working group on
infrastructure, and these are the conversations we have had for
the last 3 months, Mr. Chairman. You can imagine the
conversations going on once a week similar to this, and as hard
as Senator Bennet and I and the members of that working group
have worked on this, I know our staffs have worked just as
hard, if not harder, to try to solve this problem.
Last month, we had Transportation Secretary Foxx in the
office, also with Treasury Secretary Jack Lew, having this very
conversation that we are having today. And I guess one topic
that we are not talking about, quite to the fullest extent
anyway, is: what are the needs? What do we actually need? We
are talking, Mr. Chairman, in most discussions about maybe $10
to $12 billion a year for the next 5 or 6 years. But if you sit
down with the Treasury Secretary and Secretary Foxx--and I
assume the former Secretary of Transportation could give us
some insight on this--what are the needs?
Let me tell you why I say that. The two largest urban areas
in America that do not have a freeway between them are Las
Vegas and Phoenix. Now, you can imagine the impact economically
that would have for those two communities if we had enough
money to put a new freeway between those two cities. The
problem is, we have not added a new highway in this country for
25 years--25 years. So are the needs $10 to $12 billion a year
so that we are talking $60, $70, $80 billion over 6 years? Or
are the real needs $100 billion, $200 billion, or $300 billion
so that we can actually solve the problems?
If we are going to go $10, $12 billion a year, all we are
doing is keeping our head above water. That is it: head above
water. Fix the potholes, you know, and it would do good work.
It would help with some of these roads. It would help with
these bridges, and I am all for it. But if we want to expand,
and if we want to expand economic growth--and, Secretary
LaHood, you said short-term jobs, long-term economic growth.
Short-term jobs, long-term economic growth. What we need is a
good transportation program here in the State.
Now, I believe that there are three things the Federal
Government does, and one is defense. You know, we are going to
work on defense today; I think we are going to pass out of the
United States Senate our NDAA budget. There we go. We have hit
national defense. But number two is infrastructure. So here we
are, national defense, infrastructure, and, frankly, I would
add a third, and that is a safety net for those who need it.
But we have an opportunity here in the next 45 days to make
a real difference--a real difference here for this country;
again, short-term jobs, long-term growth.
So I guess the question I have is: what are the real needs?
Is it $10, $12 billion a year? Is it closer to $200 billion? If
you talk to the administration, they say it is closer to $300
billion if you really want to expand the infrastructure we
have. I will start with the CBO on this.
Dr. Kile. Thank you. Several years back, CBO did an
analysis of some work by FHWA, and we found at the time that in
order to maintain current surfaces, spending would need to rise
by a few tens of billions of dollars per year from the current
level, and that the number of projects that would be
justifiable on a benefit-cost basis would be somewhat higher
than that. That was based on a several-years-old analysis, but
I think the sign of that answer would be the same.
Senator Heller. Okay. I want to hear from the former
Transportation Secretary.
Mr. LaHood. The answer is $300 to $500 billion to get us
back to being number one in infrastructure, to get the road
between Las Vegas and Phoenix, to do some of the other things
that need to be done on the interstate system, to fix up the
thousands of bridges that are in a state of bad repair, to
really make progress. We just need a lot of money, and, you
know, we are talking sort of around the edges here in terms of,
as you put it, just keeping our head above water. It is still a
lot of money.
Senator Heller. It is. It is.
Mr. LaHood. But to get back to being number one, it is an
enormous amount of money, $300 to $500 billion.
Senator Heller. Okay. Mr. Moore, is it my understanding
that in your testimony you said funding the Federal highway
system is done? Did I understand that correctly?
Mr. Moore. I am glad you asked this question, because there
has been some misunderstanding about what I have said about the
Federal interstate highway system.
First of all, I am a huge fan of what Eisenhower did in the
1950s. The Secretary is exactly right. It was a huge, huge
economic boon to the country that connected us through a
transportation infrastructure that was second to none in the
world. So let there be no misunderstanding about that. It was
an incredibly important economic development project that has
paid dividends for a century.
What I am saying is, there is a big difference between the
Federal Government funding interstate transportation and inner-
State transportation. It is extremely inefficient for the
United States Federal Government to determine what inner-State,
within-State transportation projects should be funded. Those
should be funded by the people who are going to use them.
With all due respect to the Secretary----
Senator Heller. I am out of time. Mr. Moore, are you
arguing against a freeway between Las Vegas and Phoenix?
Mr. Moore. No, look, I think--I do not know----
Senator Heller. Who would then pay for that? Who would pay
for that?
Mr. Moore. Who would pay for it? I think that--if it is
something that is needed in our interstate highway system, it
should be paid by Federal taxpayers. I do not know the
specifics about that particular road, but I think the one
disagreement that the Secretary and I have is, I do not believe
we need to spend more money on infrastructure. What we need to
do is spend more wisely on infrastructure, because we are
wasting tens of billions of dollars a year on projects that
never should have been funded and that are only funded because
States are getting money from people out of State to finance
them. And Virginia is a perfect example. The Silver Line, which
is a huge waste of money, I am going to have to pay for that
now through the tolls that I pay on the toll road. That never
would have been funded except for the fact that the people out
of the State of Virginia, around the country, and in your State
of Nevada have to pay taxes for that. That is not fair. We have
to move back to a--and, in fact, Mr. Chairman, as you determine
what is the best way to fund these important infrastructure
projects over the next 6 years, I hope you will keep this in
mind. User pays. The single best way to make sure we are
efficient with our transportation infrastructure is to make
sure the user who is going to make use of these projects is the
one who pays for them.
Senator Heller. Mr. Chairman, thank you. My time has run
out, but thank you for all you are doing on this particular
topic.
The Chairman. Well, thank you.
Let me just end this hearing. I am very appreciative of all
three of you being here. Mr. LaHood, for a while there I
thought you were going to have a heart attack. [Laughter.] I
was worried about it. We need you too badly.
But let me just say this: one thing that bothers me a
little bit is the administration's view of the gas tax as a
source of revenue. The Obama administration has never included
a gas tax increase in any of their budgets, and their current
pay-for for infrastructure is essentially international tax
reform, which has all kinds of problems. I am looking at it
with everything I've got, but there are all kinds of problems,
and it just bothers me that the administration has not sought
to increase the gas tax if it is that important. But I do not
want to waste your time today on that.
All I can say is this: as chairman of this committee, I
intend to solve this problem. It is almost insoluble under
current circumstances. All of my Democrat friends want to spend
any amount of money, increase taxes and so forth, and all at
the same time that we are totally out of money and are in such
debt that now Joint Tax and CBO are both saying that we cannot
continue the way we are going. It is a very, very serious set
of problems for me, and I think it should be for everybody. I
would like to solve this problem, and I am going to solve it
one way or the other, if it is only on a multiyear basis. And
if I can solve it on a long-term basis, I will see what I can
do, though I am not the sole person who has to work on this,
and I appreciate the colleagues who are helping me and continue
to help me in a bipartisan way on this committee.
So, having said that, let me just once again thank the
three of you for being here, for appearing here today, and all
of our colleagues who have participated. As you can see, this
is a very participatory committee. It drives me nuts sometimes.
[Laughter.]
I think we have had an informative discussion that will
give us a lot to think about as we tackle these very, very
essential and important problems.
I would ask that any written questions anybody on the
committee wants to give for the record be submitted by Monday,
June 22nd. And with that, I want to thank you again, and----
Senator Carper. Mr. Chairman? Could I have maybe one more
minute? Would you mind?
The Chairman. I will give you another minute.
Senator Carper. That would be great. Thanks so much.
The Chairman. I just want to let you know that I appreciate
you.
Senator Carper. Thanks, Mr. Chairman.
Thomas Jefferson used to say, ``If the people know the
truth, they will not make a mistake.''
The Chairman. That is right.
Senator Carper. The truth is our roads, highways, bridges,
our transit systems are in bad shape and getting worse.
Another truth is, if things are worth having, they are
worth paying for. Historically, we have paid for transportation
through user fees. I am happy to support that. If somebody can
come up with a better idea, I am happy to support that as well.
At the end of the day, we need to do something.
Leadership has been described as having the courage to stay
out of step when everybody else is marching to the wrong tune.
The wrong tune is to do nothing. The wrong tune is to kick the
can down the road like we have done 12 times over the last 5
years. The wrong thing to do is to have stop-and-go funding for
these projects. And I can tell you, as an old Governor, that if
you do not know for certain the money is going to be there, we
waste a huge amount of money.
And I would just say to you, Mr. Moore, when I was
Governor, I vetoed a Davis-Bacon law, and I also called for
increases in user fees to pay for these things. I am willing to
make some tough choices to get this done. We have to get this
done.
Thank you.
The Chairman. Well, thank you, Senator. I appreciate you
very much. I really do appreciate having this hearing. We are
going to try to solve this problem. Right now it looks almost
insoluble with both Houses, but we will see what we can do.
Thanks again for being here. With that, we will recess
until further notice.
[Whereupon, at 12:09 p.m., the committee was adjourned.]
A P P E N D I X
Additional Material Submitted for the Record
----------
Prepared Statement of Hon. Orrin G. Hatch,
a U.S. Senator From Utah
WASHINGTON--Senate Finance Committee Chairman Orrin Hatch (R-Utah)
today delivered the following opening statement at a Committee hearing
examining responsible and sustainable funding options for the Highway
Trust Fund:
Good morning, everyone. Today, we will be discussing the challenges
Congress faces as we work to provide funding for the federal Highway
Trust Fund.
Right now, when it comes to highways, we find ourselves caught in a
familiar dilemma, between raising taxes or cutting back on the highway
program. As always, a long-term, bipartisan solution to this dilemma
will be difficult to achieve and, some days, it almost seems out of
reach.
However, in the past, this committee has consistently stepped up to
the plate to find ways to keep the Highway Trust Fund solvent. I am
confident that we can do so again.
I want to make it clear at the outset that my goal as chairman of
this committee to find a way to fund a long-term infrastructure bill.
Chairman Ryan over in the House said much the same thing in yesterday's
Ways and Means Committee hearing.
While some friends on the other side of the aisle have suggested
that it would be politically advantageous to force votes on a series of
very short-term extensions, virtually everyone in Congress agrees that
we need to get to the point where we are no longer facing a highway
cliff every few months.
We've all heard that the gold-standard for a long-term highway bill
is 6 years. That's what everyone apparently wants to see happen. Of
course, according to CBO, a 6-year highway bill that maintains the
current spending baseline will cost roughly $92 billion.
You don't find that kind of money by sifting through the cushions
of your couch. It's going to take hard work and real policy changes to
get us anywhere near that level of funding.
And, once again, that's if we maintain current spending levels. I
know that some of my colleagues believe we should raise the spending
baseline at the same time, which would put even more pressure on
highway funding and require us to find even more offsets to keep the
trust fund solvent.
Long story short, a 6-year highway bill is a great goal. I'm
committed to working to get us as close to that goal as possible.
Earlier this week, some of the leaders in the Senate Democratic
Caucus sent a letter to the Senate Majority Leader spelling out a list
of demands for enacting a long-term surface transportation
reauthorization bill. The letter purported to dictate to Senate
Republicans precisely when hearings should occur in the various
committees, when those committees should hold their markups, and when
the final bill should come to the floor.
Of course, any specific proposals or ideas on how to fund a long-
term highway bill were noticeably absent from the letter. Instead, we
were treated to a discourse on how previous Congresses had dealt with
highway funding and how the current Senate leadership is, in the eyes
of Senate Democrats, falling short.
I don't want to spend too much time deconstructing this letter.
But, I would like to point out a few simple facts.
First of all, neither party should point fingers and try to lay
blame when it comes to the now-common practice of passing short-term
highway extensions.
Between the 110th and 113th Congresses, when the Democrats
controlled the Senate, we enacted 11 short-term highway extensions.
That doesn't include the 2012 MAP-21 legislation, which, according to
the Senate Democrats' letter, was the paragon for how Congress should
consider and pass a long-term extension of highway funding. Of course,
MAP-21 extended highway funding for only 2 years, far short of the
goals that are being cited in Congress these days.
As I recall, during that same period, when Republicans were in the
minority, we didn't turn the struggles over highway funding into a
political football. In fact, we approached these negotiations in a
spirit of cooperation as much as possible. We came to the table with
specific and concrete proposals that included both revenue and spending
options.
I ask unanimous consent that a letter dated December 11, 2011, from
Finance Committee Republicans to then-Chairman Baucus be inserted in
the record. This letter didn't dictate a path forward to Chairman
Baucus. Instead, it spelled out, in detail, policy proposals that
Republicans could support to address an imminent shortfall in highway
funding.
This was a constructive contribution to the debate over legislation
that eventually became MAP-21, which was, once again, recently cited by
our friends on the other side. MAP-21 was the product of bipartisan
work on the Finance Committee and was evenly split between taxpayer-
friendly revenue raisers and spending reductions.
For example, it was Republicans who first advanced the idea of
transferring unobligated funds from the Leaking Underground Storage
Tank Trust to help pay for highways. Whatever one may think of this
particular pay-for, it has become a go-to revenue source in recent
highway bills, including the last two highway bills enacted under the
Democrat-controlled Senate.
By contrast, one of the very few specific highway funding proposals
I've seen from any of the signatories of this week's letter is the so-
called repatriation holiday, which, according to the Joint Committee on
Taxation, actually loses nearly $120 billion over 10 years. In other
words, it is a not a serious proposal to pay for a long-term highway
bill.
Put simply, the rhetoric we're hearing from many of my friends on
the other side of the aisle--which was exemplified by the letter they
sent earlier this week--is not helpful.
It is not constructive. It is, I suspect, intended to have a
political impact, not to actually lead to good policy.
To this point, I ask unanimous consent that an article from the
June 3, 2015 edition of Politico be entered into the record. This
article, titled ``Democrats Steer Towards Highway Funding Cliff,''
basically spells out the political strategy being employed here and
even quotes members of the Senate Democratic Leadership saying that
they plan to force frequent votes on highway funding to make the
process as politically difficult as possible.
If we're going to address these challenges, we need people to set
aside the politics. We need people to do more than just talk about a
long-term highway bill. We need people to bring actual ideas to the
table and to come together to work toward a real, lasting solution.
I hope that's what we can talk about during this hearing. I hope we
can have a productive conversation about what solutions are out there,
which ones can work, and what ideas need to be put to bed.
Once again, my hope is that we can focus on solutions that can
actually work--that can actually be enacted into law to pay for
highways.
For example, while I know the idea has some support, I don't think
a massive increase in the gas tax could be enacted into law. Of course,
anyone who believes otherwise is free to publicly correct me and to try
to make their case. That's the type of discussion I want to have here
today--one that will actually lead to solutions. To facilitate this
discussion, we've assembled a distinguished panel of witnesses who I
think will all bring a unique perspective to these issues. I look
forward to hearing from all of the witnesses on today's panel.
______
United States Senate
COMMITTEE ON FINANCE
Washington, DC 20510-6200
December 2, 2011
The Honorable Max Baucus
Chairman
U.S. Senate Committee on Finance
219 Dirksen Senate Office Building
Washington, DC 20515
Dear Mr. Chairman:
On Wednesday, November 9th, the Senate Committee on Environment and
Public Works (EPW) reported the ``Moving Ahead for Progress in the 21st
Century Act of 2011,'' or ``MAP-21.'' According to Chairman Boxer and
Ranking Member Inhofe, this legislation would authorize the Federal-aid
highway program at the Congressional Budget Office's baseline level,
plus inflation, through September 2013. EPW has made it known that they
expect the Senate Committee on Finance to produce $12 billion in
revenues above and beyond estimates of Highway Trust Fund (HTF)
receipts. The Congressional Budget Offices (CBO) month-to-month
estimates of revenues generated from current fuel taxes have often
provided projections of future revenue that exceed actual revenues, and
outlays from the trust fund are uneven and difficult to estimate on a
year-to-year basis. Though we have serious concerns as to the accuracy
of current estimates of HTF revenues and outlays, we believe it is in
the best interest of the nation for states to be provided the certainty
guaranteed by a surface transportation reauthorization bill. In
addition, we think it would be a mistake to raise fuel or other taxes
given the fragile economic climate the country is currently afflicted
with. We suggest the following proposals as possibilities for closing
the estimated $12 billion hole in the EPW bill by a more efficient
allocation of federal resources.
Rescission of funds provided for the Advanced Technology Vehicle
Manufacturing Loan Program. The ``Energy Independence and Security Act
of 2007'' established this program to support the development of
advanced technology vehicles. The FY 2009 Continuing Resolution,
enacted on September 30, 2008, appropriated $7.5 billion to support a
maximum of $25 billion in loans. We understand that up to $3.5 billion
could be rescinded for outlay savings. Given the continuing concern
regarding the administration of federal loan programs, we think it is
appropriate to consider this program for HTF funding.
Transfer of funds from the Leaking Underground Storage Tank Trust Fund.
Funded primarily by a 0.1 cent-per-gallon tax on motor fuels, the
Leaking Underground Storage Tank (LUST) Trust Fund was established in
1986 to support states and the Environmental Protection Agency in
efforts to remediate leaks from underground storage tanks. Due to the
fact that revenues to the LUST Fund have consistently been greater than
outlays, the fund has accumulated a balance of more than $3.5 billion
as of the end of fiscal year 2011, according to a report released by
the Treasury Office of Inspector General. A Joint Committee on Taxation
report titled ``Present Law and Background Information on Federal
Excise Taxes,'' which was released this past January, utilizes the
latest CBO estimates available to show that the LUST Fund is estimated
to hold cash balances that increase year-by-year through 2020, and that
estimated revenues attributable only to tax revenue, as opposed to
interest, are projected to be greater than estimated outlays every
year. Given this information we encourage the Committee to consider a
transfer of up to $3 billion from the LUST Fund to the HTF. This option
is not suggested to signal a lack of support for the purpose of the
LUST Fund, but rather to make the most efficient use of available
resources to avoid the impending insolvency of the HTF. Additionally,
for the long-term the Finance Committee should consider altering the
0.1 cent-per-gallon tax on motor fuels so that the LUST Fund is able to
fulfill its intended purpose without diverting money from other
important programs, such as those funded by the HTF.
Reclamation of HTF funds transferred to the Land and Water Conservation
Fund (LWCF) and redirection of Outer Continental Shelf receipts.
Created by the ``Land and Water Conservation Fund Act'' in 1964, the
LWCF has received more than $573 million from the HTF since then.
Though the LWCF is authorized at $900 million a year, historically less
than half of that has been appropriated in a given year. Given that the
LWCF is a federal fund, as opposed to a trust fund, a transfer should
be offset. Additionally, the LWCF received most of its revenues from
oil and gas leasing in the Outer Continental Shelf (OCS). Given that
the full $900 million annually authorized has never been appropriated,
and that the unappropriated receipts balance of the LWCF is greater
than $17 billion, we encourage the consideration of a diversion of a
portion of future OCS revenues to the HTF. We think oil and gas
revenues are an appropriate source of highway funding given that
current highway funding is largely derived from excise taxes on fuels.
If $250 million were to be diverted annually from the LWCF, it would be
unlikely to affect current appropriations from the LWCF, provided they
remain consistent with past history. A diversion of $250 million a year
from the LWCF to the HTF would deposit an additional $2.5 billion in
the HTF over 10 years.
Expanded oil and gas exploration in Alaska and the Outer Continental
Shelf (OCS). Currently our nation is not fully utilizing available
energy resources. Based on past Congressional Budget Office estimates,
an expansion of oil and gas exploration and development could result in
up to $5.2 billion in revenue to the federal government within a 10-
year budget window. Allowing for increased oil and gas exploration
would actually create new jobs, and provide additional revenues that
are badly needed.
Rescission of unspent federal funds. Though we recognize that this
option has not been popular with the current Senate majority and the
White House, we include it as an option in order to emphasize our
conviction that we do not, and should not, need to raise taxes to fund
transportation infrastructure, but instead more efficiently utilize
current federal resources. Informally the Congressional Budget Office
has indicated that a rescission of $30 billion would be required to
produce $12 billion in outlay savings over a 10-year period. Though in
the past criticism of variants of this proposal have been based on the
dollar amount of budget authority rescinded, the actual amount of
outlays, or real spending impacted is much lower. Assuming the
administration is less than enthusiastic about other ideas for filling
the $12 billion hole in the EPW bill, this proposal would allow the
administration to determine what federal spending it prioritizes as
less or more important than surface transportation funding. A
rescission of unspent federal funds was used earlier this year as an
offset for an amendment agreed to by unanimous consent that repealed an
expansion of information reporting enacted into law as part of health
care reform. Before adoption of the amendment, a vote on a motion to
waive budgetary discipline with respect to the amendment passed 81 to
17.
We also want to note that there are many ways current funding for
highways could be spent more efficiently. This would allow a given
amount of money to do more. Specifically, repeal or relaxation of
Davis-Bacon requirements could drastically increase the efficiency of
highway spending. ``The Davis-Bacon Act'' requires that all federally
funded projects worth more than $2,000 must pay workers the
``prevailing wage,'' which, according to a study released by the
Republican staff of the Joint Economic Committee, has resulted in wages
being 22 percent higher, on average, than prevailing market rates.
Though modifications to Davis-Bacon requirements would not produce new
revenue to be spent on infrastructure projects, modifications such as
an increase in the project cost threshold, or a temporary suspension,
would reduce the cost of individual projects while promoting job
creation.
Mr. Chairman, we offer the suggestions in this letter as a commitment
to you of our willingness to work together to provide for the creation
and maintenance of transportation infrastructure that enhances our
economy. However, we also note that at best, a fully funded ``MAP-21''
would only give us up to 2 more years to address the disparity between
current transportation funding levels and revenues deposited into the
HTF. It is doubtful that ``MAP-21'' will even be sufficient to fund
surface transportation programs through the end of fiscal year 2013, as
is currently promised. Our efforts now are, at best, a down payment on
a necessary rethinking of infrastructure funding and financing that
circumstances will demand, whether we are prepared for it or not.
Finance Committee Republicans are prepared to engage in this process,
and this letter represents the beginning of a long-term plan, and not
the conclusion of a 2-year extension.
Sincerely,
Orrin G. Hatch Chuck Grassley
Ranking Member
Olympia J. Snowe Pat Roberts
John Cornyn Tom Coburn
John Thune
______
Democrats Steer Towards Highway Funding Cliff
(By Burgess Everett and Heather Caygle)
From Politico, June 3, 2015
Democrats are threatening an aggressive confrontation with Republicans
over federal highway money, foreshadowing yet another round of
brinkmanship with the GOP and raising the specter of a temporary
shutdown of transportation construction sites nationwide.
House and Senate Democrats are weighing a hard-line strategy that would
force Republicans to stumble through a series of painful short-term
highway extensions if they don't fix the program's long-term funding
woes, with the Highway Trust Fund slated to run out of money after July
31st.
Democrats have long insisted that Congress needs to put the highway
fund on firm financial footing for years to come, but bipartisan
antipathy to new taxes has produced a series of stopgaps and patches
under the leadership of both parties.
``I think it's horrible that they're even thinking about the short-term
extension,'' said Senate Minority Leader Harry Reid in an interview.
``I think it's ridiculous.''
Unless Republicans can come up with tens of billions of dollars in new
tax money or spending cuts, the GOP could be forced to acquiesce to
Democratic demands or risk a shutdown of infrastructure projects in the
middle of the summer construction season. Still, the strategy could
also blow up in Democrats' faces, as the GOP is sure to paint them as
obstructionists, particularly if a shutdown comes to pass in July.
The goal, Democratic sources said, is to expose the GOP's lack of
planning ahead of the July deadline and pressure them to come up with
as much as $90 billion for a 6-year transportation bill, a near
impossibility without politically painful tax increases. The most
aggressive tactic, raised by Senate Minority Whip Dick Durbin at a
private bicameral leadership meeting on Tuesday, would have Democrats
filibuster any transportation funding extension lasting longer than 30
days.
Democratic leaders are now shopping the idea to their chairmen and the
rank and file to test just how far the party is willing to press
Republicans on an issue that's sharply divided the GOP: Finding tens of
billions of dollars in spending savings or new taxes to pass a long-
term highway bill.
The early returns inside the Democratic leadership meeting were
positive, sources said, suggesting Democrats will force a showdown over
the looming transportation cliff.
``They're nothing but trouble,'' said Senate Majority Whip John Cornyn.
``They're just feeling a bit feisty and cantankerous.''
``They're going to try to jam us on everything,'' added Senator John
Thune of South Dakota, the No. 3 GOP leader.
Democrats have not yet settled on how much rope they are willing to
give Republicans, but they believe they can score political points
hammering the GOP over legislation that supports thousands of American
jobs. Senator Chuck Schumer (D-NY) is expected to take the lead in the
campaign, and he hopes to eventually enlist influential transportation
lobbying groups to join Democrats' push.
But it's Durbin who's suggesting the toughest tack: requiring
Republicans to come up with either tens of billions for a long-term
bill or approximately $2 billion every month to avoid a construction
shutdown. Durbin reasons Democrats can hit Republicans for running up
against deadlines right after the Senate GOP allowed key surveillance
laws to go dark for 2 days this week.
``We're serious about it,'' Durbin said. It ``really keeps reminding
them you can't put this off for 6 months or a year and expect us to
just stand by and let you get away with it.''
But Republicans may have a trump card to play if they pursue a 5-month
transportation extension, the most popular length among GOP leaders.
They could dangle a vote to attach the Export-Import Bank to a highway
patch and dare Democrats to block the legislation after making such a
show of support for Ex-Im in last month's divisive debate over fast-
track trade bills.
Democratic senators acknowledged in interviews this could complicate
their plans to uniformly stand against any short-term highway bills,
but attaching Ex-Im could also deplete support for a transportation
bill among conservative Republicans.
Key Republicans on transportation acknowledged their party is
vulnerable on the issue, and they're racing to come up with a counter-
strategy. Senate Republican chairmen agreed on Tuesday in a private
meeting to prioritize a long-term highway bill, which could cost $90
billion for a 6-year piece of legislation that only keeps current
project funding levels going without making any increases that
Democrats will also demand.
But that complicates the job of Senate Finance Chairman Orrin Hatch (R-
UT) and House Ways and Means Chairman Paul Ryan (R-WI), who have to
find $11 billion in new revenue just to get to the end of the year.
There's a major division on Capitol Hill between Republicans who write
transportation policy and those like Hatch and Ryan that actually have
to come up with the money, which is very unlikely to come through new
tax revenues.
Instead, Republicans suggest they can cut spending across the
government to come up with the $15 billion per year that the federal
highway program would need for a meaty bill.
``The shortfall is $15 billion,'' said Senator Ron Johnson of
Wisconsin, a belt-tightening Republican up for reelection next year.
``Are you telling me you can't find $15 billion of lower-priority
spending?''
Johnson may be disappointed given what lawmakers have been able to
accomplish. So far; it's been difficult to find enough money just to
pay for the short-term patches Congress has been using.
Democrats and Republicans on the two tax-writing committees appeared
close to a deal on an $11 billion extension in mid-May with the GOP
even agreeing to some tax compliance measures they'd previously
opposed. But that fell apart after Democrats blamed Republicans for
trying to force spending cuts into the deal and lawmakers punted the
fight until July.
Now, with highway funding set to dry up in less than 2 months,
lawmakers seem no closer to a deal than they were in May. Several Ways
and Means Republicans said highways didn't even come up during their
weekly Wednesday luncheon.
Leaders of the House and Senate transportation committees have already
started laying the groundwork for a year-end extension. Hatch has a
``significant'' amount of money squirreled away for the path, Senators
said, but is keeping it close while some of his colleagues talk tough
about no longer kicking the can.
``There's nothing that we'll know at the end of the year that we don't
know right now. And I'll be really disappointed if we go beyond the end
of July without a long-term highway bill,'' said Senator Roy Blunt of
Missouri, a GOP leader. ``My view is we should engage.''
Hopping from extension to extension also seems to be taking its toll on
rank-and-file members. Representative Reid Ribble (R-WI)--one of 12
House Republicans to vote no on the most recent patch--said he's
lobbying his colleagues to oppose any more short-term deals that allow
lawmakers to avoid solving the fundamental imbalance between revenue
shortfalls from the gas tax and the more than $50 billion Congress
seeks to spend on transportation annually.
``This is not rocket science, it's mathematics,'' Ribble said.
Those divisions and the lack of a public strategy for dealing with
infrastructure have Democrats thinking they have Republicans right
where they want them.
``They have to govern,'' Durbin said of Republicans' highway plans.
``It's a good issue for [Democrats],'' conceded one Republican
intimately involved in transportation planning.
The impact of Capitol Hill inaction on the highway program has already
started to ripple across the country. Seven state DOTs have canceled or
delayed construction projects worth more than $1.6 billion this year
according to a tally kept by the American Road and Transportation
Builders Association. A further 12 states have warned they might be
forced to take similar action.
With Republicans overseeing highway funding in both chambers of
Congress for the first time in more than 8 years, their vows to govern
responsibly are about to be tested. And no one expects the Democrats to
be particularly helpful.
John Bresnahan contributed to this report.
______
Committee for a Responsible Federal Budget
1900 M Street NW Suite 850 Washington, DC 20036 Phone: 202-596-
3597
Fax: 202-478-0681 www.crfb.org
The Road to Sustainable
Highway Spending
May 13, 2015
Introduction
The current legislation authorizing highway and mass transit spending
is scheduled to expire at the end of May, and only a few months later
the Highway Trust Fund will run out of reserves. Extending the life of
the trust fund through the end of the year will require $11 billion,
and extending it for a decade will require nearly $175 billion.
For over 50 years, federal highway spending had been financed with
dedicated revenue, mainly from the gas tax. Since 2008, however,
dedicated revenues have fallen short of spending, and policymakers have
covered the difference with about $65 billion of general revenue
transfers--often without truly paying for the cost. Those transfers are
projected to run out before the end of the year, disrupting
infrastructure spending across the county.
To maintain important infrastructure investments and avoid adding an
additional $175 billion to the debt, Congress must identify responsible
solutions to close the shortfall in the Highway Trust Fund.
Fortunately, Congress has many options at its disposal to do so (see
the appendix).
One solution that has recently gained popularity would rely on revenue
generated from business tax reform to close some of the $175 billion
gap. While this would be a sensible solution, tax reform will not pass
before the current highway bill expires, and there is a risk it will
not pass at all this year.
CRFB's plan, The Road to Sustainable Highway Spending, would encourage
the passage of tax reform while also ensuring the Highway Trust Fund
remains adequately funded regardless of tax reform's fate. The plan
would:
1. Get the Trust Fund Up to Speed ($25 billion) by paying the ``legacy
costs'' of pre-2015 obligations with savings elsewhere in the budget.
2. Bridge the Financing Gap ($150 billion) with a default policy to
raise the gas tax by 9 cents after a year and limit annual spending to
income.
3. Create a Fast Lane to Tax Reform to help Congress identify
alternative financing before the gas tax increase and spending limits
take effect.
The Road to Sustainable Highway Spending would ensure the Highway Trust
Fund remains solvent while giving policymakers flexibility to decide
the level of highway spending and how it would be paid for. Our plan
represents just one of many possible solutions. Importantly, any
solution must responsibly address the gap between spending and revenue
without resorting to gimmicks or deficit-financed transfers.
Background
Since 1956, most federal transportation infrastructure has been paid
for out of the Highway Trust Fund.\1\ Transportation is financed from
an 18.4 cent per gallon gasoline tax, 24.4 cent diesel tax, and several
smaller revenue sources. Since 2008, highway spending has continuously
exceeded dedicated revenue. Nominal outlays have continued to rise
modestly faster than inflation, while revenue has remained largely flat
due to fuel efficiency improvements and the lack of inflation
adjustment for the gas and diesel taxes.
---------------------------------------------------------------------------
\1\ The Highway Trust Fund has two separate accounts: one for
highways and one for mass transit. Technically, they have separate but
related and intertwined financing.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
This year, for example, federal highway spending will total $52 billion
while dedicated revenue will equal only $39 billion--leaving a $13
billion deficit. That annual shortfall will grow to $23 billion by
2025. While general revenue has helped cover this deficit since 2008,
the funds from these transfers are projected to run low by this summer,
disrupting reimbursements for existing projects and putting new
---------------------------------------------------------------------------
projects on hold.
Policymakers must identify $11 billion to ensure adequate funding
through the end of this year and roughly $175 billion to maintain
highway spending at current levels over the next decade.
This is the equivalent of a 14 cent gas and diesel tax increase,\2\ a
37 percent spending reduction, or a 3-year delay of new projects. Time
for action is running short. We explain many of the issues surrounding
the Highway Trust Fund in more detail in our 2014 report, ``Trust or
Bust: Fixing the Highway Trust Fund.''
---------------------------------------------------------------------------
\2\ This paper often describes the federal taxes on gasoline and
diesel fuel together as ``the gas tax.'' It also describes the ``net
revenue'' raised, subtracting potential payroll and income tax losses.
---------------------------------------------------------------------------
Existing Plans to Fund Highway Spending
Fortunately, lawmakers have plenty of options to deal with the trust
fund shortfall. In Trust or Bust, we identified four different types of
options: reductions in federal highway spending, increases in existing
revenue sources, new revenue sources, and general tax increases or
spending cuts to offset general revenue transfers.
Since that report, a number of policymakers and outside groups have
proposed to increase or index for inflation the federal gas tax. A
bipartisan proposal introduced in the House this April, for example,
would index the gas tax to inflation and put in place automatic tax
increases in 2017 and 2020 to close the shortfall if lawmakers do not
otherwise act.
An alternative proposal that appears to have growing traction would use
revenue from business tax reform to close some of the funding gap. Both
President Obama and former House Ways and Means Committee Chairman Dave
Camp (RMI) suggested using a deemed repatriation tax to finance a
general revenue transfer. Current House Ways and Means Committee
Chairman Paul Ryan (R-WI) and Senate Finance Committee Chairman Orrin
Hatch (R-UT) have also suggested tax reform as a vehicle for highway
funding.
Within tax reform, there are alternatives to funding highway spending,
including ``deemed repatriation,'' the use of temporary revenues from
changing cost-recovery schedules, or more permanent changes to
dedicated revenue sources such as the gas tax. With the right design,
such reform would allow for continued infrastructure investment while
also promoting economic growth by creating a more competitive tax code.
However, tax reform is not far enough along to pass in Congress before
the highway bill expires at the end of May, is highly unlikely to be
enacted before additional highway funding needs arise this summer, and
might not pass at all this year due to the political challenges
associated with designing and enacting major tax reform legislation.
Relying solely on tax reform to fund the Highway Trust Fund could put
its finances at risk.
Principles for Reform
Although lawmakers have many options to address the Highway Trust Fund
shortfall, any responsible solution should abide by three principles:
1. Act quickly to ensure adequate funding. Congress must extend the
highway bill this month and provide sufficient funding to avoid
disruptions this summer.
2. Offset any general revenue transfers with real savings. While at
least a short-term general revenue transfer is likely, it would be
irresponsible to enact a transfer without equal-sized spending cuts or
revenue increases to offset the cost. Using gimmicks such as pension
smoothing undermine the trust fund's credibility.
3. Close the structural imbalance. Lawmakers cannot rely on general
revenue transfers in perpetuity and must ultimately bring highway
spending and dedicated revenue in line. Plans should close this gap,
and any that fail to do so should acknowledge that further action will
need to be taken in the future.
The Road to Sustainable Highway Spending
The Road to Sustainable Highway Spending acknowledges interest in using
tax reform as a vehicle to fund the highway program, and facilitates
efforts to do so. But rather than relying on tax reform as the only
strategy, the plan ensures the Highway Trust Fund remains permanently
solvent regardless of tax reform's ultimate fate. It also gives future
Congresses both the authority and responsibility to decide how much the
federal government should spend on infrastructure and how it will pay
for such costs.
The Road to Sustainable Highway Spending has three parts. First, it
would enact a fully-offset general revenue transfer to pay off ``legacy
costs'' from past obligations made in 2014 and earlier. Second, it
would ensure highway spending and revenue remain in line by extending
the current highway bill for 2 years, scheduling a 9-cent gas tax
increase at the end of the first year, and limiting future highway
spending to trust fund income. Finally, the plan would create a ``fast
lane'' process for tax reform, allowing Congress to identify
alternatives or supplements to the scheduled gas tax increase before it
takes effect.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Get the Trust Fund Up To Speed--$25 billion
The Highway Trust Fund has about $25 billion of ``legacy costs'' from
underfunded spending authorized prior to this year that is scheduled to
be spent in future years. Under the current funding mechanism, future
gas taxes (and other dedicated sources) would be required not only to
pay for recent and new infrastructure projects, but also the projects
established by prior Congresses.
The Road to Sustainable Highway Spending would fund legacy costs out of
general revenue in hopefully the final transfer to the Highway
TrustFund. The plan would offset this transfer over 10 years with $15
billion from reducing and reforming agricultural subsidies and $10
billion from extending the mandatory sequester and mandatory
designation of aviation security fees through 2025. Other offsets could
also be used.
Bridge the Financing Gap--$150 billion
Enact a Two-Year Highway Bill at Current Levels. The current highway
bill expires at the end of May. The Road to Sustainable Highway
Spending would continue the bill for 2 additional years, keeping
nominal spending at that level over this time period. Alternatively, a
2-year highway bill could adjust spending levels in various areas,
keeping top-line number the same. Savings could be achieved by
expanding the use of tolls, reducing spending in lower priority areas
like hiking trails, reforming contracting rules, leveraging private and
state funding to reduce direct federal costs, or other changes.
Schedule a 9-Cent Gas Tax Increase After 1 Year. Since 1993, the
federal gas tax has totaled 18.4 cents per gallon (24.4 cents for
diesel fuel) and has not been adjusted for inflation. Although The Road
to Sustainable Highway Spending would give Congress the opportunity to
identify a funding source of its choice, it would schedule a 9-cent gas
tax increase by default--about adjusting the tax for past inflation--to
take effect in June 2016. This would bring revenue up to current
spending and raise $100 billion through 2025.\3\
---------------------------------------------------------------------------
\3\ Note that this policy would generate about $100 billion over 10
years net of income and payroll tax losses. Actual revenue to the trust
fund would be significantly higher. This excess revenue could be used
to schedule ``reverse general revenue transfers'' to repay past un-
offset transfers from general revenue.
Limit Future Highway Spending to Income. Although a 9-cent gas tax
increase would bring revenue up to current spending, revenue would
still fail to keep pace with inflation. To ensure future highway
spending does not grow faster than gas tax revenue, The Road to
Sustainable Highway Spending would limit future annual spending
levels--as measured by contract authority--to revenue plus interest
collection in the prior year. The plan would also change the budgetary
treatment of highway spending so it is accounted for entirely on the
mandatory side (for more details, see Box 1 of Trust or Bust). These
two changes would prevent future trust fund shortfalls by requiring
Congress to live within its means and would greatly reduce the
---------------------------------------------------------------------------
likelihood of another general revenue transfer.
Technically, this change would hold spending to current revenue,
roughly approximating a spending freeze that would require policymakers
to either forego inflation adjustments or else cut lower priority
spending. As a practical matter, it would require and empower future
lawmakers to either increase revenue, reduce spending (relative to an
inflation adjustment), identify alternative sources of financing, or
some combination. In concert with the 2-year freeze of highway spending
described above, this policy would save about $50 billion over 10
years.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Create a Fast Lane to Tax and Transportation Reform
Encourage Tax Reform. Although The Road to Sustainable Highway Spending
would schedule a future gas tax increase and constrain spending, it
would give policymakers ample time and opportunity to identify an
alternative revenue source to replace some or all of the gas tax
increase and/or allow for increased spending up what whatever level of
infrastructure investment policymakers believe appropriate.
Specifically, the plan would create a special process for the passage
of legislation that both reforms the tax code and provides funds for
the Highway Trust Fund, so long as that plan doesn't double-count the
highway money and otherwise abides by statutory pay-as-you-go (PAYGO)
rules.
One option which appears to be gaining support would be to dedicate
one-time revenue from tax reform--either from ``deemed repatriation''
or the temporary transition revenue from certain accounting or cost-
recovery changes--to the Highway Trust Fund. Such a transfer could
temporarily reduce or replace the scheduled gas tax increase, pay for
increases in infrastructure spending, or both. Importantly, though,
when the scheduled transfer ran out, the gas tax increase would go into
effect without further legislation.
A better alternative would be for tax reform to permanently increase
dedicated revenue going toward the Highway Trust Fund--for example by
reforming the gas tax \4\ or creating a new source of revenue--in order
to permanently replace the scheduled 9-cent gas tax increase and/or
increase spending levels. Making such changes as part of a broader tax
reform would make it easier for policymakers to address distributional
concerns and provide transition relief if necessary.
---------------------------------------------------------------------------
\4\ Among the options, the gas tax could be increased, indexed to
inflation, replaced with a percentage tax, or replaced with a variable
tax to add stability to the price of gasoline.
Encourage Future Highway Bills to Make Tax and Spending Decisions
Together. Currently, lawmakers determine highway funding in a
disjointed and haphazard way by settling on spending levels and then
providing ad hoc general revenue transfers. Instead, revenue and
spending decisions should be made together. New highway bills should
either set spending based on projected revenue levels or increase
revenue levels to align with desired spending. By bringing revenue up
to current spending levels and then setting strict caps to limit future
spending to income, The Road to Sustainable Highway Spending would
encourage such decision making. Further changes in the legislative
process could reinforce this practice.
Conclusion
A lasting solution to the Highway Trust Fund's financing issue has
evaded lawmakers for several years now, and the series of short-term
patches often financed by gimmicks have not been helpful for
transportation policy or the budget. However, recent developments such
as lower gas prices and a number of proposals involving transition
revenue from tax reform suggest that a bipartisan highway solution may
be possible this year.
The Road to Sustainable Highway Spending combines a one-time general
revenue transfer, a 2-year highway bill, a future scheduled gas tax
increase, and a requirement that highway spending remain at or below
income in order to ensure the short- and long-term solvency of the
Highway Trust Fund. At the same time, it creates a ``fast lane'' to tax
and transportation reform to give Congress and the President the
authority and responsibility to decide how highway spending will
ultimately be paid for and at what level.
Importantly, this plan represents one of many different possibilities,
as can be seen in the appendix, to solve the Highway Trust Fund's
structural imbalance. Regardless of how it is done, it is important for
lawmakers to come up with a real solution rather than continue to paper
over the shortfall with budget gimmicks and deficit spending. A real
solution will provide much more certainty for surface transportation
projects across the country and improve the budget outlook.
Appendix
The policies contained in The Road to Sustainable Highway Spending are
certainly not the only policies available to fund surface
transportation spending. In this appendix, we provide several other
options to close the Highway Trust Fund shortfall. Broadly speaking, we
divide the options into four categories: reductions in federal highway
spending, increases in existing revenue sources, new revenue sources,
and general tax increases or spending cuts to offset general revenue
transfers. As this appendix and the body of the report show, there is
no shortage of options to make the Highway Trust Fund solvent.
Table 1: Options to Reduce Surface Transportation Spending
----------------------------------------------------------------------------------------------------------------
Percent of Shortfall Closed
Policy 10-Year Savings -----------------------------------
4-Year 6-Year 10-Year
----------------------------------------------------------------------------------------------------------------
Freeze spending at 2015 levels for 10 years $45 billion 10% 15% 25%
----------------------------------------------------------------------------------------------------------------
Freeze spending at 2015 levels for 2 years $15 billion 8% 8% 9%
----------------------------------------------------------------------------------------------------------------
Reduce spending to 2008 levels $90 billion 50% 55% 55%
----------------------------------------------------------------------------------------------------------------
Reduce spending by 37 percent $175 billion 95% 105% 100%
----------------------------------------------------------------------------------------------------------------
Limit spending to prior year's revenue $155 billion 70% 80% 85%
----------------------------------------------------------------------------------------------------------------
Eliminate new commitments for 1 year $50 billion 85% 60% 30%
----------------------------------------------------------------------------------------------------------------
Eliminate new commitments for 2 years $105 billion 165% 115% 60%
----------------------------------------------------------------------------------------------------------------
Eliminate funding for capital investment grants $15 billion 7% 9% 10%
----------------------------------------------------------------------------------------------------------------
Reduce Highway Safety Improvement funding to 2012 $10 billion 6% 6% 7%
levels
----------------------------------------------------------------------------------------------------------------
Reduce CMAQ program by 50% $10 billion 5% 6% 6%
----------------------------------------------------------------------------------------------------------------
Eliminate funding for alternative transportation $10 billion 5% 5% 5%
----------------------------------------------------------------------------------------------------------------
Return TIFIA program funding to 2012 levels $10 billion 4% 4% 5%
----------------------------------------------------------------------------------------------------------------
Repeal Davis-Bacon Act for highway projects $5 billion 3% 4% 4%
----------------------------------------------------------------------------------------------------------------
Eliminate funding for federal lands transportation $5 billion 1% 2% 2%
----------------------------------------------------------------------------------------------------------------
Improve grants to focus on high-priority spending N/A N/A N/A N/A
----------------------------------------------------------------------------------------------------------------
Leverage state. local, and private spending N/A N/A N/A N/A
----------------------------------------------------------------------------------------------------------------
Sources: CBO, Federal Highway Administration, CRFB calculations.
All numbers are rounded and calculated very roughly by CRFB based on data from a variety of sources.
Percentages represent average effect over the time period and do not address timing issues.
Table 2: Options to Increase Current Sources of Highway Revenues
----------------------------------------------------------------------------------------------------------------
Percent of Shortfall Closed
Policy 10-Year Savings -----------------------------------
4-Year 6-Year 10-Year
----------------------------------------------------------------------------------------------------------------
Index gas and diesel fuel taxes to inflation $40 billion 12% 17% 24%
----------------------------------------------------------------------------------------------------------------
Raise gas and diesel fuel taxes by 14 cents $175 billion 134% 124% 100%
----------------------------------------------------------------------------------------------------------------
Raise fuel taxes by 11 cents and index to inflation $175 billion 128% 120% 101%
----------------------------------------------------------------------------------------------------------------
Raise gas tax to match diesel tax $55 billion 45% 40% 32%
----------------------------------------------------------------------------------------------------------------
Eliminate special exemptions from the gas tax $15 billion 11% 10% 9%
----------------------------------------------------------------------------------------------------------------
Increase truck and trailer tax from 12% to 20% $25 billion 17% 16% 13%
----------------------------------------------------------------------------------------------------------------
Double heavy vehicle use tax $10 billion 7% 7% 6%
----------------------------------------------------------------------------------------------------------------
Double truck tire tax $5 billion 4% 3% 2%
----------------------------------------------------------------------------------------------------------------
Repeal special tax rates on certain fuels $20 billion 13% 12% 10%
----------------------------------------------------------------------------------------------------------------
Sources: CBO, National Surface Transportation Infrastructure Financing Commission, and CRFB calculations.
Table 3: Options for New Sources of Revenue
----------------------------------------------------------------------------------------------------------------
Percent of Shortfall Closed
Policy 10-Year Savings -----------------------------------
4-Year 6-Year 10-Year
----------------------------------------------------------------------------------------------------------------
Institute 1% motor fuel sales tax $55 billion 40% 37% 32%
----------------------------------------------------------------------------------------------------------------
Impose $1 per barrel tax on oil $45 billion 30% 30% 30%
----------------------------------------------------------------------------------------------------------------
Impose $10 per-tire tax on car tires $30 billion 15% 15% 15%
----------------------------------------------------------------------------------------------------------------
Impose 2% vehicle sales tax $15 billion 12% 11% 10%
----------------------------------------------------------------------------------------------------------------
Institute $20 fee on containers in U.S. ports $10 billion 5% 5% 5%
----------------------------------------------------------------------------------------------------------------
Institute 0.05 cent per ton-mile tax on freight $20 billion 12% 12% 12%
----------------------------------------------------------------------------------------------------------------
Apply 3.5% surcharge to customs duties $10 billion 7% 7% 6%
----------------------------------------------------------------------------------------------------------------
Impose vehicle registration fee of $10 on light $35 billion 20% 20% 20%
vehicles and $20 on trucks
----------------------------------------------------------------------------------------------------------------
Institute $10 driver's license surcharge $20 billion 12% 12% 12%
----------------------------------------------------------------------------------------------------------------
Impose 0.5 cent-per-mile VMT fee $150 billion 85% 85% 85%
----------------------------------------------------------------------------------------------------------------
Replace current taxes with 1.9 cent-per-mile VMT fee $175 billion 100% 100% 100%
----------------------------------------------------------------------------------------------------------------
Replace current taxes with carbon tax (rebate 50%) $175 billion 100% 100% 100%
----------------------------------------------------------------------------------------------------------------
Replace gas tax with a percentage tax Dialable N/A N/A N/A
----------------------------------------------------------------------------------------------------------------
Replace gas tax with flexible tax to help stabilize gas Dialable N/A N/A N/A
prices
----------------------------------------------------------------------------------------------------------------
Sources: National Surface Transportation Infrastructure Financing Commission and CRFB calculations.
Numbers are rounded and calculated very roughly by CRFB.
Estimates are intended to include the effect of income and payroll tax offsets under the assumption that revenue
losses are compensated with reverse revenue transfers.
Percentages represent average effect over the time period and do not address timing issues.
Table 4: Options to Offset a Transfer of General Revenue
------------------------------------------------------------------------
Trust Fund
Policy 10-Year Savings Extension
------------------------------------------------------------------------
Dedicate one-time ``deemed $125+ billion 8+ years
repatriation'' tax to the HTF
------------------------------------------------------------------------
Dedicate temporary transition $90 billion 6 years
revenue from repealing LIFO to
the HTF
------------------------------------------------------------------------
Repeal certain oil and gas tax $35 billion 30 months
preferences
------------------------------------------------------------------------
Eliminate tax exclusion for new $30 billion 24 months
private activity bonds
------------------------------------------------------------------------
Require filers to have a SSN to $20 billion 16 months
file for a refundable child tax
credit
------------------------------------------------------------------------
Eliminate Amtrak subsidies * $15 billion 12 months
------------------------------------------------------------------------
Eliminate ``Capital Investment $15 billion 12 months
Grants'' for the rail system *
------------------------------------------------------------------------
Reduce farm subsidies $15 billion 12 months
------------------------------------------------------------------------
Close Section 179 ``luxury SUV $10 billion 8 months
loophole''
------------------------------------------------------------------------
Reduce Strategic Petroleum Reserve $10 billion 8 months
by 15 percent
------------------------------------------------------------------------
Increase sequestration by $1 $10 billion 8 months
billion/year
------------------------------------------------------------------------
Repeal tax deduction for moving $10 billion 8 months
expenses
------------------------------------------------------------------------
Clarify worker classification $10 billion 8 months
------------------------------------------------------------------------
Prevent ``double dipping'' between $5 billion 4 months
unemployment and Social Security
Disability
------------------------------------------------------------------------
Allow drilling in ANWR and the $5 billion 4 months
Outer Continental Shelf
------------------------------------------------------------------------
Reduce federal research funding $5 billion 4 months
for fossil fuels and nuclear
energy *
------------------------------------------------------------------------
Repeal or phase-out tax credit for $1.5-$5 billion 1-4 months
plug-in electric vehicles
------------------------------------------------------------------------
Require inherited IRAs to be paid $5 billion 4 months
out within 5 years
------------------------------------------------------------------------
Extend current Fannie/Freddie fees $4 billion/year 3 months/year
after 2021
------------------------------------------------------------------------
Extend customs fees through 2025 $4 billion 3 months
------------------------------------------------------------------------
Deny biofuels credit for black $3 billion 3 months
liquor (retroactively)
------------------------------------------------------------------------
Increased mortgage reporting $2 billion 2 months
------------------------------------------------------------------------
Require the IRS to hire private $2 billion 2 months
debt collectors
------------------------------------------------------------------------
Make coal excise tax permanent $1.5 billion 1 month
------------------------------------------------------------------------
Clarification of statute of $1.5 billion 1 month
limitations on overstatement of
basis
------------------------------------------------------------------------
Make Travel Promotion Surcharge $1 billion 1 month
permanent
------------------------------------------------------------------------
Close the "gas guzzler" loophole $1 billion 1 month
------------------------------------------------------------------------
Enact federal oil and gas $1 billion 1 month
management reforms in the
President's Budget
------------------------------------------------------------------------
Revoke passports for seriously <$0.5 billion <1 month
delinquent taxpayers
------------------------------------------------------------------------
Sources: CBO, OMB, JCT, and CRFB calculations.
All numbers are rounded and calculated by CRFB based on a variety of
sources.
* These discretionary changes would need to be accompanied by reductions
in the discretionary spending caps.
Includes expensing for exploration and development as well as the
``percentage depletion allowance.''
______
Prepared Statement of Joseph Kile, Ph.D., Assistant Director for
Microeconomic Studies, Congressional Budget Office
Chairman Hatch, Senator Wyden, and Members of the Committee, thank
you for the invitation to testify about the status of the Highway Trust
Fund and options for paying for highway improvements and construction.
summary
In 2014, governments at various levels spent $165 billion to build,
operate, and maintain highways, and they spent $65 billion on mass
transit systems. For both types of infrastructure, most of that
spending was by state and local governments; about one-quarter of that
total came from the federal government, mostly through the Highway
Trust Fund. For several decades, the trust fund's balances were stable
or growing, but more recently, annual spending for highways and transit
has exceeded the amounts credited to the trust fund from taxes
collected on gasoline, diesel fuel, and other transportation-related
products and activities. Since 2008, in fact, lawmakers have
transferred $65 billion from the U.S. Treasury's general fund to the
Highway Trust Fund so that the trust fund's obligations could be met in
a timely manner.
Moreover, with its current revenue sources, the Highway Trust Fund
cannot support spending at the current rate. The Congressional Budget
Office estimates that spending in fiscal year 2015 for highways and
transit programs funded from the Highway Trust Fund will be $44 billion
and $8 billion, respectively, whereas revenues collected for those
purposes are projected to be $34 billion and $5 billion, respectively.
By CBO's estimate, at the end of fiscal year 2015, the balance in the
trust fund's highway account will fall to about $2 billion and the
balance in its transit account will be about $1 billion.
The Department of Transportation (DOT) would probably need to delay
payments to states at some point before the end of fiscal year 2015 in
order to keep the fund's balance above zero, as required by law. In
fact, because of the timing of the deposits to the trust fund, DOT has
stated that it would need to delay payments if cash balances fell below
$4 billion in the highway account or below $1 billion in the transit
account. Then, if nothing changes, the trust fund's balance will be
insufficient to meet all of its obligations in fiscal year 2016, and
the trust fund will incur steadily accumulating shortfalls in
subsequent years.
Several options (or combinations of those options) could be pursued
to address projected shortfalls in the Highway Trust Fund:
Spending on highways and transit could be reduced. If lawmakers
chose to address the projected shortfalls solely by cutting
spending, no new obligations from the fund's highway account or its
transit account could be made in fiscal year 2016; that would also
be the case for the transit account in fiscal year 2017. Over the
2016-2025 period, the highway account would the authority to
obligate funds, and the transit account's authority would decrease
by about two-thirds, compared with CBO's baseline projections.
Revenues credited to the trust fund could be increased.
Lawmakers could address the projected shortfalls by raising
existing taxes on motor fuels or other transportation-related
products and activities; by imposing new taxes on highway users,
such as vehicle-miles traveled (VMT) taxes; or by imposing taxes on
activities unrelated to transportation. The staff of the Joint
Committee on Taxation (JCT) estimates that a one-cent increase in
taxes on motor fuels--primarily gasoline and diesel fuel--would
initially raise about $1.7 billion annually for the trust fund,
declining over the next 10 years to about $1.5 billion each year.
If lawmakers chose to meet obligations projected for the trust fund
solely by raising revenues, they would need to increase motor fuel
taxes by roughly 10 cents per gallon, starting in fiscal year 2016.
The trust fund could continue to receive supplements from the
Treasury's general fund. Lawmakers could maintain funding for
surface transportation programs at the average amounts provided in
recent years, but to do so they would need to transfer $3 billion
before the end of fiscal year 2015 and between $11 billion and $22
billion every year thereafter through 2025. Spending resulting from
such general fund transfers could be paid for by reducing other
spending or by increasing revenues from broad-based taxes, or such
transfers could add to deficits and thus increase federal
borrowing.
The projected shortfalls in the Highway Trust Fund have generated
interest in greater use of borrowing by state and local governments to
finance highway projects. In particular, state and local governments
(and some private entities) can use tax-preferred bonds that convey
subsidies from the federal government in the form of tax exemptions,
credits, or payments in lieu of credits to finance road construction.
Similarly, some of those governments make use of direct loans from the
federal government to finance projects.
Federal policies that encourage partnerships between the private
sector and a state or local government may facilitate the provision of
additional transportation infrastructure, but a review of those
projects offers little evidence that public-private partnerships
provide additional resources for roads except in cases in which states
or localities have chosen to restrict spending through self-imposed
legal constraints or budgetary limits.
Only a small number of highway projects in the United States have
involved public-private partnerships with private financing. Some that
have been financed through tolls have failed financially because the
private-sector partners initially overestimated their revenues and as a
result have been unable to fully repay their projects' debts. Perhaps
as a response, projects that are still under construction rely less on
tolls as a revenue source; more commonly, private partners are
compensated from a state's general funds, thus limiting the private
risk of not being repaid and leaving the risk of lower-than-expected
revenues to the public partner.
Regardless of its source, however, borrowing is only a mechanism
for making future tax revenues or user fee revenues available to pay
for projects sooner; it is not a new source of revenues. Borrowing can
augment the funds available for highway projects, but revenues that are
committed for repaying borrowed funds will be unavailable to pay for
new transportation projects or other government spending in the future.
spending for highways and mass transit
Almost all spending on highway infrastructure and transit projects
in the United States is funded publicly. Although the private sector
participates in building, operating, and maintaining projects, the
federal government and state and local governments typically determine
which projects to undertake and how much to spend on them. Despite
several prominent examples, private spending on highway projects
constitutes only a small fraction of the total.
Almost three-quarters of all public spending on highways is by
state and local governments: In 2014, state and local governments spent
$118 billion, and the federal government spent $46 billion. Almost all
federal highway spending is capital spending, which is used to build
and improve highways; by contrast, about 40 percent of the total for
state and local governments is capital spending and 60 percent is for
operations and maintenance. Public-private partnerships that involve
private financing have accounted for less than 1 percent of all
spending on highways during the past 25 years.
Real (inflation-adjusted) total spending on highways by federal ,
state, and local governments increased in the 1980s and 1990s, but it
has fallen off since then. Real spending on transit programs is much
less than for highways but has generally grown--especially spending by
state and local governments--during recent decades (see Figure 1).\1\
---------------------------------------------------------------------------
\1\ For more information on infrastructure spending, see
Congressional Budget Office, Public Spending on Transportation and
Water Infrastructure, 1956 to 2014 (March 2015), www.cbo.gov/
publication/49910.
---------------------------------------------------------------------------
The Highway Trust Fund
The federal government's surface transportation programs are
financed mostly through the Highway Trust Fund, an accounting mechanism
in the federal budget that comprises two separate accounts, one for
highways and one for mass transit. The trust fund records specific cash
inflows from revenues collected through excise taxes on the sale of
motor fuels, trucks and trailers, and truck tires; taxes on the use of
certain kinds of vehicles; and interest credited to the fund. The
Highway Trust Fund also records cash outflows for spending on
designated highway and mass transit programs, mostly in the form of
grants to states and local governments.
Spending from the Highway Trust Fund is controlled by two types of
legislation:
Authorization acts that provide budget authority (which allows
the government to incur financial obligations that will result in
immediate or future outlays of federal funds), mostly in the form
of contract authority (which permits the government to enter into
contracts or to incur obligations in advance of appropriations),
and
Annual appropriation acts, which customarily set limits on the
amount of contract authority that can be obligated in a given year.
The Moving Ahead for Progress in the 21st Century Act of 2012 (MAP-
21) authorized current highway and transit programs through fiscal year
2014. That authorization was subsequently extended. Most recently, the
Highway and Transportation Funding Act of 2015 (Public Law 114-21)
authorized those programs until July 31, 2015. The extension provided
contract authority for highway and transit programs at an annualized
rate of $51 billion; the 2015 obligation limitations total about $50
billion.
Excise taxes on motor fuels account for 87 percent of the Highway
Trust Fund's revenues, mostly from the tax of 18.4 cents per gallon on
gasoline and ethanol-blended fuels.\2\ Receipts from the gasoline tax
now constitute almost two-thirds of the fund's total revenues (see
Table 1). Under current law, all but 4.3 cents per gallon of that tax
is set to expire on September 30, 2016. If that occurs, the receipts
from the remaining tax will no longer be credited to the trust fund but
instead will go into the Treasury's general fund. The second-largest
share, accounting for about one-quarter of the fund's revenues, comes
from the diesel fuel tax of 24.4 cents per gallon. The remainder comes
from other taxes and from a very small amount of interest that is
credited to the fund. Most of the revenues from motor fuel taxes are
credited to the highway account of the trust fund, but 2.86 cents per
gallon goes into the mass transit account, which receives about 13
percent of the trust fund's total revenues and interest.
---------------------------------------------------------------------------
\2\ The total gas tax is 18.4 cents per gallon. Of that, 18.3 cents
is credited to the Highway Trust Fund, and 0.1 cent goes to the Leaking
Underground Storage Tank Trust Fund. (The Omnibus Budget Reconciliation
Act of 1993 increased the gas tax by 4.3 cents, from 14.1 cents to 18.4
cents; the added receipts were not initially credited to the trust fund
but instead went into the Treasury's general fund.)
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Table 1. Estimated Revenues Credited to the Highway Trust Fund, by Source, 2015
Billions of Dollars
----------------------------------------------------------------------------------------------------------------
Share of Total
Trust Fund
Highway Account Transit Account Total Revenues and
Interest a
(Percent)
----------------------------------------------------------------------------------------------------------------
Gasoline Tax 20.6 3.8 24.4 62
Diesel Tax 8.5 1.1 9.7 25
Tax on Trucks and Trailers 3.8 0 3.8 10
Use Tax on Certain Vehicles 1.0 0 1.0 3
Tire Tax on Trucks 0.5 0 0.5 1
-------------------------------------------------------------------------------
Total 34.4 4.9 39.4 100
----------------------------------------------------------------------------------------------------------------
Source: Congressional Budget Office.
a In 2015, CBO estimates, a small amount of interest will be credited to the Highway Trust Fund, in keeping with
provisions of the Hiring Incentives to Restore Employment Act of 2010.
History of the Trust Fund's Balances. For several decades, the
balances in the highway account were relatively stable or growing, but
since 2001, receipts have consistently fallen below expenditures.\3\
(The transit account was not established until 1983 and, until 2006, it
had a different accounting treatment that makes historical comparisons
inapplicable.) During the 1980s and the first half of the 1990s,
balances in the highway account held steady in the vicinity of $10
billion. The most recent increase in the gasoline tax occurred in 1993,
and after the Taxpayer Relief Act of 1997 redirected 4.3 cents of that
tax from the general fund to the Highway Trust Fund, the unexpended
balance in the highway account began to grow rapidly, reaching almost
$23 billion in 2000. In 1998, the Transportation Equity Act for the
21st Century (known as TEA-21) authorized spending that was sufficient
to gradually draw down those balances. As a result of that legislation
and the Safe, Accountable, Flexible, Efficient Transportation Equity
Act: A Legacy for Users (SAFETEA-LU), which was enacted in 2005,
outlays have generally exceeded revenues since 2001.
---------------------------------------------------------------------------
\3\ In 2010, the trust fund saw a significant decrease in outlays
because states spent funds from the general fund of the Treasury that
were appropriated in the American Recovery and Reinvestment Act of
2009. That act did not require states to match federal funds or even to
contribute funds to projects, and the same projects that were eligible
for funding from the Highway Trust Fund were eligible for funding under
the act.
Since 2006, when certain accounting changes specified in TEA-21
took effect, spending from the transit account has grown and, since
2008, has exceeded revenues credited to the account. TEA-21 and SAFETE-
LU authorized spending from the account that has exceeded revenues
---------------------------------------------------------------------------
credited to the fund by between $3 billion and $4 billion every year.
Because of looming shortfalls, since 2008 lawmakers have enacted
legislation to transfer a total of $65 billion to the trust fund--
mostly from the Treasury's general fund--including $22 billion in 2014.
Those intragovernmental transfers have allowed the fund to maintain a
positive balance, but they did not change the amount of receipts
collected by the government. After those transfers, at the end of
fiscal year 2014, the trust fund's balance totaled $15 billion.
Projections of Outlays and Revenues in 2015. According to CBO's
estimates, absent further legislation, the highway account will end
fiscal year 2015 with a balance of $2 billion--at the end of 2014, that
balance was $11 billion (see Table 2). By CBO's estimates, outlays from
the highway account will total $44 billion in 2015, but revenues and
interest earnings will amount to just $34 billion for the year. The
situation is similar for the transit account, which is on track to end
fiscal year 2015 with a balance of about $1 billion, CBO estimates,
down from $3 billion a year earlier. Revenues and interest earnings are
projected to amount to $5 billion in 2015, but outlays are expected to
total more than $8 billion.
Table 2. Projections of the Highway Trust Fund's Accounts Under CBO's March 2015 Baseline
Billions of Dollars, by Fiscal Year
--------------------------------------------------------------------------------------------------------------------------------------------------------
2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
--------------------------------------------------------------------------------------------------------------------------------------------------------
Highway Account
Start-of-Year Balance................................. 4 11 2 a a a a a a a a a
Revenues and Interest b............................... 34 34 35 35 35 35 35 35 35 35 34 34
Intragovernmental Transfers c......................... 18 0 0 0 0 0 0 0 0 0 0 0
Outlays............................................... 45 44 45 45 46 46 47 48 48 49 50 50
End-of-Year Balance................................... 11 2 a a a a a a a a a a
Transit Account
Start-of-Year Balance................................. 2 3 1 a a a a a a a a a
Revenues and Interest b............................... 5 5 5 5 5 5 5 5 5 5 5 4
Intragovernmental Transfers c......................... 4 0 0 0 0 0 0 0 0 0 0 0
Outlays............................................... 8 8 8 8 8 9 9 9 10 10 9 10
End-of-Year Balance................................... 3 1 a a a a a a a a a a
Memorandum:
Cumulative Shortfall a
Highway account................................... n.a. n.a. -8 -19 -29 -41 -52 -65 -79 -93 -108 -125
Transit account................................... n.a. n.a. -3 -6 -9 -13 -17 -22 -27 -32 -37 -43
--------------------------------------------------------------------------------------------------------------------------------------------------------
Source: Congressional Budget Office.
Note: n.a. = not applicable.
a Before the end of fiscal year 2015, CBO projects, revenues credited to the highway and transit accounts of the Highway Trust Fund will be insufficient
to meet the fund's obligations. Under current law, the trust fund cannot incur negative balances, nor is it permitted to borrow to cover unmet
obligations presented to the fund. Under the Deficit Control Act of 1985, however, CBO's baseline for highway spending must incorporate the assumption
that obligations incurred by the Highway Trust Fund will be paid in full. The cumulative shortfalls shown here thus are estimated on the basis of
spending that is consistent with obligation limitations contained in CBO's March 2015 baseline--adjusted for projected inflation--for highway and
transit spending. To meet obligations as they come due, the Department of Transportation estimates, the highway account must maintain cash balances of
at least $4 billion, and the transit account must maintain balances of at least $1 billion.
b Some taxes that are credited to the Highway Trust Fund are scheduled to expire on September 30, 2016--among them the taxes on certain heavy vehicles
and tires and all but 4.3 cents of the federal tax on motor fuels. Under the rules that govern CBO's baseline projections, however, these estimates
reflect the assumption that all of those expiring taxes would be extended.
c The Moving Ahead for Progress in the 21st Century Act and the Highway and Transportation Funding Act of 2014 required certain intragovernmental
transfers, mostly from the U.S. Treasury's general fund, to the Highway Trust Fund in 2014. Those amounts totaled about $22 billion. CBO's baseline
reflects an assumption that no additional transfers from the general fund will occur.
Unless additional funds are provided (either through an increase in
revenues or through additional transfers from the general fund), the
disparity between the receipts credited to the fund and outlays from
the fund will require DOT to delay its reimbursements to states for the
costs of construction. CBO estimates that such a delay would probably
take effect sometime before the end of fiscal year 2015. Such a
slowdown in payments occurred in 2008 when DOT announced that balances
in the highway account had fallen below what it needed to reimburse
states for the bills presented to the fund. Because deposits into the
fund are made only twice each month, DOT has testified that it would
need to delay payments if cash balances fell below $4 billion in the
highway account or below $1 billion in the transit account.\4\
---------------------------------------------------------------------------
\4\ Department of Transportation, Office of Inspector General,
Refinements to DOT's Management of the Highway Trust Fund's Solvency
Could Improve the Understanding and Accuracy of Shortfall Projections,
CR-2012-071 (March 2012), p. 22,
https://www.oig.dot.gov/library-item/29434.
Projections of Outlays and Revenues From 2016 Through 2025. CBO's
baseline projections reflect the assumptions that expiring excise taxes
would be extended and that obligations from the trust fund would grow
at the rate of inflation. Under those assumptions, CBO projects,
shortfalls in both accounts of the trust fund would grow steadily
larger over the next decade because revenues from the excise taxes are
expected to grow very little, but spending would continue to rise (see
Figure 2).\5\ By 2025, the cumulative shortfalls would total about $125
billion for the highway account and about $43 billion for the transit
account, CBO estimates.
---------------------------------------------------------------------------
\5\ CBO constructs its baseline in accordance with provisions set
forth in the Balanced Budget and Emergency Deficit Control Act of 1985
and in the Congressional Budget and Impoundment Control Act of 1974.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Revenues generated by excise taxes and credited to the Highway
Trust Fund are projected to decline slightly over the coming decade
from about $40 billion in 2016 to about $39 billion in 2025, mostly
because increases in revenues from taxes on the use of diesel fuel and
on truck sales are expected to be offset by declines in revenues from
the tax on gasoline. Tax revenues from diesel fuel and truck sales are
projected to increase, on average, by about 2 percent annually over the
2016-2025 period. In contrast, revenues from the tax on gasoline are
projected to decline at an average annual rate of 2 percent over that
period, mainly because of mandated increases in corporate average fuel
economy standards.\6\
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\6\ For more information, see Congressional Budget Office, How
Would Proposed Fuel Economy Standards Affect the Highway Trust Fund?
(May 2012), www.cbo.gov/publication/43198.
If lawmakers do not address the projected shortfalls, all revenues
credited to the Highway Trust Fund in 2016 will be used to meet
obligations made before that year. Most obligations involve capital
projects that take years to complete--meaning that outlays for such
projects are often spread across several years after funds have been
committed. (The Federal-Aid Highway program, for example, typically
spends about 25 percent of its budgetary resources in the year funds
are first made available for spending; the rest is spent over the next
several years.) Thus, in any given year, the vast majority of outlays
from the Highway Trust Fund stem from contract authority provided and
obligated in prior years. Because existing obligations far exceed the
amounts in the fund at any given time, most of the trust fund's current
obligations will be met using tax revenues that have not yet been
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collected.
As a result, the fund's balances are not indicative of the amounts
available to cover proposed new spending authority. A more useful
measure is the projected balances in the trust fund minus prior
obligations that have not yet been liquidated and that must be paid for
from future tax revenues collected under current law. At the end of
2014, for example, $65 billion in contract authority for highway
programs had been obligated but not yet spent and another $26 billion
was available to states but not yet obligated, for a total of $91
billion in contract authority. Tax receipts dedicated to the highway
account are projected to be about $35 billion per year over the 2016-
2018 period for a total of $105 billion. Thus, under the calculation
suggested above, there would be only about $16 billion ($105 billion
plus the $2 billion in the fund at the end of 2015 minus $91 billion)
in the fund over the next 3 years to cover the costs that would result
from providing new spending authority. So even if states were given no
further authority to spend, close to another 3 years' worth of motor
fuel taxes would need to be collected just to meet the highway
account's obligations at the end of 2014 plus any new obligations from
contract authority made available before 2015. For the transit account,
collections of almost 5 years' worth of taxes, at about $5 billion per
year, would be needed to meet current obligations and any new
obligations from contract authority made available before 2015.\7\
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\7\ See Office of Management and Budget, Budget of the U.S.
Government, Fiscal Year 2016: Appendix (February 2015),
www.whitehouse.gov/omb/budget/Appendix. At the end of fiscal year 2014,
the balance in the transit account was about $3 billion, but unspent
contract authority for transit programs totaled $16 billion in
obligated balances and $8 billion in unobligated amounts.
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Options for Addressing Projected Shortfalls in the Highway Trust Fund
Lawmakers have three primary options for addressing the projected
shortfalls in the Highway Trust Fund:
Reduce spending on highways and transit,
Increase taxes dedicated to the trust fund, or
Transfer general revenues to supplement the trust fund.
Of course, many combinations of such changes are possible.
Reduce Spending From the Trust Fund. Policymakers might want to
address projected shortfalls by limiting federal spending for highways
and mass transit to the amount of revenues generated by users. That
reduction in spending would probably have significant negative
consequences for the condition and performance of the nation's highway
and mass transit infrastructure. In addition, unless some other federal
spending was increased or federal taxes lowered, the reduction in
federal spending would slow economic growth and employment during the
next few years relative to what it would otherwise be. Over the longer
term, the smaller amount of infrastructure would impose a drag on
economic performance, but the smaller amount of federal debt stemming
from the decrease in spending would provide an economic boost.
If lawmakers chose to avert projected shortfalls solely by cutting
spending, then the trust fund could not support any new obligations in
2016, probably significantly delaying investment in infrastructure and
halting numerous transportation projects across the country. Neither
the highway account nor the transit account would be able to support
new obligations in 2016 because reimbursements to states for multiyear
projects already under way would be expected to exceed the estimated
revenue collections for that year. The highway account would be able to
support new obligations in 2017, but the transit account would not (see
Figure 3). Such sudden shifts in the amount of annual spending
authority would probably make program administration and planning
difficult for DOT as well as for state and local grant recipients.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Over the 2016-2025 period, obligational authority for the highway
account would be about one-third less, and for the transit account,
about two-thirds less, than the amounts projected in CBO's baseline.
Such a cut would reduce obligations for highway programs from current
projections of about $47 billion per year, on average, to about $31
billion per year, on average, from 2016 through 2025. Similarly, such a
cut would reduce obligations for transit projects from current
projections of about $10 billion per year, on average, to about $4
billion per year, on average, for the 2016-2025 period.
The consequences of such reductions in federal spending could be
ameliorated, at least in part, if state and local governments responded
to the reduction in federal funds by increasing their own spending
through some combination of raising additional revenues, shifting
spending from other purposes, and borrowing.
If total funding for investment in highways and mass transit was
significantly reduced, then it would be especially important to
allocate the remaining funding, and to use that infrastructure, in the
most effective way. Specifically, the negative consequences of a
substantial reduction in funding could be partly alleviated if the
remaining spending was focused on projects with especially large
benefits and if people's use of highways and mass transit was focused
on the highest-value uses (for example, through taxes on vehicle-miles
traveled or congestion pricing).\8\ In addition, the economic
efficiency of each dollar of funding could be improved if the federal
government limited its support to projects (such as the Interstate
highways) that offer significant benefits to more than one state,
leaving state and local governments to fund projects with more
localized benefits. If the people who benefit from a project bear its
costs, the likelihood is diminished that too large a project (or too
many projects) will be undertaken or that too many infrastructure
services will be consumed relative to the resources needed to provide
them.
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\8\ For a comprehensive discussion of the benefits and challenges
of congestion pricing, including options for its design and
implementation for highways, see Congressional Budget Office, Using
Pricing to Reduce Traffic Congestion (March 2009), www.cbo.gov/
publication/20241.
Increase Revenues Dedicated to the Trust Fund. Another approach to
bringing the trust fund's finances into balance would be to increase
its revenues--for example, by raising the taxes on motor fuels; by
imposing mileage-based, or VMT, taxes; or by imposing taxes on
activities that are not related to transportation.\9\ Increasing the
charges that highway users pay also could promote more efficient use of
the system. Economic efficiency is enhanced when highway users are
charged according to the marginal (or incremental) costs of their use,
including the external costs that their highway use imposes on society.
A combination of a fuel tax and a VMT tax that accounts for the type
and weight of a vehicle and the location and time of its use could
provide incentives for reducing driving's social costs and could
generate funds for federal spending on highways.\10\ But generating
additional funds that way would raise questions of fairness, including,
for example, whether the structure of user charges would impose
relatively greater burdens on low-income and rural users.
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\9\ See Congressional Budget Office, Alternative Approaches to
Funding Highways (March 2011), www.cbo.gov/publication/22059.
\10\ For example, see David Austin, Pricing Freight Transport to
Account for External Costs, Working Paper 2015-03 (Congressional Budget
Office, March 2015), www.cbo.gov/
publication/50049.
Fuel Taxes. Excise taxes credited to the Highway Trust Fund come
primarily from taxes on gasoline, ethanol-blended fuels, and diesel
fuels. Those excise taxes were last increased in 1993, and their
purchasing power is about 40 percent below that in 1993. If those taxes
had been adjusted to keep pace with the consumer price index, for
example, the tax on gasoline, which is currently 18.4 cents per gallon,
would be about 30 cents per gallon, and the tax on diesel fuel,
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currently 24.4 cents per gallon, would be about 40 cents per gallon.
According to JCT's estimates, a one-cent increase in the taxes on
motor fuels, effective October 1, 2015, would initially raise about
$1.7 billion annually for the Highway Trust Fund, declining over the
next 10 years to about $1.5 billion annually.\11\ The decline occurs
mainly because, under current law, annual increases in the use of
diesel fuel are expected to be more than offset by annual declines in
gasoline use because of mandated increases in corporate average fuel
economy standards. If lawmakers chose to meet obligations projected for
the trust fund solely by raising revenues, they would have to increase
the taxes on motor fuels by roughly 10 cents per gallon, starting in
fiscal year 2016.
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\11\ Because excise taxes reduce the tax base of income and payroll
taxes, higher excise taxes would lead to a reduction in revenues from
income taxes and payroll taxes. The estimates shown here do not reflect
those reductions. Those reductions would amount to about 25 percent of
the estimated increase in excise tax receipts.
Fuel taxes offer a mix of positive and negative characteristics in
terms of many people's conception of equity. They satisfy a ``user
pays'' criterion--that those who receive the benefits of a good or
service should pay its cost. But they also can impose a larger burden
relative to income on people who live in low-income or rural households
because those people tend to spend a larger share of their income on
transportation. Fuel taxes impose a burden even on households that do
not own passenger vehicles by raising transportation costs, which are
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reflected in the prices of purchased goods.
Fuel taxes have two desirable characteristics that are related to
economic efficiency: They cost relatively little to implement (the
government collects taxes from fuel distributors, and users pay the
taxes when they purchase fuel), and they offer users some incentive to
curtail fuel use, thus reducing some of the social costs of travel.
However, a fuel tax discourages some travel too much and other travel
too little, because it does not reflect the large differences in cost
for use of crowded roads compared with uncrowded roads or for travel by
trucks that have similar fuel efficiency but cause different amounts of
pavement damage. Moreover, for a given tax rate on fuels, the incentive
to reduce mileage-related costs diminishes over time as more driving is
done in vehicles that are more fuel efficient.
VMT Taxes. VMT taxes provide stronger incentives for efficient use
of highways than fuel taxes do because VMT taxes are better aligned
with the costs imposed by users. Most of those costs--including
pavement damage, congestion, accidents, and noise--are tied more
closely to the number of miles vehicles travel than they are to fuel
consumption.
For VMT taxes to significantly improve efficiency, however, they
would need to vary greatly according to vehicle type, time of travel,
place of travel, or some combination of such characteristics. For
example, because pavement damage increases sharply with vehicle weight
but decreases with the number of axles on a vehicle, the portion of VMT
taxes assessed to maintain pavement could be small or nonexistent for
passenger vehicles but substantial for heavy-duty trucks, particularly
those with high weight per axle. Similarly, VMT taxes could be higher
for any travel on crowded urban roads during peak hours than for travel
in off-peak hours or on roads that are less congested.
In fact, a system of VMT taxes would not need to apply to all
vehicles on every road. There already exist less comprehensive systems
of direct charges for road use: Toll roads, lanes, and bridges are
common in the United States, and several states and foreign countries
place weight-and-distance taxes on trucks. Expansion of existing
systems could focus on highly congested roads or on entry points into
congested areas; such targeted approaches would cost less to implement
if they required relatively simple equipment to be placed in vehicles.
Alternatively, the focus could be on specific vehicle types: Although
trucks (excluding light-duty trucks), for example, constitute only 4
percent of all vehicles in the United States, they account for roughly
25 percent of all costs that highway users impose on others, including
almost all of the costs associated with pavement damage.
The costs of implementing VMT taxes include capital costs for
equipment and operating costs for metering, payment collection, and
enforcement. The cost to establish and operate a nationwide program of
VMT taxes is uncertain and difficult to estimate because projections so
far are based mainly on small trials that have used a variety of
evolving technologies and because the cost would depend on whether VMT
taxes varied by time, place, or type of vehicle. Although the costs of
charging drivers are declining with improvements in technology, the
costs remain higher than those for collecting revenues through the
motor fuel taxes. The idea of imposing variable VMT taxes also has
raised concerns about privacy: The collection process could give the
government access to specific information about when and where
individual vehicles are used.
Impose Taxes Unrelated to Transportation. Lawmakers could also
impose new taxes or increase existing ones on activities that are
unrelated to transportation. Such taxes could be designed in many ways
and might raise more or less than the projected shortfall in the
Highway Trust Fund. However, such taxes would not provide the same
incentives to use highway infrastructure efficiently as would
increasing taxes on motor fuels or imposing a VMT tax.
Transfer Money From the General Fund. Lawmakers could choose to
continue to supplement the Highway Trust Fund with general revenues,
thus providing more money for highways and transit systems than is
collected from excise taxes dedicated to those purposes. For 2015, to
continue funding for surface transportation programs at the amounts for
which obligation limitation was provided, lawmakers would need to
transfer $3 billion to the Highway Trust Fund, CBO estimates.\12\ That
transfer would allow the trust fund to maintain cash balances of at
least $4 billion in the highway account and at least $1 billion in the
transit account. Subsequently, to continue funding for surface
transportation programs at the average amounts provided in recent
years, adjusted for inflation, lawmakers would need to transfer $11
billion in 2016; such transfers would need to increase gradually to $22
billion by 2025 to maintain current spending, adjusted for inflation.
At that pace, by 2025, CBO projects, general fund transfers would
account for about one-third of the receipts credited to the Highway
Trust Fund.
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\12\ For more information, see Congressional Budget Office, letter
to Hon. Sander M. Levin regarding the estimated revenue shortfall if
spending authority for the Highway Trust Fund were extended beyond May
31, 2015 (May 2015), www.cbo.gov/publication/50234.
Spending that resulted from such transfers could be paid for by
reducing other spending or by increasing broad-based taxes, such as
income taxes; or it could add to deficits and thus increase federal
borrowing. Reductions in other spending would mean that the benefits of
the spending on transportation would be at least partially offset by a
reduction in whatever benefits that other spending would have provided.
Boosting the already-high federal debt would have long-term negative
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effects on the economy.
Increasing broad-based taxes would offer advantages and
disadvantages compared with raising taxes on highway users. Two
arguments can be made in support of using such a source of funding for
highways. First, some benefits of better highway infrastructure are
distributed more broadly than to just highway users. For example,
reducing transportation costs for suppliers and customers increases
efficiency by allowing businesses to specialize more in terms of the
products and services they produce and the materials they use. Second,
large amounts could be raised through small changes in tax rates. JCT
has estimated that raising all tax rates on ordinary individual income
by 1 percentage point would yield an average of $69 billion per year
from 2015 to 2024--more than all of the current Highway Trust Fund
taxes combined.\13\ Moreover, funding highways through broad-based
taxes does not impose a larger burden relative to income on rural or
low-income users (unlike some taxes on fuel use).
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\13\ See Congressional Budget Office, Options for Reducing the
Deficit: 2015 to 2024 (November 2014), p. 29, www.cbo.gov/budget-
options/2014.
In other respects, however, the use of general revenues poses
disadvantages. In particular, the approach gives users no incentive to
drive less or to use less fuel, and it does not satisfy the principle
that a user-pays system may be fairest and most efficient. Moreover,
even a small increase in existing tax rates would hamper economic
efficiency by discouraging work and saving and by encouraging people to
shift income from taxable to nontaxable forms and to shift spending
from ordinary to tax-deductible goods and services.
financing highways
The projected shortfalls in the Highway Trust Fund have generated
interest in increasing the amount of spending that can be sustained in
the near term by encouraging state and local governments to rely more
heavily on debt financing. Most highway projects now are paid for with
current state or federal revenues. Apart from increasing their own
taxes or cutting other spending, state and local governments or other
public entities could finance additional spending on highways in a
number of ways, including one or more of the following:
Issuing tax-preferred government bonds,
Obtaining federal loans or loan guarantees, or
Joining with a private partner to obtain private financing.
Tax-preferred government bonds include tax-exempt bonds (among them
qualified private activity bonds, or QPABs) and tax credit bonds, both
of which transfer some of the cost of borrowing from state and local
governments and the private sector to the federal government in the
form of forgone federal tax revenues. Investors are generally willing
to accept a relatively low rate of return on tax-preferred bonds
because interest income is exempt from federal (and many state) taxes
and because those bonds are backed by the taxing authority of the
public entity.
Federal loans or loan guarantees can reduce state and local
governments' borrowing costs, depending on the terms of the loan, in
part because the federal government assumes the risk that would be
borne by a lender and paid for by a borrower in the form of higher
interest rates. A current federal loan program offers state and local
governments an opportunity to borrow money for highways and certain
other transportation projects at interest rates that are based on the
long-term Treasury rate.
Assessments of the experience with private financing of highways in
the United States suggest that turning to a private partner does not
typically yield additional financing, although doing so may speed the
provision of financing and make new roads available sooner than they
would have been otherwise. Private financing can provide the capital
necessary to build a new road, but it comes with the expectation of
repayment and a future return, the ultimate source of which is either
tax revenues collected by a government or fees from road users, like
tolls--the same sources that are available to governments. All told,
the total cost of the capital for a highway project, whether that
capital is obtained through a government or through a public-private
partnership, tends to be similar once all relevant costs are taken into
account. Regardless of its source, financing is only a mechanism for
making future tax or user fee revenues available to pay for projects
sooner; it is not a new source of revenues.
Tax-Preferred Bonds
The federal government provides several types of tax preferences to
subsidize infrastructure financing. Tax-exempt bonds use the well-
established tax preference of paying interest that is not subject to
federal income tax. Such bonds can be issued to finance the functions
of state and local governments or, in the case of QPABs, certain types
of projects undertaken by the private sector. A second, more recently
developed type of tax preference for infrastructure financing is
associated with tax credit bonds. Such bonds come in two basic forms:
those that provide a tax credit to the bondholder in lieu of paying
interest and those that allow the bond issuer to claim a tax credit.
(For issuers with no tax liability, the credit in the second scenario
takes the form of a payment from the Secretary of the Treasury. Such
bonds are known as direct-pay tax credit bonds.) Tax-exempt and tax
credit bonds alike transfer some of the cost of borrowing from state
and local governments and the private sector to the federal government,
either in the form of forgone federal tax revenues or, in the case of
direct-pay tax credit bonds, a federal outlay.
Tax preferences provide federal support for infrastructure
financing while generally allowing state and local governments to
exercise broad discretion over the types of projects they finance and
the amount of debt they issue. However, tax preferences are not
governed by the annual appropriation process, so lawmakers exercise
less oversight over their continuation and use than is applied to
federal grant and loan programs. Also, because forgone revenues are not
identifiable in the federal budget, the use of tax preferences can mask
the full scope of the government's financial activities. Using some
types of tax-preferred bonds can be an inefficient way to deliver a
federal financial subsidy to state and local governments. With a tax
exemption for interest income, for example, state and local borrowing
costs (and the costs of the private entities that make use of QPABs)
are reduced by significantly less than the amount of forgone federal
revenues; the remainder of that tax expenditure accrues to bond buyers
in the highest income tax brackets.
Subsidizing borrowing through the use of payments made directly to
borrowers can be more efficient--in terms of the benefits to state and
local governments per dollar of federal cost--and more conducive to
budgetary review and control.\14\
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\14\ For more information, see Congressional Budget Office and
Joint Committee on Taxation, Subsidizing Infrastructure Investment with
Tax-Preferred Bonds (October 2009), www.cbo.
gov/publication/41359.
Tax-Exempt Government Bonds. Federal tax exemptions for interest
income from government bonds (and QPABs) allow issuers of such debt to
sell bonds that pay lower rates of interest than do taxable bonds.
Because purchasers of tax-exempt bonds demand a return that is at least
as high as the after-tax yield they could obtain from comparable
taxable bonds, the amount by which the return from tax-exempt bonds is
lower than the yield on comparable taxable debt depends on the income
tax rate of the marginal (or market-clearing) buyer of tax-exempt
bonds. Thus, the amount of subsidy that state and local governments
receive by issuing tax-exempt bonds is determined not by an explicit
decision of the federal government, but indirectly by the federal tax
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code and the financial circumstances of potential investors.
JCT estimates that the tax exemption for state and local debt
resulted in $33 billion of forgone federal revenues in 2014; for the
subsequent 4 years, it estimates that tax-exempt debt will reduce
revenues by an additional $147 billion. According to data from the
Internal Revenue Service, tax-exempt bonds issued between 1991 and 2012
to finance highway and other transportation projects (both for new
construction and to refund existing transportation debt) accounted for
between about one-eighth and one-fifth of the total value of tax-exempt
bonds issued that can be classified by the type of project financed.
Thus, a rough estimate of the tax expenditure for transportation bonds
in 2014 would be between $4 billion and $7 billion. Data from
proprietary sources suggest that highway bonds may account for as much
as one-half of all tax-exempt debt issued to finance transportation
projects.\15\
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\15\ See Joint Committee on Taxation, Estimates of Federal Tax
Expenditures for Fiscal Years 2014-2018, JCX-97-14 (August 2014), p.
33, https://www.jct.gov/publications.html?func=
startdown&id=4663; Internal Revenue Service, Statistics of Income,
``Table 2. Long-Term Tax-Exempt Governmental Bonds, by Bond Purpose and
Type of Issue,'' www.irs.gov/uac/SOI-Tax-Stats-Tax-Exempt-Bond-
Statistics; and Thomson Reuters, ``Transportation Highlights,'' The
Bond Buyer Yearbook (various issues).
Qualified Private Activity Bonds. Qualified private activity bonds
are tax-exempt bonds that finance large infrastructure and other
projects that are primarily undertaken by a private entity. Thus, QPABs
essentially provide publicly-supported financing to private businesses
or individuals; a qualified governmental unit serves as a conduit
between those entities and the purchaser of the bond. QPABs may be
issued to finance a wide range of infrastructure (and other) projects,
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including those for transportation.
SAFETEA-LU allowed QPABs to be issued for certain surface
transportation projects, but the law placed a cap of $15 billion on the
issuance of such bonds. According to DOT (as of May 12, 2015), bonds
with a value of $5.8 billion have been issued for 14 projects in all
since 2005. DOT has allocated another $5.3 billion of that $15 billion
to projects that, although approved, have not started and could use
QPABs in the future; about 60 percent of that amount has been allocated
during the past year or so. That leaves roughly $4 billion available
for future applicants. However, the $11 billion in bonds currently
issued or allocated under the $15 billion cap may overstate the amount
of QPABs that those projects will use eventually, because some projects
that receiveda QPAB allocation have switched to other forms of
financing. For example, in April 2014, DOT allocated about $5.3 billion
from QPABs to seven projects that had not yet issued bonds. By May
2015, however, only three of them had issued QPABs, all for amounts
that were significantly less than originally allocated.
Giving private entities access to the tax-exempt market using QPABs
lowers the cost of capital for those borrowers and can promote
infrastructure projects when state and local governments have self-
imposed limits on borrowing. But, like tax-exempt government bonds,
QPABs result in forgone tax revenues. And, to the extent that private
funding was available without QPABs, albeit at a higher cost, only
projects of marginal value would be unable to receive financing without
them.
Because of the growing number of projects seeking to use QPABs,
some financial market analysts are concerned that the limit on their
use will be reached soon. Development of large, complex infrastructure
projects often takes years, so financial analysts are seeking certainty
that QPABs will be available if they choose to apply for them. In his
2016 budget proposal, the President proposed measures to address the
borrowing limits. First, the President proposed raising the cap, by $4
billion, to $19 billion. According to JCT's estimates, such an
additional allocation would begin to be used sometime in 2017. Second,
the President proposed authorizing a new type of QPAB for financing
infrastructure investment that would be fully tax-exempt and that would
also not be subject to any volume cap.
Tax Credit Bonds. Starting in the late 1990s, the Congress turned
to tax credit bonds as a way to finance public expenditures. In their
early form, those bonds allowed their holders to receive a credit
against federal income tax liability instead of--or in addition to--the
cash interest typically paid on the bonds. The amount of the credit
equals the credit rate, which is set by the Secretary of the Treasury,
multiplied by the face amount of the bond.
Tax credit bonds offer some advantages over other types of tax-
preferred bonds, such as tax-exempt bonds. Because bondholders pay
taxes on the amount of credit they claim, tax credit bonds do not
result in investors in high marginal tax brackets receiving a portion
of the forgone tax revenues. Rather, the revenues forgone by the
federal government through tax credit bonds reduce state and local
borrowing costs dollar for dollar, a more efficient use of federal
resources than that resulting from tax-exempt bonds. Tax credit bonds
also allow the amount of federal subsidy to be determined explicitly,
rather than depending on other federal polices (such as marginal income
tax rates).
The American Recovery and Reinvestment Act of 2009 authorized Build
America Bonds, tax credit bonds that were sold only in 2009 and 2010.
state and local governments issued the bonds either as traditional tax
credit bonds or, if certain conditions were met, as direct-pay tax
credit bonds (known as qualified Build America Bonds). In contrast to
earlier tax credit bonds, Build America Bonds have an interest rate (or
coupon) that is set by the issuer rather than by the Secretary of the
Treasury. For the direct-pay bonds, the federal government provided
payments directly to issuing state and local governments equal to 35
percent of the interest, in lieu of a tax credit going to the
bondholder. The amount of that financing subsidy is greater than the
reduction in the interest costs that those state and local governments
would have realized if they had issued traditional tax-credit bonds
because, in the latter case, the bond buyer claimingthe tax credit
would have had to be compensated with additional interest income for
the resulting tax liability.
The interest subsidies provided by direct-pay tax credit bonds
appear as outlays in the federal budget, making the cost more
transparent and, in principle, enabling comparison with other federal
outlays for the same purposes. Also, because the yields provided to
holders of direct-pay tax credit bonds are similar to the yields of
other taxable securities, direct-pay tax credit bonds are more
attractive to tax-exempt entities than other tax credit bonds are and
may therefore increase the pool of funds available to state and local
governments to finance infrastructure projects and other activities.
The President's budget proposal for 2016 includes a direct-pay tax
credit bond with a credit equal to 28 percent of each interest payment.
By allowing state and local governments to substitute taxable for tax-
exempt bonds, the proposal would increase taxable interest income,
boosting federal revenues by $54 billion between 2016 and 2025,
according to JCT. Because the proposal also would increase subsidy
payments to state and local governments (which are recorded in the
federal budget as outlays) by an estimated $58 billion, the net effect
would be to increase the cumulative 10-year deficit by$4 billion.\16\
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\16\ See Joint Committee on Taxation, Estimated Budget Effects of
the Revenue Provisions Contained in the President's Fiscal Year 2016
Budget Proposal, JCX-50-15 (March 6, 2015), http://go.usa.gov/3Pu5Q.
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Federal Loans and Loan Guarantees
The federal government also subsidizes borrowing by state and local
governments by providing and guaranteeing loans for infrastructure.
Such credit assistance can reduce state and local governments' costs
because it can facilitate borrowing at interest rates that are lower
than otherwise might be available, and it may open additional access to
the capital markets. Specifically, in providing loans and loan
guarantees, the federal government assumes the risk that would be borne
by a lender and paid for by a borrower in the form of higher interest
rates.
The Federal Credit Reform Act of 1990 (FCRA) established rules for
calculating the budgetary costs of direct loans and explicit loan
guarantees issued by the federal government. The budgetary cost of
federal credit assistance programs is recorded as the net present value
of the cash flows to and from the government--the loan amount and the
expected repayments--when the loan is disbursed to recipients.\17\ That
subsidy cost represents an estimate of the net cost that the government
bears. In contrast, the cash flows associated with that loan between
the Treasury, an agency, and borrowers occur over time and are not
recorded in the budget.
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\17\ The net present value is the single number that expresses a
flow of current and future income (or payments) in terms of an
equivalent lump sum received (or paid) today.
An important aspect of the budgetary treatment of federal credit
programs is that agencies must receive an appropriation equal to the
estimated subsidy cost before they can make or guarantee a loan.\18\ In
the case of direct loans, FCRA specifies that loan repayments are
unavailable for future spending; those repayments are already accounted
for in the estimated net present value of the loan, so they are not
available to ``revolve'' into new loans. Such a revolving fund is the
model on which many state infrastructure banks are based. However, for
the federal government, those repayments represent part of the
financing for the original loans and are implicit in the subsidy
calculation. Allowing loan repayments to be used for new loans--without
any additional appropriation to cover the subsidy costs of the new
loans--would raise the effective FCRA subsidy cost of the original
loans to 100 percent (the same as for grants).
---------------------------------------------------------------------------
\18\ In contrast, no appropriations are necessary for the periodic
revisions to subsidy estimates that agencies make to reflect actual
experience with loans and guarantees. Permanent indefinite budget
authority exists for those revisions, which are recorded in the budget
as increases or decreases in outlays.
FCRA accounting, however, does not provide a comprehensive measure
of the economic cost of credit assistance. Through its use of Treasury
rates for discounting, FCRA implicitly treats market risk--a type of
risk that investors require compensation to bear--as having no cost to
the government. Specifically, FCRA's procedures incorporate the
expected cost of defaults on government loans or loan guarantees but
not the cost of risk associated with uncertainty about the magnitude
and timing of those defaults. Investors require compensation--a
``market risk premium''--to bear that risk. That premium on a risky
loan or guarantee compensates investors for the increased likelihood of
sustaining a loss when the overall economy is weak and resources are
scarce; that likelihood is reflected in higher expected returns and
lower prices for assets that carry more market risk. Taxpayers bear the
investment risk for federal credit obligations. By omitting the cost of
market risk and thereby understating the economic cost of federal
credit obligations, FCRA accounting may lead policymakers to favor
credit assistance over other forms of aid that have a similar economic
cost.\19\
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\19\ Moreover, subsidy rates computed under FCRA exclude federal
administrative costs, even those that are essential for preserving the
value of the government's claim to future repayments, such as loan-
servicing and collection costs; those costs are accounted for
separately in the budget. For more information, see Congressional
Budget Office, Fair-Value Accounting for Federal Credit Programs (March
2012), www.cbo.gov/publication/43027.
Loans Made Under the Transportation Infrastructure Finance and
Innovation Act. DOT administers a loan program under the Transportation
Infrastructure Finance and Innovation Act of 1998 (TIFIA) that provides
credit assistance to state and local governments to finance highway
projects and other types of surface transportation infrastructure. The
TIFIA program offers subordinated federal loans for up to 35 years at
interest rates that are based on the rate for Treasury securities of
similar maturity. (On June 1, 2015, the interest rate on the 30-year
Treasury bond was 2.94 percent.) TIFIA assistance may be used for up to
49 percent of a project's cost. Combined with other federal grants and
credit assistance, TIFIA loans can be part of a package of federal
---------------------------------------------------------------------------
assistance that funds up to 80 percent of the cost of a project.
MAP-21 made several changes to the TIFIA program, notably
increasing the amount of budget authority for the subsidy cost of the
program's loans from $122 million per year in the previous
authorization for highway and transit programs to $750 million in 2013
and $1 billion in 2014. Because contract authority is provided for only
about three-fourths of 2015, TIFIA has received $750 million so far
this year. If an insufficient amount of that budget authority was used,
provisions of the law directed DOT to reallocate some of those funds to
states for use by their formula programs. As of April 1, 2015,
uncommitted budget authority for TIFIA totaled $1.139 billion. As a
result, on April 24, 2015, DOT reallocated about $640 million to
states.\20\
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\20\ Gregory G. Nadeau, Federal Highway Administration, Notice:
Fiscal Year (FY) 2015 Redistribution of Transportation Infrastructure
Finance and Innovation Act (TIFIA) Funds and Associated Obligation
Limitation (April 24, 2015), http://www.fhwa.dot.gov/legsregs/
directives/notices/n4510783.cfm.
MAP-21 also authorized master credit agreements and created an
extra interest rate subsidy for projects in rural areas. Master credit
agreements would allow DOT to make commitments of future TIFIA loans,
contingent on future authorizations, to a group of projects secured by
a common revenue source. Under provisions of MAP-21, rural projects
receive a minimum of 10 percent of the funds appropriated and are
eligible to receive loans at half the Treasury rate. Such an interest
rate subsidy makes a project relatively less expensive for the sponsors
and relatively more expensive for the federal government. It may result
in federal loans for projects that would not otherwise generate enough
---------------------------------------------------------------------------
revenues to cover the costs of financing the projects.
Proposals for a Federal Infrastructure Bank. In recent years, the
Congress has considered several proposals for establishing a federal
bank to fund infrastructure projects through loans and grants.\21\ In
recent years, the President's budget has included a request to create a
similar entity.\22\
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\21\ Other government programs that provide credit assistance for
infrastructure projects include the Environmental Protection Agency's
grants for states' revolving loan funds for water projects and states'
infrastructure banks, all capitalized with federal funds and
administered by states.
\22\ Some other proposals to establish an infrastructure bank
include providing bond insurance to issuers.
Whether federal credit assistance is provided through an existing
federal agency or a newly created special entity, however, it would
involve similar budgetary costs to the federal government. The support
offered for surface transportation by most proposed infrastructure
banks would not differ substantially from the loans and loan guarantees
already offered by DOT through its TIFIA program. Therefore,
differences between the existing TIFIA program and an infrastructure
bank would primarily be operational, concerning the types of
infrastructure to fund, the kinds of credit assistance to provide, the
selection process for projects, the amount of leverage to provide for
federal funds, and the amount of private-sector participation to
encourage or require. For example, an infrastructure bank could focus
on financing transportation infrastructure, or it could define
infrastructure more broadly to include sewers, wastewater treatment
facilities, drinking water supply facilities, broadband Internet
access, or even schools. In principle, an infrastructure bank could use
any of several methods to finance projects, including federal loans,
---------------------------------------------------------------------------
lines of credit, and guarantees for private loans.
CBO has previously analyzed an illustrative federal infrastructure
bank--one that is representative of certain recent proposals but that
would focus on surface transportation programs.\23\ That entity, which
would be federally funded and controlled, would select new, locally
proposed construction projects for funding on the basis of several
criteria, including the projects' costs and benefits, and it would
provide financing for the projects through loans and loan guarantees.
To repay the loans, projects would have to use tolls, taxes, or other
dedicated revenue streams. Financial assistance could be provided to
any consortium of partners with an eligible project, such as a group of
state and local entities or a group of nongovernmental partners. The
bank could provide the subsidy amounts needed to compensate private-
sector investors for benefits that accrue to the general public and to
the economy at large.
---------------------------------------------------------------------------
\23\ See Congressional Budget Office, Infrastructure Banks and
Surface Transportation (July 2012). www.cbo.gov/publication/43361.
Such an infrastructure bank could have a limited role in enhancing
investment in surface transportation projects by providing new federal
subsidies (in the form of loans or loan guarantees) to certain large
projects, potentially including multijurisdictional or multimodal
projects, and by allowing the benefits of potential projects to be more
---------------------------------------------------------------------------
readily compared in a competitive selection process.
A key limitation of such a bank is that many surface transportation
projects would not be good candidates for its support, because most
projects do not involve toll collections or other mechanisms to collect
funds directly from project users or other beneficiaries.
Private Financing
Only a small number of highway projects in the United States have
involved
public-private partnerships with private financing.\24\ Assessments of
those projects indicate that such partnerships may accelerate the
availability of financing--for example, by circumventing states' self-
imposed limits on borrowing--but they do not generally result in
additional financing. Some of the projects that have been financed
through tolls have failed financially because the private-sector
partners initially overestimated their revenues and as a result have
been unable to fully repay their projects' debts. Perhaps as a
response, projects that are still under construction rely less on tolls
as a revenue source; more commonly, private partners are compensated
from a state's general funds, thus limiting the private risk of not
being repaid and leaving the risk of lower-than-expected revenues to
the public partner.
---------------------------------------------------------------------------
\24\ For additional information on the experience with public-
private partnerships, see the testimony of Joseph Kile, Assistant
Director for Microeconomic Studies, Congressional Budget Office, before
the Panel on Public-Private Partnerships, House Committee on
Transportation and Infrastructure, Public-Private Partnerships for
Highway Projects (March 5, 2014), www.cbo.gov/publication/45157.
Increasingly, public-private partnerships also have replaced the
funds obtained through private means (at market rates) with tax-exempt
bonds or bonds that provide a credit against taxes owed. That change
has brought the projects more in line with the way states typically
finance infrastructure projects, lowering the private partners' costs
at the expense of costs to federal taxpayers and increasing the amount
of the government's implicit equity and risk. In doing so, newer
projects may have diminished the incentives associated with private
---------------------------------------------------------------------------
financing to control costs and to be completed quickly.
In addition, more recent agreements have reduced private partners'
debt-service payments--that is, interest payments on any money borrowed
to finance the projects--by increasing the share of financing provided
by the state or locality or by the federal government. Accordingly, the
financing provided by the TIFIA program or by tax-exempt private
activity bonds has become increasingly prominent for highway projects
that involve public and private partners.
The history of privately financed roads in the United States
encompasses 36 projects that are either under way or have been
completed during the past 25 years. The value of the contracts for
those projects totals $32 billion, a little less than 1 percent of the
approximately $4 trillion that all levels of government spent on
highways over the period. (Both of those amounts are in 2014 dollars.)
In the past few years, the number of partnerships for road projects
with private financing has increased; one-half of the $32 billion in
contracts has been committed in the past 5 years.
The amount of risk transferred to private partners has varied from
project to project. In some instances, the financial risk was borne
primarily by taxpayers, who were responsible for repaying debt incurred
by the private partner. Under one program in Florida, for example,
private businesses finance each project entirely with private debt that
is to be repaid over a predetermined time--usually 5 years--with future
grants from the federal government, state funds, and revenues from
tolls collected from users of the completed road. The state's guarantee
of repayments eliminates much of the transfer of risk that takes place
with other privately financed projects. Thus, the financing is
essentially public, and the structure of the public-private partnership
is similar to that of an approach without private financing. In other
instances, the private partner has borne more of the risk of the
investment--specifically, some of the private partners' money might be
lost if the project did not produce revenues as expected.
Over the past 25 years, 14 privately financed projects--of various
sizes but all involving contracts of at least $50 million--have been
completed (see Table 3). A review of those projects offers little
evidence that public-private partnerships provide additional resources
for roads except in cases in which states or localities have chosen to
restrict spending through self-imposed legal constraints or budgetary
limits. To varying degrees, the projects that made use of private
financing were in states in which the government could have issued
bonds to finance the work through traditional means. In some cases,
however, the use of a public-private partnership accelerated a
project's access to financing by circumventing restrictions that states
have imposed on themselves and that limit their ability to issue
additional debt. (Earlier financing of a road project adds value when
it allows the public to enjoy the benefits of the new road sooner than
would otherwise be possible.)
Several such projects are still under construction (see Table 4).
New public-private partnerships have sought to reduce their borrowing
costs by relying on publicly subsidized borrowing through the TIFIA
program and through QPABs issued by local municipalities; the QPABs
have tax advantages that lower the private partner's debt-service
payments. All but two of those projects have made use of federal
subsidies through the TIFIA program. That choice of financing
constitutes a return to some features of the traditional approach in
which the public sector--the federal government, in particular--retains
greater risks, especially the risk of default. For instance, the South
Bay Expressway, which had received some financing from the TIFIA
program, illustrates what can happen to taxpayers as the ultimate
equity holders. The project filed for Chapter 11 bankruptcy in March
2010, finally emerging in May 2011. The new financing and ownership
structure required by the bankruptcy court imposed a loss of 42 percent
on federal taxpayers, replacing the original TIFIA investment with a
package of debt and equity worth only 58 percent of the original
investment.\25\ New public-private partnerships also typically secure
state or local loans or grants as part of their financing. In the other
cases, project managers who are responsible for a project's financing
have had to take out bank loans. That source of private capital was
more attractive during the recent economic downturn as interest rates
fell relative to the yields for bonds in municipal bond markets
(including those of QPABs). Fewer ongoing projects today are using
private debt.
---------------------------------------------------------------------------
\25\ Randall Jensen, ``Tollway Exits Chapter 11: TIFIA Ends Up
Taking a Haircut,'' Bond Buyer (May 6, 2011), http://tinyurl.com/
3fn8nvj.
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Budgetary Principles for the Treatment of Projects With Complex
Financing
Under the principles that govern federal budgeting, the budgetary
treatment of complex financing arrangements--those that involve an
intermediary other than the Treasury raising money in private capital
markets on behalf of the federal government--should depend on its
economic substance: who controls the program and its budget, who
selects the managers, who provides the capital, and who owns the
resulting entity.\26\ Is the activity governmental (that is, initiated,
controlled, or funded largely by the government for governmental
purposes) or is it an initiative of the private sector (driven by
market forces independent of the government)?
---------------------------------------------------------------------------
\26\ See Congressional Budget Office, Third-Party Financing of
Federal Projects (June 2005), www.cbo.gov/publication/16554.
An investment that is essentially governmental should be shown in
the budget whether it is financed directly by the Treasury or
indirectly by a third party that is borrowing on behalf of the
government. Activities need not be conducted by a federal agency to be
classified as governmental and included in the budget. When doubt
exists about whether a program should be recorded in the federal
budget, those same principles indicate that ``border-line agencies and
transactions should be included in the budget unless there are
exceptionally persuasive reasons for exclusion.'' \27\
---------------------------------------------------------------------------
\27\ The President's Commission on Budget Concepts, Report of the
President's Commission on Budget Concepts (October 1967).
Likewise, spending financed by all forms of agencies' borrowing,
including debt not backed by the full faith and credit of the U.S.
Government, appears in the budget. However, bond proceeds or repayable
equity investments are not recorded as federal receipts; they are a
means of financing a project--not the ultimate source of capital, which
---------------------------------------------------------------------------
is the income that will be generated by their operation.
Table 3. Completed Highway Projects That Used Public-Private Partnerships With Private Financing
--------------------------------------------------------------------------------------------------------------------------------------------------------
Sources of Funding (Millions of 2014 dollars)
------------------------------------------------------
Private Public Total
Date of Sources of Bankruptcy Public Buyout ------------------------------------------------------ Project Cost
Opening Revenues Declared of Private Qualified (Millions
Partners TIFIA Private of 2014
Debt Equity Program Activity Other b dollars)
Bonds a
--------------------------------------------------------------------------------------------------------------------------------------------------------
Dulles Greenway 1995 Tolls............ No............... No.............. 470 60 0 0 0 530
(Va.)
SR-91 Express 1995 Tolls............ No............... Yes............. 164 33 0 0 0 197
Lanes (Calif.)
Camino Columbia 2000 Tolls............ Yes.............. No.............. 97 19 0 0 0 117
Bypass (Tex.)
Atlantic City- 2001 Tolls/Taxes...... No............... No.............. 157 0 0 0 305 462
Brigantine Tunnel
(N.J.)
Southern Connector 2001 Tolls............ Yes.............. No.............. 264 0 0 0 0 264
(S.C.)
Pocahontas Parkway 2002 Tolls............ No............... No.............. 701 0 0 0 0 701
(Va.)
Route 3 North 2005 Taxes............ No............... No.............. 515 0 0 0 0 515
(Mass.)
South Bay 2007 Tolls............ Yes.............. No.............. 428 224 177 0 0 828
Expressway (South
section; Calif.)
SH-130 (Segments 5 2012 Tolls............ No............... No.............. 749 231 470 0 0 1,450
and 6; Tex.)
I-495 HOT Lanes 2012 Tolls............ No............... No.............. 0 380 643 643 591 2,257
(Va.)
I-595 Merged Lanes 2014 Tolls/Taxes...... No............... No.............. 842 234 651 0 250 1,977
(Fla.)
North Tarrant 2014 Tolls............ No............... No.............. 0 459 701 429 618 2,208
Express (Segments
1 and 2; Tex.)
Port of Miami 2014 Taxes............ No............... No.............. 368 87 368 0 334 1,157
Tunnel (Fla.)
I-95 HOV/HOT Lanes 2014 Tolls............ No............... No.............. 0 285 305 257 91 938
(Va.)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Source: Congressional Budget Office based on data from the Federal Highway Administration.
Note: HOT = high occupancy/toll; HOV = high occupancy vehicle; TIFIA = Transportation Infrastructure Finance and Innovation Act.
a A qualified private activity bond is a bond issued by or on behalf of a local or state government to finance the project of a private business. The
Safe, Accountable, Flexible, Efficient Transportation Equity Act: A Legacy for Users (SAFETEA-LU), enacted in 2005, added highways (and freight
transfer facilities) to the types of private projects for which tax-exempt qualifying private activity bonds may be used.
b Mostly loans or grants from states or localities.
Table 4. Ongoing Highway Projects That Use Public-Private Partnerships With Private Financing
----------------------------------------------------------------------------------------------------------------
Sources of Funding (Millions of 2014 dollars)
--------------------------------------------------------
Start and Private Public Total
Expected End Sources of -------------------------------------------------------- Project Cost
of Revenues Qualified (Millions
Construction TIFIA Private of 2014
Debt Equity Program Activity Other b Dollars)
Bonds a
----------------------------------------------------------------------------------------------------------------
I-635 LBJ 2011-2016..... Tolls...... 0 724 917 654 529 2,824
Freeway
(Tex.)
Midtown 2012-2017..... Tolls...... 0 276 429 686 731 2,123
Tunnels
(Va.)
Presidio 2013-2015..... Taxes...... 170 47 152 0 0 371
Parkway
(Calif.)
Ohio River 2013-2016..... Tolls/Taxes 0 79 165 516 580 1,340
Bridges East
End Crossing
(Ind.)
I-69 Section 2014-2016..... Taxes...... 0 41 0 244 80 364
5 (Ind.)
U.S.-36 2014-2016..... Tolls...... 21 21 60 20 87 208
Managed
Lanes
(Colo.)
Goethals 2014-2017..... Tolls/Taxes 0 107 474 453 425 1,459
Bridge
(N.Y.)
North Tarrant 2014-2018..... Tolls...... 0 420 532 275 172 1,399
Express
Segment 3A
(Tex.)
Northwest 2014-2018..... Tolls/Taxes 60 0 275 0 499 834
Corridor
(Ga.)
Rapid Bridge 2015-2017..... Taxes...... 0 59 0 794 265 1,119
Replacement
(Penn.)
Southern Ohio 2015-2018..... Taxes...... 0 49 209 251 125 634
Veterans
Highway
(Oh.)
I-4 Ultimate 2015-2019..... Taxes...... 484 103 1,256 0 1,035 2,877
(Fla.)
----------------------------------------------------------------------------------------------------------------
Source: Congressional Budget Office based on information from the Federal Highway Administration.
Note: TIFIA = Transportation Infrastructure Finance and Innovation Act.
a A qualified private activity bond is a bond issued by or on behalf of a local or state government to finance
the project of a private business.
b Mostly loans or grants from states or localities.
______
Question Submitted for the Record to Joseph Kile
Question Submitted by Hon. Orrin G. Hatch
Question. Dr. Kile, as funding from the Highway Trust Fund has
become more unstable and authorizations have been for shorter periods
of time, there has been more interest from States, localities, and many
Members of Congress in financing mechanisms. I am talking about things
like tax-exempt bonds, and infrastructure banks, and other instruments
where the intention is to get private money invested in public
infrastructure. Dr. Kile, to what extent, if at all, can financing
options be thought of as substitutes for money from the Highway Trust
Fund? Does relying more on financing reduce the need of the federal
government, or any government, to come up with the money to produce
infrastructure?
Answer. The money in the Highway Trust Fund comes from taxes on
gasoline, ethanol-blended fuels, and diesel fuel; other transportation-
related taxes; and a very small amount of interest that is credited to
the fund. In recent years, the Highway Trust Fund has also received
transfers from the general fund of the Treasury. But other sources of
revenues, such as state taxes and user fees, also pay for
transportation projects; and if financing options increased theextent
to which those revenues paid for transportation projects, those options
could be considered substitutes for money from the Highway Trust Fund.
Many of those financing options--such as loans that are made or
guaranteed by the federal government and tax-preferred borrowing by
state and local governments or the private sector--impose some costs on
the federal government but do not necessarily draw upon the resources
of the Highway Trust Fund.
For example, tax-exempt bonds (which pay interest that is not
subject to federal income tax) can be issued to finance the functions
of state and local governments or, in the case of qualified private
activity bonds, certain types of projects undertaken by the private
sector. Another, more recently developed type of tax preference for
infrastructure financing is associated with tax credit bonds. Most of
the costs of paying off tax-exempt and tax credit bonds are borne by
state and local governments or the private sector, but some of them are
transferred to the federal government, in the form of either forgone
Federal tax revenues or, in the case of direct-pay tax credit bonds, a
federal outlay. But those costs are not attributed to the Highway Trust
Fund. The support offered for surface transportation by most proposed
infrastructure banks would not differ substantially from the loans and
loan guarantees already offered by the Department of Transportation
under the Transportation Infrastructure Finance and Innovation Act of
1998. In principle, an infrastructure bank could use any of several.
methods to finance projects, including federal loans, lines of credit,
and guarantees for private loans. Depending on how the program was
structured, the resulting costs might not be attributable to the
Highway Trust Fund.
Financing is a mechanism for making future tax or user fee revenues
available to pay for projects sooner; it is not a new source of
revenues. Ultimately, money that is borrowed has to be repaid with some
future source of revenues. So borrowing to finance highway projects can
augment the funds available for such projects in the short term, but
revenues that are committed for repaying borrowed funds will be
unavailable to pay for new transportation projects or other government
spending in the future.
______
Prepared Statement of Hon. Ray Lahood,
Senior Policy Adviser, DLA Piper
Chairman Hatch, Ranking Member Wyden, and members of the committee,
thank you for the opportunity to testify before you on the challenges
facing the nation's Highway Trust Fund. This hearing is quite timely as
the Highway Trust Fund is again facing insolvency sometime in August.
I am here today as a co-chair of Building America's Future, an
organization that was co-founded by former Pennsylvania Governor Ed
Rendell, former New York Mayor Mike Bloomberg and former Governor
Arnold Schwarzenegger. Building America's Future represents a diverse
and bipartisan coalition of state and local elected officials working
to advance infrastructure investment to promote economic growth, global
competitiveness and better quality of life for all Americans.
Whether it's on our roads, in the air, in our ports or on our
rails--our nation's infrastructure is falling apart. That is causing us
to lose our economic competitiveness and to negatively impact our
quality of life.
The nation's roads are essentially one big pothole, and the tens of
thousands of bridges that millions of Americans drive across every day
are in dire need of repair.
Forty-two percent of our major roadways are congested causing
delays and inefficiencies for commerce and the average driver. The
Texas Transportation Institute's 2012 Urban Mobility Report states that
traffic congestion had Americans wasting time and 2.9 billion gallons
of fuel at a cost of $121 billion--that equates to $818 per commuter.
And it's no wonder. From 2000 to 2012 the nation's population grew by
11.6 percent and the vehicle fleet increased by 10.7 percent but the
road system has grown by 4 percent.
When it comes to air travel our skies are approaching gridlock and
our World War II-era air traffic control system can't keep pace with
the demand. According to the U.S. Travel Association, within the next
decade, 25 of the nation's top 30 airports will suffer the same level
of congestion as the day before Thanksgiving at least 2 days each week.
Despite a large surplus in the Harbor Maintenance Trust Fund, the
busiest U.S. harbors are under-maintained. The U.S. Army Corps of
Engineers estimates that full channel dimensions of the nation's
busiest 59 ports are available less than 35 percent of the time. And
only two of our East Coast ports are deep enough to accommodate the
post-Panamax ships that will become the norm when the newly widened
Panama Canal opens.
Although we still don't have all of the answers to the cause of the
horrific derailment of the Amtrak train near Philadelphia last month,
it serves as a wake-up call on the critical importance of properly
maintaining our infrastructure--whether it be rails, roads or bridges.
The safety of all Americans depends upon it.
These challenges are immense but not impossible. Building America's
Future is calling on Congress to pass a long term and sustainable bill
that does much more than provide small inflationary increases in
funding. To do that it's going to take all of us working together--
Republicans with Democrats; the House and the Senate; and both ends of
Pennsylvania Avenue. It's also going to take vision and courage. Vision
to craft a long-term strategic plan that is based on measurable
economic results and courage to make the tough choices to pay for it.
The next bill must include a growth rate more aligned to ISTEA,
TEA-21 and SAFETEA-LU. The growth rate in each of these bills was on
average 40 percent higher than what was in MAP-21. This chart prepared
by the U.S. Department of Transportation clearly demonstrates the
growth rate from these reauthorizations:
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
.epsAccording to the American Society of Civil Engineers, failing
to provide funding levels above the baseline by 2020 would have dire
consequences. The impact on a family's budget would be $1,060 and
American businesses and workers would pay a heavy price in that 877,000
jobs would be lost and transportation costs would increase by $430
billion.
It is past time for Washington to step up and produce a long term
transportation plan that is robust and sustainable. To do otherwise
would amount to putting a Band-Aid on a gunshot wound. America needs a
strategic plan with a vision--not another short term bill that isn't
even enough to keep filling the potholes.
A level-funded bill will not have what it takes to maintain and
modernize our roads, bridges and transit systems. In short, we won't be
able to build--or rebuild--to keep Americans moving safely and reliably
around the country.
For examples of what has been working I would encourage the
committee to take a look at what has been happening in the States.
Governors, mayors and State legislators have been watching the gridlock
in Congress with growing alarm. They are concerned that the level of
funding they have traditionally received from Washington has been
shrinking and will continue to do so without a change in vision and
courage in Washington.
As a result, many of them have made the hard choices to propose
legislation to increase the fuel tax, replace the gas tax with a sales
tax on fuels, or referenda allowing voters to increase local sales
taxes.
This has been occurring in red, blue and purple states alike.
Over the past 3 years 14 states have successfully increased either
their fuel or sales taxes including Wyoming, Virginia, New Hampshire,
Maryland, Pennsylvania, Vermont, Massachusetts, Rhode Island, Georgia,
Iowa, Idaho, Nebraska, South Dakota and Utah.
In 2013, Oregon approved legislation to undertake a pilot program
with 5,000 volunteers to test the feasibility of transitioning to a
system where motorists are charged by miles driven instead of paying a
gas tax. This program will be getting underway next month. Other states
that have adopted mileage-based user fee-related legislation include
California, Indiana and Washington. And states that considered such
legislation this year include Arkansas, Florida and Massachusetts.
Governors and mayors have also used the private sector to leverage
their dollars, and as a result, more than 30 states have passed laws to
authorize partnerships with the private sector.
The public has also endorsed many of these revenue increases by
consistently approving well-constructed ballot measures to increase
investment in transportation. In last November's elections, 72 percent
of ballot measures were approved and in 2013 the success rate was 91
percent. One of the critical reasons why these measures were successful
is that a clear and coherent case was made about which projects would
be built in exchange for approval of the revenue increase.
Examples of some recent success include: the approval of $250
million in bonds to fix aging roads, bridges, sidewalks and buildings
in Atlanta in March of this year. In order for citizens to track the
projects and their progress, the city has set up a special webpage. In
November of 2014 voters in Arlington, VA approved four bond referenda
totaling more than $218 million to fund Metro and transportation as
well as local parks, recreation, community infrastructure and schools.
And in 2008 voters in Los Angeles approved Measure R to hike the sales
tax by half a cent and generate up to $40 billion over 30 years to fund
various transit and highways projects.
But it is important to understand that these local and statewide
efforts can not replace the federal government's responsibility.
Devolution is not the answer. The role of the federal government in
promoting interstate commerce is clearly stated in the Constitution.
Legislation such as the Transportation Empowerment Act (TEA) would
reduce funding for the federal-aid highway program by more than 80
percent by 2019, from $45 billion to less than $8 billion. A recent
study by the Transportation Construction Coalition showed that under
the TEA Act states would need to increase their gas tax by an average
of nearly 24 cents--just to achieve level funding. Specifically, Utah
would need to raise its gas tax by 18.7 cents; Oregon by 24.1 cents;
Idaho by 25.5 cents; Ohio by 15.9 cents; and North Carolina by 16.4
cents.
federal options
The nation's surface transportation program has traditionally been
funded through the most pure and direct of all sources--a fee paid by
the users of the system. But with better fuel economy and an increasing
number of hybrids and vehicles that use little or no gasoline at all,
spending from the Highway Trust Fund has outpaced revenues since 2008.
In order to prevent the Highway Trust Fund from becoming insolvent,
Congress acted in a bipartisan fashion and transferred $8 billion from
the General Fund to the Highway Trust Fund. Since 2008, approximately
$63 billion has been transferred to the Highway Trust Fund. But all of
these transfers have done nothing to increase the amount of revenue
needed to address the nation's vast transportation challenges.
The most straightforward way to generate the needed revenue for a
long term transportation bill is to increase the gas tax which has not
seen a raise since 1993. The cost of everything has gone up since
1993--except for the gas tax. In 1993 the cost of a First Class stamp
was 29 cents--today it is 49 cents. A dozen eggs cost 87 cents in 1993
and today the average cost is $2. The cost of the average car was
$12,750 in 1993 and today the average cost is $31,252.
Yet the gas tax has remained at 18.4 cents for 21 years. And since
that time it has lost over a third of its purchasing power.
In order to begin generating sorely needed revenue, Building
America's Future is calling on Congress to immediately increase the
gasoline user fee by 10 cents and index it to inflation. According to
the Congressional Budget Office, a one cent increase in the gas tax
generates $1.5 billion annually so a 10 cent increase would generate
$15 billion. While this would not be enough to fund a robust long term
bill, it would be enough to keep the Highway Trust Fund solvent while
Congress considers other sustainable and longer term solutions.
As a former elected official I fully understand the difficult
politics of raising revenue. Voting to increase the gas tax is a tough
vote. But leadership takes vision to see the big picture and courage to
do the right thing.
Your colleagues in the states have stepped up and their actions did
not result in defeat at the ballot box. To the contrary. A political
analysis by the American Road and Transportation Builders Association
showed that 95 percent of all Republican state legislators who voted to
increase their state gas tax in 2013 and 2014 and ran for re-election
in last November's elections won their races. For Democrats there was
an 88 percent re-election rate.
Prior to 1993, votes to increase the gas tax in Congress were a
bipartisan affair. In 1982 Congress approved a four cent hike by a vote
of 54 to 33 in the Senate and 180 to 87 in the House. The legislation
was signed into law by President Ronald Reagan. Another five cent
increase was included in the Omnibus Reconciliation Act of 1990 that
passed the Senate 54 to 45, the House by 228 to 200 and was signed by
President George H.W. Bush.
It wasn't until the Omnibus Reconciliation Act of 1993 when the
politics of increasing gas tax revenue began to turn more partisan. The
final package contained a 4.3 cent increase that ended up being devoted
to deficit reduction--not the Highway Trust Fund. The package passed
the House with no Republican votes and although there were a handful of
Republican votes in the Senate, Vice President Gore had to cast the
51st vote to break the tie. President Clinton signed the package into
law.
The Taxpayer Relief Act of 1997 ultimately re-allocated the 4.3
cent increase from 1993 away from deficit reduction and to the Highway
Trust Fund.
It is time to get serious and increase the gas tax. Proposals to do
so have been offered by Democrats and Republicans alike in Congress. In
particular I want to commend Senators Corker and Murphy as well as
Representatives Blumenauer and Renacci for their vision and courage in
offering such proposals.
We must also look at a variety of other options such as
establishing a National Infrastructure Bank, raising the cap on Private
Activity Bonds, creating a new kind of tax-exempt municipal bond called
Qualified Public Infrastructure Bonds, consider other user based
funding mechanisms such as road user charges, and lift Federal
restrictions on tolling so that states may take greater advantage of
partnering with the private sector.
There has been much discussion in recent months about using
repatriated funds to fund a 6 year transportation bill. While I am much
more supportive of continuing the tradition of relying on a true user
fee to fund our transportation system, I can see the merit of tapping
into repatriated funds to give Congress more time to come up with a
more long term and sustainable funding source.
If America wants to maintain its global economic competitiveness we
must reverse course. We must reject the Band-Aid and duct tape approach
and go big and bold.
This committee has an opportunity to work together to do the right
thing to put America back on the right path. We can no longer sit on
the sidelines as our infrastructure continues to deteriorate and we as
a nation fall behind our global economic competitors. In just 10 years
the economic competitiveness of our infrastructure has gone from being
number one in the world to number 12 according to the World Economic
Forum.
There is no better time to invest in our infrastructure. Interest
rates are at record lows and putting our friends and neighbors to work
repairing and modernizing our roads and bridges is an economic plus for
everyone. Let's get to it.
Thank you, Chairman Hatch. I look forward to answering the
Committee's questions.
______
Questions Submitted for the Record to Hon. Ray LaHood
Questions Submitted by Hon. Orrin G. Hatch
Question. Secretary LaHood, in your testimony you discuss the
recent history of the federal excise tax on gasoline, and recommend
increasing it by 10 cents per gallon immediately. As an elected
official yourself, and a senior member of the Obama administration, I
am interested in your perspective in how the administration view the
gas tax as a source of revenue. The Obama administration has never
included a gas tax increase in any of their budgets, and their current
pay-for for infrastructure is essentially international tax reform. As
a former member of the administration, why hasn't the administration
sought to increase the gas tax?
Answer. While the administration has been consistent in its
opposition to raising the gas tax as a way to fund transportation
infrastructure, administration officials have also said that they are
open to working with Congress on various options. For current insight
into the administration's position I would encourage you to speak
directly with Secretary Foxx.
Question. With the emergence of fuel efficient cars, many believe a
fuel per gallon tax system is steadily becoming obsolete and an
ineffective means of collecting revenue. A different system would
therefore eventually be necessary in order to ensure collection of
revenue. Secretary LaHood, you cite in your testimony that in 2013,
Oregon approved legislation to undertake a pilot program with 5,000
volunteers to test the feasibility of transitioning to a system where
motorists are charged by miles driven instead of paying a gas tax. What
types of steps would be involved in adopting such a system, and what
would the time frame be to transition from a fuel per gallon system to
a different system, potentially like the system with which Oregon is
experimenting?
Answer. I applaud the leadership that Oregon has demonstrated with
its latest pilot program. They clearly understand that a sustainable
revenue source to fund transportation infrastructure must be
identified. With regard to how a program similar to Oregon's can be
implemented at the federal level, I would encourage you to talk
directly with experts on road user charge programs at the Federal
Highway Administration or with the appropriate officials at the Oregon
Department of Transportation.
______
Questions Submitted by Hon. Dean Heller
vmt pilot program
Question. Does the Department of Transportation have the capacity
to implement a similar volunteer pilot VMT program to replace the
federal gas tax?
Answer. I encourage you to direct this question to the experts at
the Federal Highway Administration.
Question. If so, how many drivers would be needed nationwide to
collect enough data to adequately evaluate the benefits and concerns of
VMT?
Answer. I encourage you to direct this question to the experts at
the Federal Highway Administration.
Question. Being a member of the Commerce Committee, I also
understand concerns about privacy in implementing such a program. What
safeguards would need to be put in place so that constituents can feel
comfortable with this system? Can you also speak to Oregon's second
pilot program and what safeguards to protect privacy were put into
place?
Answer. On July 1st Oregon's road user fee pilot program--OreGO--
got underway. The pilot is limited to 5,000 participants who will be
charged 1.5 cents per mile while driving in Oregon and receive a credit
for the state gas tax they paid at the pump. According to the official
OreGO website, the Oregon Department of Transportation has set in place
strict policies and procedures to ensure security and privacy for those
participating in the pilot program. You may review this information
directly at: http://www.myorego.org/.
vehicle registration fee
Question. In addressing a solution for the Highway Trust Fund, our
working group analyzed a number of options, including but not limited
to, a national vehicle registration fee. The Joint Committee on
Taxation estimated for our working group that an annual registration
fee of between $200-$300 would be necessary to cover Highway Trust Fund
outlays if all present-law Highway Trust Fund taxes were repealed and
replaced with this fee.
What are your views on this fee?
Answer. I believe that all options should be on the table.
vmt
Question. Secretary LaHood, you have been a vocal advocate of
raising the federal gas tax as a means to build a funding bridge that
will carry us until a sustainable replacement is ready. I am closely
following developments in the West whereas some states are beginning to
pursue a fee based on charging by distance, not on a gas tax. This type
of ``road usage charge'' or ``mileage based user fee'' gives motorists
a choice of what type of technology is used, and in fact even if a
driver chooses a GPS option it never tracks location, only distance.
Could you please speak to the importance of finding a short-term
revenue source to keep America competitive while simultaneously seeking
out and investing in user-fee based alternatives for the long-term?
Answer. The Highway Trust Fund will become insolvent sometime in
August and the authorization for surface transportation programs
expires on July 31st. It is critical that Congress act to ensure that
the Trust Fund remains solvent. The consequences of inaction would mean
that thousands of projects all over America would be at risk of
shutting down and thousands of jobs in jeopardy as federal funding
dries up.
The easiest and most direct way to provide the needed revenue to
boost the Trust Fund is to raise the gas tax and index it to inflation.
In theory, this can be done immediately. However, having been an
elected official I understand the challenging politics of raising
revenue.
As the long term sustainability of the gas tax is an issue, it is
imperative that other long-term options such as a mileage based user
fee be further examined. As you noted, several states are exploring the
feasibility of this option and the lessons learned will further inform
policy makers at the federal level of the viability of implementing
such a system nationally.
Make no mistake, in order to remain competitive America needs a
long-term infrastructure investment strategy.
______
Prepared Statement of Stephen Moore, Visiting Fellow in Economics,
The Heritage Foundation
My name is Stephen Moore. I am a Visiting Fellow in Economics at
The Heritage Foundation. The views I express in this testimony are my
own, and should not be construed as representing any official position
of The Heritage Foundation.
Mr. Chairman, with gas prices having fallen by roughly $1 a gallon
over the past year, many policymakers are advocating a rise in the
federal gas tax. Earlier this year House minority leader Nancy Pelosi
argued that motorists might not even notice the hike. ``If there's ever
going to be an opportunity to raise the gas tax, the time when gas
prices are so low--oil prices are so low--is the time to do it,'' she
stated.
This seems to be the argument that if OPEC can't keep prices high,
the Feds will. But there's a good reason why polling stands
overwhelming against raising the 18.3 cents a gallon federal gas tax.
It hurts the finances of the middle class. The best rule of thumb is
that every penny rise in gas prices at the pump takes about $1.5
billion out of the wallets of consumers. So a 10 or 20 cent gas tax
will take about $15 to $30 billion from consumers. That's a massive
negative stimulus to the economy at a time of stagnant wages for a
decade in America.
By the way, the fall in the gas price increases federal revenues
because people drive more when the price is lower, and the per gallon
federal gas tax collects more funds. So if anything, a fall in gas
prices should be coupled with a fall, not a rise in the federal gas
tax.
Proponents of higher gas taxes point to the fact that the federal
gas tax hasn't been raised since 1993 and hasn't kept pace with
inflation. That's true, but the federal funding peaked at just about
the time the 42,000 national interstate highway system was just being
completed. So the feds need less money now than 30 years ago. No one
argues that we should be spending today what we did in the 1960s on the
Apollo moon landing mission.
Moreover, States have raised their gas taxes and funding for roads
in most areas is not inadequate. From 1984-2012, across the country,
the pace of increase for capital expended on roads and bridges has been
nearly triple the inflation during this period (330 percent vs. 121
percent). And this occurred during a stretch where the Nation's
population grew by only one-third. The common refrain from the road
builders and civil engineers is that the infrastructure is crumbling
and that we need to spend hundreds of billions more. Actually, as my
Heritage colleagues have noted in recent reports:
While the common perception is that America's infrastructure is
``crumbling'' and thus requires more federal expenditures, the reality
is not nearly as bleak. Some infrastructure certainly requires
maintenance and updating, as congestion is a major concern in many
metropolitan areas. Indeed, the federal government provides perverse
incentives for States to spend billions on new, unneeded projects
instead of maintaining existing systems.
Taken as a whole, the Nation's infrastructure performs well and is
improving. The percentage of bridges that are structurally deficient--
meaning that they require extensive maintenance, but are not
necessarily unsafe--has declined from 22 percent in 1992 to 10 percent
in 2014. Highways and roads have also improved: The Federal Highway
Administration notes that the percentage of vehicle miles traveled on
the National Highway System with ``good'' ride quality rose from 48
percent in 2000 to 60 percent in 2010, while the share with
``acceptable'' ride quality increased from 91 percent to 93 percent.
What is true is that America needs more roads because congestion is
getting worse over time and this is a clear economic drain on the
United States. By some estimates the average American worker must work
the equivalent of an extra week a year (37 hours stuck in traffic
congestion) due to crowded roads and highways. But that problem can
also be solved through smart tolling and other market incentives to
properly price use of the infrastructure during peak commuter hours to
reduce overcrowding.
In 21st century America, tolls are the most efficient form of user
pays and Uber-type technologies make tolling highly efficient in terms
of adjusting prices during peak hours to reduce congestion. By the way
as we move into the new era of cheap, reliable, safe, and smart Google
Cars on the roads, time delays due to congestion will be much less of a
problem in the future.
But the reason roads aren't being built is not that the money is
insufficient. It is that so little of the gas tax dollars actually go
to building and maintaining roads.
Consider the highway spending dollars for 2015. The gas tax is
expected to raise roughly $39 billion in 2015. Is this enough to build
and repair needed federal roads? Yes, but it is not enough to fund
transit projects--most of which are hugely inefficient and should never
be funded with federal dollars and certainly shouldn't be funded by
motorists, who, by definition, don't use the trains, and subways and
buses.
Under current law, the Highway Trust Fund consistently spends more
on road and transit projects than it receives in fuel tax revenues and
is expected to run a cumulative deficit of $180 billion over the next
10 years if current trends continue.
The Highway Trust Fund is divided into two accounts. The Highway
Account is slated to disburse about 85 percent of combined spending on
roadway infrastructure and other projects in 2015. The Mass Transit
Account expends about 15 percent of spending (about $8 billion a year)
and funds transit projects, such as rail, buses, and streetcars. This
is not based on fairness or good transportation policy. It is based on
the political clout of urban politicians in Congress who have come up
with funding formulas that benefit their districts.
Overall, about 25 percent of fuel tax funding is diverted to non-
highway projects--including bike paths, trails, museums, and so on.
These may be very worthwhile projects, but why should gas and diesel
tax revenues fund them?
Congress should begin addressing the highway funding shortage by
insuring that every dollar of gas tax paid by motorists goes to
building the roads that they make use of. That is what a ``user fee''
is intended to do.
The argument is made by transit advocates that transit projects
help reduce congestion on roads and therefore benefit motorists. In
very few cities is that the case, because outside of cities like
Chicago, New York, Washington, DC, and San Francisco, so few Americans
use mass transit. Moreover, often times building an extra lane of
highway would reduce traffic congestion in rubber neck areas at one-
tenth the cost of massive white elephant transit projects.
Moreover, there is another massive inefficiency in the transit
program. States and cities are paid a much higher reimbursement rate
for capital expenditures than operations. So the incentive is to build
gold-plated rail services with multi-billion construction costs than to
operate buses and other van shuttle services at a fraction of the cost.
This explains why two of the greatest rail flops of all time are being
built today: the $70 billion high speed rail project in California and
the Dulles Airport ``silver line'' in Virginia that is only being
constructed because the Feds are giving billions to the State of
Virginia. If people in the metro area had to pay for this boondoggle,
they never would have allowed their tax dollars be so misallocated. By
they way the project has already had four cost overruns.
These two examples, and multiples more, explain why transportation
funding and planning needs to be turned back to the States. Again, this
comports with the user pays principle of transportation which we have
strayed so far from and has encouraged wasteful spending.
We know, by the way, that States differ dramatically in how
efficiently they spend on roads and highways. In my book with Arthur
Laffer, et al, called The Wealth of States, we document that California
spends about twice as much per mile of highways built than Texas (about
$250,000 in CA versus less than $100,000 in TX). Despite the spending
discrepancy, Texas road conditions are ranked 23rd in the Nation and
California's are ranked dead last. What does California get for all
that spending? Not much. This gap between Texas and California is due
to environmental and labor rules, among other things. States can get
away with being inefficient if they are being subsidized by the Feds.
They will have to get lean and efficient if they are paying for their
own fiscal folly.
There is another way to reduce highway construction labor costs by
as much as 20 percent, and this is by repealing the federal Davis Bacon
Act, which requires effectively a union ``prevailing wage'' be paid on
federal construction projects.
no to a federal infrastructure bank
One idea kicking up steam is the notion of an infrastructure bank
to fund road, transit, green energy and other brick-and-mortar
``shovel-ready projects.'' The idea is that over time this could raise
about $150 billion for federal infrastructure projects.
One typical plan, sponsored by Rep. John Delaney of Maryland, would
create an infrastructure bank funded with $50 billion, leveraged to
backstop 50-year bonds that would finance billions in new
transportation projects.
The Obama administration has a similar plan to create a bank funded
by $150 billion of repatriated taxes on overseas profits of U.S.
multinationals. The $150 billion would collateralize tens of billions
of dollars of long-term loans from private investors that would fund up
to $100 billion of new projects each year.
The White House says that this plan could nearly double funding for
highway and transit projects with this magical stash of funds. The
supposed selling point: After the initial funding, taxpayers wouldn't
have to put up a dime; it would all be paid for with private dollars
collected.
Except for the fine print. The full faith and credit of the U.S.
Government would back these loans. If the bank experiences financial
stress, the government would be on the hook to repay the loans. As
Ronald Reagan would say: ``Well, there they go again.''
This was exactly the financing mechanism that propped up Fannie Mae
with its scam arrangement of 100 percent taxpayer guarantees on
subprime mortgages. Obama's budget chief once wrote that the chances of
a Fannie Mae default were close to one in a million. It was supposed to
be free money for housing--until it wasn't.
Now, $150 billion in losses later, we know that Fannie and its
sister organization Freddie Mac required one of the most expensive
taxpayer bailouts in American history. This is anything but a model
worth imitating.
A close inspection of many of these infrastructure bank proposals
indicates that rather than investments being based on sound financial
justifications, politics will play a major role.
The infrastructure bank is to take into account factors including
reduction in carbon emissions and income inequality, job training for
low-income workers, energy efficiency, expanded renewable energy and
requirements that iron, steel and other inputs be produced in the
United States.
The feds already provide a giant subsidy for local infrastructure
projects via the tax exemption on municipal bonds. It lowers the
interest rates that cities and States must pay on their infrastructure
bonds. Rates in the muni market have fallen sharply, from 5.41 percent
in 2011 to 3.6 percent last month--the lowest borrowing costs in nearly
half a century.
a better way forward
Rather than raise the federal gas tax, a better policy would be to
phase down the federal tax and let states pay for their own road
projects. The interstate highway system was completed 30 years ago and
there is no more need for a national tax at 18.34 cents a gallon to
fund bridges and high speed rail projects to nowhere. Turning back
transportation projects to the states will ensure that gas tax money is
used for the highest value added projects.
Under one current proposal, over the course of 5 years, the federal
fuel tax rates would decrease, from 18.3 cents per gallon to 3.7 cents
per gallon (gasoline) and from 24.3 cents per gallon to 5.0 cents per
gallon (diesel). At the same time, federal programs more appropriately
run by states and cities, such as subway, bus, and bicycle programs,
would end. Authority and accountability would return to states and
localities, giving them incentives to fund projects according to local
priorities, not those of Washington.
States would decide whether to increase state fuel taxes by the
amount the federal fuel taxes decreased, such that motorists would see
no change at the gas pump. Or they could raise additional funds or
pursue other revenue-generating mechanisms--user fees or taxes--to meet
the level of transportation revenue they deem necessary to carry out
their priorities. In general, states should maintain the ``user pays,
user benefits'' concept and should not raise unrelated taxes, such as a
generic sales tax, to fund transportation projects.
One last point when it comes to our ``infrastructure crisis.'' I
can't help noting that it is many of the same politicians, starting
with President Barack Obama, who keep clamoring for more infrastructure
spending to create jobs and make America economically sounder, who also
oppose the Keystone XL pipeline. This is a project that could create
well more than 10,000 jobs, that would increase American energy
exports, and would increase U.S. National security--and would not cost
taxpayers a dime--and many in Congress and in the White House oppose
it. We ought to do the cheap and easy infrastructure projects first.
______
Prepared Statement of Hon. Ron Wyden,
a U.S. Senator From Oregon
America's transportation arteries give life to America's economy.
Now, they need major surgery, but instead, the patient is bleeding out.
And short-term funding Band-Aids won't help without a solid long-term
plan in place to solve the crisis.
My bottom line is that you can't have a big-league economy with
little-league infrastructure. But the way Congress has limped from one
short-term funding patch to the next more than 30 times is
unquestionably a little-league strategy.
The stop-and-go approach without a viable long-term funding source
lowers our sights in terms of what our transportation system can do. It
forces states and federal agencies into making little plans--barely
keeping up with the potholes and falling far behind on new railways,
ports, and highways.
Oregonians are driving across bridges that are structurally
deficient or functionally obsolete. They're swerving around ruts on
mountain passes that threaten to cause dangerous accidents. They're
sitting in traffic jams, burning through gas and wasting time.
The infrastructure crisis hurts our businesses and discourages
investment in Oregon and across the land. China invests more than four
times the amount the U.S. does in infrastructure. Europe invests twice
as much as the U.S. The fact is, the costs associated with
transportation and infrastructure are always a part of the calculus
when a company is deciding where to invest and who to hire.
One recent report from the American Society of Civil Engineers said
that the U.S. needs to invest $3.7 trillion in infrastructure by 2020--
and $1.7 trillion in transportation infrastructure alone--just to reach
``good condition.'' Another series of short-term patches won't meet
that bar. And in the meantime, the same report found that Oregonians
spend more than $650 million a year on auto repairs and other costs
because roads and highways are crumbling.
It's my view that funding a transportation network is right up
there with maintaining a fair judicial system and a strong national
defense among the most basic and necessary functions of government.
There is a bipartisan understanding that our transportation system
needs major investments--you hear the same messages from Democrats and
Republicans on this issue.
So Congress and this committee have a responsibility to find a
pathway that leads to a long-term funding source. I hope today's
hearing reinforces the enormous need to accomplish that goal and helps
us move closer to a solution.
Next week, the committee is going to continue its consideration of
this crucial topic in a hearing on how to get private dollars off the
sidelines and into the game on infrastructure. Several weeks ago,
Senator Hoeven and I introduced the Move America Act to kick-start the
use of effective financing tools to help solve this crisis. I strongly
believe Move America is going to be a big part of what gets our
infrastructure back up to the big-leagues, and I look forward to
continuing the discussion next week.
______
Communications
----------
Testimony by Kurt Nagle
President and CEO
American Association of Port Authorities (AAPA)
Dead End, No Turn Around, Danger Ahead:
Challenges to the Future of Highway Funding
Senate Finance Committee
Thursday, June 18, 2015
Chairman Hatch and Ranking Member Wyden, thank you for holding this
important hearing on the long-term financing of the highway trust fund.
How we fund our infrastructure is a conversation that Congress and the
administration must have and AAPA looks forward to being engaged in
this conversation, especially from a freight perspective. Thank you
both for your leadership on this issue.
AAPA is the unified and collective voice of the seaport industry in the
Americas. AAPA empowers port authorities, maritime industry partners
and service providers to serve their global customers and create
economic and social value for their communities. Our activities,
resources and partnerships connect, inform and unify seaport leaders
and maritime professionals in all segments of the industry around the
western hemisphere. This testimony is on behalf of our U.S. members.
AAPA is also the Chair of the Freight Stakeholder Coalition, which is a
unique coalition of 19 national stakeholders comprised of system users,
planners and builders, which has provided comments on policy and
funding on the Transportation Reauthorization Bill since 1992.
The next surface transportation authorization is an opportunity to
provide long-term, sustainable funding and to build upon MAP-21, which
recognized the linkage between goods movement and economic
competitiveness. However, AAPA believes it is time to match this new
emphasis on freight by not only ensuring both long-term Highway Trust
Fund solvency but also adding new and additional non-HTF funding
dedicated to prioritizing projects that optimize and integrate the
Nation's freight transportation system.
The federal government must lead long-term efforts designed to further
America's competitive advantage by advancing projects of regional and
national significance as well as first and last mile projects that
reduce congestion, enhance goods movement, improve the environment and
create jobs. If we are committed to the modernization of our nation's
freight transportation system, it must accommodate projected growth in
manufacturing and trade in years ahead or risk the U.S. being surpassed
by foreign competitors.
One of the biggest challenges our industry sees today--and looking
toward the future--is the state of port related infrastructure, and how
we as a nation make the necessary investments in that critical
infrastructure. There are sizable investment needs at port facilities
and the connecting infrastructure on the land and waterside.
The Highway Trust Fund can be a vital resource for funding freight
projects, such as first and last mile projects that connect the ports
with the surface transportation system as well as the Congestion
Mitigation and Air Quality Program (CMAQ), which provides funding for
air quality projects. Port connector projects are also eligible for the
Surface Transportation Program (STP) and the Projects of National and
Regional Significance (PNRS) program which address large choke points
on our freight network.
Earlier this year, AAPA asked our members to look ahead 10 years and
identify the key landside infrastructure investments that need to be
made. With 95% of our U.S. port members responding, The State of
Freight survey results identified $28.9 billion of project investments.
A copy of this report has been submitted for the record. Specifically,
AAPA members identified 34 Projects of National and Regional
Significance totaling $19.5 billion.
Additionally, MAP-21 required the USDOT to encourage states to develop
comprehensive immediate and long-term freight planning and investment
plans, and to collaborate with individual states, Metropolitan Planning
Organizations (MPOs) and Freight Advisory Committees. In addition to
comprehensive freight plans, states were also encouraged to establish
freight advisory committees.
Ports are already engaging in the planning process so there is a blue
print in place on how to fund freight projects.
71 percent of U.S. member ports participated in the development of
its statewide freight plan.
63 percent of U.S. member ports are working directly with its
region's MPO or Council of Governments (COG) in the development
and planning of a freight project that is either underway or
has recently been completed.
However, fixing the highway trust fund does not fix our freight
network. The movement of freight is intermodal, meaning that it
predominantly involves both rail and truck. These two modes do not
necessarily exist in harmony under the current HTF structure.
For our country to build and sustain our infrastructure we must have an
intermodal program that provides direct funding for freight. Our
freight infrastructure needs, demands and challenges have become much
more dynamic since 1993, the last time the gasoline user fee was
increased.
Think of how much our economy, our population and how we conduct
business has changed in the past 22 years. The growth and integration
of the Internet into everyday shopping has dramatically changed how we
make purchases and how it is delivered through distribution type
businesses such as AMAZON and others. These new business models have
placed an incredible amount of stress on our already aging
infrastructure.
For example, our population has grown by 23 percent (or 60 million)
since 1993, meaning more freight customers and more demand on our
infrastructure. Additionally, in 1993, 20.4 million TEU entered the
country and moved on our rail and highways. By 2014 that number has
more than doubled to 46.4 million TEUs. And the total tonnage of
freight that moves through our ports and around our country has
increased by 46.2 percent since 1993 to a total of 880,841 metric tons
in 2014. That is a lot of wear and tear on our infrastructure that is
also supporting the everyday trips of commuters, shopper and tourists
around the country.
This demand on our infrastructure is only going to increase. Today,
international trade through seaports accounts for over a quarter of the
U.S. economy--and is projected to reach 60% by 2030. At the center of
trade and transportation are America's seaports, which handle
approximately $6 billion worth of import and export goods daily,
generate over 23 million jobs, and provide more than $320 billion in
tax revenues.
To address the immediate and long term freight infrastructure
challenges, AAPA recently endorsed the concept of a 1 percent waybill
fee as an equitable approach to provide long-term funding for freight.
This was included in legislation, H.R. 1308, Economy in Motion: The
National Multimodal and Sustainable Freight Infrastructure Act,
introduced by Representatives Alan Lowenthal (D-CA), Dana Rohrabacher
(R-CA) and Mark Meadows (R-NC) and 11 other cosponsors. We urge the
Committee to carefully look at this bill and how it can fund freight.
To help plan and make sustainable investments in a national freight
network, AAPA has suggested several approaches:
(1) Provide direct funding for freight projects,
(2) Create a freight fund that provides formula funds to States as
well as a discretionary grant program so that adequate funding can be
distributed; and
(3) Provide a sustainable funding source for the freight network.
AAPA recently endorsed the concept of a 1 percent waybill fee as an
equitable approach to provide long-term funding for freight.
AAPA is happy to see that Congress and the administration recognize the
value of improving our freight network. Whether we will be successful
will very much depend on the Senate Finance Committee finding
increased, sustainable funding sources for the highway trust fund and
other mechanisms to fund multi modal freight improvements.
AAPA believes a strong case is being made for direct funding toward our
freight network and that freight starts and ends with our seaports. We
look forward to working with the Committee as you move a sustainable
funding package for the Highway Trust Fund and for our Freight Network
forward this summer.
______
American Association of Port Authorities (AAPA)
Port Surface Transportation
Infrastructure Survey
The State of Freight
April 21, 2015
Version 1.2
1 in 3 u.s. ports needs at least $100 million in intermodal upgrades to
handle projected 2025 freight volumes
Executive Summary
In Peter Zeihan's acclaimed 2014 book, ``The Accidental Superpower,''
he cites the overwhelming freight transportation advantage the United
States has over other trading nations in its system of ports and
waterways. He argues that America has more miles of navigable waterways
than any other nation, together with an enviable coastal geography of
naturally deep harbors, barrier islands and indentations that are
unmatched for seaport development anywhere in the world.
Unfortunately, due to insufficient investment in its freight
transportation infrastructure, every day America is losing some of the
goods movement advantage asserted in Mr. Zeihan's book.
Seaports are the backbone of a thriving 21st century global economy.
Yet, a nation's freight transportation system is only as good as its
underlying infrastructure. In the American Association of Port
Authorities' (AAPA) 2015 Surface Transportation Infrastructure Survey--
The State of Freight, results indicate that the Nation's unsurpassed
goods movement network needs immediate and significant investment in
the arteries that carry freight to and from its seaports. Without that
investment, the American economy, the jobs it produces and the
international competitiveness it offers will erode and suffer, creating
predictable and oftentimes severe hardships to the individuals who live
and businesses that operate within its borders.
In 2013 alone, some 1.3 billion metric tons of imported and exported
cargo, worth nearly $1.75 trillion, moved through America's seaports,
while an estimated 900 million metric tons of domestic cargo with a
market value of over $400 billion was also handled through these
international gateways.
Port-related infrastructure connects American farmers, manufacturers
and consumers to the world marketplace and is facilitating the increase
of American exports that are essential to the nation's sustained
economic growth. In 2007, Martin Associates, of Lancaster, PA, reported
that U.S. port activity was responsible for about 13.3 million American
jobs and $212.4 billion in federal, state and local tax revenue. Martin
Associates' 2015 nationwide porteconomic impacts update study shows the
benefits of America's seaports having risen sharply over the
intervening years, now responsible for 23.1 million U.S. jobs and
$321.1 billion in Federal, State and local tax revenue. According to
the study, marine cargo activity at U.S. deep-water ports also
generated $4.6 trillion in total economic activity, or roughly 26
percent of the Nation's economy in 2014, compared to $3.2 trillion in
combined economic activity associated with U.S. deep-water ports in
2007, or roughly 20 percent of the Nation's GDP at the time.
``Enhancing connections between highway and rail systems and
port infrastructure will be a key part of ensuring the first
and last mile of transportation infrastructure supports growing
demand.''
U.S. Senator John Thune (R-SD)
Chairman, Senate Committee on Commerce, Science and
Transportation
Despite the importance to the economy, freight investments are
disadvantaged in the current transportation planning and funding
process. Freight projects face competition from non-freight projects
for public funds and community support. Although passenger and freight
movements must coexist on America's transportation network, these are
two distinctly different stakeholder constituencies.
Because there's no clear definition of what constitutes ``freight
projects'' in the federal government lexicon, there's been a lack of
coordination among federal and state government entities and private
sector stakeholders. This has resulted in a shortage of public funds to
plan and invest in the nation's freight network and address the key
freight chokepoints that impact both passenger and freight
constituencies.
Due to their significant role in driving commerce, public seaports have
the experience to help grow the economy, create jobs and promote an
efficient, safe and environmentally sustainable freight network. As in
any other successful operation, every port has a business plan for its
long-term success to identify markets, leverage assets and prioritize
and sustain its capital investments. Similarly, if America wants its
transportation system to achieve long-lasting and sustainable success,
it must implement a national freight plan to develop, sustain and grow
its advantages for moving goods.
The results of AAPA's infrastructure survey reinforce one of the
industry's key messages, ``Seaports Deliver Prosperity.'' The survey
also illustrates the significant steps public ports are making and have
made in working with the planning community in developing and investing
in freight projects. This has been particularly evident since passage
of the 2012 Moving Ahead for Progress in the 21st Century Act (MAP-21),
which laid out a clear and aggressive vision on how America plans and
coordinates a national freight plan through collaboration with the
individual states.
Additionally, this survey helps define the role ports are continuing to
play in developing innovative Public Private Partnerships (P3s) with
the nation's business sector, and facilitating additional resources
into the process.
This survey focuses on seaports--critical gateways in the U.S. freight
network through which more than 99 percent of America's overseas trade
must pass. While there are other components of the freight network that
must be addressed, the impact of vital seaport ``first and last mile''
connectors on the country'sregional and national transportation
infrastructure cannot be overstated. Ports are national models of
effective intermodalism and are the very definition of critical
infrastructure.
From 2007-2014 the annual impact of America's seaports
increased:
43 percent to $4.6 trillion
in total U.S. economic
value 74 percent to 23.1 million U.S.
jobs
51 percent to $321.1
billion in Federal, State
and local tax revenue 100 percent to $1.5 billion in
personal wages and salaries
Survey Purpose and Participation
The purpose of AAPA's 2015 Port Surface Freight Infrastructure Survey
is to quantify the baseline need for investment in port infrastructure
connecting the United States' deep-draft seaports to the rest of the
nation's freight transportation system. The survey results reflect
responses to questions asked of AAPA's 83 U.S. member public ports in
the 6 months leading up to the publication of this report. With a 95
percent response rate, the survey represents nearly all of the top U.S.
seaports on the Atlantic, Pacific and gulf coasts, and along the Great
Lakes.
The survey seeks to illustrate the critical nature of connection points
between seaports and the national surface transportation system,
including highway connectors and on-dock rail. It's at these critical
connection and transfer points that the efficiency of moving freight
through seaports and to and from the interior of the country can be
maximized. These connection and transfer points for goods are the
foundation of America's freight network.
The freight network is vast and evolving. It's a living grid that
infuses an economic lifeline throughout the country; from small towns
to major metropolitan regions, and farming districts to technology
centers like Silicon Valley. At its heart are America's seaports, which
handle an overwhelming majority of the nearly $6 billion worth of
products that move to and from overseas markets every day. For the
network to work properly, it must seamlessly connect to commerce
centers in every community, state and territory, as well as to an ever-
growing and vibrant inland waterway system that is unparalleled
worldwide.
``Every type of transportation plays an important role in our
national transportation network, but maritime and waterborne
transportation in particular serves as our country's connection
to the world economy.''
U.S. Representative Bill Shuster (R-PA)
Chairman, House Committee on Transportation and Infrastructure
Analysis of Surface Transportation Connectors With Ports
It's been two decades since the United States addressed its surface
transportation connectors. In 1995, the National Highway System (NHS)
Designation Act, directed the Secretary of the U.S. Department of
Transportation (USDOT) to develop a list of NHS intermodal connectors.
With the input of state departments of transportation, the list was
completed in 1998. In 2000, USDOT reported to Congress on the state of
NHS Intermodal Freight Connectors. USDOT identified significant
deficiencies in U.S. freight connectors and estimated the cost of them
to be $2.6 billion.
Between 2000 and 2013, the volume of containers shipped through U.S.
ports grew by approximately 50 percent, from 30.4 million to 44.6
million 20-foot equivalent units (TEUs), adding further strain to port
highway and rail connectors. The population in U.S. metropolitan areas
also grew by 33 million people (14 percent) over the same period, which
created a related increase in the demand for goods.
In the AAPA survey, respondents were asked what they anticipated the
minimum cost would be over the next decade (through 2025) to upgrade
the intermodal connections at their port so it could efficiently handle
all of their projected inbound and outbound cargo.
Key Survey Results Included:
Nearly 80 percent of AAPA U.S. ports surveyed said they anticipate a
minimum $10 million investment being needed in their port's intermodal
connectors through 2025, while 30 percent anticipate at least $100
million will be needed.
These intermodal connectors, often referred to as the ``first and
last mile'' of the freight transportation network, account for
roughly 1,200 of the 57,000 miles in the national highway
system. Many of these connectors are in various states of
disrepair and face further deterioration, particularly as trade
volumes continue to grow. Like links in a chain, these
transportation connections with America's seaports are critical
to the overall freight network, and they are particularly
vulnerable in large, congested metropolitan communities where
commuters and freight share the same system. As the United
States. takes a closer look at planning and investing in its
freight grid, intermodal access points must be prioritized.
Looking further at intermodal connectors, the AAPA survey asked
respondents how much has congestion on these connectors over the past
decade impacted their port's productivity.
One-third of respondents said congestion on their port's intermodal
connectors over the past 10 years has caused port productivity to
decline by 25 percent or more.
MAP-21 made incremental steps in providing resources for improving
intermodal connectors. Surface Transportation Program (STP)
funds are now eligible for surface transportation
infrastructure improvements in port terminals for direct
intermodal interchange, transfer and port access. However, the
competition for these funds is intense, as states have 27 other
eligible funding activities in which to use these Federal
funds.
Among AAPA survey respondents, 33 percent said their port has
applied for STP funds during the last 2 years. However, AAPA
has also heard from ports that low success rates in securing
funding has made it difficult for them to make long-term
commitments for infrastructure projects. AAPA repeatedly hears
from U.S. member ports that sustainable and reliable funding
sources need to be available in order for them to invest and
leverage funding into the connecting freight network.
Needed and Planned Investment in the Freight Network
In a 2012 AAPA survey, U.S. public ports and their private sector
partners reported plans to invest more than $9 billion each year for
the next 5 years tomaintain and improve their infrastructure. However,
this investment is not being adequately matched by a Federal Government
commitment to improve the corresponding connecting infrastructure. Many
of the land-side connections to seaports are insufficient and outdated,
negatively affecting the ports' ability to move cargo into and out of
the U.S., and threatening our international competitiveness.
Key Survey Results Included:
There is an identified current need of $28.9 billion in 125 port-
related freight network projects. These projects range from intermodal
connectors, gateway and corridor projects, to marine highways and on-
dock rail projects.
Of these 125 projects, there are 46 intermodal projects totaling $7.5
billion, and 34 Projects of National & Regional Significance totaling
$19.5 billion. Additionally, respondents identified 35 TIGER
(Transportation Investment Generating Economic Recovery) projects
totaling $1.9 billion.
Since 2009 TIGER Funding Has Leveraged $700 Million for the Freight
Network
Over the past 6 years, the Maritime Administration (MARAD) has
coordinated 39 maritime TIGER projects, worth $500 million in
federal funds.
About $700 million in additional freight rail and federal TIGER
projects have been awarded that also move maritime freight.
TIGER is a multi-modal and multi-jurisdictional competitive grant
program.
Building on the Planning Provisions of MAP-21
The 2012 MAP-21 surface transportation legislation required the USDOT
to encourage states to develop comprehensive immediate and long-term
freight planning and investment plans, and to collaborate with
individual states, Metropolitan Planning Organizations (MPOs) and
Freight Advisory Committees.
In addition to comprehensive freight plans, states were also encouraged
to establish freight advisory committees. Furthermore, MPOs were
directed to set performance targets for freight and to integrate
freight planning performance provisions into their overall planning
process.
MAP-21 set into motion a useful process for communicating, planning and
ultimately funding important freight projects. Ports are engaging in
this process and in many ways have been leading the conversation. In
its The State of Freight survey, AAPA asked its U.S. member ports a
series of questions on how they are building off the MAP-21 planning
provisions and engaging with planning the freight network.
Key Survey Results Included:
Sixty-three percent of survey respondents said their port is working
directly with its region's MPO or Council of Governments (COG) in the
development and planning of a freight project that is either underway
or has recently been completed.
From this response, AAPA learned that not only are two-thirds of
its U.S. member ports engaging in the MPO planning process and
actively including freight projects in their statewide or
Metropolitan Transportation Improvement Program, these ports
are also engaged in an ongoing dialogue with their regional
planners.
AAPA also learned from this part of the survey that the
availability of TIGER funding has significantly driven U.S.
public port engagement with the planning community over the
years. Because of port eligibility for TIGER funding and
coordination and planning requirements in the submission of
projects, the annual TIGER process has served as a catalyst in
bringing freight stakeholders to the table.
Seventy-one percent of those surveyed said their port has participated
in the development of its statewide freight plan.
According to the Federal Highway Administration's (FHWA) Office of
Freight Management and Operations, 42 states have worked with
FHWA or are in various stages of development of their state
freight plans. While many of these state freight plans are not
yet MAP-21 compliant, the conversation on freight between
states, stakeholders and the federal government is continuing.
Sixty-four percent of surveyed ports are members of a local freight
advisory committee.
MAP-21 encouraged the creation of local freight advisory committees
to weigh in on the development of local and state freight
plans. These freight advisories typically have a broad scope of
membership, much like the National Freight Advisory Committee
that is housed in the U.S. Department of Transportation. This
is a place where the private sector continues to weigh in on
the freight planning and funding process, which has been
described as chambers of commerce for freight.
An offshoot of this process has been a growing engagement and
strong interest and understanding between ports, the private
sector, and local and federal partners, in the development of
creative Public-Private Partnership (P3) projects.
Public-Private Partnerships (P3s)
The ability to facilitate business through port entry and exit gates,
and the ability to manage transportation logistics, make public ports
excellent laboratories for P3-financed projects impacting the freight
network.
However, several federal financing tools that could be considered a
good fit for ports have not had measurable impacts. Only five of the
AAPA U.S. ports surveyed have engaged in the federal Railroad
Rehabilitation and Improvement Financing (RRIF) program, which is
surprisingly low, given the overwhelming need and focus that ports
indicated they had for on-dock rail projects. In follow-up questions on
the RRIF program, ports expressed a sense of frustration navigating the
program, and cited the need for a capital grants program to match up
with RRIF loans to assist in facilitating and leveraging private sector
capital.
The Transportation Infrastructure Finance and Innovation Act (TIFIA)
program is another example of a financing program underutilized by
AAPA's U.S. member ports.
Key Survey Results Included:
Eight percent of the survey respondents reported having utilized a
TIFIA loan for a port-related project.
While freight rail and intermodal transfer center projects are
eligible under TIFIA, many ports have reported having
experienced difficulty with how USDOT interpreted their TIFIA
applications, concluding that USDOT doesn't encourage port-
supported TIFIA projects.
Thirty-three percent reported using, or planning to use, P3s; 13
percent identified using or planning to use Private Activity Bonds
(PABs); and 62 percent indicated they were using or planning to use
another financing source.
The significant use by U.S. ports of P3 financing suggests there is
additional opportunity to rein in and leverage private-sector
resources in building projects that impact the freight network.
In late 2014, the USDOT Build America Transportation Investment
Center (BATIC) put out a call for projects and more than 25
U.S. ports submitted P3 proposals.
On-Dock Rail
For many ports, on-dock rail (rail track which is located immediately
next to the dock front) offers a vital link to efficiently move goods
directly between ships and trains to get the goods to America's
heartland and major distribution centers. In referencing on-dock rail,
Bill Johnson, the former port director for Florida's PortMiami,
testified on January 28, 2015, before the Senate Commerce Committee,
saying, ``Without interconnectivity, you cannot connect your port to
America or the global economy.''
Key Survey Results Included:
Seventy-three percent of AAPA U.S. member ports have on-dock rail,
while most others have rail tracks within terminals near docks, which
is often referred to as near-dock rail.
However, U.S. ports' apparent rail infrastructure strength is
misleading. Many port on-dock and near-dock rail systems are
out-of-date and need to be significantly enhanced and
reinforced, as well as integrated with new technology to
accommodate rising shipping volumes.
Having up-to-date on-dock and near-dock rail able to accommodate
all the discretionary cargo that must be moved to and from a
port's hinterland is a big priority for U.S. seaports. The need
is so urgent that several ports have purchased rail lines to
ensure access to their existing freight network and for
business development. Based on the survey responses, a majority
of ports are engaged in upgrading and/or expanding their on-
dock rail systems and have cited the need for Federal resources
in assisting with on-dock rail investments.
Even though improving port rail infrastructure is a priority for
most ports, only 13 percent of survey respondents reported
having applied for or are planning to use the RRIF program to
pay for their projects. This may be due to what has been
reported as a difficult application process to navigate. In the
AAPA survey, respondents expressed a desire to revamp the RRIF
program to make it easier to finance on-dock rail and other
freight transportation infrastructure projects. They also
indicated a desire that the RRIF program provide a capital
grants aspect to work in tandem with its financing program.
Other Federal Options for Financing Port-Related
Infrastructure Development
In addition to facilitating the movement of cargo, seaports are also
stakeholders and partners in the communities in which they operate. In
the U.S., public ports directly generate or influence the creation of
millions of jobs, are environmental stewards and play a vibrant
socioeconomic role in the communities they serve. While the condition
of the air, land and water surrounding these public ports is important
to those who work and do business in the respective communities, it's
equally as important to those who work or do business at the ports
themselves.
In addition to infrastructure investments, ports partner with the
Federal Government to fund programs that reduce diesel emissions and
create economic opportunities through partnerships with the Economic
Development Administration (EDA). To illustrate, the final question in
AAPA's survey asked respondents if their port had ever applied for or
received funding from Diesel Emission Reduction Act (DERA) grants,
Congestion Mitigation and Air Quality Improvement program grants
(CMAQ), or the Surface Transportation Program (STP) or Economic
Development Administration (EDA) grants.
Key Survey Results Included:
Fifty-seven percent of the AAPA U.S. member ports surveyed have applied
through the U.S. Environmental Protection Agency for DERA funding, and
43 percent have applied for CMAQ funding to pay for reducing emissions
and congestion while improving air quality in and around their ports.
Forty-five percent have applied through the U.S. Department of Commerce
for EDA grants by partnering with a regional academic institution and a
local government authority, while 33 percent have applied for Federal
highway STP funding to improve their port's intermodal connections.
Conclusion
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.epsAmerica's freight network is vast and evolving. It's a living grid
and economic lifeline for the country; from small towns to major
metropolitan areas, from farming regions to technology centers.
At its heart are America's seaports, which handle approximately $6
billion worth of goods to and from overseas markets every day. These
goods come in all shapes and sizes. Apparel and consumer electronics
are shipped in standardized steel containers. Cars and trucks are
driven on and off ships. Farm harvests are conveyed into the hulls of
vessels. Liquids are moved by pipeline. Gaseous products are shipped in
pressurized tanks. Project cargoes, like wind turbines and electrical
generators, require special handling. These different cargo types
require different transport modes to get them from shore to ship, and
ship to shore. For the freight network to operate smoothly and
efficiently, it must seamlessly connect commerce centers in every
community, state and territory.
As indicated in AAPA's 2015 The State of Freight survey, investment in
America's port connection infrastructure is an urgent national
priority. There is a path forward. This survey documents and
illustrates the freight planning successes that resulted from the TIGER
application process. Survey results show how MAP-21 built upon TIGER's
targeted investments with the various State freight plans and with
ongoing input of the individual States' freight advisory committees.
The survey also, for the first time, documents from the ports'
perspective the requisite capital investments that are needed to
maintain and enhance a 21st century freight network. These investments
include ``first and last mile'' connector and gateway projects that,
when viewed collectively, represent a strategic investment in the
national transportation system, the national economy, as well as all of
the individual enterprises and people who make the nation great.
This survey is a strong first step towards identifying the critical
infrastructure needs of America's seaports, however more must be done.
AAPA will continue to gather input from the industry and work with our
partners to ensure that investing in our Nation's freight
transportation system is a national priority. A reliable and efficient
transportation system will guarantee that seaports continue to deliver
prosperity for all Americans.
American Association of Port Authorities (AAPA)
1010 Duke Street
Alexandria, VA 22314-3589 703.684.5700 Fax: 703.684.6321
www.aapa-ports.org
______
American Association of State Highway and
Transportation Officials (AASHTO)
The Voice of Transportation
STATEMENT FOR THE RECORD BY
The Honorable John F. Cox
President, American Association of State Highway and
Transportation Officials;
Director, Wyoming Department of Transportation
regarding
DEAD END, NO TURN AROUND, DANGER AHEAD: CHALLENGES TO THE FUTURE OF
HIGHWAY FUNDING
before the
Committee on Finance of the
United States Senate
on
June 18, 2015
American Association of State Highway and Transportation Officials
444 North Capitol Street, N.W., Suite 249
Washington, DC 20001
202-624-5800
www.transportation.org
[email protected]
INTRODUCTION
Chairman Hatch, Ranking Member Wyden, and Members of the Committee,
thank you for the opportunity to provide input on the need to identify
a long-term, sustainable revenue solution for the Federal Highway Trust
Fund. My name is John Cox, and I serve as President of the American
Association of State Highway and Transportation Officials (AASHTO), and
as Director of the Wyoming Department of Transportation (WYDOT). It is
my honor to provide this Statement for the Record on behalf of AASHTO,
which represents the State departments of transportation (State DOTs)
of all 50 States, Washington, D.C., and Puerto Rico.
For almost 60 years, the Highway Trust Fund (HTF) provided stable,
reliable, and substantial highway and transit funding. However, over
the past 7 years this has not been the case. Since 2008, almost $62
billion have been transferred from the General Fund to the HTF to keep
it solvent. Recently--and retreading a path that we all have walked
down before--the U.S. Department of Transportation (USDOT) announced
that the Highway Account of the HTF will likely run out of money later
this summer. If this is allowed to happen, States may not be reimbursed
for work they have already paid for. In addition, failure to ensure the
solvency of the HTF will force States to drastically reduce the
obligation of new Federal highway funds in Fiscal Year 2016.
Almost half of capital investments made by States on our Nation's
roads, bridges, and transit systems are supported by the HTF. Without
this strong Federal-State partnership, State DOTs will not be able to
play their part in building and maintaining the national transportation
network on which our economy relies to be competitive in the global
marketplace.
FAILURE TO REIMBURSE STATES FOR PRIOR OBLIGATIONS
The Federal-aid Highway Program currently provides about $38 billion a
year to State DOTs for important road and bridge projects across the
country. These funds are derived from contract authority, a unique form
of Federal budgetary authority well-suited for infrastructure projects
that require a multi-year construction timeline. It is critical to note
that the dollars obligated under this program represent the Federal
Government's legal commitment and promise to pay--or more accurately--
reimburse the States for the Federal share of a project's eligible
costs.
Under this reimbursement framework, States only receive funding from
the Federal Highway Administration (FHWA) when work is completed on a
project and the State submits a request for reimbursement. States
typically receive reimbursement electronically from FHWA the same day
payments to the contractor are made.
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It is currently estimated by the USDOT and Department of the Treasury
that the Highway Account of the HTF is likely to run out of cash by
early September of this year. Prior to reaching this point of
insolvency, FHWA will be forced to institute emergency cash management
procedures in order to slow down reimbursements to States for costs
already incurred on highway and transit projects.
As Congress was faced with the same HTF insolvency crisis last summer,
FHWA announced that under their proposed emergency cash management plan
at the time, States' reimbursements would be capped at a drastically
reduced amount relative to the full amount owed. This cap would have
been determined by the ever-dwindling amount of cash in the HTF
accessible by FHWA twice a month. Under this situation where FHWA
cannot cover 100 percent of the bills received, States would have been
left to provide the cash cushion--by whatever means necessary such as
short-term borrowing, standby lines of credit, reliance on the state's
general fund--for payments already made. Furthermore, FHWA incurs
interest liability if a State pays out its own funds for Federal
assistance program purposes, which would only exacerbate the cash
shortfall in the HTF. Given the urgency of this situation, Congress
passed the Highway and Transportation Funding Act, which was enacted on
August 8, 2014, to provide $10.8 billion to the HTF.
Because States count on prompt payment from the Federal Government to
be able manage cash flow and pay contractors for completed work, any
delay in reimbursement from FHWA will cause a significant disruption in
all States. And in turn, contractors that rely on prompt payment from
the State would be unable to pay their employees and suppliers. As you
can imagine, such a devastating scenario will send shockwaves
throughout the transportation community and all other industries
supported by Federal infrastructure investment.
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DEVASTATING IMPACT TO STATES OF A HIGHWAY TRUST FUND SHORTFALL IN FY
2016
Even if FHWA is able to keep the Highway Account solvent by delaying
reimbursements to States this summer, it will not address the
underlying structural problem. The Congressional Budget Office (CBO)
estimates that yearly HTF receipts will be $17 billion less than HTF
spending annually over the next 10 years (FY 2016-2025). In order to
keep the HTF solven beyond this fiscal year, AASHTO estimates that
States will have to significantly reduce new Federal highway funding in
fiscal year 2016--going from $40 billion to $4 billion. Even with
virtually no new highway funding in fiscal year 2016, there remains a
possibility that FHWA will still have to alter its reimbursement
procedures in fiscal year 2016 to be able to pay for prior-year
obligations.
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Historically, Federal highway funding has accounted for approximately
45 percent of what State DOTs spend on highway and bridge capital
improvements. This means a significant portion of much-needed highway
and transit projects--projects that underpin economic development and
improve the quality of life--in every community and Congressional
district will either be delayed or cancelled outright. Such cutbacks on
contract lettings would mean missed opportunities to pare down the
backlog of investment needs, while causing a negative domino effect on
construction industry employment exactly when it is starting to rebound
after being one of the hardest hit segments in the recent recession.
Furthermore, ramping up and down construction activities--including
equipment and labor resource management--due to the instability of the
Federal program would represent an extremely wasteful exercise and
impose heavy opportunity costs for the entire transportation industry
and the nation as a whole.
ADDITIONAL REVENUES NEEDED JUST TO MAINTAIN CURRENT INVESTMENT LEVELS
As a major disruption to the HTF remains on the horizon, the
Congressionally chartered National Surface Transportation Policy and
Revenue Study Commission projected annual Federal capital investment
needs at $225 billion for the next 50 years. When compared to the
current funding level of about $90 billion, there is a significant
investment deficit in surface transportation infrastructure. In order
to sustain the long tradition of robust national investment in
transportation, we must ensure the HTF's looming cash shortfall is
addressed with solutions that enable sustainable program funding not
just beyond this summer or fiscal year 2016, but for the long term.
While the HTF continues to derive about 90 percent of its revenues from
taxes on motor fuels, these taxes are facing an increasingly
unsustainable long-term future, therefore placing the viability of the
HTF in question. Motor fuel taxes at the Federal level were last
increased to the current rates of 18.4 cents per gallon for gasoline
and 24.4 cents for diesel 22 years ago in 1993. As a static excise tax
levied per gallon, taxes on motor fuel have lost a significant share of
its purchasing power. Compared to the Consumer Price Index, the gas tax
had lost 39 percent of its purchasing power by 2014, and is expected to
lose more than half of its value--or 52 percent--by 2024. This loss of
purchasing power is unusual considering the increase in nominal cost of
virtually all other aspects of the economy.
Exhibit 4. Sample of Nominal Prices Relative to Federal Gas Tax, 1993
and 2010
------------------------------------------------------------------------
UNIT/
ITEM DESCRIPTION 1993 2010 PERCENT CHANGE
------------------------------------------------------------------------
Colleg Average $3,517 $9,136 160%
e Tuition and
Tuiti Required
on Fees
Gas Per Gallon $1.12 $2.73 144%
Movie Average $4.14 $7.89 91%
Ticke Ticket Price
t
House Median Price $126,500 $221,800 75%
Bread Per Pound $1.08 $1.76 62%
Income Median $31,272 $49,167 57%
Household
Stamp One First- $0.29 $0.44 52%
class Stamp
Beef Per Pound of $1.57 $2.28 46%
Ground Beef
Car Average New $19,200 $26,850 40%
Car
Federa Per Gallon $0.184 $0.184 0%
l Gas
Tax
------------------------------------------------------------------------
Sources: U.S. Census Bureau, U.S. Department of Transportation, U.S.
Postal Service, U.S.Department of Commerce, U.S. Department of
Education, National Association of Theater Owners
Facing these structural headwinds, CBO projects the HTF in fiscal year
2016 to incur $54 billion in outlays while raising only $40 billion in
receipts, leading to a cash shortfall of $14 billion for its Highway
and Mass Transit Accounts. This situation is not new, as the HTF will
have--by the expiration of the current surface transportation program
extension on July 31, 2015--relied on a series of General Fund
transfers amounting to almost $62 billion since 2008 to close this gap.
But this annual cash imbalance is expected to only get worse, and the
HTF cannot incur a negative balance unlike the General Fund.
This situation leads to three possible scenarios for later this year:
1. Provide additional General Fund transfers to the HTF in order to
maintain the current level of highway and transit investment
and to meet prior-year obligations;
2. Provide additional receipts to the HTF by adjusting existing
revenue mechanisms or implementing new sources of revenue; or
3. Reduce reimbursement payments this summer and drastically reduce
new Federal highway and transit obligations in fiscal year
2016.
In order to support one of the first two scenarios where current
highway and transit funding levels are maintained or increased, there
is no shortage of technically feasible revenue options--including user
fees and taxes--that Congress could consider.
Exhibit 5. Matrix of Illustrative Surface Transportation Revenue Options
------------------------------------------------------------------------
$ in Billions
Existing Illustrative -------------------------
Highway Rate or Definition of Total
Trust Fund Percentage Mechanism/Increase Assumed Forecast
Revenue Increase 2014 Yield Yield 2015-
Mechanisms 2020
------------------------------------------------------------------------
Motor Fuel 15.0 cents/gal $6.54 $41.79
Tax--Diesel increase in
current rate
(approx. 10%
increase in total
rate)
Motor Fuel 10.0 cents/gal $13.21 $78.12
Tax--Gas increase in
current rate
(approx. 10%
increase in total
rate)
Heavy 50% Increase in $0.55 $3.42
Vehicle Use current revenues,
Tax structure not
defined
Sales Tax-- 10% Increase in $0.33 $2.19
Trucks and current revenues,
Trailers structure not
defined
Tire Tax-- 10% Increase in $0.04 $0.23
Trucks current revenues,
structure not
defined
------------------------------------------------------------------------
------------------------------------------------------------------------
Potential
Highway Illustrative Assumed Total
Trust Fund Rate or Definition of 2014 Yield Escalated
Revenue Percentage Mechanism/Increase * Yield 2015-
Michanisms Increase 2020 *
------------------------------------------------------------------------
Container $15.00 Dollar per TEU $0.66 $4.26
Tax
Customes 5.0% Increase in/ $1.80 $11.66
Revenues reallocation of
current revenues,
structure not
defined
Drivers $5.00 Dollar annually $1.08 $6.98
License
Surcharge
Freight 0.5% Percent of gross $3.07 $19.90
Bill--Truck freight revenues
Only (primary
shipments only)
Freight 0.5% Percent of gross $3.80 $24.60
Bill--All freight revenues
Modes (primary
shipments only)
Freight 10.0 cents/ton of $1.17 $7.54
Charge--Ton domestic
(Truck shipments
Only)
Freight 10.0 cents cents/ton of $1.44 $9.29
Charge--Ton domestic
(All Modes) shipments
Freight 0.10 cents cents/ton-mile of $1.41 $9.15
Charge--Ton- domestic
Mile (Truck shipments
Only)
Freight 0.10 cents cents/ton-mile of $3.48 $22.52
Charge--Ton- domestic
Mile (All shipments
Modes)
Harbor 25.0% Increase in/ $0.43 $2.79
Maintenance reallocation of
Tax current revenues,
structure not
defined
Imported Oil $2.50 Dollar/barrel $5.76 $37.28
Tax
Income Tax-- 1.0% Increase in/ $2.79 $18.06
Business reallocation of
current revenues,
structure not
defined
Income Tax-- 0.5% Increase in/ $6.70 $43.36
Personal reallocation of
current revenues,
structure not
defined
Motor Fuel - cents/gal excise - $5.22
Tax tax
Indexing to
CPI--Diesel
Motor Fuel - cents/gal excise - $10.87
Tax tax
Indexing to
CPI--Gas
------------------------------------------------------------------------
Exhibit 6. Matrix of Illustrative Surface Transportation Revenue Options, Continued
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
Oil, Gas, and Minerals Receipts 25.0% Increase in/reallocation of current $2.20 $14.25
revenues, structure not defined
Registration Fee--Electric LDVs $100.00 Dollar annually $0.01 $0.06
Registration Fee--Hybrid LDVs $50.00 Dollar annually $0.17 $1.12
Registration Fee--Light Duty $15.00 Dollar annually $3.57 $23.11
Vehicles
Registration Fee--Trucks $150.00 Dollar annually $1.63 $10.54
Registration Fee--All Vehicles $20.00 Dollar annually $4.68 $32.21
Sales Tax--Auto-related Parts & 1.0% Percent of sales $2.32 $15.04
Services
Sales Tax--Bicycles 1.0% Percent of sales $0.06 $0.38
Sales Tax--Diesel 7.6% Percent of sales (excl. excise $9.65 $62.50
taxes)
Sales Tax--Gas 5.6% Percent of sales (excl. excise $24.05 $155.66
taxes)
Sales Tax--New Light Duty Vehicles 1.0% Percent of sales $2.41 $15.61
Sales Tax--New and Used Light Duty 1.0% Percent of sales $3.46 $22.40
Vehicles
Tire Tax--Bicycles $2.50 Dollar per bicycle tire $0.08 $0.53
Tire Tax--Light Duty Vehicles 1.0% Of sales of LDV tire $0.33 $2.12
Transit Passenger Miles Traveled Fee 1.5 cents/passenger mile traveled on $0.84 $5.45
all transit modes
Vehicle Miles Traveled Fee--Light 1.0 cents/LDV vehicle mile traveled on $27.12 $175.58
Duty Vehicles all roads
Vehicle Miles Traveled Fee--Trucks 4.0 cents/truck vehicle mile traveled $10.93 $70.73
on all roads
Vehicle Miles Traveled Fee--All - cents/vehicle mile traveled on all $38.05 $246.31
Vehicles roads
----------------------------------------------------------------------------------------------------------------
On the other hand, if no new revenues can be found for the HTF and the
third scenario prevails, State DOTs will be left to face two dire
consequences that will severely undermine much-needed transportation
investments throughout the nation: potentially significant delays on
Federal reimbursements owed to States for costs already incurred, and a
virtual elimination of new Federal funding commitments in fiscal year
2016.
CONCLUSION
There is ample documented evidence that shows infrastructure investment
is critical for long-term economic growth, increasing productivity,
employment, household income, and exports. Conversely, without
prioritizing our nation's infrastructure needs, deteriorating
conditions can produce a severe drag on the overall economy. In light
of new capacity and upkeep needs for every State in the country, the
current trajectory of the HTF--the backbone of Federal surface
transportation program--is simply unsustainable as it will have
insufficient resources to meet all of its obligations later this
summer, resulting in steadily accumulating shortfalls.
Whichever revenue tools are utilized, at a minimum, it is crucial to
identify solutions that will sustain the MAP-21 level of surface
transportation investment in real terms. Given the devastating impact
that potential delays on Federal reimbursements to State DOTs combined
with a virtual elimination of Federal surface transportation
obligations in fiscal year 2016 can have on the economy and
construction industry employment, we look forward to assisting you and
the rest of your Senate colleagues in finding and implementing a viable
set of revenue solutions to the HTF not only for later this year, but
for the long term.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
______
American Council of Engineering Companies (ACEC)
100 Years of Excellence
Statement for the Record
U.S. Senate Committee on Finance
Hearing on Challenges to the Future of Highway Funding
Thursday, June 18, 2015
Chairman Hatch, Ranking Member Wyden, and Members of the Committee:
On behalf of the American Council of Engineering Companies (ACEC)--the
voice of America's engineering industry--thank you for holding this
hearing today on options for providing long-term funding certainty for
federal surface transportation programs. There are few more important
topics that this committee will address this year, because federal
investment in transportation infrastructure plays an essential role in
protecting public health and safety, promoting commerce, and keeping
America economically competitive.
As you know, nearly $63 billion has been transferred into the Highway
Trust Fund since 2008 because of the failure to address systemic
funding shortfalls with real revenue solutions. Absent Congressional
action, the balance of the Trust Fund will soon be depleted again,
imperiling more state and local projects with continued uncertainty.
More than $1 billion in planned improvements have already been
cancelled or delayed because of the uncertainty over future federal
contributions, and many more projects are sure to be shelved as this
problem persists. These projects will only get more expensive due to
the delay.
Engineering is a leading indicator of economic performance,
particularly in the building and development sectors. When state and
local transportation agencies can't develop long-term funding programs,
our firms can't hire engineers or make equipment purchases necessary
for planning, designing, and delivering those projects. When our firms
aren't working on pre-construction activities, those projects can't
move on to construction, which means fewer construction workers
working, fewer machines being built and sold, less economic activity
being generated, and ultimately, goods not getting to market and U.S.
businesses not being competitive.
According to the ACEC Engineering Business Index quarterly survey of
engineering firm CEOs (www.acec.org/publications/engineering-business-
index/), nearly one in five respondents (19 percent) expect the
transportation on market to worsen over the next year. Only 40 percent
anticipate that public transportation markets will improve. In the Fall
2014 EBI survey, three in four respondents (77 percent) expressed doubt
that the U.S. transportation infrastructure will regain its status as a
world leader. This disheartening pessimism bodes poorly for the
prospects of broader domestic economic growth, and it is firmly rooted
in Congressional failure to enact sustainable capital investments.
We recognize the need to look for new ways to fund road, bridge, and
transit projects because of the long-term challenges posed by the rise
in alternative-fueled vehicles and increased fuel efficiency. We have
endorsed a range of options, including mileage-based user fees,
widespread tolling, new freight charges, and revenues from increased
domestic energy production. Numerous blue ribbon commissions have
explored these options in depth, and they should all be on the table in
your deliberations.
While they all have merit, the reality is that none of these options is
a near-term solution for funding a 6-year bill.
The simplest and most effective action Congress can take to stabilize
the Highway Trust Fund is increasing and indexing federal gas and
diesel taxes. These user fees have been the basis of the federal-aid
program for decades, but failure to adjust the rates since 1993 has
diminished their purchasing power by 40 percent and led to the fiscal
crisis of the Trust Fund that we face today. A modest increase in motor
fuels charges--a measure endorsed by highway users and the trucking
industry representing those paying into the system--is a relatively
small price to pay for improving safety, enhancing mobility, and
ensuring American competitiveness.
The alternative is to continue on the same path of short-term patches,
which is fiscally irresponsible, relying on government borrowing and
budget gimmicks.
Continued instability and underinvestment in transportation
infrastructure will only hamper economic growth. Deteriorating roads
and bridges and worsening congestion have raised the price of doing
business through increased maintenance costs, wasted fuel and delayed
shipments. Last year, our economy was crippled by $121 billion in
congestion costs, or $818 per U.S. commuter, and an additional $230
billion in economic costs from accidents. By contrast, every dollar
invested in highway and transit development generates between $4-8 in
economic output.
It is past time for Congress to advance a sustainable, long-term
solution to the Highway Trust Fund, beginning with an increase in
existing user fees that help pave the way for alternative solutions
down the road. Our industry and our economy and our citizens cannot
wait for a combination of unrelated tax changes that may or may not
materialize later this year. Congress must act now, starting with
action in this committee. Predictable and growing revenue sources,
particularly user fees, will give state and local agencies the funding
certainty they need to plan and deliver infrastructure investments that
foster economic growth and enhance our quality of life.
ACEC members--numbering more than 5,000 firms representing more than
500,000 employees throughout the country--are engaged in a wide range
of engineering works that propel the nation's economy and enhance and
safeguard America's quality of life. The Council and its members stand
ready to assist this committee in advancing long-term solutions to the
infrastructure crisis facing our country.
______
AGC of America
THE ASSOCIATED GENERAL CONTRACTORS OF AMERICA
Quality People. Quality Projects.
Statement of
The Associated General Contractors of America
Presented to the
Senate Committee on Finance
on the topic of
The Challenges to the Future of Highway Funding
June 18, 2015
The Associated General Contractors of America (AGC) is the largest and
oldest national construction trade association in the United States.
AGC represents more than 26,000 firms, including America's leading
general contractors and specialty-contracting firms. Many of the
nation's service providers and suppliers are associated with AGC
through a nationwide network of chapters. AGC contractors are engaged
in the construction of the nation's commercial buildings, shopping
centers, factories, warehouses, highways, bridges, tunnels, airports,
waterworks facilities, waste treatment facilities, dams, water
conservation projects, defense facilities, multi-family housing
projects, site preparation/utilities installation for housing
development, and more.
the associated general contractors of america
2300 Wilson Boulevard, Suite 300 Arlington, VA 22201 Phone: (703)
548-3118 FAX: (703) 837-5407
Introduction
Mr. Chairman and Members of the Committee, AGC represents more than
26,000 firms, including over 6,500 of America's leading general
contractors, and over 9,000 specialty-contracting firms. More than
10,500 service providers and suppliers are also associated with AGC,
all through a nationwide network of chapters. These firms, both union
and open shop, engage in the construction of buildings, shopping
centers, factories, industrial facilities, warehouses, highways,
bridges, tunnels, airports, water works facilities, waste treatment
facilities, dams, water conservation projects, defense facilities,
multi-family housing projects, municipal utilities, and other
improvements to real property. Most are small and closely held
businesses.
Since the creation of the Interstate Highway System in 1956, the
Highway Trust Fund has been supported by revenue collected from users.
This ``pay-as-you-go'' system has served America well, allowing States
to plan, construct and improve America's surface transportation
infrastructure. AGC has long-supported maintaining the user-fee model
for providing Highway Trust Fund revenue--including taxes on gasoline
and diesel fuel--and encourages Congress to act immediately to provide
the revenue necessary to fill the Highway Trust Fund revenue gap we
will face this summer and beyond. User fees and taxes have not been
increased in over 20 years. Since 2008, the revenue going into the
Highway Trust Fund has fallen short of what is needed to address
America's infrastructure needs and keep funding at existing levels.
This has resulted in the Highway Trust Fund receiving over $63 billion
in transfers from the general fund simply to meet its obligations.
Immediate Highway Trust Fund Shortfall
According to the Congressional Budget Office (CBO) the Highway Trust
Fund will be unable to meet all of its obligations in July or August.
CBO also estimates that with no change in estimated receipts into the
Highway Trust Fund, in 2016, all of the revenue credited to the fund
will be needed to meet obligations made before that year. Simply put,
without additional revenue the trust fund will be unable to support any
new Federal obligations in 2016, resulting in a 100 percent cut to new
highway and transit funding. In order to avoid such draconian cuts and
simply maintain current funding levels, $16 billion in additional
revenue either through a gas tax increase or other user related fees or
a transfer from the general fund will be necessary. According to CBO,
the gap between trust fund receipts and obligations beyond 2016 is $11
to $18 billion annually.
Need for Certainty
Because of the current state of trust fund finances, Congress must take
steps to maintain certainty in program continuity. The construction
industry makes decisions about investments in new equipment and in
retaining and training a workforce based on its best projection about
where the market will be over the long term. Without the knowledge that
a continuous and growing market is on the horizon, contractors will not
make the investments necessary to carry out this program's objectives.
This is particularly true for small businesses, which typically have
less operating capital to invest, thus are more risk-adverse with their
capital. This trait is also magnified by the economic conditions, which
make risk reduction a company's top priority. This hurts the program as
much as it does the industry. Efficiency and productivity increases
when contractors can project a steady future market in which to work.
This helps lower costs, and allows for a better constructed project
because new equipment and improved technology improves the final
project.
The stop gap funding measures since 2008 have caused uncertainty in the
transportation construction market place. Congress's inability to make
the difficult decisions and provide real, growing and sustainable
revenue for the Highway Trust Fund has resulted in states throughout
the county delaying or cancelling much needed transportation
construction projects. AGC members from Georgia to Wyoming, Tennessee
and South Dakota among others are seeing theirstate departments of
transportation let fewer and fewer jobs. Nearly $2 billion in vital
transportation construction projects has been delayed or cancelled
because Congress will not act and fix the Highway Trust Fund.
Federal Role
Not only has Congress failed to act on addressing the solvency of the
Highway Trust Fund, some want to strip away most Federal funding for
surface transportation projects, essentially eliminating the Federal
Government's constitutionally mandated role in promoting interstate
commerce (commonly known as devolution). Legislative proposals such as
the Transportation Enhancement Act (TEA) would reduce funding for the
federal-aid highway program by more than 80 percent, with no
consideration of the impact on state and local governments or private
industry. It also calls for the elimination of the Federal transit
program, taking more than $8 billion from state and local public
transportation agencies, which rely on federal funds for more than 43
percent of their capital spending.
While TEA purports to retain a federal role in maintaining the
Interstate System, according to the U.S. Department of Transportation
(U.S. DOT), Interstates require at least $17 billion in annual
investment to simply sustain current levels of maintenance, and more
than $33 billion per year to improve system conditions. Furthermore,
the National Highway System, which carries 55 percent of total vehicle
miles traveled and 97 percent of truck miles, also requires an annual
investment of $75 billion, according to U.S. DOT. TEA doesn't
``empower'' states; it burdens them with 90 percent of the fiscal
responsibility for supporting highways that the federal government
currently helps to maintain. It would also have a devastating impact on
public transportation systems that help to alleviate highway
congestion, reduce emissions and provide critical transportation
options to underserved populations.
A further burden on states lies in the amount of revenue that they
would have to raise to replace the absence of federal transportation
funding. On average federal dollars are responsible for 52 percent of
states capital budgets for transportation. If states replaced the lost
revenue with an increase in their fuel taxes, on average their gas
taxes would have to increase by roughly 23 cents by 2020 and some
states would have to raise their taxes by more than 30 cents just to
maintain the current level of funding.
TEA and other ``devolution'' proposals do not bring any new money to
the table so they are not a solution to the long-term transportation
needs of our county. Congress must continue to reject such proposals
and instead work in a bipartisan, bicameral way to enact a long-term
sustainable revenue source for the Highway Trust Fund.
Motor Fuels Tax
AGC believes that there is no easy solution for addressing our
transportation investment deficit. The level of investment provided by
the Highway Trust Fund should be increased to address mounting needs.
An increase in revenue is necessary just to keep up with inflation
additional funding is also needed to address the backlog of
transportation investment needs. Numerous authoritative reports have
come to the conclusion that, for the foreseeable future, the Federal
motor fuels tax is the best method for funding transportation
infrastructure investment and that the motor fuels tax needs to be
increased. SAFETEA-LU established two national commissions to look at
the future of the Federal transportation programs and to make
recommendations on paying for these needs into the future. Both
Commissions were appointed with bi-partisan membership and included
transportation experts and individuals representing businesses and
other users of the system.
In 2011, the Simpson Bowles Commission recommended a 15-cent per gallon
gas and diesel tax increase plus inflation. In addition to Simpson-
Bowles, Congressman Early Blumenauer (D-OR) has introduced legislation
(H.R. 680) that would increase the gas tax by 15 cents over 3 years (it
currently has 32 cosponsors) , while Congressman Jim Renacci (R-OH) and
Congressman Bill Pascrell (D-NJ) have a bill (H.R. 846) that would pay
for the next surface transportation authorization with indexing the
current gas and diesel taxes to inflation and subsequently increasing
them by an amount that would maintain current finding levels if
Congress failed to address the long-term solvency of the Highway Trust
Fund (31 cosponsors). AGC supports all three of the above proposals.
AGC Recommendations
Recognizing the need to look at all viable options to fund the highway
trust fund, AGC along with our partners in the Transportation
Construction Coalition (TCC) have been advocating for over a year that
Congress look at other revenue options--that maintain the user-pays
model--that would be viable. This is our all of the above approach.
The chart below (and attached at the end) shows the $102 billion
shortfall from 2015-2020 between the revenue going into the Highway
Trust Fund and projected outlays of the fund assuming current funding
levels plus inflationary increases. The TCC is proposing a combination
of new and existing user fees currently being collected at the Federal
and state level as options to the 6-year shortfall and create a basis
for much needed future growth. In addition, we look beyond 2020 and
provide the next generation of revenue options to fund growth that
addresses the needs of our transportation network.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
The proposed revenue options include:
Dedicating 15 percent of Custom Duties currently collected to the
Highway Trust Fund--The U.S. has recognized the connection
between infrastructure investment and international commerce
since the Lighthouse Act of 1789 during the first Congress.
Customs duties are imposed at varying rates on various imported
goods passing through U.S. international gateways and currently
go to the General Fund of the U.S. Treasury. A number of
interest groups as well as the SAFETEA-LU policy commission
have suggested that given the role transportation
infrastructure plays in facilitating the import of goods, a
portion of current customs duties should be allocated to
support transportation investment.
$5 Driver License Fee--The annual driver's license fee would be a
federal surcharge on current state license fees. All states
charge a fee which in some cases simply covers the cost of
administering the licensing programs. In many states however,
license fees also are used as a source of funding for
transportation or other purposes. Currently 48 states have a
registration fee and all but a handful use the proceeds for
road improvement projects. This fee, as with others, should be
indexed to CPI for inflation.
$5 Light Duty Tire Tax--Similar to the existing heavy vehicle tire
fee, this fee would apply to tires that do not exceed maximum
capacity of 3,500 pounds. This would be a national tire tax on
both new cars and replacement tires. This fee, as with others,
should indexed to CPI for inflation.
Increase Heavy Vehicle Use Tax--Currently this tax is levied on
all trucks 55,000 pounds Gross Vehicle Weight (GVW) or greater.
The tax rate is $100 plus $22 for each 1,000 pounds of GVW in
excess of 55,000 up to a maximum annual fee of $550 (thus all
trucks with GVW greater than 75,000 pounds pay the maximum).
$10 Light Duty Registration Fee--All states impose annual vehicles
registration and related fees, and at least half the states
raise more than a quarter of their dedicated transportation
revenues through this mechanism. The structure of the
registration fee varies widely, from a flat per vehicle fee to
a schedule of rates based on factors such as vehicle type,
weight, age, horsepower, and value. This increase in would
apply a Federal surcharge to state registration fees. We
propose that this and all other fees are indexed to CPI.
10 Cent Diesel Tax Increase--Increasing the tax on diesel only is
modeled after the inland water ways trust fund proposals that
was included the ABLE Act which was signed into law last
December. The barge operators convinced Members of Congress to
increase the fuel tax that they pay to fund infrastructure
investment.
Index Diesel and Gas Tax--When these user fees were last increased
in 1993 they did not include any adjustments for inflations. If
you measure the federal gas tax rate today relative to road
construction costs, the tax has lost 38 percent of its value
since 1993.
Oil Leasing on Federal Lands--Expanding oil and gas drilling on
federal lands and in the Outer Continental Shelf and dedicating
the royalties to the Highway Trust.
Deemed Repatriation--Some members of Congress have proposed to tax
the profits of U.S. corporations on earnings made outside of
the United States. Several different ways have been suggested
on how to accomplish this, including a ``tax holiday.'' This
proposal is for ``deemed repatriation,'' taxing corporate
profit made outside the U.S. at an 8.75 percent rate,
regardless of whether the profits are returned to the U.S.
Again, if Congress continues to fail to increase the user fees for
gasoline and diesel fuel, they should look to these options as
alternatives that would maintain the traditional user pays model for
our federal transportation programs.
Conclusion
AGC believes that the federal government should double-down on its
infrastructure investment, not reduce it or shift the responsibility to
the states. The long-term benefits from transportation investment are
well documented. Every dollar invested in Highway Trust Fund programs
returns 74 cents in tax revenue and adds $1.80 to $2.00 to Gross
Domestic Product (GDP). The ``user fee'' principle is well respected
and easily understood. The Highway Trust Fund concept of fiscal
responsibility served the country well for 50 years until the Congress
decided it was more acceptable to take money from the general fund than
increase the user fee to cover the annual expenditures from the Highway
Trust Fund. The United States has face the reality that they have been
under investing in our transportation systems for far too long and the
impact is now being felt in every state and in most towns. With the
interstate system beyond capacity and design life, this underinvestment
is costing U.S. businesses and individual's time and money. Providing
continued support for traditional funding mechanisms and finding new
user based options is necessary to address this dire situation.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Explanation of Shortfall and Revenue Options
Shortfall--The 2015-2020 shortfall represents the discrepancies between
the revenue going into the HTF and the projected outlays of the trust
fund assuming current funding levels plus inflationary increases. The
Congressional Budget Office projects that without Congressional action
the HTF will be unable to meet all of its obligations in 2015 and will
be unable to support any new projects in fiscal year 2016.
Revenue Options--TCC is proposing a combination of new and existing
user fees currently being collected at the federal and state level as
options to fill the 6-year HTF shortfall and create a basis for future
growth. States that are currently using various fees for transportation
revenue include:
48 States w/ Vehicle Registration, License or Title Fees
CA, DC, GA--do not have any such fees
37 States w/ Vehicle or Truck Weight Fees
DE, DC, FL, GA, ID, IN, IA, MA, MI, NE, OK,
PA, RI, SC, WV--do not have any such fees
23 States w/a Vehicle Sales Tax
AK, AZ, CT, FL, HI, IL, KY, MO, MN, MO, MT,
NE, NV, NJ, NM, NY, NC, NO, SO, UT, VA, VT, WV
Explanation of Revenue Options
(EXISTING) Customs Duties--Customs duties are imposed at varying rates
on various imported goods passing through U.S. international gateways
and currently go to the General Fund of the U.S. Treasury. A number of
interest groups as well as the SAFETEA-LU policy commission have
suggested that given the role transportation infrastructure plays in
facilitating the import of goods, a portion of current customs duties
should be allocated to support transportation investment.
(NEW) Drivers License Fee--The annual driver's license fee would be a
federal surcharge on current state license fees. All states charge a
fee which in some cases simply covers the cost of administering the
licensing programs. In many states however, license fees also are used
as a source of funding for transportation or other purposes. Currently
48 states have a registration fee and all but a handful use the
proceeds for road improvement projects. This fee, as with others,
should be indexed to CPI for inflation.
(NEW) Light Duty Tire Tax--Similar to the existing heavy vehicle tire
fee, this fee would apply to tires that do not exceed maximum capacity
of 3,500 pounds. This would be a national tire tax on both new cars and
replacement tires. This fee, as with others, should indexed to CPI for
inflation.
(EXISTING) Increase Heavy Vehicle Use Tax--Currently this tax is levied
on all trucks 55,000 pounds Gross Vehicle Weight (GVW) or greater. The
tax rate is $100 plus $22 for each 1,000 pounds of GVW in excess of
55,000 up to a maximum annual fee of $550 (thus all trucks with GVW
greater than 75,000 pounds pay the maximum).
(EXISTING) Heavy Duty Truck Tire Tax--Applies to tires with a maximum
load rated over 3,500 pounds. The current tax is 9.45 cents for every
10 pounds of maximum capacity that exceeds the 3,500 threshold. The
maximum was last increased in 1982 and was actually lowered in 1984.
This fee, as with others, should indexed to CPI for inflation.
(NEW) Vehicle Registration Fee--All states impose annual vehicles
registration and related fees, and at least half the states raise more
than a quarter of their dedicated transportation revenues through this
mechanism. The structure of the registration fee varies widely, from a
flat per vehicle fee to a schedule of rates based on factors such as
vehicle type, weight, age, horsepower, and value. This increase in
would apply a Federal surcharge to state registration fees. We propose
that this and all other fees are indexed to CPI.
(EXISTING) Diesel Fuel Tax Increase--Increasing the tax on diesel only
is modeled after the inland water ways trust fund proposals that were
included in the House draft for tax reform, the president's budget and
the Senate Finance committee extenders package. The barge operators
have convinced members of Congress to increase the fuel tax that they
pay to fund infrastructure investment.
(NEW) Deemed Repatriation--Some members of Congress have proposed to
tax the profits of U.S. corporations on earnings made outside of the
United States. Several different ways have been suggested on how to
accomplish this, including a ``tax holiday.'' This proposal is for
``deemed repatriation,'' taxing corporate profit made outside the U.S.
at an 8.75 percent rate, regardless of whether the profits are returned
to the U.S.
______
American Highway Users Alliance
Testimony for the Record by Gregory Cohen, P.E.,
President and CEO
Hearing on the Highway Trust Fund
Committee on Finance
United States Senate
The American Highway Users Alliance (The HwyUsers) is a non-profit
coalition that represents AAA motoring clubs, trucking and bus
companies, the RV and motorcycle industries, and a diverse range of
companies and associations that fund the Highway Trust Fund through
user taxes. Our members represent millions of motorists and employers
who want our roads to be safe, efficient, and reliable.
Although we represent road users, we strongly support the principle
that users should pay their own way for infrastructure improvements. In
return for fully funding the Highway Trust Fund, road users deserve to
benefit directly from guaranteed investments in roads and bridges
through multi-year highway bills. This type of system has traditionally
enabled the United States to outperform competitors by efficiently
moving logistics over our vast network of toll-free Interstate
highways. It is hard to imagine how much poorer our country would be
without the investments of the past generation into modern roads.
The Federal role in road funding and the user-pays/user-benefits
principle has been an important, principled approach to investment. The
conservative user-fee concept dates back as early as 1776, when British
philosopher and political scientist Adam Smith endorsed national
funding of roads in The Wealth of Nations, provided that users pay
their costs.
From 1956 to 2008, the Highway Trust Fund was exclusively funded with
user taxes. Since 2008, deficits have repeatedly threatened the
solvency of the fund. Congress has responded by voting time and again
to prevent highway funding cuts. At the same time, Congress has failed
to find a fiscally sustainable solution to the revenue shortfall. Over
$60 billion in transfers from the General Fund of the Treasury has kept
highway funding flat--preventing cuts but also creating doubts as to
the ability of Washington to pass a long-term highway bill that can
fund the major highway and bridge projects critical to public safety,
economic growth, freight reliability, and congestion relief. Without a
sustainable solution, State transportation departments can't plan and
implement the most important projects.
As Congress debates a path forward to funding a long-term 6-year
highway bill, we would be grateful for almost any source of funding to
reverse the decline in our road conditions. But Congress should do more
than prevent cuts; it should fairly raise enough revenue to make
significant inroads in the backlog of national highway and bridge
needs.
We urge Congress to renew their historic support for the user fee
approach to restore a sustainable Highway Trust Fund. We urge
policymakers in other Committees to ensure that the programs are
transparent, environmental reviews are streamlined, and wasteful
diversions are minimized or eliminated. If Congress is to raise the
funds to sustain a national highway program, the spending out of that
fund must be focused on addressing our major national highway needs. We
urge Members to consider the findings of two separate Congressionally-
chartered commissioned that studied these issues over the past decade
and develop a long-term financial sustainability model of growing the
trust fund with user-based revenue.
In closing, what is currently occurring would certainly have
embarrassed Presidents Lincoln, Eisenhower, and Reagan--all of whom
envisioned and supported a major federal role for transportation
infrastructure. It is time for a bold, brave and bipartisan solution
and this Congress can certainly get it done.
The members and staff of The Highway Users look forward to working with
Members of Congress to restore and grow the Highway Trust Fund and urge
immediate action to enact a long-term highway bill this year. Thank you
for the opportunity to submit these comments into the record.
______
AMERICAN PUBLIC TRANSPORTATION ASSOCIATION (APTA)
MICHAEL P. MELANIPHY
PRESIDENT AND CEO
STATEMENT SUBMITTED TO
THE SENATE COMMITTEE ON FINANCE
Hearing titled ``Dead End, No Turn Around, Danger Ahead:
Challenges to the Future of Highway Funding''
June 18, 2015
Mr. Chairman and members of the Committee, thank you for this
opportunity to submit written testimony on ideas to provide a
sustainable long-term solution to the highway trust fund shortfall.
Public transportation systems across the country form an interconnected
system of national significance that links our regions, urban and
suburban centers, and rural communities. This integrated network of
public transportation services is an essential component of our
nation's overall transportation system. Public transportation provides
mobility that significantly contributes to national goals for global
economic competitiveness, congestion mitigation, energy conservation,
environmental sustainability, and emergency preparedness. APTA urges
the Committee to increase the dedicated revenues that go into the
Highway Trust Fund, so that Congress can pass a surface transportation
bill that provides predictable funding growth under a multi-year
authorization bill.
ABOUT APTA
The American Public Transportation Association (APTA) is a
nonprofit, international association of nearly 1,500 public and private
member organizations, including transit systems and commuter, intercity
and high-speed rail operators; planning, design, construction, and
finance firms; product and service providers; academic institutions;
transit associations and state departments of transportation. APTA
members serve the public interest by providing safe, efficient, and
economical public transportation services and products. More than 90
percent of the people using public transportation in the United States
and Canada are served by APTA member systems. In accordance with the
National Infrastructure Protection Plan, APTA has been recognized by
the Department of Homeland Security as serving in the capacity of the
Mass Transit Sector Coordinating Council (SCC).
OVERVIEW
Public transportation exists in all 50 states and the District of
Columbia and U.S. territories. The nation's public transportation
systems are an integral part of the nation's surface transportation
system. Transit provides an alternative way to get to jobs, education,
healthcare and social activities in every community, it improves the
efficiency of the existing roadway system in metro areas by reducing
the number of cars on the road and the resulting traffic congestion.
Less congestion reduces costs for businesses that transport goods and
consumers who buy those goods. Public transportation is important to
communities of all sizes, from large metropolitan regions to small
cities and rural communities. Less urban states and smaller cities
depend on the Federal transit program to pay for a larger share of
their transit capital investments than more urban areas, and they also
rely on federal funds to pay for an important share of the costs
associated with providing service.
To meet the demands of our nation's aging infrastructure network,
growing urban population, and changing travel and commuting patterns, a
renewed long-term federal commitment to public transportation is
essential. Currently, system needs far surpass resources from all
levels of government. At the federal level, fuel taxes dedicated to the
Mass Transit Account of the Highway Trust Fund, last raised in 1993,
have lost more than 37 percent of their purchasing power. APTA urges
the Committee to increase the dedicated revenues that go into the
Highway Trust Fund, so that Congress can pass a surface transportation
bill that provides for the growth of predictable federal funding under
a multi-year authorization bill.
Since the expiration of TEA-21 in 2003, we have now had 25 short-
term extensions, lasting a little more than 4 years authorization under
SAFETEA-LU, and a bit more than 2 years under MAP-21. More recently,
federal transit funding has grown only minimally, from $10.231 billion
in fiscal year 2009 to $10.692 billion in fiscal year 2014. The
uncertainty of recent federal authorizing laws and lack of predictable
funding of the federal transit program have made it nearly impossible
for the industry to keep the system in a state of good repair, replace
the aging infrastructure and fleets, and address the growing demand for
service. Short-term authorizations increase project costs and decrease
certainty for long-term planning.
While growing communities compete for limited funds to build a
variety of new fixed guideway systems (BRT, light rail, trolley, heavy
rail and commuter rail), and transit ridership continues to grow, the
deterioration of our systems adversely impacts both efficiency and
safety. The U.S. DOT now estimates that we have an $88 billion backlog
in the state of good repair of public transportation capital investment
needs. And this backlog doesn't even include the annual cost of
maintaining the current system, like replacing aging buses, rail cars,
vans, buildings, bridges and stations; the cost of building new
capacity; and the more than $3 billion in costs to install positive
train control systems at the nation's commuter railroads.
While spending for public transportation is paid mostly by fares
that riders pay, as well as state and local funding, the federal
government is an essential partner in this process. While federal
funding supports 19.2% of all spending on public transportation, 44.4%
of all capital spending for transit comes from the federal government.
However, according to the CBO, the decline in real spending on
transportation infrastructure has occurred at all levels of government,
but it has been the greatest at the federal level. Yet, federal funding
is critical as it helps to ensure that locally-derived benefits are
fully integrated into the national multimodal transportation network
that is so essential to ensuring U.S. competitiveness in our global
economy.
These are some of the reasons that APTA has urged Congress to enact
a long-term authorization bill that grows federal funding for public
transportation. We strongly support the preservation of the federal
transit program, and we support an increase in the dedicated revenues
that go into the Highway Trust Fund for both the Mass Transit and
Highway Accounts. It is estimated that more than $90 billion in new
revenues is needed just to maintain current public transportation and
highway programs, and APTA strongly believes that there is a need to
grow current federal investment levels for transit. We need a revenue
stream that supports growth of the federal programs, as flat funding at
current levels will not permit transit to adequately address the
growing backlog of capital needs or the growing demand for transit
service. It should come as no surprise that we strongly oppose efforts
to devolve the federal transit or highway programs tothe states. Public
transportation is an essential part of the overall surface
transportation system, and given our growing population and increasing
congestion on our roadways that program is more important than ever.
We know transit ridership is growing, we know the nation's
population is expected to grow significantly, and we believe that the
demand for public transportation service in our communities will
continue to grow. Nationally, public transportation ridership continues
to set record levels. In 2014, people took a record 10.8 billion trips
on public transportation--the highest annual ridership number in 58
years. Some public transit systems experienced all-time record high
ridership last year. This record ridership didn't just happen in large
cities. It also happened in small and medium size communities. In fact,
some of the biggest gains came in towns with less than 100,000 people
with ridership growth of double the national average. This record
growth in ridership occurred even when gas prices declined by 42.9
cents in the fourth quarter. From 1995-2014 public transit ridership
increased by 39 percent, almost double the population growth, which was
21 percent. The estimated growth of vehicle miles traveled was 25
percent. This proves that once people start riding public transit, they
discover that there are benefits over and above saving money.
Our failure as a nation to adequately invest in this essential
element of our surface transportation system will only cost the nation
more in the long run. Conversely, investment in public transportation
will help support a healthy, growing economy, facilitating the
efficient movement of goods and people, and stimulating economic
development in communities served by vibrant public transportation
systems.
One only needs to ride a train or bus during the morning commute to
recognize the growing demand, and to experience firsthand the strains
that that demand is placing on systems. The demand and support for
public transportation is also reflected at the ballot box. Last year,
69 percent of ballot initiatives seeking taxpayer support for transit
investment were approved by voters. Clearly, citizens are willing to
pay for improved transit service. These local ballot initiatives
confirm the stability of the local partnership, but they are not a
substitute for the federal partnership.
RETURN ON THE FEDERAL INVESTMENT
For every dollar we invest in public transportation, we generate
about $4 in economic returns. And $1 billion in federal transit
investment fosters productivity gains that create or sustain 50,000
jobs. It is important to note that 73% of federal transit capital funds
flow through the private sector. In fact, much of the bus and rail
equipment is manufactured in rural areas and provides high wage jobs in
those communities. For example, bus original equipment manufacturers
have plants located in Alabama, North Dakota, Kansas, Minnesota, South
Carolina, California and upstate New York. Rail Cars are manufactured
in places like Nebraska, Idaho, Illinois, and Pennsylvania. Components
and subcomponents are being manufactured all across this country. As
these investment metrics make clear, local and regional transportation
improvements yield national benefits.
On a very fundamental level, federal transportation funding keeps
this economic engine running, as transit agencies can only plan and
advance large, multi-year capital projects when they can be confident
the resources will be there when they are ready to break ground.
APTA PROPOSAL
To ensure the reliable, long-term funding best suited to
infrastructure investment, APTA urges Congress to enact a 6-year, $100
billion authorization for the federal transit program that includes
robust funding to grow the program from $10.7 billion in the current
year to $22.2 billion in 2021. Revenues into the Highway Trust Fund
(HTF) must increase to support this much needed growth.
Additionally, we see this moment in time as an ideal opportunity to
establish a dedicated revenue stream for intercity passenger rail,
separate from the revenues required for the Highway Trust Fund and Mass
Transit Account. Like public transit, intercity passenger rail is
experiencing ridership growth and increased demands for public service
in corridors throughout the country. We have asked that Congress
provide $50 billion over the next 6 years to facilitate the development
of a national high-speed and intercity passenger rail system.
APTA's surface transportation authorization recommendations are
based on needs identified in eight categories of equipment and
facilities funded under the current federal program. They are based on
the need for 6-year investment from all sources--fares, local, state,
and federal--of $245 billion. APTA's investment requirements include
the cost of bus replacements, demand response vehicles, rail vehicles,
state-of-good-repair spending, New Starts and core capacity projects,
and other costs. And they reflect investment requirements in states,
cities and communities across the country.
APTA recommends that Congress take the necessary steps to restore,
maintain and increase the purchasing power of the federal motor fuels
user fee to support a significant increase in the federal investment
for the public transportation program. In addition, in order to meet
the full range of funding needs, APTA supports the use of other
financing strategies to meet the investment goals.
First and foremost, funding must be sufficient to address the
capital investment needs dictated by the nation's population growth,
economic and personal mobility needs (including the reduction of
traffic congestion), environmental and sustainability needs, and of our
aging population. While meeting our capital expansion needs, funding
must also be sufficient to address issues of state of good repair
across so many of our aging public transportation systems nationwide.
It is important to note that there are differences between funding
and financing when it comes to transportation infrastructure projects.
Funding options are those that generate revenue streams and financing
options leverage revenue streams. Financing options are programs or
instruments that leverage revenue streams as a way to move many
infrastructure projects forward, especially significantly large and
expensive projects. Without adequate funding sources, states and local
governments cannot take full advantage of the financing tools
available. Additionally, financing options may not be practical or
available for every infrastructure project.
Unfortunately, current revenues going into the Highway Trust Fund
are $15-16 billion short of what is needed annually just to fund
current transit and highway programs. Since the expiration of the
SAFETEA-LU authorizing law in 2009, federal funding has grown by less
than one-half percent while demand for transit service has grown and
the cost of restoring the existing systems to a state of good repair
has grown to $88 billion.
Second, it is imperative that the funding for transportation
investment be stable and reliable, whether they be from federal, state,
or local sources, or from public transportation-generated revenues or
public-private partnerships. Major transit capital investments often
require advance planning and multi-year construction programs.
Third, it is critical that the transportation finance legislation
developed by this Committee recognize that not all financing mechanisms
and revenue generators work at the same level of efficiency and
effectiveness for all modes. Our proposal recommends legislation that
would promote the development of revenue generated from traditional
financing sources like municipal bonds to innovative financing
mechanisms, such as public private partnerships, tolling and congestion
pricing to supplement current revenue streams. However, infrastructure
banks, municipal bonds, private activity bonds, and loan programs such
as Transportation Infrastructure and Finance Act program (TIFIA) and
the Railroad Innovation and Improvement Financing Program (RRIIF) that
require payback will not sustain an ongoing transit program. They can
help public-private partnerships work, but transit public-private
partnerships are not a revenue source but rather a management tool.
We want to emphasize that the certainty and predictability of the
dedicated funding within the Mass Transit Account of the Highway Trust
Fund, and channeled through the Federal Transit Program, has truly
served the needs of the public transportation industry, and allowed
agency finance professionals to take advantage of and leverage a
multitude of financing arrangements.
For many years the federal gas tax has supported the national
program and served effectively as a user fee. While trends and market
forces suggest that the gas tax is not the growing revenue source that
it once was, it remains a viable source that can be collected
efficiently and without creating any new federal bureaucracy in the
short run. The most sustainable, forward-looking and outcome-
oriented approach may be a vehicle miles traveled (VMT) fee, but
because the systems, methods and infrastructure to implement such a
national system are years away, the augmented gas tax could be the
bridge to an ongoing national VMT fee. While APTA has put forward these
ideas on how to raise revenues for the Highway Trust Fund, we are open
to any mechanism that provides a predictable source of funding for
these important investments.
CONCLUSION
Mr. Chairman and members of the Committee, I thank you for this
opportunity to share our views as you move forward on this next
authorization of surface transportation programs and urge the Committee
to support the Federal Transit Program with a 6-year investment level
for transit projects of at least $100 billion. The next program will
absolutely require a wide range of funding options, but for the
immediate future, we feel strongly that the base program must restore
and increase the purchasing power of the Federal Motor Fuels User Tax
while we concurrently move with a true sense of urgency to develop and
implement a national transportation future funding model that is both
economically and environmentally sustainable. We need to have funding
predictability, both for our agencies and our private sector partners.
Thank you for allowing us to provide testimony on these critical
issues. We look forward to working with you and the members of the
Committee as you work to develop this next critical authorization bill.
______
American Society of Civil Engineers (ASCE)
101 Constitution Ave., N.W.
Suite 373 East
Washington, D.C. 20001
Phone: (202) 789-7850
Fax: (202) 789-7859
www.asce.org
Statement for the Record
On
``Dead End, No Turn Around, Danger Ahead:
Challenges to the Future of Highway Funding''
United States Senate
Committee on Finance
June 18, 2015
Introduction
The American Society of Civil Engineers (ASCE) \1\ commends the Senate
Finance Committee for holding this hearing on the importance of
transportation infrastructure as a priority and the urgency surrounding
the need to fix the Federal Highway Trust Fund (HTF) and enact a multi-
year, robust surface transportation authorization bill. The current
surface transportation law, Moving Ahead for Progress in the 21st
Century Act (MAP-21), expired on September 30, 2014 and the program is
now operating under a second temporary extension which expires on July
31, 2015. Due to the limited funds available in the HTF, any program
authorization beyond July must be accompanied with additional revenue
for the fund. ASCE believes that a more permanent, long-term fix for
the HTF is in order--one that provides dedicated, sustainable revenue
that can grow the program and not add to the nation's deficit.
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\1\ ASCE was founded in 1852 and is the country's oldest national
civil engineering organization. It represents more than 146,000 civil
engineers individually in private practice, government, industry, and
academia who are dedicated to the advancement of the science and
profession of civil engineering. ASCE is a non-profit educational and
professional society organized under Part 1.501(c)(3) of the Internal
Revenue Code. www.asce.org.
Multi-month program extensions hurt the ability of states and local
agencies to shape long-term transportation plans and deliver large
multi-year projects. Extensions and funding patches also create
instability for designers and builders who cannot properly anticipate
their contracting schedules or hiring needs. In 2015, Arkansas,
Georgia, Tennessee, Utah and Wyoming have indicated that federal
uncertainty is affecting their ability to deliver projects on their
state priority list. Congress should act by July 31, 2015 to secure a
long-term funding solution. Hopefully today's hearing will further
underscore this need to act and highlight what the impact of federal
inaction truly means to users of the system.
An Aging Infrastructure System
Our infrastructure is the foundation on which the national economy
depends, yet it is taken for granted by most Americans. While the
Interstate Highway System is a shining example of a focused national
vision for the state's infrastructure, an expanding population and a
growing economy requires these aging infrastructure systems to keep
pace. Deteriorating and aging infrastructure is not only an
inconvenience, it financially impacts our families, local communities,
and our National economy.
While revenue for the HTF continues to fall short of authorized
spending levels, the current lack of infrastructure investment has also
weakened our state's surface transportation system with a documented
loss to the economy. Our inability to keep our infrastructure efficient
undermines the U.S. competitiveness and economic strength.
ASCE's 2013 Report Card for America's Infrastructure \2\ graded the
state's infrastructure a ``D+'' based on 16 categories and found that
the state needs to invest approximately $3.6 trillion by 2020 to
maintain the national infrastructure in good condition. The $3.6
trillion figure is the total needs funding amount across all
infrastructure sectors, with federal, state and local transportation
shortfall being $1.7 trillion. The following are the grades and the
investment needs by 2020 for the surface transportation area:
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\2\ www.infrastructurereportcard.org.
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Bridges received a grade of C+;
Transit received a D; and
Roads received a grade of D.
Establishing a sound financial foundation for future surface
transportation preservation and improvement must be an essential part
of a reauthorization package. The current spending of $91 billion per
year, from all levels of government, for highway capital improvements
is well below the estimated $170 billion needed annually to improve
conditions.
The Federal Transit Administration (FTA) estimates a maintenance
backlog of nearly $78 billion needed to bring all transit systems up to
a state of good repair. With funding as the cornerstone of any attempt
to authorize the state's surface transportation programs, it is
imperative that a variety of funding issues be advanced as part of an
overall strategy.
The Cost of Inaction
In an effort to demonstrate the importance of infrastructure investment
to the state's economy, ASCE released a series of economic studies that
aimed to answer a critical question: What does a ``D+'' infrastructure
grade mean for America's economy and what is the return on investment
we can expect to see with increased funding? In 2011, ASCE released a
study that measured the potential impacts to the economy in 2020 and
2040 if the nation merely maintained current levels of surface
transportation investments. It is important to note that should
Congress produce a multi-year authorization bill that fails to increase
funding levels, the year 2020 economic impact results of this study
will become reality.
The study, Failure to Act: the Economic Impact of Current Investment
Trends in Surface Transportation Infrastructure,\3\ found that if
investments in surface transportation are not made, families will have
a lower standard of living, businesses will be paying more and
producing less, and our state will lose ground in a global economy. The
state's deteriorating surface transportation system will cost the
American economy more than 876,000 jobs in 2020, and suppress the
growth of the country's GDP by $897 billion by 2020 and ultimately,
Americans will also get paid less. While the economy will lose jobs
overall, those who are able to find work will find their paychecks cut
because of the ripple effects that will occur through the economy.
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\3\ www.asce.org/failuretoact.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Failure to Act also shows that failing infrastructure will drive the
cost of doing business up by adding $430 billion to transportation
costs by 2020. Firms will spend more to ship goods, and the raw
materials they buy will cost more due to increased transportation
costs. Productivity costs will also fall, with businesses
underperforming by $240 billion by 2020; this in turn will drive up the
costs of goods. As a result, U.S. exports will fall by $28 billion,
including 79 of 93 tradable commodities. Ten sectors of the U.S.
economy account for more than half of this unprecedented loss in export
value--among them key manufacturing sectors like machinery, medical
devices, and communications equipment. As a contrast, most of America's
major economic competitors in Europe and Asia have already invested in
and are reaping the benefits of improved competitiveness from their
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infrastructure systems.
Therefore, by improving the state's deteriorating surface
transportation infrastructure systems both economic and job creation
opportunities will be enhanced.
A Federal Responsibility
After General George Washington and his troops defeated the British in
1783, the nation was faced with a dilemma: The current governing
document, the Articles of Confederation was not equipped to outline the
rules that would govern the new United States. In order to better
provide for the general welfare of the country by fostering trade,
commerce and goods movement, the founding fathers made a strong
commitment that there was to be a clear federal role in infrastructure
development and transportation mobility. They underscored this, in
part, by adding to Article 1, Section 8 the language that, ``The
Congress shall have power . . . to . . . establish . . . post roads.''
In addition to the historical and constitutional context, there remains
a practical reality to continued support for the federal surface
transportation programs. Imagine what would happen if the federal
government were to relinquish its responsibility in the blink of an
eye. That action would represent one of the single largest unfunded
mandates--nearly $50 billion a year that the federal government has
ever placed on states and localities. This would seem to go against the
Unfunded Mandates Reform Act passed in 1995 that aimed to curb the
practice of imposing unfunded federal mandates on states and local
governments.
Absent a federal partner the National Highway System would still need
to be preserved; roads, bridges and new transit systems built. Every
state would have to work quickly to enact, on average, an immediate 24
cent per gallon gasoline tax increase or else risk having their entire
transportation network fall further into disrepair. ASCE strongly
opposes efforts to devolve the federal surface transportation program.
That's an unnecessary risk that our economy, the public, and States and
localities should not have to entertain. A robust, multi-year surface
transportation bill is necessary to improve the system and deliver
projects that require budget certainty.
Need for Robust, Long-Term Funding
Since the creation of the Interstate Highway System in 1956, the HTF
has been supported by revenue collected from road users. This ``pay-as-
you-go'' system has served the nation well over the past half a
century, allowing states to plan, construct, and improve the surface
transportation network. Additionally, the reliable stream of user-
supplied revenue has been critical to the legislative process, because
it has enabled Congress to guarantee the availability of multi-year
funding to states.
The federal gas tax was last changed in 1993--over 20 years, creating a
revenue shortfall in the HTF that increases each year. Currently, the
HTF is allocating more than the revenues it receives, with the trust
fund allocating $15 billion more than raised in 2014 alone. The
Congressional Budget Office recently projected that the 6-year
cumulative gap in the HTF will grow to approximately $90 billion by
2020.
The traditional basis of HTF funding, motor fuel user fees, have not
been raised since 1993, yet every year demands on the system grow and
the purchasing power of those 1993-dollars further degrades. As a
result, current levels of highway and transit investment cannot be
maintained solely with HTF resources. Over the last 6 years, Congress
has had to dedicate approximately $60 billion from general fund
revenues to shore-up the HTF. When the choices are either to cut
funding, raid the general fund, or raise additional revenue, there are
no easy options. It's time for Congress to lead the way on a solution
to fix the HTF.
ASCE supports a reliable, long-term, sustained user fee approach to
building, maintaining and improving the state's highways and transit
systems and believes that all funding and financing options should be
considered by Congress. We recently endorsed House legislation that
would raise the federal fuels tax by 15 cents per gallon over the
course of a 3 year period. In recent years the Simpson-Bowles
Commission \4\ and the National Surface Transportation Infrastructure
Financing Commission,\5\ among others, have come to the conclusion that
additional user-based revenue is needed, with each suggesting an
increase in the federal motor fuels tax. While the motor fuels tax
remains the best long-term solution to solving the HTF shortfall in a
fiscally responsible, deficit neutral way, a full range of options must
be considered within the context of reauthorization, either within or
outside of any broader tax reform package.
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\4\ http://momentoftruthproject.org/report/recommendations.
\5\ http://financecommission.dot.gov/.
It is important to fix the inability of the fuels tax rate to maintain
its purchasing strength because it is not indexed to economic
indicators like the Consumer Price Index (CPI). An indexing of this
sort is done with other government revenues and would allow the gas tax
to remain strong despite the rising costs of steel, other building
materials and worker pay. If adjusted to the projected CPI over the
next 10 years, the current fuels tax would raise \6\ an additional
$27.5 billion, which is enough to plug the HTF shortfall for about 2
years. ASCE recommends raising the motor fuels tax by 25 cents per
gallon and indexing for inflation to help meet our state's near-term
surface transportation needs.
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\6\ http://renacci.house.gov/index.cfm/2015/4/bipartisan-group-of-
lawmakers-introduce-long-term-solution-to-address-highway-trust-fund
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Facilitating Access to Private Capital
Innovative financing tools can greatly accelerate infrastructure
development and can have a powerful economic stimulus effect compared
to conventional methods, but need to be coupled with approaches that
provide dedicated funding to the HTF. It should be noted, however, that
innovative financing should not be viewed as an alternative to funding.
In fact, many times P3s are dependent upon securing public support on
user fees like tolling.
ASCE supports innovative financing programs and the use of public-
private partnerships (P3s) and advocates making programs available to
all states and localities. Additionally, the federal government should
make every effort assist public asset owners to engage in P3s and also
facilitate engagement with private investors who are oftentimes in
search of clear, accurate asset and project data that can help inform
their infrastructure investment strategies.
Programs like Transportation Infrastructure Finance and Innovation Act
(TIFIA), bonds, national and state infrastructure banks, and other
innovative solutions like the President's Qualified Public
Infrastructure Bonds (QPIBS) are attractive products to both the public
and private sector to fill the state's infrastructure investment gap.
In this sense, it would be helpful to see an even greater engagement by
the private sector in the funding debate, and the need for additional
public sector revenues, in order to make the most out of private
financing opportunities.
Next Steps: Long-Term Revenue Mechanism
ASCE supports the need to address the issue of future sources of
revenue for surface transportation funding. Congress should allow for
the exploration of the feasibility of the most promising funding
options that will ensure the long-term viability of the HTF. In
particular, a mileage-based system for funding our state's surface
transportation systems needs further study, and the recommendation of
the National Surface Transportation Infrastructure Financing
Commission\7\ calling for a transition to a mileage-based user fee
system must be considered. A federal effort to support further state
and local pilot testing of these options, as a follow-up to the ongoing
work being conducted in Oregon, should be supported. This
experimentation at the state and community level will be critical in
determining how to generate future HTF revenue as the state's
dependence on gasoline as a fuel source for automobiles is reduced.
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\7\ http://financecommission.dot.gov/
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Conclusion
Surface transportation infrastructure is the critical engine supporting
the nation's economy, national security, and public safety. To compete
in the global economy, improve our quality of life and raise our
standard of living, we must successfully rebuild America's surface
transportation infrastructure for the 21st century. Faced with that
task, Congress must continue to fund surface transportation projects
and should approve a long-term, sustainable HTF revenue solution to
complement MAP-21 policy reforms before the law expires on July 31,
2015. This long overdue combination would maximize the ability of
federal resources to build and maintain a national surface
transportation network that boosts economic competitiveness and job
creation.
______
State of California
edmund g. brown jr., governor
LUCETTA DUNN, CHAIR
BOB ALVARADO, VICE CHAIR
SENATOR JIM BEALL, EX OFFICIO
ASSEMBLY MEMBER JIM FRAZIER, EX OFFICIO
WILL KEMPTON, EXECUTIVE DIRECTOR
CALIFORNIA TRANSPORTATION COMMISSION
1120 N STREET, MS-52
SACRAMENTO, CA 95814
P.O. BOX 942873
SACRAMENTO. CA 94273-0001
FAX (916) 653-2134
(916) 654-4245
http://www.catc.ca.gov
July 1, 2015
Senate Committee on Finance
Attn. Editorial and Document Section
Rm. SD-219
Dirksen Senate Office Building
Washington, DC 20510-6200
RE: United States Senate Committee on Finance, Committee Hearing
Thursday, June 18, 2015, 10:00 AM--Dead End, No Turn
Around, Danger Ahead: Challenges to the Future of Highway
Funding
As the state agency responsible for programming and allocating
transportation dollars, the California Transportation Commission
encourages Congress to take action to address a long-term funding
solution for the nation's transportation system. Federal funding for
transportation is a crucial component in the process of maintaining our
mobility and ensuring a robust national economy. As a result,
Congressional consideration of the future of transportation funding is
critical.
Investments to preserve our transportation system have not kept pace
with demand, and the current method of funding the Highway Trust Fund
through excise taxes is no longer keeping up with the cost of
maintaining, operating, and expanding the nation's vast transportation
network. In real terms, funding has diminished while the demand and the
cost to maintain and operate the transportation system have soared. To
effectively address this pending transportation funding crisis,
immediate and long-range sustainable solutions are required. A solution
should be implemented in the near-term to stabilize transportation
funding while a long-term mechanism is secured.
Excise taxes are paid based on fuel consumption, not direct usage of
the transportation system. As fuel consumption continues to decline due
to improved and more fuel-efficient vehicles, and as consumers turn to
alternative fueled vehicles; the relationship between fuel consumption
and costs imposed on the transportation system will continue to
deteriorate. A road usage charge, also known as a mileage based user
fee or a vehicle miles traveled fee, refers to a fee based on the
number of miles a vehicle travels over a given time period. A road
charge is considered to be a more effective option for funding
transportationinfrastructure than excise taxes since it directly
charges users prices that reflect the full cost of the transportation
services provided.
Along with several other states, California is taking an aggressive
stance to address this chronic transportation funding shortfall by
investigating the potential of a pay as-you-go road charge in-lieu of
the traditional fuel-based excise tax. In 2014, California legislation
was enacted to establish a Road Charge Technical Advisory Committee to
design a road charge demonstration program in our state. Development
and implementation of a road charge pilot program requires a
collaborative development and deployment process to address privacy,
technology, administrative and other public concerns while ensuring the
ultimate success of a new funding mechanism.
We strongly support efforts to develop a bipartisan plan to stabilize
and enhance the Highway Trust Fund's current revenue stream this year
and in subsequent years. We believe Congress must also consider the
next generation of surface transportation revenue mechanisms now, to be
in a stronger position in future surface transportation authorization
debates. As such, we request the next Surface Transportation
Reauthorization bill include provisions to help states undertake the
research and development activities necessary to implement a new
mechanism for collecting transportation revenues based on user fees
reflective of the full cost of transportation services provided.
Sincerely,
LUCY DUNN ROBERT ALVARADO
Chair Vice-Chair
California Transportation
Commission California Transportation
Commission
cc: Commissioners, California Transportation Commission: Jim Beall,
Chair, Senate Committee on Transportation and Housing; Jim
Frazier, Chair, Assembly Committee on Transportation; Brian
Kelly, Secretary, California State Transportation Agency;
Malcolm Dougherty, Director, California Department of
Transportation
______
Concrete Reinforcing Steel Institute (CRSI)
933 North Plum Grove Road | Schaumburg, IL 60173-4758 | Tel.
847.517.1200 |
Fax 847.517.1206 | www.crsi.org
June 17, 2015
The Honorable Orrin G. Hatch
Chairman
Committee on Finance
U.S. Senate
Washington, D.C.
Re: Hearing June 18, 2015, Dead End, No Turn Around, Danger Ahead:
Challenges to the Future of Highway Funding
Dear Chairman Hatch and Members of the Committee on Finance:
I write on behalf of the Concrete Reinforcing Steel Institute, one of
our nation's oldest technical institutes and a Standards Developing
Organization (SDO). The CRSI is recognized as the authoritative
resource for steel reinforced concrete construction. Members include
some of the country's largest steel mills, fabricators, material
suppliers and placers of steel reinforcing bars and related products.
Our Professional members are involved in the research, design, and
construction of structures and pavements. Together, they form the
backbone of the steel reinforced concrete industry spanning our Nation
that relies heavily on surface transportation.
As Chairman of CRSI, I am responsible for the well being of the
Institute, and to keep apprised of public policy impacts to our
industry. Lack of a long-term transportation authorization at
sufficient levels of funding impacts not only our industry, but also
every business that relies on a well built and maintained
transportation system, and disadvantages the country as a whole. As
members of Congress, you have the responsibility of providing Federal
funding for our Nation's surface transportation system.
We believe that the solution to funding is to maintain a user-fee-based
Highway Trust Fund with increased levels of investment. We thank you
for your attention and urge Congress to pass legislation on this model
this year.
Finance and support for our surface transportation systems is based on
a per-gallon tax unchanged since 1993. Few of us in the private sector
are operating with 22 year old systems or funding mechanisms. No
American business or a state Department of Transportation is working
with the same W-2 numbers from 1993; no business small or large is
using the same trucks or machinery from 22 years ago. Our organization
and practically every interest from the National Association of
Manufacturers to the AFL-CIO recognize the need for an increase in
infrastructure investment, and we are willing to pay for an increase in
the Federal gas fee. We know that you recognize that a safe, efficient
system of transport and transit is essential to our economic strength.
Tools, personnel and equipment used to make and deliver products
require periodic investment--highways and transit are no different.
The user fee assessed at the pump is paid by those who use fuel in
proportion to that use. It is a sensible system. Granted, with the
improvement in fuel efficiency and other contemporary developments,
Congress will in the future need to address other funding mechanisms to
meet our infrastructure spending needs. For now we believe the current
system is fair and functional.
Many states have raised their fuel fees because they recognize their
residents and industries are willing to support a higher level of
investment. Leaders in these states have demonstrated they know that a
vibrant economy requires investment. This has been the tradition of our
Federal transportation program since it's founding--citizens willing to
pay.
We have patched, extended, delayed and dallied for far too many months.
The country needs a serious, 6-year highway authorization bill with
funding beyond the clearly inadequate current levels. We need a
sustainable funding stream, not obscure ``pay-fors'' to offset spending
or to take revenue from the General Treasury. Highways, transit and
bridges take years to plan and build. We cannot do the work with short-
term funding band-aids. Congress should not think that status quo is
good enough; it's not.
We urge you to invest in and restore the infrastructure superiority of
the United States. Delay will only be more costly and detrimental.
Respectfully submitted,
Scott D. Stevens, PE
Chairman of the Board
Concrete Reinforcing Steel Institute
______
Statement Submitted for the Record by Dean Fry
Dead End, No Turn Around, Danger Ahead: Challenges to the Future of
Highway Funding
United States Senate Committee on Finance
Thursday, June 18, 2015, 10:00 AM
215 Dirksen Senate Office Building
Dean Fry
10727 Saint Matthew Lane
Saint Ann, MO 63074
The following is an exploration of some possible ways to fund
transportation facilities, with my recommendations for federal funding
at the end. Some of these should be considered extreme and undesirable,
but are included here for illustration. Many may suit one jurisdiction
well while be unadvisable to others. For the purposes of this article,
Transportation District refers to any private, local, city, county, or
state organizations with authority to build and maintain
transportation. The advantages and disadvantages are intended to be
illustrative and not exhaustive.
Property owners responsible for maintaining the right of way
bordering their property.
Advantages: Property owners pay no taxes to the government for the
upkeep and construction of transportation facilities but do pay for
others to do the work or does the work themselves, no restrictions on
the types of transportation, tends to reduce urban sprawl.
Disadvantages: No economy of scale, undue burden on corner and other
long frontage properties, pressure to allow property owners to toll the
portion they are responsible for, possible differing standards and
states of repair, no public mass transit, no public higher speed
facilities, resistance to spending for heavier and higher capacity
facilities especially in residential areas, limited freight movement.
Government enforcement of minimum maintenance likely to be required and
facilities are likely to deteriorate rapidly in hard times.
Recommendation: Should not be used; while the apparent savings of taxes
looks attractive, it is very possible more tax money, from a different
tax, would be required to provide enforcement of the maintenance
standards, not to mention the property owner is likely paying more for
road work due to lack of economy of scale. Once neighbors agree to work
together to keep the roads and how to pay for it, they have created
something equivalent to a tax structure.
Neighborhood Associations.
Advantages: Property owners pay no taxes to the government for the
upkeep and construction of transportation facilities but do pay an
association fee as agreed and/or perform the work themselves, no
restrictions on the types of transportation, tends to reduce urban
sprawl, better economy of scale, maintenance likely to be better, may
support on-demand transit with association owned vehicle.
Disadvantages: Pressure to allow associations to toll the roadways for
which they are responsible, possible differing standards and states of
repair, facilities may deteriorate rapidly in hard times, no public
higher speed facilities, resistance to spending for heavier and higher
capacity facilities especially in residential areas, likely limited
freight movement, may be poor connections between associations.
Recommendation: Could work very well for some residential
neighborhoods, which would strengthen them; could work well within a
commercial district with businesses of similar market reach. The
businesses may want to partially provide the higher capacity travelways
through the neighboring residential neighborhoods. Combining
associations into cooperative districts could reduce some of the
disadvantages and improve the advantages, funding for the cooperative
district would come from the associations, not directly from the
people.
Monthly Access (Utility) Fees (similar to those used by
communications companies).
Advantages: Economy of scale, use for emergency services and for
nonemergency medical transportation possible, burden to long frontage
properties reduced, consistency of function and repair is better, does
not treat one person as worth more than another, funds transportation
more like a utility, which it is. Disadvantages: May be focused on
access to the detriment of mobility, depending on the size of the
transportation district, may be perceived as falling heavily on small
properties and the poor, connections between transportation districts
may be poor, may allow urban sprawl. Recommendation: Should not be used
as a standalone funding system. Could be used to fund up to two lanes
for each roadway, walkways, bikeways, and possibly, a fareless local
bus like system with stops a reasonable walking distance from every
address. If adopted, vehicle registration fees should be rescinded, and
property taxes for roadways and services should be reduced accordingly.
Tolls and Fares.
Advantages: Users pay the cost of the systems, does not treat one
person as more important than another, provides for robust limited
access transportation, tends to reduce urban sprawl. Disadvantages:
Difficult to apply to walkways, places with numerous access points, and
residential neighborhoods; may be perceived as falling-more heavily on
the poor; connections to other transportation districts could be choke
points; traffic on some portions may be insufficient to toll or fare at
a reasonable rate. Recommendation: Should not be used as a standalone
funding system. Works best if all limited access type systems are
tolled or fared.
Property taxes (traditional method for funding local roadways).
Advantages: The collection of property taxes is well understood,
distributes the tax burden fairly evenly based on property values, good
transportation systems tend to increase property values. Disadvantages:
Property values can experience significant fluctuations, making
forecasting the revenue less predictable than other taxes, poor people
may own relatively high value properties and rich people may own
relatively low value properties, does not account for traffic
generation. Recommendation: Should continue to move away from using
this tax in a standalone system. A property tax with limitations is
still a viable method of funding transportation. In good years, a
percentage of the increase in property tax revenue from 1 year to the
next, due to valuation increases, could be set aside for transportation
expansion to encourage continued growth and soften some downturns.
Fuel Excise Tax (used primarily to fund higher mobility
roadways).
Advantages: Well understood taxing system, user tax, can be used to
discourage use of carbon based fuels. Disadvantages: Does not account
for weight or gas mileage of the vehicle, not a true user tax; not
easily justifiable for non-roadway use even when drivers are
benefitted, induces urban sprawl, greenhouse concerns, some needed
roads cannot be maintained based on traffic counts for that road. The
history of this tax provides a lesson on how a seemingly progressive
tax can become regressive. Recommendation: Excise taxes still have some
value for funding transportation, but should be depended on less and
less moving into the future. Nevertheless, since the trucking industry
already supports a tax increase, the diesel tax could be immediately
raised to an amount the trucking industry is agreeable to.
Vehicle Miles Traveled Fee (could be used for all roadways).
Advantages: Truer user fee that can account for the weight of the
vehicle, can be discounted for older vehicle that the poorer are more
likely to drive, applies evenly to alternately fueled vehicles, can be
tracked by GPS, odometer reading at registration, or other method if
available, can make use of the fuel tax or regular estimated billing to
avoid yearly lump sum payments. Disadvantages: Privacy concerns with
tracking, not easily justifiable for non-roadway use even when drivers
are benefitted, may induce urban sprawl, may be political pressure to
match the funding with the portion of roadway related to its
collection, some needed roads cannot be maintained based on traffic
counts for that road. Recommendation: Should not be used as a
standalone funding system. The VMT fee is a more accurate and fair
system than the Fuel Excise Tax and could be implemented as soon as
privacy issues can be resolved. However, many commercial vehicles
already carry GPS systems and the privacy concerns are less. The
development of VMT fees for commercial vehicles should fast track, with
the lessons learned then being applied as VMT fees for private vehicles
develop.
Commuter Miles Tax (Based on distance from primary home to work
location).
Advantages: User tax, may be used for any type of transportation, fits
easily with improving congestion and bottlenecks, uses well understood
payroll deduction to assess, can be limited to a maximum amount for
lower tax brackets, can be indexed at higher rates for greater miles to
locations within defined urban areas, may reduce sprawl, can be used in
combination with a Fuel Excise Tax decrease, revenues increase as the
number of jobs increase. Disadvantages: Little known concept with
unknown resistance, payroll deduction may make the tax more noticeable
even though not greater, would likely not provide adequate funding for
many rural roads. Recommendation: Should not be used as a standalone
tax; should be phased in until the amount collected is consistent with
and covers the number of commuter miles traveled while the Fuel Excise
Tax is reduced accordingly.
Commercial Income Tax (Transportation is necessary for business
to do business).
Advantages: May be used for any type of transportation and can better
provide for freight. Corporate Taxes are well understood. It is within
the interests of the business community to draw people to their
businesses and to reduce the costs of goods and services, which good
transportation does. The tax could be considered more as an investment
rather than a tax if done right. Disadvantages: Conflicting interests
may affect project priority, especially when funding is down.
Recommendation: Set aside a percentage of corporate income taxes for
transportation use in keeping with the desire to grow the economy.
Repatriation.
Advantages: Provides a large one-time source of funds with relatively
little pain due to the current large amounts of money parked overseas.
At a more normal level, repatriation could provide a steady source of
funding for ports, airports, and border crossings, and their associated
facilities. Recommendation: Use the large one-time funds to repair,
rehabilitate, rebuild, and expand as necessary all bridges and tunnels,
road or railroad, that cross state lines, and then to do the same with
bridges of tunnels of longer than 2,000 feet regardless of location.
The remainder of this funding could then be used to make mass transit
more competitive against automobile traffic, ideally, with automated
vehicle-on-demand transit. Use the normal flow of repatriated funds to
provide infrastructure and support for international trade.
The first five of these funding methods should not be used at the
federal level, but there should be no law or regulation at the federal
level to restrict or inhibit the used of these funding options at the
local level.
According to the best figures I could find, commuter travel is
about a third of all miles traveled. A rate of $0.01 per mile will
generate about $10 billion per year and would be about $1.60 per week
for the average commuter. Transportation studies would require
obtaining the most effective mix of transportation forms to fund for
construction and operation.
The commercial and industrial community should be challenged
through the Chamber of Commerce and other such organizations to
consider how they would pay for transportation systems, like they were
making an investment to improve their bottom line. They should be
challenged to propose self-taxing funding options and amounts in such a
way as to be reasonably fair to all the businesses, and that can be
essentially rubber-stamped by Congress. They should be challenged with
how to improve highways, waterways, railways, airways, and all their
associated infrastructure and interconnections.
Final recommendations for federal level transportation funding:
Change and combine the differing trust funds to a Transportation
Trust Fund, and require the best option for a transportation
project among types as well as location and size for the
preferred alternative.
Over a 6 year period, phase in a commuter distance tax to a rate of
$0.03 per mile, limited to a fixed amount per year for lower
income people; phase in a commercial vehicle miles traveled tax
at rates consistent with the weight of the vehicle; phase out
the fuel excise tax; and phase out or reduce fares on mass
transit systems, depending on amenities. Do not impose a VMT on
personal vehicles. Also, increase the commuter distance tax
rate for those who commute more than 20 miles and 30 miles to
$0.035 and $0.04 respectively. Since a tax deduction is allowed
for personal vehicles used for business, the regulations can be
changed to allow the IRS to subtract the commercial vehicle
miles traveled tax from the normal deduction and place that
amount in the trust fund. These changes will keep the present
total collections about the same while providing future growth
as the number of jobs increases. It will also be a more
progressive tax structure. These taxes are more sustainable
that what is done now and fit well with the types-of-projects
funded with federal dollars.
Challenge business and industry to find $20 billion in ``self-
taxing'' to add to the trust fund at the federal level, and
phasing that up to $50 billion over 6 years. The regulations
should allow this funding to continue to grow as the economy
grows.
Use repatriation to fund certain ``mega projects'' that will not be
done without a very large source of funding. Reduce the
overseas tax rate to something more reasonable so the money
parked overseas comes back in a reasonable amount of time.
Discount that rate by 5% to bring funds back more quickly for a
short length of time. Let the tax be voluntary, but if it is to
be more than a 5% discount, then it should be mandatory. In the
future, use all the repatriation funding for infrastructure and
services that support international trade.
All of these taxes are sustainable because they are used to build up
the base from which they come, unlike the fuel excise tax.
______
Great Lakes Metro Chambers Coalition
June 16, 2015
The Honorable Orrin G. Hatch
Chairman
Committee on Finance
219 Dirksen Senate Office Building
Washington, DC 20510
Dear Chairman Hatch:
The following statement of Ed Wolking, Jr., Executive Director, Great
Lakes Metro Chambers Coalition is provided for the record of the
Committee's June 18, 2015 hearing on long-term financing of the Highway
Trust Fund. I am also the Executive Vice President, Detroit Regional
Chamber, One Woodward Avenue, Suite 1900, Detroit, MI 48226.
Transportation infrastructure is critically important to a thriving
Great Lakes regional economy. Modern, effective, multi-modal,
integrated transportation infrastructure systems create good jobs,
support the unique needs of inland metropolitan regions, and facilitate
international trade and exports. They are the platform for the highly
integrated regional supply chains which have made the Great Lakes and
Midwest one of the world's top manufacturing centers. The critical
connector in our supply chain systems--what gives them their great
flexibility and adaptability--is our highway and bridge systems. Their
continued maintenance and development are essential to the performance
of our regional and national economy.
The future of Great Lakes manufacturing depends on resolving the long
term surface transportation funding issue. American prosperity is
closely linked to the ability to move goods and materials seamlessly
within the Great Lakes region, which produces 35% of U.S. manufacturing
output, provides 42% of U.S. manufacturing jobs, and accounts for 28%
of U.S. exports. In the Midwest, the nation's industrial core, a single
disruption in a ``just in time'' supply chain component due to
inadequate infrastructure can impact results throughout the entire
chain.
The Great Lakes Metro Chambers Coalition urges the House Ways and Means
Committees to develop a sustainable funding solution that will provide
adequate Federal resources for the maintenance and development of our
Nation's surface transportation systems. The Coalition is deeply
concerned about the rapidly approaching surface transportation
reauthorization cliff, as well as the projected tremendous shortfall in
Federal Highway Trust Fund revenues over the long haul as motor
vehicles become far more efficient and motor fuel tax revenues become
much less predictable. The need for significant progress on
infrastructure is urgent.
Historically, increased user fees have been the prescription for
projected revenue shortages in the Federal Highway Trust Fund. The
Coalition believes that fees from users should remain the basis for
funding our nation's transportation infrastructure. However, we
recognize that to meet the. funding challenges in the near term, the
Congress may need to look to a broader range of revenue sources and
that user fees may be just one of the options. The Coalition is
therefore prepared to support other responsible options, such as
repatriation of foreign taxes, which could provide significant near
term and medium term relief.
As Congress grapples with this issue that is so important to our
nation's future, we encourage legislators to also provide flexible
options for the states that can supplement federal resources and help
provide a greater impact in catching up and keeping up with our
infrastructure needs. One of those options is tolling on interstate
highway systems and federal aid highways. Tolling can supplement motor
fuel revenues in providing resources to maintain and develop heavily
used corridors. It is already used on a number of key arteries in our
region and has helped immeasurably in keeping them in good condition.
Its technology is well-developed and now allows for efficient movement
and minimal congestion.
The Great Lakes Metro Chambers Coalition urges the Congress to allow
states the option to use tolling on interstate systems and federal aid
highways in heavily travelled corridors. Tolling can supplement the use
of other funding streams, reduce some of the pressure on federal
resources, and help states and localities address many of their serious
problems with roads that feed into and support the interstate highway
system. Tolling is also consistent with the Coalition's strongly held
belief that user fees are the best sources of sustainable funding
resources for transportation corridors.
Congressional action is essential to secure the trade corridors that
get the region's manufactured and agricultural goods and commodities to
market. Providing adequate, stable and predictable resources will
eliminate the barriers which have combined to delay rebuilding our
nation's infrastructure. The Coalition will support your leadership on
this vital issue.
Sincerely,
Ed Wolking, Jr.
Executive Director
Great Lakes Metro Chambers Coalition
Contributing Chambers of Commerce:
Ann Arbor/Ypsilanti Regional Chamber of Commerce
Allegheny Conference
Battle Creek Area Chamber of Commerce
Buffalo Niagara Partnership
Canton Regional Chamber of Commerce
Chicagoland Chamber of Commerce
Cincinnati USA Regional Chamber
Columbus Chamber of Commerce
Dayton Area Chamber of Commerce
Detroit Regional Chamber
Duluth Chamber of Commerce
Erie Regional Chamber and Growth Partnership
Fox Cities Chamber of Commerce and Industry
Grand Rapids Area Chamber of Commerce
Greater Akron Chamber of Commerce
Greater Cleveland Partnership
Greater Des Moines Partnership
Greater Indianapolis Chamber of Commerce
Greater Louisville Inc.--The Metro Chamber of Commerce
Greater Niagara Chamber of Commerce
Greater Pittsburgh Chamber of Commerce
Lancaster Chamber of Commerce and Industry
Lansing Regional Chamber of Commerce
Metropolitan Milwaukee Association of Commerce
Michigan West Coast Chamber of Commerce
Minneapolis Regional Chamber of Commerce
Muskegon Lakeshore Chamber of Commerce
Northern Kentucky Chamber of Commerce
Northern Michigan Chamber Alliance
Plattsburgh North Country Chamber of Commerce
Quad Cities Chamber
Rockford Chamber of Commerce
Saint Paul Area Chamber of Commerce
Southwest Michigan First
Toledo Regional Chamber of Commerce
Traverse City Area Chamber of Commerce
Youngstown/Warren Regional Chamber of Commerce
______
Highway Materials Group
ACAA
ACPA www.acpa.org
Associated Equipment Distributors (AED)
Association of Equipment Manufacturers (AEM)
Concrete Reinforcing Steel Institute (CRSI)
National Asphalt Pavement Association (NAPA)
National Ready Mixed Concrete Association (NRMCA)
National Stone, Sand and Gravel Association (NSSGA)
Portland Cement Association (PCA)
Comments for the Record
submitted to the
United States Senate Committee on Finance
Dead End, No Turn Around, Danger Ahead:
Challenges to the Future of Highway Funding
June 18, 2015
Dear Chairman Hatch, Ranking Member Wyden, and esteemed members of the
Finance Committee:
On behalf of the Highway Materials Group, we submit the following
statement. The Highway Materials Group is composed of nine
organizations that provide the materials that are essential to road and
highway construction and the equipment manufacturers and distributors
that move those materials. The group includes the American Coal Ash
Association, American Concrete Pavement Association; Associated
Equipment Distributors; Association of Equipment Manufacturers;
Concrete Reinforcing Steel Institute; National Asphalt Pavement
Association; National Ready Mixed Concrete Association; National Stone,
Sand & Gravel Association; and the Portland Cement Association.
Together, these nine trade associations represent thousands of
companies that provide hundreds of thousands of direct highway
construction jobs.
We are united around the common issue of a long-term, Federal-aid
Highway authorization bill that both increases highway investments, and
addresses the Highway Trust Fund with durable solutions that both
stabilize and increase highway investments now and for the long term.
Since 2008, the mantra of ``doing more with less'' has had grave
implications for the transportation-construction industry, State
transportation agencies, and the system of highways and bridges that
every citizen depends upon for personal mobility, commodity flows,
safety, and security in times when our system is tested in natural
disasters and other emergencies.
We recognize the vast number of issues Congress must address. Investing
in America's infrastructure should be a top priority for lawmakers.
However, 33 extensions over the past 6 years and an unknown number of
delays in transportation funding are causing not only the nation's
system of highways and bridges to fall further into disrepair, but is
crippling the ability of our economy to grow and prosper.
The American Society of Civil Engineers (ASCE) rates our overall
infrastructure between poor and mediocre. Within ASCE's analysis, they
report 1 in 9 of the nation's bridges are structurally deficient and 42
percent of urban highways are congested and cost the economy $101
billion in wasted time and fuel each year.
Our industries and our customers in the public sector have an extremely
difficult time planning for the future, and there is great concern that
without a firm commitment from Congress, backed by bold and decisive
steps to fix the Highway Trust Fund and authorize a 6-year
transportation program, the nation's surface transportation
infrastructure will fall further behind in terms of rehabilitation,
repair, preservation and expansion.
The Highway Materials Group has four basic principles that we urge the
Committee to consider. They include the following:
Transportation Infrastructure is the Backbone of America's Economic
Prosperity--America's economic vitality and ability to compete in the
global marketplace depends on an integrated national, intermodal
surface transportation network that reliably moves goods and people to
maximize global competitiveness, quality of life, and economic
prosperity for all citizens. Unfortunately, the investments needed to
maintain and expand the highway system have been inadequate. As a
result, America is ill-prepared to meet the competitive demands of the
global economy. To ensure economic prosperity and global
competitiveness, the nation needs to invest in multi-modal
transportation infrastructure systems that not only keep pace with
today's businesses and industries, but also that will allow for the
healthy expansion in the future.
The Federal Government Must Remain Committed and Involved--Maintaining
a vital, national infrastructure has been a federal responsibility
since the founding of the Republic. Congress is tasked with
establishing ``post roads,'' pre-cursors of today's national highway
system, and regulating commerce among the states and with other
nations. Commerce is the lifeblood of our Nation's economy, and
America's transportation infrastructure is its circulatory system. This
network of roads and transportation structures--built by Americans
employed in well-paying jobs that cannot be exported--is essential for
the economic growth, safety, security, freedom of mobility, and quality
of life benefiting every American. We oppose efforts to transfer this
responsibility to the states as an unfunded federal mandate.
We Support a User-Fee Based Funding Solution--In order to overcome the
highway funding gap, we support the adoption of any user-fee based
funding options and innovative finance tools to provide federal and
state transportation departments with the funding they need to make
critical investments in our transportation infrastructure. It is our
contention that a user fee based funding approach, such as a motor fuel
based user fee, is the most rational and easily implementable funding
solution available in the short to medium term. Our position is
consistent with that of President Ronald Reagan, who in 1982 noted:
``Good tax policy decrees that wherever possible a fee for a service
should be assigned against those who directly benefit from that
service. Our highways were built largely with such a user fee--the
gasoline tax. I think it makes sense to follow that principle in
restoring them to the condition we all want them to be in.'' Moreover,
we believe that continued extensions are not a solution, and is in fact
the lease fiscally conservative approach to address this challenge.
Timeliness and Long-term Authorization Are Essential--The longer
Congress delays in making the investments necessary to our highways,
roads and bridges, the more difficult and expensive it will be for our
nation to finance this critical and necessary endeavor. At a time when
cost is paramount, Congress must act now. Timely enactment of a 6 year
authorization bill is critical for state transportation departments to
plan and budget for projects and for our industry to make critical
business decisions.
In closing, Congress should embrace the opportunity to invest in
America's infrastructure. It is the only way our economy will be
positioned for success in a vibrant and growing global economy. America
has the strongest economy in the world thanks to the investments made
by a previous generation of American leaders who understood the value
of infrastructure, and recognized that investing in roads and bridges
is the best path toward prosperity for our great Nation. Many of
America's critical highways and bridges have reached the end of the
design life and must be rebuilt. Every day we delay making the
necessary investments in our infrastructure exacerbates an already
critical situation.
We thank the Committee for holding this important hearing on the long
term health of the Highway Trust Fund. We urge Congress to address the
critical highway needs of the country and enact the revenue necessary
to fund a multi-year surface transportation authorization now.
______
INSTITUTE ON TAXATION AND ECONOMIC POLICY (ITEP)
__________
Informing the debate over tax policy nationwide
__________
Adding Sustainability to the Highway Trust Fund
Testimony for the Senate Committee on Finance
For the hearing entitled:
``Dead End, No Turn Around, Danger Ahead:
Challenges to the Future of Highway Funding''
Carl Davis, Research Director
Institute on Taxation and Economic Policy (ITEP)
June 18, 2015
The Federal Highway Trust Fund (HTF) is the single most important
mechanism for funding maintenance and improvements to the nation's
transportation infrastructure. Absent Congressional action, however,
the HTF will face insolvency at the end of July. Unfortunately, despite
the critical importance of infrastructure to the U.S. economy, the
condition of the HTF has been allowed to deteriorate to the point that
imminent insolvency has become entirely normal.
Since 2008, Congress has dealt with recurring shortfalls in the HTF
through a series of short-term patches that have collectively
transferred $65 billion in outside funding to the account. While these
transfers have played an important role in funding the nation's
transportation network, they also represent a failure to deal with the
root cause of these recurring shortfalls: an outdated and poorly
designed gasoline tax.
Increasing and reforming the gas tax could adequately and sustainably
fund the HTF for decades to come. New funding sources such as a vehicle
miles traveled tax (VMT tax), on the other hand, hold some long-term
promise but cannot address the fund's current shortfall and are not
necessarily a panacea for the HTF's revenue sustainability problem.
Finally, other high profile funding options such as repatriation
holiday or deemed repatriation of corporate profits are problematic
from a tax policy perspective, and entirely unsustainable as revenue
raising options.
Gas Tax Design is Flawed but Fixable
The HTF is currently facing insolvency because the federal gas tax is
poorly designed. On October 1st, the nation's 18.4 cent per gallon
federal gas tax rate will become 22 years old. As a result, drivers
have been paying roughly $3 in federal gas taxes on every tank of gas
they have bought over the last two decades. But as drivers'
contributions have stagnated, the cost of asphalt, steel, and machinery
has risen by roughly 60 percent.\1\ This growing disconnect between the
cost of the roads that drivers use, and the price they pay to use them,
has played a large role in causing HTF revenues to consistently fall
short of infrastructure needs.
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\1\ This covers the 1993-2013 period in order to be consistent with
the fuel-efficiency figures cited below. To be clear, this does not
suggest that construction costs have grown in an unprecedented or
unexpected way. Prices in the broader economy, as measured by the
Consumer Price Index, rose by 61 percent over this same period.
Simply put, the 18.4 cent federal gas tax rate is outdated. Federal
funding for the nation's transportation infrastructure would be on a
much more sustainable course if the rate had been allowed to rise
alongside inflation in the same manner that numerous income tax
provisions did over this time period (e.g., personal exemptions,
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standard deductions, tax brackets, and the Earned Income Tax Credit).
But a lack of planning for inflation is not the only challenge facing
the federal gas tax. According to the Federal Highway Administration,
the average fuel-efficiency of a passenger vehicle on America's
roadways has increased by roughly 12 percent over the last two
decades--from 19.3 to 21.6 miles per gallon.\2\ For a vehicle with a 15
gallon gas tank, this means that the average driver is able to wear
down the roadways with 35 extra miles of driving before they have to
stop, refuel, and pay anything in gas taxes. The result has been
reduced gas tax collections, and less revenue with which to maintain
and improve the nation's transportation network.
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\2\ See Table VM-1 from the Federal Highway Administration's
Highway Statistics series. 1993 data for ``passenger cars'' and ``2-
axle, 4-tire trucks'' are available at: http://www.fhwa.dot.gov/ohim/
1994/section5/vm-1.pdf and 2013 data for ``all light duty vehicles''
are available at http://www.fhwa.dot.gov/policyinformation/statistics/
2013/vm1.cfm.
In late 2013, ITEP examined the impact of both inflation and fuel-
efficiency growth in significant detail and concluded that inflation
has, by far, played the larger role in contributing to the HTF funding
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shortfalls of recent years:
Over three-fourths (78 percent) of the current gasoline tax
revenue shortfall is a result of Congress' failure to plan for
inevitable growth in the cost of building and maintaining the
nation's infrastructure. The remainder (22 percent) is due to
improvements in vehicle fuel-efficiency.\3\
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\3\ Institute on Taxation and Economic Policy. ``A Federal Gas Tax
for the Future.'' September 22, 2013. Available at: http://itep.org/
itep_reports/2013/09/a-federal-gas-tax-for-the-future.php.
This does not need to be the case. Immediately increasing the gas tax
and allowing the rate to rise each year alongside a formula that
considers both inflation and fuel-efficiency gains would put the HTF on
a sustainable course for decades to come. Had this reform been
implemented in the late 1990s, there would be no question as to the
HTF's solvency as the fund would have ran a surplus in every subsequent
year, thereby facilitating as much as $215 billion in additional
transportation investments. Today, the cost to drivers associated with
this reform would be roughly 11 cents per gallon in additional gas
taxes--an amount equal to less than $5 per month for the average
driver.\4\
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\4\ Ibid.
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Diverse Group of States Shows the Way Forward
While federal gas tax increases and reforms have long been viewed as
politically impossible, the progress being made in the states shows
that there is a practical way forward. Since February 2013, 16
politically and geographically diverse states stretching from Idaho to
Massachusetts have enacted meaningful gas tax increases or reforms.\5\
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\5\ Davis, Carl. ``Sweet Sixteen: States Continue to Take On Gas
Tax Reform.'' Tax Justice Blog. May 20, 2015. Available at:
http://www.taxjusticeblog.org/archive/2015/05/
sweet_sixteen_states_continue.php.
Partially as a result of these changes, there are now 19 states that
levy a reformed, variable-rate gas tax where the tax rate can
automatically grow over time alongside factors such as inflation, gas
prices, or fuel-efficiency.\6\ Some states, such as Florida and North
Carolina, have used these smarter, variable-rate structures for a
number of years. Others, such as Pennsylvania and Utah, are more recent
additions to this group.
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\6\ Institute on Taxation and Economic Policy. ``Most Americans
Live in States with Variable-Rate Gasoline Taxes.'' May 20, 2015.
Available at: http://itep.org/itep_reports/2015/02/most-americans-live-
in-states-with-variable-rate-gas-taxes-1.php.
But of all the states with variable-rate gas taxes, Georgia is arguably
the leader. In May 2015, Governor Nathan Deal signed a reform that
addresses both of the major challenges to the sustainability of the
state's gas tax. In addition to a flat, one-time increase in the tax,
Georgia's gas tax rate will now be allowed to rise each year to keep
pace with both inflation and vehicle fuel-efficiency gains. While the
inflation component of this formula is not unusual (similar formulas
exist in Florida, Maryland, Rhode Island, and Utah), the fuel-
efficiency inflator is the first of its kind.
Issues With Vehicle Miles Traveled Taxes
As electric and highly efficient vehicles have grown in popularity,
increased attention has been paid to proposals that would transition
the nation's system of transportation finance away from taxes on motor
fuel and toward taxes directly on the number of miles driven. On July
1, Oregon will take a significant first step in this direction by
allowing 5,000 volunteer drivers to permanently exempt themselves from
the state's gasoline tax in exchange for paying a 1.5 cent tax on each
mile that they drive.\7\ While this experiment is a welcome example of
forward thinking, there are at least three important caveats to keep in
mind.
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\7\ See Senate Bill 810 of Oregon's 2013 Regular Session.
Additional information on the program is available at http://
www.myorego.org/.
First, VMT taxes are not a solution to the immediate funding challenges
facing the HTF, or to the broader infrastructure funding needs that
exist right now. Recent opinion polling shows that VMT taxes are
unpopular among the American people, though this may change as people
become more familiar with these types of taxes.\8\ Moreover, installing
the devices needed to track and report vehicle mileage is a costly and
time consuming endeavor that could take years or even decades to fully
implement, depending on whether efforts are made to retrofit current
vehicles with the technology.
---------------------------------------------------------------------------
\8\ Agrawal, Asha Weinstein and Hilary Nixon. ``How Do Americans
Feel About Taxes and Fees to Fund Transportation?'' Mineta
Transportation Institute. April 2015. Available at: http://
transweb.sjsu.edu/PDFs/research/1428-tax-survey-2015-top-line-
results.pdf.
Second, even if a VMT tax could be implemented immediately, these types
of taxes are not inherently better than gas taxes at weathering the
gradual effects of inflation on their purchasing power. Oregon's flat
VMT tax of 1.5 cents per mile, for example, is exactly as vulnerable to
inflation as the state's flat gas tax of 30 cents per gallon. As we
---------------------------------------------------------------------------
explained in a recent report on this subject:
Transitioning from a pay-per-gallon gas tax to a pay-per-mile
VMT tax will not necessarily put federal and state
transportation revenues on a sustainable course. If the tax
rate levied under a VMT tax is not allowed to grow alongside
the inflation rate, revenues will quickly begin to lag behind
the cost of building and maintaining the nation's
infrastructure-much as gas tax revenues have for decades.
Lawmakers interested in adequately funding transportation on an
ongoing basis should immediately index their gas tax rates to
inflation, and should be aware that such indexing will also be
needed under any VMT tax they might enact.\9\
---------------------------------------------------------------------------
\9\ Institute on Taxation and Economic Policy. ``Pay-Per-Mile Tax
is Only a Partial Fix.'' May 28, 2014. Available at: http://itep.org/
itep_reports/2014/05/pay-per-mile-tax-is-only-a-partial-fix.php.
Third and finally, many VMT tax proposals come with worrisome
environmental implications. Oregon's upcoming experiment, for example,
is expected to be very popular among owners of fuel-inefficient cars
who purchase larger volumes of gasoline (and pay higher gas taxes)
relative to their neighbors. Paying by the mile, rather than by the
gallon, will be of such great benefit to these drivers that lawmakers
put a firm cap on the number of inefficient cars allowed into the
experiment (only 1,500 slots are reserved for vehicles rated at 17
miles per gallon or less). Hybrid and electric vehicle owners, by
contrast, will fare quite poorly under this program. The Oregon
Department of Transportation calculates that a Toyota Prius owner could
see their taxes rise by as much as $117 per year under this tax.\10\
While some of this disparity could be alleviated by reducing the tax
rate for vehicles that get better gas mileage, this option has not been
a central part of most VMT tax discussions thus far.
---------------------------------------------------------------------------
\10\ Oregon Department of Transportation. ``How does the road usage
charge compare with paying the fuel tax?'' May 2015. Available at:
http://www.myorego.org/wp-content/uploads/2015/05/
orego_odot_cost_comparison.png.
---------------------------------------------------------------------------
Repatriation: An Ineffective Band-Aid
Rather than deal with the gas tax flaws at the heart of the HTF's
current shortfall, some lawmakers have proposed patching the HTF with
either a voluntary or mandatory tax on profits held offshore by
corporations. These proposals would reward and encourage offshore tax
avoidance, while at best only providing a temporary fix to the gap in
funding.
The most problematic proposal in this category is known as a
repatriation holiday. Under a repatriation holiday, multinational
corporations could voluntarily bring back profits held offshore by
paying tax on those profits at a rate much lower than the 35 percent
rate they would normally owe (one such proposal would set the
repatriation rate as low as 6.5 percent).
But repatriation holidays are not a sustainable funding source for the
HTF because they would actually lose revenue in the medium and long
term. In fact, the Joint Committee on Taxation (JCT) found that a
repatriation holiday could cost as much as $96 billion in just 10
years.\11\ This is because the holiday would encourage companies to
hoard even more of their future profits in offshore tax havens in
anticipation of another holiday, and because much of the money
repatriated under a holiday would have been eventually repatriated at a
higher tax rate if the holiday were not enacted.
---------------------------------------------------------------------------
\11\ Barthold, Thomas A. Letter to Senator Orrin Hatch. Joint
Committee on Taxation. June 6, 2014. Available at: http://
www.hatch.senate.gov/public/_cache/files/1b24c4cf-6005-4a4e-bab7-
3d9e3820c509/JCT%206-6-14.pdf.
Aside from a voluntary repatriation holiday, consideration has also
been given to enacting a mandatory, or deemed, repatriation tax on
corporate profits held offshore. For example, President Barrack Obama
has proposed paying for infrastructure with a 14 percent mandatory tax
on unrepatriated profits as part of a broad corporate tax reform that
would include a 19 percent minimum tax on foreign profits moving
---------------------------------------------------------------------------
forward.
As with a voluntary repatriation holiday, however, this form of
mandatory repatriation would reward companies for their current
offshore tax dodging with a special lower rate, and would incentivize
companies to shift more of their operations offshore in order to enjoy
the lower rate.
In addition, while both proposals would raise revenue in the short-
term, they are not sustainable solutions. If the HTF is simply patched
with a repatriation tax, the fund will inevitably face insolvency yet
again in the very near future. The result would be a quick return to
the same debate that has been rehashed repeatedly from at least 2008 to
the present, and a continued lack of certainty for the agencies
responsible for maintaining and enhancing the nation's infrastructure.
Conclusion
The root cause of the Highway Trust Fund's looming insolvency is that
its primary revenue source-the federal gas tax-is poorly designed.
Specifically, the tax's stagnant and outdated rate contains no
mechanism for growing with inflation, or for dealing with the more
recent rise in vehicle fuel-efficiency.
In an effort to address these same flaws in their own gas taxes, state-
level lawmakers have increasingly been moving forward with gas tax
increases and reforms that could serve as models for federal action on
this issue. Rather than focusing on short-term solutions, a growing
group of states have transitioned toward a reformed, variable-rate gas
tax that can finance economically vital transportation investments in
both the short and long terms.
Unlike the gas tax, a new tax on the number of miles that drivers
travel is not a realistic funding option in the short term. Moreover,
this type of vehicle miles traveled tax (VMT tax) will be unsustainable
in the long-term as well if its tax rate is calculated as a flat amount
per mile, regardless of changes in inflation.
Of all the proposals under consideration, repatriation is among the
most problematic. A repatriation holiday could offer a short-term
revenue boost but would provide no funding for transportation in the
medium or long term, and would actually reduce federal revenues
overall. Additionally, any repatriation plan comes with the added
downside of encouraging corporations to conduct more of their
operations offshore (either on paper or in reality).
The gas tax has been the cornerstone of transportation finance for
nearly 60 years. As the states have shown, this tax could continue to
play this valuable role for decades to come if its rate is simply
updated and reformed. Done correctly, the result could be an end to the
RTF's perpetual funding crises for decades to come, and the beginning
of hugely valuable investments in the nation's transportation
infrastructure.
______
MILEAGE-BASED USER FEE ALLIANCE (MBUFA)
1050 K Street, NW, Suite 400, Washington, DC 20001
www.mbufa.org
Contact: Barbara Rohde June 18, 2015
(202) 312-7437 For Immediate
Release
Statement
Senate Committee on Finance
Hearing on Challenges to the Future of Highway Funding
The Mileage-Based User Fee Alliance (MBUFA) is a national non-
profit organization that brings together government, business,
academic, and transportation policy leaders to conduct education and
outreach on the potential for mileage-based user fees as an alternative
for future funding and improved performance of the U.S. transportation
system.
Jim Whitty is former Vice Chair of MBUFA and the manager of Oregon
Department of Transportation's Office of Innovative Partnership
Programs. He has led the development and now implementation of Oregon's
mileage-based user charge system and he made the following comment:
``Oregon was the first state to adopt the gas tax in 1919 and you
could say that we were the first state to notice that it was going
awry. In 2001, the state legislature established a task force to create
a new revenue system for highways. The recommendation was a per-mile
charge as the most viable alternative to the gas tax. After 14 years of
research and pilot programs, Oregon will launch on July 1st, a road
user charge system for 5,000 volunteers that will have three types of
mileage reporting from three providers so that users have choices for
what system to use. Through our pilot programs we have learned that
providing system choice and making clear that government will not be
tracking drivers is critical to responding to drivers' concerns about
privacy.''
Adrian Moore, Ph.D., is vice president for education and an MBUFA
board member. He is also vice president of policy at Reason Foundation,
a non-profit think tank advancing free minds and free markets. He
served as a commissioner on the National Surface Transportation
Infrastructure Financing Commission which was established by Congress.
He made the following comment:
``The gas tax used to be a reasonably good way to pay for
transportation. If you look into the future, you can see its weaknesses
are growing and the strengths are shrinking. Nothing is going to change
that. Eventually, it will quit being an effective mechanism and it's
going to have to be replaced. The question is what is the most
efficient and effective method to pay for transportation and
infrastructure? And that would a fee on use of transportation
infrastructure. User fees have many inherent advantages over taxes
because they are related to the usage of the system. When usage goes
up, revenue tends to go up; when usage goes down, revenue tends to go
down. It sends signals to the system much like prices do in the market.
On the Transportation Financing Commission we spent 2 years evaluating
the strengths and weaknesses of every tax and every fee that we could
think of or that anyone could suggest to us. The mechanism that stood
out as being efficient, effective, equitable and sustainable was the
mileage based user fee.''
______
National Association of Manufacturers
Leading Innovation. Creating Opportunity. Pursuing Progress.
733 10th Street, N.W. Suite 700 Washington, DC 20001 P 202-637-
3178
F 202-637-3182 www.nam.org
Robyn Boerstling
Director, Transportation and Infrastructure Policy
Infrastructure, Legal and Regulatory Policy
June 18, 2015
The Honorable Orrin G. Hatch The Honorable Ron Wyden
United States Senate United States Senate
Washington, DC 20510 Washington, DC 20510
Dear Chairman Hatch and Ranking Member Wyden:
The National Association of Manufacturers (NAM) believes increased
funding for the nation's transportation infrastructure is a critical
priority which will help keep manufacturing competitive and grow the
nation's economy. Manufacturers appreciate your commitment and interest
in securing the financial health of the Highway Trust Fund (HTF), the
main funding mechanism for the nation's highway and transit systems.
While competitor nations continue to ramp up investments in
transportation infrastructure, the United States risks a continued
slide in the opposite direction. The level of real capital investment
in highways and roads declined 20 percent from 2003 to 2012.
A long-term approach to funding infrastructure is needed to avoid
uncertainty and ensure states have the ability to undertake multi-year
and complex transportation investments such as new bridge replacements,
improved interchanges, transit upgrades and additional capacity to
relieve congestion that chokes our roads. Because many states do not
have the resources or ability to keep up with the demands of aging or
deteriorating infrastructure, the federal and state partnership is
critical to maintain. No state in our Union would be better off on its
own.
Transportation funding is a productive investment but manufacturers
urge caution when considering tax proposals that promise to provide the
resources for transportation investments over the next several years.
For example, stand-alone proposals to tax overseas earnings outside of
comprehensive tax reform represent a massive retroactive tax on
manufacturers and would impose an additional cost burden on U.S.
companies at a time when they already face significant challenges in
the global marketplace.
The federal government has a fundamental role to play in investing
in the nation's highways and transit systems to serve passenger travel,
interstate commerce and national defense. Unlike most other government
programs, the HTF was designed to be funded by federal fuel taxes and
truck excise fees paid by those who use and benefit from access to our
transportation networks. We encourage the Senate to recognize the
importance of user fees in developing a solution to the current HTF
funding crisis in addition to the other potential funding mechanisms,
but also begin to develop future pathways that will lead to new
approaches that will ensure appropriate funding levels in the years to
come.
Manufacturers welcome the Administration, the House and Senate
working together to take decisive action on a multi-year funding
solution for the HTF. We look forward to working with you and
appreciate your consideration of this important issue.
Sincerely,
Robyn Boerstling
______
American Truck Dealers Division
National Automobile Dealers Association
8400 Westpark Drive
McLean, VA 22102
A Hearing Entitled
``Dead End, No Turn Around, Danger Ahead:
Challenges to the Future of Highway Funding''
Before the Senate Finance Committee
June 18, 2015
Mr. Chairman, thank you for the opportunity to submit the comments of
the American Truck Dealers Division (ATD) of the National Automobile
Dealers Association (NADA), to the hearing record. NADA is a national
trade association that represents 16,000 franchised new car and truck
dealers and collectively employs more than one million individuals.
NADA has almost 1,800 ATD members, which represents 82 percent of
commercial truck dealers.
MAP-21, the current highway authorization, will expire on July 31,
2015. While there is bipartisan support for a long-term highway bill,
the biggest challenge is funding the currently insolvent Highway Trust
Fund (HTF). If Congress were to maintain the Federal surface
transportation program at current levels, the HTF would need an
additional $168 billion in revenue through 2025.\1\
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\1\ ``Projections of Highway Trust Fund Accounts,'' CBO March 2015
Baseline, issued January 26, 2015. http://www.cbo.gov/sites/default/
files/cbofiles/attachments/43884-2015-03-Highway
TrustFund.pdf
Currently, a 12 percent Federal excise tax (FET) on new heavy-duty
trucks contributes revenues to the HTF. Proposals have been made to
increase the FET as a way to raise revenue for the depleted HTF. The
FET already depresses new truck sales and increasing this tax would
further slow deployment of cleaner, safer, and more fuel efficient
trucks. Congress should also consider lowering or eliminating the tax
to address the detrimental impacts of the tax on safety, the
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environment, and the truck industry.
The truck FET was originally imposed in 1917 to help defray the cost of
World War I.\2\ This tax, applicable to most new highway heavy-duty
trucks, tractors, and trailers, has risen from 3 percent of the selling
price to 12 percent today, making it the highest percentage excise tax
Congress levies. With the average retail price of a new heavy-duty
truck near an all-time high of $169,000, the 12% FET costs truck
customers roughly $20,000.
---------------------------------------------------------------------------
\2\ FHWA, Federal Tax Rates on Motor Vehicles and Related Products,
September 1999: http://www.fhwa.dot.gov/ohim/hs98/tables/fe101b.pdf. In
recent years, some even have suggested increasing the FET. For example,
in 2013, the Senate Finance Committee included an FET increase of 1
percent (to 13 percent) in an ``options paper'' on infrastructure
funding. Additionally, a Government Accountability Office report,
``Highway Trust Fund, Pilot Program Could Help Determine the Viability
of Mileage Fees for Certain Vehicles,'' (December 13, 2012) concluded
that Congress consider ``new revenues'' on commercial trucking.
Unfortunately, the FET has the effect of discouraging businesses from
buying new heavy-duty trucks that are safer, cleaner, and more fuel
efficient, and encourages trucking companies to hold on to their older
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trucks longer.
An increase in the FET would be in addition to the cost of new federal
emissions and fuel economy mandates that are increasing the price of
new heavy-duty trucks. For example, the Owner Operator Independent
Drivers Associations (OOIDA) calculated the average per truck
regulatory costs associated with the Environmental Protection Agency's
(EPA) MY 2004-2010 truck emissions standards to be $20,000-30,000.\3\
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\3\ Scott Grenerth (professional driver and member of OOIDA),
testimony before the House Committee on Oversight and Government Reform
(October 12, 2011).
Additionally, EPA has proposed a new set of commercial truck fuel
economy/greenhouse gas rules that require fuel economy increases of up
to 24% by 2027. The Obama administration estimates that its proposal,
phased in between model year 2018 and 2027, will cost at least $25
billion or some three times the estimated cost of Phase 1. According to
a recent New York Times article, ``It is expected that the new rules
will add $12,000 to $14,000 to the manufacturing cost of a new tractor-
trailer. . . .'' \4\ Together, the cost of these new standards, coupled
with associated increases in the FET, will price many truck purchasers
out of the market.
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\4\ Aaron M. Kessler and Coral Davenport, ``E.P.A. Proposal Will
Put Bigger Trucks on a Fuel Diet,'' The New York Times, (May 30, 2015).
The complexity of assessing and remitting the FET is another major area
of concern. Truck dealers spend considerable time and attention
navigating the byzantine and complex IRS regulations associated with
the collection of the tax. ATD continually gets questions from truck
dealerships regarding how FET should be calculated and collected. In
fact, ATD's guide for truck dealers on collecting and remitting the FET
is over one hundred pages long. The many exceptions and gray areas
related to the FET make it ripe for IRS audit and impose significant
financial and administrative challenges for small business truck
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dealerships and customers alike to stay in compliance.
The HTF is in desperate need of reliable and consistent funding into
the future. The FET fails to provide certainty and in fact is a very
volatile tax. For example, the FET generated a little over $1.4 billion
in 2008 when truck sales took a hit during the recession.\5\ In 2013,
on the other hand when the truck market came back $3.2 billion was
generated for the HTF.\6\ The FET is not a user fee but a tax on a
product. When truck sales are down the revenue into the HTF is directly
impacted.
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\5\ FHWA, Office of Highway Policy Information, October 2007 to
September 2008: http://www.fhwa.dot.gov/policyinformation/statistics/
2008/fe10_2008.cfm.
\6\ FHWA, Office of Highway Policy Information, October 2012 to
September 2013: http://www.fhwa.dot.gov/policyinformation/statistics/
2013/fe10.cfm.
---------------------------------------------------------------------------
H. Con. Res. 33
H. Con. Res. 33, introduced by Reps. Reid Ribble (R-WI) and Tim Walz
(D-MN), is a bipartisan concurrent resolution that would put Congress
on record in opposition to any increase in the FET on heavy-duty trucks
and trailers. ATD strongly supports this bipartisan resolution which to
date has 26 cosponsors. The following organizations have endorsed this
concurrent resolution: American Highway Users Alliance, American Truck
Dealers, Daimler Trucks North America, Mack Trucks, Inc., Meritor
WABCO, NAFA Fleet Management Association, National Trailer Dealers
Association, Navistar, NTEA--The Association for the Work Truck
Industry, Owner Operator Independent Drivers Association, Recreation
Vehicle Industry Association, Truck and Engine Manufacturers
Association, Truck Renting and Leasing Association, Truck Trailer
Manufacturers Association and Volvo Trucks North America.
Conclusion
ATD strongly supports an equitable long-term funding solution for the
HTF designed to ensure that Americans travel safely on our roads and
there is a reliable roadway system for goods to travel to market in a
cost effective manner. ATD believes that a user fee approach is the
fairest and most efficient way to achieve these goals. Finally,
Congress should not only oppose any increase in the FET, since this
excise tax contradicts government mandates for a cleaner, safer, and
more fuel efficient truck fleet, but it should also examine the adverse
impacts of the FET policy particularly on the nearly 7 million
Americans employed in the trucking industry.
______
National Conference of State Legislatures
The Forum for America's Ideas
444 North Capitol Street, N.W., Suite 515, Washington, D.C.
20001; Tel: 202-624-5400 ? Fax: 202-737-1069
STATEMENT FOR THE RECORD BY
DELEGATE SALLY JAMESON,
MARYLAND HOUSE OF DELEGATES
AND
SENATOR CAM WARD,
ALABAMA SENATE
Co-Chairs of the Natural Resources and Infrastructure
Committee, National Conference of State Legislatures
ON BEHALF OF THE
NATIONAL CONFERENCE OF STATE LEGISLATURES
DEAD END, NO TURN AROUND, DANGER AHEAD: CHALLENGES TO THE FUTURE OF
HIGHWAY FUNDING
TO THE
COMMITTEE ON FINANCE,
UNITED STATES SENATE
JUNE 18, 2015
On behalf of the National Conference of State Legislatures (NCSL),
a bipartisan organization representing the 50 state legislatures and
the legislatures of our Nation's commonwealths, territories,
possessions and the District of Columbia, we applaud Chairman Hatch,
Ranking Member Wyden, and the other distinguished members of the Senate
Finance Committee for making this hearing a priority. It represents a
key step in examining the need for federal transportation
infrastructure investments. It is important that all parties, including
state legislatures, work together to ensure a safe and reliable surface
transportation system throughout the country.
As you know, on August 1st the highway account of the Highway Trust
Fund (HTF) is forecast to fall below the critical $4 billion funding
level. This will likely result in the U.S. Secretary of Transportation
employing certain cash management strategies that could both delay or
reduce reimbursements to states for critical surface transportation
infrastructure projects. NCSL urges Congress to ensure the continued
solvency of the Highway Trust Fund (HTF), while committing to adopt a
long-term agreement on surface transportation funding as part of a
multi-year reauthorization of the Moving Ahead for Progress in the 21st
Century Act (MAP-21).
Although the enactment of MAP-21 in 2012 put a brief end to the
numerous short-term extensions that followed the expiration of the
Safe, Accountable, Flexible, Efficient, Transportation Equity Act: A
Legacy for Users (SAFETEA-LU) in 2009, it unfortunately appears that
Congress is returning to this pattern. The uncertainty that pervades
short-term extensions makes it extremely challenging for states to
adequately plan and achieve their performance targets especially
because many transportation infrastructure projects require a multi-
year commitment. This uncertainty has already caused some states to
defer projects. These delays have a harmful impact on a state's
economy. It is difficult to overstate the negative state impacts this
uncertainty creates.
Despite federal inaction, over the past 2\1/2\ years, state
legislators in more than a quarter of states, from Maryland and
Virginia to Utah and South Dakota, have stepped forward and invested
billions of dollars to repair and upgrade our nation's surface
transportation assets to ensure their continued safety and viability.
However, the significant steps taken by many states must not be
misconstrued. NCSL is a strong supporter of the federal government's
role in a national surface transportation system that facilitates
interstate commerce, addresses fairly and equally the mobility needs of
all Americans and meets our national defense needs. We would also
stress that NCSL supports the continuation and preservation of a
federal-aid surface transportation program that directs spending to
national priorities while providing flexibility for states to address
regional variations. The federal program should provide states maximum
flexibility in deciding how to generate and leverage transportation
revenues and how to use state and federal dollars. The ability of
states to maintain flexibility in decision making and comply with
environmental and other mandates depends on regulatory flexibility as
well as adequate and reliable federal funding.
Revenues for our transportation system continue to decline as
vehicles become more fuel efficient and travel patterns change
nationwide. The American Society of Civil Engineers has estimated
America's surface transportation infrastructure faces a funding gap of
about $94 billion a year based on current spending levels.\1\ Taking
all of this into account, NCSL urges Congress to work closely with
states to develop a new shared, long-term vision for financing and
funding our nation's surface transportation systems, one that will
enhance the nation's prosperity, the quality of life of all Americans
and guide it beyond the Interstate Highway era into the 21st century.
NCSL believes that Congress must:
---------------------------------------------------------------------------
\1\ American Society of Civil Engineers. ``2013 Report Card for
America's Infrastructure.'' May 2013. http://
www.infrastructurereportcard.org/.
Provide a short term increase in federal highway transportation
funding, based on the current status of the Highway Trust fund, so that
sufficient funds are available for the next authorization until a new,
more stable long-term funding mechanism for surface transportation can
---------------------------------------------------------------------------
be put in place.
Examine innovative funding systems that capture all system users and
encourages pilot programs in states for experimentation with
approaches, methods and mechanisms. Any system must ensure both the
privacy of users and provide maximum flexibility for states in the use
of funds they receive from the HTF.
Approve the creation of a $20 million program, with no more than $2
million available for allocation to any one state, to support state-
level pilot programs that explore transportation funding alternatives
to fuel taxes.
Migrate the Highway Trust Fund (HTF) from a gas tax to a new
national funding stream. A federal trust fund financed by user fees,
should be retained as the primary method of funding federal-aid surface
transportation programs. It must provide states a sustained, reliable
source of transportation funding.
Make all funding and financing options available to state
legislatures for state and federal-aid surface transportation programs.
Statutory and regulatory barriers to state and locally-generated
revenues should be removed, including all current federal restrictions
on states' authorities to toll, to allow states to optimize resources
for capacity expansion, operations and maintenance, while ensuring free
flow of goods and people.
Encourage and expand incentive-based programs in order to spur local
and regional transportation innovation in full coordination with state
authorities. A comprehensive approach would promote the use of tolling,
congestion pricing, public transit, telecommuting, real-time traffic
and other advanced technologies (also known as intelligent
transportation systems), and other strategies to achieve interstate
mobility goals through urban congestion reduction.
Ensure states have continued flexibility to create legislative and
programmatic frameworks for Public Private Partnerships (PPPs) and full
authority to select and engage in PPP projects. While the level of
private sector participation is best determined by state and local
authorities, federal guidelines should be designed to accommodate
private sector support, although private participation should not be a
prerequisite for receiving federal funds.
Continue credit-based and loan guarantee programs, including the
Transportation Infrastructure Finance and Innovation Act (TIFIA), Grant
Anticipation Revenue Vehicles (GARVEE), private activity bond, and
State Infrastructure Bank (SIB) programs, in order to incentivize
private sector investment--particularly for freight mobility by rail,
highway and waterway--in projects sponsored by the public sector.
Provide incentives and adequate funding for mass transit.
Avoid the expansion of federal-local funding streams without
appropriate coordination with state legislatures as these complicate
state-local relationships, financial arrangements, and state match
expectations for transportation programs.
NCSL appreciates the opportunity to submit testimony on this
important issue before the Committee. We respectfully request it be
submitted for the record along with NCSL policies on surface
transportation.
Appendices:
NCSL Surface Transportation Federalism Policy Directive
NCSL Solving America's Long Term Funding Crisis Policy Resolution
______
Statement Submitted for the Record by Kenneth Orski
A Conservative Vision for the Future of the Highway Trust Fund
Submitted to the Senate Committee on Finance in response to its
invitation for written comments in connection with the hearings on
long-term financing of the highway trust fund, June 18, 2015
by Kenneth Orski, Editor/Publisher of Innovation NewsBriefs, a
transportation newsletter
10200 Riverwood Drive, Potomac, MD 20854
tel. 301-299-1996; fax 301-299-4425
_______________________________________________________________________
Many states, facing repeated short-term program extensions and
anticipating uncertain prospects for increased Congressional funding,
have taken steps to significantly increase their transportation budgets
this year. Their intent is to place local transportation programs on a
more stable and predictable footing that is less subject to the
vagaries of Congressional budgeting. Twenty-five states have taken
steps to raise transportation revenue this year and another 16 states
are currently in the process of doing so (for the latest summary of
state funding initiatives see the attached appendix and the report of
the American Road and Transportation Builders Association (ARTBA) at
http://www.transportationinvestment.org/wp-content/uploads/2015/05/May-
2015-State-Transportation-Funding-Initiatives-Report.pdf)
Collectively, these measures are generating billions of additional
dollars, enabling states to assume greater responsibility for
maintaining local infrastructure and paying for transportation
improvements of local benefit, such as those involved in the ``TIGER
Grants,'' the ``Transportation Alternatives'' program and the ``Surface
Transportation Program'' (STP). Shifting these activities and other
expenditures of low federal priority out of the Highway Trust Fund
could eventually bring Trust Fund spending into balance with incoming
gas tax revenues--and fulfil one of the goals of the recently adopted
joint Congressional Budget Resolution (See, Conference Report on
Concurrent Resolution on the Budget for Fiscal Year 2016, April 29,
2015). It also would restore the Trust Fund to its primary function of
serving as a source of funds for programs that are clearly of federal
concern or national significance--notably, maintaining and upgrading
the Interstate Highway network and the National Highway System, fixing
aging bridges and modernizing critical transit infrastructure.
Most importantly, aligning Trust Fund expenditures with incoming Trust
Fund revenue would place the Highway Trust Fund once again on a self-
sustaining basis. It would end the need for periodic transfers of
general funds, do away with the awkward search for legitimate offsets
(or ``pay-fors'') and put an end to the constant lurching from one
funding crisis to another.
As Robert Poole pointed out in his June 17 testimony before the House
Ways and Means Committee, a Government Accountability Office analysis
of fiscal year 2013 Highway Trust Fund spending found that of the
entire $50.7 billion total, only $24 billion--less than half--was spent
directly on roads and bridges, and only $3 billion or 6 percent was
devoted to actual construction, reconstruction or rehabilitation of
major projects. ``To me,'' Poole said, `` this finding cries out for
Congress to rethink and revamp how HTF monies are being used.''
(Rethinking the Highway Trust Fund, testimony by Robert W. Poole, June
17, 2015, quoting Report GAO-15-33, October 2014).
Restoring fiscal soundness to the Trust Fund is not ``devolution,'' a
concept that calls for phasing out the federal gas tax and transferring
all authority over federal highway and transit programs to the states.
``I call this a judicious rebalancing of
federal-state responsibilities for funding transportation,'' a senior
state Republican lawmaker told reporters. ``States feel they have no
choice but to assume more responsibility because they are not convinced
they can rely on Congress for adequate and reliable funding. But the
federal transportation program continues and the federal gas tax
remains an integral part of the highway funding system. The Democrats'
talk of devolution is just a straw man.''
And indeed, the Congressional Budget Office projects a steady and
predictable stream of federal gas tax receipts of $40 billion per year
well into the future ($35 billion is credited to the Highway Account,
$5 billion to the Transit Account, see Baseline Projections of Highway
Trust Fund Accounts, March 2015). This should put to rest the
misleading notion that the Highway Trust Fund is about to ``go broke,''
become ``insolvent'' or ``run out of money.''
A self-sustaining, stable annual $40 billion federal-aid transportation
budget extending over a period of 6 to 10 years would go a long way
toward restoring and improving the nation's core surface transportation
infrastructure. As proposed in a recent paper by Steven Lockwood, an
annual $35 billion highway budget would allow to address ``unique
federal interest responsibilities'' such as maintaining and upgrading a
national interconnected system of ``Highways of National Significance''
and funding federal responsibilities for highway safety, R&D and
federal lands roads. A $5 billion transit account would continue to
provide funds for a program of transit investment (A Constrained
Federal-Aid Highway Program, by Steven Lockwood, Eno Center Newsletter,
January 2015). The ``constrained'' $40 billion program would still be
able to provide states with certainty and continuity to pursue large
capital intensive infrastructure projects of national significance that
require funding over multiple years.
(However, because of prior obligations that have not yet been
liquidated, the transition to a self-sustaining program would need to
be gradual. As reported by CBO's Joseph Kile at the June 18th Senate
hearing, at the end of fiscal year 2014, $65 billion in contract
authority had been obligated but not spent and another $6 billion was
still available but not yet obligated, for a total of $91 billion in
contract authority. These unliquidated obligations represent more than
2 years' worth of tax receipts. (The Status of the Highway Trust Fund,
testimony by Joseph Kile, June 18, 2015).
###
The June 17-18 hearings of the House Ways and Means Committee and the
Senate Finance Committee revealed an absence of a political consensus
on how to pay for a long-term bill with its projected $85-90 billion
shortfall. The majority in Congress are firmly opposed to raising the
gas tax--most recently reaffirmed by Chairman Paul Ryan at the June 17
hearing. (``We are not raising gas taxes, plain and simple''). At the
same time, the Senate Republican leadership is opposed to a tax on the
accumulated overseas corporate earnings (``. . . It is not a serious
proposal to pay for a long-term highway bill,'' said Finance Committee
chairman Orrin Hatch in his opening remarks at the June 18th hearing.)
Another potential solution, a practical mileage-based road user fee, is
``a decade away'' Robert Poole told the committee.
There remains the option of gradually bringing spending into balance
with incoming fuel tax revenue. This would require progressively
shifting funding responsibility for local transportation from the
Highway Trust Fund to the States and localities and limiting Trust Fund
revenues to projects and programs that are truly federal in nature.
Such a rebalancing of the federal-state relationship would require us
to accept a narrower concept of the federal role in transportation--but
it would offer probably the only lasting solution to the transportation
funding crisis.
###
Kenneth Orski is the editor and publisher of Innovation NewsBriefs, a
transportation newsletter now in its 26th year of publication This
submission is in his own behalf.
Appendix
2015 State Transportation Funding Initiatives
The following states have taken steps to raise transportation revenue
this year:
New York: Gov. Andrew Cuomo proposed $4.2 billion for transportation
investments as he began his second term. Florida: Gov. Rick Scott
proposed $9.9 billion for transportation (over $4 billion for roads and
bridges) in his 2015 budget request to the state legislature. North
Dakota: Gov. Jack Dalrymple signed into law a bill that will provide
$450 million for state highway improvements. Another bill, known as the
Surge Funding Bill will dedicate $1.1 billion from the state's
Strategic Investment and Improvement Fund for critical infrastructure
projects. Iowa: Iowa legislature approved a 10-cent per gallon gas tax
increase The increase will allow $700 million in spending on state
highway projects and $200 million in local projects annually. The Iowa
House passed a $365.2 million transportation bill. Utah: The state
legislature passed a bill that will increase the gas tax by 5 cents-
per-gallon, add a 12 percent tax on the wholesale price of gasoline and
permit counties to seek voter approval for a local sales tax for local
transportation projects. South Dakota: The state legislature approved a
fuel tax increase of 6 cents per gallon; the bill also raises vehicle
license fees and gives local governments authority to levy their own
road improvement fees. The measure is expected to generate over $80
million/year for state and local programs. Montana: a bipartisan group
of state senators introduced a bill that calls for spending $50 million
in cash and $50 million in bond proceeds over 2 years on
infrastructure. If state revenue receipts exceeded a certain trigger,
the authorized amounts could rise as high as $100 million in cash and
$100 million in bond proceeds. Ohio: The House-Senate conference
committee approved a $7 billion transportation budget for the next 2
years and sent the bill to the Governor. Nebraska: The Nebraska
legislature approved a 6 cent/gallon gas tax increase over the next 4
years, eventually expected to generate $76 million annually. Tennessee:
Gov. Bill Haslam released a 3-year transportation program featuring
$1.2 billion in infrastructure investments. The program reflects the
state's commitment to remain debt-free, Haslam said. The budget ensures
that projects already underway won't be negatively impacted by
decisions out of Washington, he added. Mississippi: The state
legislature voted to raise $200 million in bond financing to pay for
transportation improvements, most of them targeted at structurally
deficient bridges. The measure takes effect July 1st. DOT Secretary
Melinda McGrath linked the legislature's action to lack of action by
Congress. Idaho: the Idaho legislature passed a compromise $94.1
million transportation bill funded with a 7-cent increase in the fuel
tax and vehicle registration fees. Minnesota: The Minnesota legislature
passed a $5.5 billion, 2-year bill. Georgia: Georgia Governor Nathan
Deal signed into law a bill that will increase transportation funding
by $900 million per year through increases in fuel taxes and vehicle
fees. Georgia thus joins Idaho, Iowa, South Dakota and Utah to have
increased their gas tax to generate recurring transportation revenue.
The measure also allows local governments to increase transportation-
related taxes. Atlanta voters approved a $188 million transportation
infrastructure bond. Louisiana: The House Ways and Means Committee
approved a Democratic-sponsored one-cent sales tax increase and a 10-
cent gasoline tax increase that ``could pour billions into
transportation improvements over the next decade.'' according to press
reports. Kansas: A gas tax hike, possibly of 5 to 10 cents, is under
discussion in the House committee, according to press reports. South
Carolina: The South Carolina House approved a 10 cent/gallon (or 60
percent) gas tax increase that will provide at least $370 million for
transportation projects. A competing Senate bill would generate $800
million. Pennsylvania: The state House passed a measure that will
provide up to $2.3 billion in annual transportation funding for
highways ($1.3 billion), transit ($500 million) and local road
maintenance. The measure raises revenue mainly by removing a cap on the
franchise tax paid by fuel distributors. The Senate is expected to take
up the measure next. Vermont: Gov. Peter Shumlin signed a $616 million
transportation bill authorizing funds for fiscal year 2016. The bill
includes $116 million for bridges and $100 million for road
resurfacing. California: California's Senate is considering a bill that
would raise the state gas tax by 10 cents/gallon and increase vehicle
sales and registration taxes. The bill is projected to generate more
than $4 billion annually. In the lower house, Assembly Speaker Toni
Atkins proposes to create a road user fee to raise $2 billion over 5
years. A compromise state budget plan is yet to emerge. Washington: The
state legislature approved and sent to the Governor a $7.6 billion
transportation budget to keep existing transportation programs going.
Another measure, to pay for new projects, is still being negotiated in
the legislature. ``The current plan is the most positive movement that
we've seen on transportation in this state for many, many years,'' said
Sen. Joe Fain, Vice chairman of the Senate Transportation Committee.
Texas: Gov. Greg Abbott signed three transportation-related bills that,
in his words, provide ``a historic amount of funding'' to build roads.
The bills include a measure that ends about $1.3 billion in diversions
of gas tax money for non highway items and a provision for a November
referendum to approve amending the state constitution to dedicate $2.5
billion of the general sales tax and a portion of future motor vehicle
sales taxes to the highway fund. The combined pieces of legislation
provide more than $4 billion a year for transportation. Oregon: June is
the launch of the state's new voluntary road usage charge program
(OReGO) that proponents view as a potential transportation funding
model for the nation, replacing the motor fuel tax. Connecticut: The
state legislature and Gov. Dannel Malloy have reached agreement to
provide $10 billion over the next 5 years for transportation, a $2.8
billion increase from last year, partially funded by redirecting one-
half cent from the state's sales tax. This would be the largest
investment in transportation in the state's history, the Governor
announced. North Carolina: Gov. Pat McCrory has proposed a $2.85
billion bond initiative (Connect NC) to finance his 25-year statewide
multimodal ``Vision for Transportation.'' The proposal includes a $1.37
billion highway bond that would fund 27 highway construction projects
and 176 paving projects in 64 counties throughout the state. If
approved by the General Assembly, the bond proposal will be placed on
the ballot in November. Massachusetts: Gov. Charlie Baker signed a $200
million road bond bill in April 2015. State transportation officials
proposed roughly $3 billion in capital transportation projects in
fiscal year 2016 for highways, small airports and transit according to
press reports. Michigan: The state House of Representatives approved a
series of measures that would generate an extra $555 million in the
fiscal 2015-16 budget year and rise to an estimated $1.16 billion when
fully phased in during the 2018-19 budget year. The measures include a
hike of 4 cents a gallon in the state diesel fuel tax, indexing all
motor fuel taxes to inflation starting in 2016 and revenue diversion
from the state's general fund by dedicating portions of state income
and sales taxes to transportation. A final road funding plan still
awaits Senate action. New Mexico: Gov. Susana Martinez signed a $294
million infrastructure construction bill largely paid for with bonds
and cash reserves. The measure includes more than $70 million for
highways and $45 million for major critical road projects according to
local press reports.
Sources: ARTBA's Transportation Investment Advocacy Center; AASHTO
Daily Transportation Update; T4America's survey ``State Legislation to
Raise Additional Transportation Revenue;'' NCSL State Bill Database.
______
PeopleForBikes Business Network
P.O. Box 2359 Boulder, CO 80306
http://www.PeopleForBikes.org / 303-449-4893
Statement for the Record By Jenn Dice, Vice President, Business
Network, PeopleForBikes
P.O. Box 2359, Boulder, CO 80306
Senate Finance Committee Hearing
Dead End, No Turn Around, Danger Ahead:
Challenges to the Future of Highway Funding
June 18, 2015
Chairman Hatch, Ranking Member Wyden, and Members of the Committee,
thank you for the opportunity to provide input on the need to find a
long-term solution to financing the Highway Trust Fund.
PeopleForBikes Business Network represents the bicycle industry ranging
from retailers to suppliers to manufacturers in communities across the
country. Bicycling contributes significantly to the national, state and
local economics. PeopleForBikes Business Network has 1,825 business
members who depend on very modest federal investments in bike
infrastructure to grow their businesses.
Bicycling directly generates $81 billion annually for the United States
economy--a figure that includes more than $10 billion in state and
local tax revenues. More than 750,000 U.S. jobs are supported by the
bicycling industry. Across Utah, there are 235 bicycle retailers,
employing 1,215 people, with $198.9 million in annual sales. In Oregon,
there are 282 bicycle retailers, employing 1,493 people, generating
$121.6 million in annual sales.
Bicycling means business--and this business depends on a transportation
system that not only provides safe places to bike but also the
efficient shipment of our product to market. For these reasons, the
U.S. bicycle industry supports a well-funded federal transportation
program not only because it improves bicycle infrastructure, but also
because the shipping of our products from factory to warehouse to
retail point of sale depends on a well-maintained and connected
transportation system. Close to 18 million bikes are sold in the U.S.
every year.
Communities across the country are realizing the economic development
potential that comes from an integrated transportation system, where
bicycle infrastructure is just one part of their larger system to
efficiently move goods to market and reduce congestion during the
morning and evening commute. For example, Indianapolis cites the
construction of the eight-mile Cultural Trail with attracting at least
$100 million in new investment in the city. Continued federal
investment in bicycle infrastructure is essential to helping more
communities capitalize of bicycling to meet their transportation
challenges.
Commuting by bicycle has doubled since 2000, and a new study shows that
one in four Americans rode a bicycle last year or 103 million people.
Also, half the trips Americans take are 4 miles or less. We are seeing
a growth in Americans who look to the bicycle for these short trips.
For example, a trip to the grocery store that is a few miles from their
house to pick up a few items. As more of these trips are taken by bike,
road congestion, air pollution and parking infrastructure needs are all
reduced. This saves our nation money.
Finding a long-term funding solution to the Highway Trust Fund is
critical to states and communities across the country to meet the needs
of their transportation system, including the construction of good
bicycle infrastructure. Without the certainty of a long-term funding
solution many states and communities will hold back on investing in
projects due to the lack of certainty that they will receive a
reimbursement from the federal government for transportation projects
that have a multiyear construction timeline.
We look forward to working with the Committee to find a long-term
funding solution to the Highway Trust Fund that recognizes our
integrated transportation system.
______
Statement for the Record
Hearing: Dead End, No Turn Around, Danger Ahead:
Challenges to the Future of Highway Funding
Committee on Finance
United States Senate
June 18, 2015
Submitted by: The Real Estate Roundtable
801 Pennsylvania Ave., NW, Suite 720
Washington, DC 20004
On behalf of the following organizations:
Alternative and Direct Investment Securities Association
American Hotel and Lodging Association
American Resort Development Association
American Society of Interior Designers
Building Owners and Managers Association International
CCIM Institute
Institute of Real Estate Management
International Council of Shopping Centers
International Union of Painters and Allied Trades
Investment Program Association
NAIOP, Commercial Real Estate Development Association
National Apartment Association
National Association of REALTORS'
National Association of Real Estate Investment Trusts
National Multifamily Housing Council
The Real Estate Roundtable
As the Senate Committee on Finance meets to consider the
feasibility of various ideas to provide a sustainable, long-term
solution to the shortfall in the Highway Trust Fund, the undersigned
organizations urge the Committee to consider a simple, cost-effective
proposal that would galvanize billions in new private capital for
investment in U.S. transportation and infrastructure. Specifically, any
long-term highway bill should include reforms to the Foreign Investment
in Real Property Tax Act of 1980 (FIRPTA), such as those proposed in
the Real Estate Investment and Jobs Act of 2015 (S. 915/H.R. 2128).
FIRPTA is a major obstacle to mobilizing private sector capital for
infrastructure projects. The punitive FIRPTA law subjects foreign
investment in U.S. real estate or infrastructure to a much higher tax
burden than applies to a foreign investor purchasing a U.S. stock or
bond, or an investment in any other asset class. FIRPTA imposes U.S.
tax on gain realized by a foreign investor on the disposition of an
``interest'' in U.S. real property, which includes infrastructure
assets. In some cases, FIRPTA can generate a tax burden as high as 54.5
percent. The FIRPTA regime is an anti-competitive outlier that deters
and deflects capital to other markets. FIRPTA reform would serve as a
strong, market-driven catalyst for the financing of much-needed
infrastructure improvements, including upgrades to our transportation
system.
Meeting our infrastructure needs will require a combination of
public and private investment, and passive foreign investors could play
a significant role in financing public-private partnerships involving:
ports, bridges, airports, tunnels, toll roads, light rail, freight
rail, and other income-producing infrastructure assets. Pooled and
syndicated capital is already being deployed in infrastructure projects
through infrastructure funds organized as partnerships. REITs are
another model that has been used with some success for infrastructure
investment.\1\ Nonetheless, the United States is far behind other
regions of the world in harnessing private investment for
infrastructure development.\2\
---------------------------------------------------------------------------
\1\ Deloitte, REITs and Infrastructure Projects (2010), available
at: http://www2.deloitte.com/content/dam/Deloitte/mx/Documents/bienes-
raices/REITs_infrastructure_proyects.pdf.
\2\ OECD, Pension Funds Investment in Infrastructure: A Survey
(2011), available at: http://www.oecd.org/sti/futures/
infrastructureto2030/48634596.pdf.
Foreign institutional investors--pension funds, life insurance
companies, etc.--are ideal partners for U.S. infrastructure projects
because they have the capital needed for large-scale projects and the
time horizon necessary for the long-term returns associated with the
upfront investment. Infrastructure investments are attractive to
foreign institutional investors because they offer: stable and
predictable income streams that exceed fixed income markets,
diversification benefits, and a hedge against inflation. Because the
public-private infrastructure model is more developed in other
countries, foreign institutional investors are often more comfortable
and experienced investing in infrastructure assets than are their U.S.
---------------------------------------------------------------------------
counterparts.
FIRPTA is a major hurdle for the foreign investor seeking to invest
in U.S. infrastructure projects. Under current law, FIRPTA applies when
at least 50 percent of a company's balance sheet is attributable to the
value of real property. In 2008, the IRS issued an announcement in
which it indicated that many of the governmental licenses and permits
being issued in connection with the leasing of transportation assets,
such as toll bridges, should be treated as inseparable from the
underlying real property, and thus as U.S. real property interests
subject to FIRPTA.\3\ In 2014, the IRS issued proposed regulations in
the REIT area confirming that, among other things, certain inherently
permanent structures such as microwave transmission, cell, broadcast,
and electrical transmission towers; bridges; tunnels; roadbeds; and
railroad tracks are real property for REIT purposes.\4\
---------------------------------------------------------------------------
\3\ Internal Revenue Service, Announcement 2008-115 (December 1,
2008), available at: http://www.irs.gov/irb/2008-48_IRB/ar18.html.
\4\ Treas. Prop. Reg. Sec. Sec. 1.856-3; 1.856-10. The proposed
rules were published in the Federal Register on May 14, 2014 and are
available at:
http://www.gpo.gov/fdsys/pkg/FR-2014-05-14/pdf/2014-11115.pdf.
The fear of triggering FIRPTA liability is blocking inbound
infrastructure investment. In a 2013 report, one of the big four
accounting firms noted how FIRPTA obstructs infrastructure investment
---------------------------------------------------------------------------
in the United States:
The FIRPTA rules may be of significant relevance to non-U.S.
persons investing in infrastructure projects because such
investments often provide investors various rights in the
underlying infrastructure asset. As a result of these interests
or rights in the asset, a further issue is raised as to whether
the investor has obtained beneficial ownership of real property
rights to which the FIRPTA rules could apply.\5\
---------------------------------------------------------------------------
\5\ PWC, Infrastructure Investing: Global Trends and Tax
Considerations, Part 2 (2013), available at: http://www.pwc.com/us/en/
capital-projects-infrastructure/publications/assets/infrastructure-
investing-part2.pdf.
The Joint Committee on Taxation has also acknowledged the effect of
FIRPTA on foreign investors in U.S. infrastructure, ``the special U.S.
tax rules applicable to foreign investment in U.S. real estate . . .
may affect the U.S. tax treatment of foreign [infrastructure]
investors. Some advisors have taken the position that the intangible
franchise right is an interest in real property for purposes of section
897.'' \6\
---------------------------------------------------------------------------
\6\ Joint Committee on Taxation, Overview of Selected Tax
Provisions Relating to the Financing of Surface Transportation
Infrastructure, JCX-49-14 (May 5, 2014).
Large private investors in transportation infrastructure cite
FIRPTA as a principal obstacle to attracting greater foreign capital
for infrastructure projects. According to Christopher Lee, founder and
managing partner of Highstar Capital, an infrastructure investment
firm, ``[t]here are many billions of dollars in overseas capital
sitting on the sidelines because those investors are wary of the burden
FIRPTA will have on their investments.'' \7\ Highstar Capital has
invested more than $7.8 billion in infrastructure since its inception.
---------------------------------------------------------------------------
\7\ See Christopher Lee, Let's at Least Have a Sensible Tax
Structure When It Comes to Infrastructure, The Huffington Post,
available at: http://www.huffingtonpost.com/christopher-h-lee/lets-at-
least-have-a-sens_b_3112325.html.
Because of the close connection between FIRPTA and infrastructure
investment, the Administration has included a FIRPTA reform proposal in
its Rebuild America infrastructure initiative and its last three budget
---------------------------------------------------------------------------
submissions.
Moreover, transportation improvements, infrastructure build-outs,
and thousands of new jobs would flow from the commercial real estate
investment generated by FIRPTA reform. Real estate development and
infrastructure upgrades are inextricably linked. For example, in just
the last month, a prominent property owner in the Northeast agreed to
invest $220 million in improvements to Grand Central Station, one of
the country's most important transit hubs, as part of a larger
commercial real estate project in New York.\8\ Similar examples, on a
smaller scale, can be found throughout the country.
---------------------------------------------------------------------------
\8\ Associated Press, NYC approves skyscraper in exchange for
transit hub work (May 27, 2015), available at: http://
finance.yahoo.com/news/nyc-approves-skyscraper-exchange-transit-
201204047.html.
Last year, the Urban Land Institute (ULI) released its annual
report on infrastructure trends and issues.\9\ According to ULI's
survey of 250 public sector leaders in local/regional government and
over 200 senior-level private developers, the most promising source of
infrastructure funding over the next decade will be joint development
or cooperation between local governments and developers. Also high on
the list was ``negotiated exactions,'' which refers to tying
development rights to infrastructure improvements. The report concluded
that ``contributions from real estate are often essential components of
the funding package for infrastructure projects.'' \10\
---------------------------------------------------------------------------
\9\ Urban Land Institute, Infrastructure 2014: Shaping the
Competitive City (2014), available at: http://uli.org/wp-content/
uploads/ULI-Documents/Infrastructure-2014.pdf.
\10\ Id. at 4.
The infrastructure build-outs that accompany new development are a
major component of real estate investment. Real estate projects finance
transportation and other improvements through mandatory state and local
impact fees. A 2012 study found that nationally, for a typical multi-
family development, impact fees in excess of 6.7 percent of the
project's value will be paid to the local government to finance the
community's surrounding infrastructure.\11\ The same study found that
the average developer of a 100,000 square foot retail shopping center
in the United States will pay a local government $568,500 to improve
nearby roads, $244,000 to improve the water and sewer system, and
$83,700 to build up surrounding parks.
---------------------------------------------------------------------------
\11\ Duncan Associates, 2012 National Impact Fee Survey (2012),
available at: http://www.impactfees.com/publications%20pdf/
2012_survey.pdf.
The most recent FIRPTA reform proposal, the Real Estate Investment
and Jobs Act of 2015 (H.R. 2128), introduced by Representatives Kevin
Brady (R-TX) and Joseph Crowley (D-NY), includes two critical
provisions to mobilize foreign capital for real estate and
infrastructure investment in the United States. First, it would
increase the ownership stake that a foreign investor can take in a
publicly traded U.S. real estate investment trust without triggering
FIRPTA liability and extend the provision to certain collective
investment vehicles. Second, it would remove the tax penalty that
FIRPTA imposes on foreign pension funds that invest in U.S. real estate
and infrastructure. Together, these two bipartisan and noncontroversial
changes would unlock billions of foreign capital for job-creating
investment here at home. In less than 2 months, H.R. 2128 has already
attracted the co-sponsorship of 31 of the 39 members of the Ways and
---------------------------------------------------------------------------
Means Committee.
The Brady-Crowley bill is nearly identical to an amendment filed by
Senators Robert Menendez (D-NJ) and Michael Enzi (R-WY) when the Senate
Finance Committee considered Highway Trust Fund legislation last year.
For several years, Senators Menendez and Enzi have led the effort in
the Senate to unlock foreign capital for investment in U.S. commercial
real estate.
In February, under the leadership of Senators Menendez and Enzi, as
well as Chairman Orrin Hatch (R-UT) and Ranking Member Ron Wyden (D-
OR), the Senate Finance Committee unanimously passed another version of
FIRPTA reform
(S. 915), which increases the cap on foreign ownership of U.S. publicly
traded REITs. The full House passed a similar bill in 2010 by a vote of
402-11.
Over the long run, by mobilizing capital and increasing investment,
FIRPTA reform will have a positive impact on the economy, job growth,
and tax revenue. However, any short-term effect on the Federal budget,
as estimated by the Joint Committee on Taxation, can be fully offset
with noncontroversial, related revenue provisions. At the time of mark-
up, S. 915 was financed with provisions aimed at improving tax
compliance.
Congress should reform outdated tax regimes such as FIRPTA and pave
the way for market-based, privately financed infrastructure investment.
Thank you for the Committee's consideration of our submission. If
Senate Finance Committee staff would like to discuss this issue in
greater detail, please contact Ryan McCormick, Vice President and
Counsel of The Real Estate Roundtable, at (202) 639-8400 or
[email protected].
We look forward to working with the Committee to advance meaningful
FIRPTA reform in the context of Highway Trust Fund legislation.
______
Tire Industry Association
1532 Pointer Ride Place, Suite G
Bowie, MD 20716
www.tireindustry.org
Dr. Roy Littlefield
Executive Vice President
Finance Committee
U.S. Senate
June 18, 2015
Mr. Chairman and members of the Finance Committee, I appreciate
this opportunity to submit comments on funding options for long term
infrastructure funding. My name is Roy Littlefield, and I serve as the
Executive Vice President of the Tire Industry Association (TIA), TIA is
a national trade association representing close to 8,000 small business
members (who operate over 20,000 small business retail outlets),
engaged in the retail, retreading, importing, and distributing of all
varieties of tires. TIA members have been involved in the collection of
Federal tire excise taxes since 1918. Our industry is dependent on a
sound highway system.
TIA supports a long-term Federal Aid Highway bill. It is time for
Congress to look beyond short-term patchwork funding proposals. If
Congress tries to continue funding at current levels, it will have to
choose among several unsavory options. While we support a long-term
bill, we are opposed to many proposals being circulated.
The Federal Excise Tax on tires was first levied in 1918 mainly
because of revenue needs brought about by World War I. The Revenue Act
of 1918 imposed a tax on both tires and tubes at the rate of 5% of the
retail price.
The tax was reduced after the war, and then later repealed in 1926.
The levy was reintroduced during the Great Depression, and was
increased in 1941 to help finance World War II.
In 1956, the rate of the tax was raised in response to legislation
enacted to build the interstate highway system and to create the
Highway Trust Fund.
The Federal-Aid Highway Act of 1956 provided for a significant
expansion of the federal-aid highway program and authorized federal
funding over a longer period of time so as to permit long-range
planning. It was considered necessary to authorize the entire
Interstate Highway program to assure orderly planning and completion of
this network of highways throughout the United States as efficiently
and as economically as possible. In the case of tire taxes, the act
raised certain rates and expanded the rate structure by prescribing
different rates for different tire types. Tires for highway vehicles
were taxed at 8 cents per pound, other tires at 5 cents per pound,
inner tubes at 9 cents per pound, and tread rubber at 3 cents per
pound. Later, of course, that was raised to 5 cents per pound.
In an effort to stimulate job creation, the Congress passed the
Surface Transportation Assistance Act of 1982. The tire tax was
actually hammered out late on a Friday night during a conference
committee session.
One of its goals (besides increased revenues for construction and
maintenance of the Nation's highways) was a redistribution of highway
costs between car and truck users. Accordingly, the act changed several
of the excise taxes that fund the Highway Trust Fund. For example, the
excise taxes on tread rubber and inner tubes were repealed as were the
taxes on non-highway and laminated tires. A new tax structure for heavy
tires with graduated excise tax rates dependent on tire weight was
established. Tires which weigh less than 40 pounds were exempted from
the excise tax so that tires for most passenger cars are no longer
taxable. The excise tax rates on heavy tires ranged from 15 to 90 cents
a pound according to the weight of the tire. These rates are shown in
the following table.
Excise Tax Rates on Tires Under the Surface Transportation Assistance
Act of 1982
------------------------------------------------------------------------
Weight of Tire Tax
------------------------------------------------------------------------
0-40 lbs. No tax
40-70 lbs. 15 cents per lb. over 40 lbs.
70-90 lbs. $4.50 plus 30 cents per lb. over
70 lbs.
90 lbs.-up $10.50 plus 50 cents per lb. over
90 lbs.
------------------------------------------------------------------------
Following the merger, we quickly met with RMA and worked out
language to end the dispute.
The American Jobs Creation Act of 2004 changed the method of taxing
tires from the graduated weight structure of prior law to a tax based
on the load capacity of the tire. The tax is set at the rate of 9.45
cents for each 10 pounds of tire load capacity in excess of 3,500
pounds. In the case of super single or bias ply tires the tax rate is
set at 4.725 cents for each 10 pounds tire load capacity in excess of
3,500 pounds.
A provision included in the Energy Tax Incentives Act of 2005
clarifies the definition of super single.
The following chart shows the current tax rate which funds the
Highway Trust Fund.
----------------------------------------------------------------------------------------------------------------
Federal Highway-User Tax Rates--Current in Cents Distribution of Taxes to the Non-HTF
-------------------------------------------------------------------- HTF ------------
-------------------------------- Leaking
Tax Rate Underground
Fuel (per Highway Mass Transit Storage
gallon) Account Account Tank Trust
Fund
----------------------------------------------------------------------------------------------------------------
Gasoline 18.4 15.44 2.86 0.1
Gasohol 18.4 45.44 2.86 0.1
Diesel Fuel 24.4 21.44 2.86 0.1
Liquefied Petroleum Gas 18.3 16.17 2.13 0
Liquefied Natural Gas 24.3 22.44 1.86 0
M85 (85 percent methanol) 9.25 7.72 1.43 0.1
Compressed Natural Gas (cents per thousand cubic feet) 48.54 38.83 9.71 0
----------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------
Nonfuel Taxes (All proceeds to
Highway Account)
------------------------------------------------------------------------
Tires Maximum rated load capacity over
3,500 pounds--9.45 cents per each
10 pounds in excess of 3,500.
Truck and Trailer Sales 12 percent of retailer's sales
price for tractors and trucks
over 33,000 pounds gross vehicle
weight (GVW) and trailers over
26,000 GVW.
Heavy Vehicle Use Annual tax: Trucks 55,000-75,000
pounds GVW, $100 plus $22 for
each 1,000 pounds (or fraction
thereof) in excess of 55,000
pounds. Trucks over 75,000 pounds
GVW, $550.
------------------------------------------------------------------------
Without Congressional action, the Highway Trust Fund will soon run
out of money. Will Congress pass another short-term bill, or will they
fund the infrastructure at a level deemed necessary to sustain the
system for the foreseeable future? Let's look at the range of some of
the options being considered.
Option #1
Significantly raise the fuel tax. This would be the easiest option
to administer, and would be supported by environmentalists. It would be
opposed by most in the auto and truck industries.
This option would not require any changes to nonfuel taxes.
Option #2
Moderately raise the fuel tax, reinstate the FET on passenger tires
and retread rubber (5 cents a pound).
Option #3
Raise the fuel tax by a lesser amount, reinstate FET on passenger
tires and retread rubber (5-15 cents a pound), and increase existing
nonfuel taxes by 10% including heavy tires).
Option #4
Consider:
(1) Increased tolling
(2) Congestion fees
(3) Vehicle Miles Traveled (VMT) charges
(4) National Weight-Distance Tax on Truckers
(5) Increase private sector investment (i.e.
privatization of highways)
(6) National Infrastructure Bank
(7) Sales tax on oil producers at the wholesale level
Today, revenues from the excise tax on tires provide less than 2%
of the Highway Trust Fund receipts.
We are taking two strong positions:
1. Eliminate diversion. We are approaching 30% of the funds
collected for the Highway Trust Fund diverted for non-highway
purposes.
2. Engage creatively in future highway funding. We were an early
supporter of legislation introduced by Congressman John Delany
(D-MD) ``The Partnership to Build America Act'' (H.R. 2084).
The Partnership to Build America Act is a bipartisan effort to find
new funding for roads, bridges, and transit. The Act finances $750
billion in infrastructure investment using no appropriated funds and
has 50 co-sponsors (25 Republicans and 25 Democrats). On January 17,
2014, two Senators--a Republican and a Democrat, introduced a companion
bill. Within a week, five Republican Senators and three Democratic
Senators came out in support of the bill.
The bill is an attempt to address two problems: how to fund
transportation and how to entice U.S. corporations, which have stashed
an estimated $1.45 trillion abroad, to bring that money home. Delaney's
plan would create a $50 billion Federal fund to bankroll loans and
leverage private investment for transportation and other
infrastructure. The money would come from bonds bought by companies who
want a tax break if they bring cash earned abroad back to the U.S.
TIA's position is very clear: eliminate diversion, oppose tax
increases, engage in creative funding and tax reform, address our
infrastructure crisis and pass a long-term infrastructure finding bill.
TIA, along with the highway, transit, trucking, and motorist
communities, is committed to supporting your efforts.
______
Transportation Equity Caucus
Statement for the Hearing Record
Submitted to:
Senate Finance Committee
June 18, 2015
Hearing on:
``Dead End, No Turn Around, Danger Ahead:
Challenges to the Future of Highway Funding''
Chair Hatch, Ranking Member Wyden, and members of the Committee:
As members of the Transportation Equity Caucus, a diverse coalition of
organizations promoting policies that ensure access, mobility, and
opportunity for all, we appreciate the opportunity to submit this
statement for the record today to express our priorities for the
financing of the Highway Trust Fund.
The Transportation Equity Caucus is a group of more than 100
organizations formed by the nation's leading civil rights, community
development, social justice, economic justice, faith-based, health,
housing, disability, labor, tribal, women's groups and transportation
organizations. Our goal is to drive transportation policies that
advance economic and social equity in America.
Transportation is a critical link to opportunity-connecting us to jobs,
schools, housing, health care, and grocery stores. We are pleased that
the Senate Finance Committee (Committee) recognizes the importance of
creating a long-term plan for the financing of the Highway Trust Fund.
In addition, we look forward to working with Congressional Leaders to
develop and pass transportation legislation driven by the following
principles of economic and social equity:
Create affordable transportation options for all people.
Ensure fair access to quality jobs, workforce development,
and contracting opportunities in the transportation industry.
Promote healthy, safe, and inclusive communities.
Invest equitably and focus on results.
Failing to provide the long-term, sustained investment in
transportation infrastructure keeps workers out of jobs, undercuts
long-term planning, and hinders the nation's ability to advance to a
transportation system that provides for the needs of all its users.
Sustained transportation investment is crucial to developing equitable
communities, expanding employment opportunities, and boosting our
nation's economic recovery.
As a recent New York Times article highlighted,\1\ a lack of reliable
and efficient transportation is often an almost insurmountable barrier
for low-income people trying to access jobs and build better lives for
themselves and their children. Three-fourths of low-and middle-skill
jobs cannot be accessed by a one-way 90-minute transit commute.\2\
Also, in a national, long-term study,\3\ researchers at Harvard found
commute times were a crucial predictor of upward social mobility:
families living in areas with shorter average commute times had a
better chance of moving up the economic ladder than those living in
areas with longer average commute times.
---------------------------------------------------------------------------
\1\ Bouchard, Mikayla. ``Transportation Emerges as Crucial to
Escaping Poverty.''
http://www.nytimes.com/2015/05/07/upshot/transportation-emerges-as-
crucial-to-escaping-poverty.html?abt=0002&abg=1&_r=1.
\2\ Sources: Bureau of Labor Statistics, 2008; National Household
Travel Survey, 2009; U.S. Department of Treasury, Community Development
Financial Institutions Fund, 2001; and Brookings Institution, 2011.
\3\ Chetty, R., N. Hendren, P. Kline, and E. Saez. ``Where Is the
Land of Opportunity? The Geography of lntergenerational Mobility in the
United States.'' The Quarterly Journal of Economics 129.4 (2014): 1553-
623. Web.
http://scholar.harvard.edu/files/hendren/files/mobility_geo.pdf.
Moreover, low-income households are struggling with significant
---------------------------------------------------------------------------
transportation costs:
Low- and moderate-income households spend 42 percent of
their total annual income on transportation, compared to
middle-income households, who spend less than 22 percent.
According to the U.S. Department of Treasury,
transportation expenses for households in the bottom 90 percent
income bracket are twice that of those in the top 10 percent
income bracket.
Additionally, many communities of color and low income populations face
barriers to accessing reliable transportation. Over 22 percent of
African Americans, 14 percent of Latino households and 45 percent of
U.S. rental households with mobility device users have no personal
vehicle,\4\ and 15 percent of Native Americans must travel more than
100 miles to access basic services.
---------------------------------------------------------------------------
\4\ The University of Kansas Research and Training Center on
Independent Living, http://www.rtcil.org/rtcil/cl/documents/
US%20Housing%20urban&rural%20tagged%20logo.pdf.
Adequate Federal transportation investments can lay a strong foundation
for economic growth and expand opportunity for millions of people.
Strategic Federal investments in transportation can transform
struggling communities, unleash untapped human potential, and promote
local economic development to allow all people to thrive. When
transportation funding decisions are driven by economic and social
equity, we can build transportation system that works for everyone,
regardless of income, race or zip code. To this end, we ask the
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Committee to:
1. Utilize new revenue to expand or improve mobility and access
for underserved communities.
2. Ensure that any mechanisms used to finance our nation's
transportation system (whether that be repatriation,
increasing the gas tax, user fees, or other potential
financing mechanisms) do not disproportionately burden low-
income people.
3. Work with the House Transportation and Infrastructure Committee
to establish criteria and align federal funding to national
transportation outcomes such as improved mobility for
people and goods, access, transit ridership, health and
safety, as well as reduced household costs, carbon
emissions, and vehicle miles traveled.
The Transportation Equity Caucus stands ready to work with this
committee on these outcomes. For more information, please contact the
co-chairs of the Transportation Equity Caucus: Anita Hairston,
PolicyLink, 202-906-8034, anita@
policylink.org or Emily Chatterjee, The Leadership Conference on Civil
and Human Rights, 202-466-3648, [email protected].
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