June 11, 2015

The latest iteration of legislation to “devolve” most federal surface transportation programs back to state and local governments was introduced in Congress on June 10 by Senator Mike Lee (R-UT) and Rep. Ron DeSantis (R-FL). The “Transportation Empowerment Act” is S. 1541 and also H.R. 2716.

The two legislators published a joint op-ed stating that “Today, our most pressing transportation needs are local, not national. States and local governments are not only up to the job of maintaining existing highways—they’re already responsible for 75 percent of it. They are, in fact, far better positioned to lead in the next phase of infrastructure innovation. That is what our bill will finally allow them to do.” They also praised the Interstate Highway System but noted its completion in this clever bon mot: “a job well done is still a job, well, done.”

The bill would lower federal motor fuel taxes dedicated to the Highway Trust Fund from the current rates of 18.3¢/gallon of gasoline and 24.3¢/gallon of highway diesel fuel down to 3.7¢/gallon and 5.0¢/gallon, respectively, over the 2018-2021 period. By 2021, when the tax cuts would be fully implemented, the motor fuels tax would only be taking in about $6.8 billion per year (compared to a baseline estimate of $33.3 billion per year under current law tax rates).

The bill also would abolish any new mass transit spending from the Highway Trust Fund and contains language intended to make new highway funding levels fit within the reduced revenue levels. (Truck taxes would not be affected by the bill, and when the reduced gas and diesel tax receipts are combined with truck taxes, total HTF tax receipts in 2021 and thereafter would be between $13-14 billion per year.)

Caveat: At present, all expenses of the Federal Motor Carrier Safety Administration, and most expenses of the National Highway Traffic Safety Administration, are paid from the HTF to the tune of $1.3 billion per year. While the TEA is explicit about getting rid of mass transit, it is silent on FMCSA and NHTSA, which is a bit confusing. Sen. Lee’s office clarified that the bill assumes that all future support for FMCSA and NHTSA would have to come from the general fund.

The bill abolishes the CMAQ program, the Transportation Alternatives Program and the Metropolitan Planning Program and amends the remaining highway programs to remove bicycle and pedestrian projects and environmental restoration and mitigation from the list of eligible activities.

The version of this legislation in the last Congress (H.R. 3486, 113^th Congress) authorized specific dollar amounts of contract authority for highway formula programs. The new legislation switches to authorizing a percentage of total HTF balances in each year for both formula programs and administrative expenses, in addition to specific dollar amounts for allocated programs.

However, references to HTF balances in the bill draw attention to an implicit problem: the TEA would still require significant bailouts of the Highway Trust Fund by the general fund in fiscal 2016 to avoid a near-complete shutdown of all new highway spending. According to the Congressional Budget Office, even if all new HTF spending is shut off starting on October 1, 2015, the highway program would still spend $31.6 billion and the mass transit program would still spend $6.9 billion just to pay off obligations incurred in prior fiscal years. When added together (with the $0.7 billion per year in mandatory highway outlays that is accounted for separately), FY 2016 HTF outlays would total $39.2 billion – versus estimated tax receipts of $39.8 billion. So under the TEA, almost all new highway formula money in 2016 would have to come from general fund bailouts (either occurring in 2016 or else from the bailout that will be necessary in July to get us through the end of fiscal 2015).

The new TEA legislation has changed somewhat from the version in the last Congress in an attempt to address the prior-year outlay issue – last Congress’s bill began reducing motor fuel tax rates in the second year of the bill, but the new legislation waits until the third year of the bill to start cutting tax rates. But it’s still not enough to prevent a one-year funding collapse in FY 2016 without significant additional bailouts.

After FY 2016, things get improve noticeably. The amount of outlays needed to pay down old (pre-FY16) bills plus the mandatory outlays shrinks from $39.2 billion in 2016 to $20.5 billion in 2017 and then to $12.7 billion in 2018, making room once again for new spending on the much more limited federal highway program.

A section-by-section summary of the new bill is elsewhere in this issue.