One-Year Surface Transportation Extension Seen as Most Likely Option

Congressional leaders and transportation stakeholders appear to be coalescing around support for a one-year surface transportation extension bill, to be enacted before the end of the fiscal year on September 30, providing Highway Trust Fund spending resources for federal highway, transit, motor carrier safety, and highway safety programs for that period.

(Sept. 11 addition: On September 9, a broad coalition of transportation stakeholders released an open letter to Congressional leaders asking for a one-year extension of those programs, plus funding increases and emergency COVID money, with enough money deposited in the Highway Trust Fund to keep it solvent for one more year.)

A one-year extension would mean giving up on any pretense of forcing the Senate to pass its own multi-year transportation reauthorization in 2020, much less reconciling it with the extremely ambitious House-passed bill (H.R. 2).

However, the contents of any transportation extension are uncertain and are tied up in a three-way dance with the appropriations extension and any future COVID-19 relief bill.

What’s usually in a surface transportation extension? A surface transportation extension has to do three things, at a bare minimum:

  1. Extension of the provisions of 26 U.S.C. §9503 that shut off all new Highway Trust Fund spending after midnight on September 30.
  2. Provision of new budget authority (in this case, contract authority from the Highway Trust Fund) for programs for the fiscal year starting at midnight September 30.
  3. Extension of all of the policies and programs of the FAST Act of 2015 that are scheduled to expire at midnight on September 30.

Also, if it looks like the balances and receipts of the Highway Trust Fund won’t support the funding provided in the extension, the extension must do a fourth thing – deposit additional moneys in the Trust Fund to support those spending levels.

An extension that does those things, and provides no more new budget authority for 2021 than the FAST Act did for 2020, is called a “clean” extension. Such a “clean” extension, if it lasted for an entire year (fiscal 2021), would provide $58.7 billion in new contract authority, as follows:

Annual Contract Authority That Would Be Provided Under A “Clean” Flat-Line Extension
Federal Highway Administration $47,104,092,000
Federal Motor Carrier Safety Administration $675,800,000
National Highway Traffic Safety Administration $778.317,000
Federal Transit Administration $10,150,348,462
TOTAL H.T.F. CONTRACT AUTHORITY, FY 2020 $58,708,557,462

According to the new Congressional Budget Office (CBO) forecast made last week, a clean CR for one year at the spending levels shown above would require at least $6.4 billion in additional deposits into the Trust Fund ($4.8 billion for the Highway Account and $1.5 billion for the Mass Transit Account) in order to remain solvent through September 30, 2001. But uncertainty around COVID-depressed receipts and spending rates means that Congress should probably exceed that $6.4 billion “bare minimum” if they don’t want to run a significant risk of having to do a mid-year Trust Fund bailout next year.

(Sept. 11 addition: See this article in this week’s issue for just how far off from the CBO forecast is the Administration’s Trust Fund revenue forecast.)

The House has actually passed a one-year surface transportation extension of a sort, as part of the much larger H.R. 2 bill. But it wasn’t quite “clean.” The House split its transportation reauthorization bill into two parts – a one-year extension of FAST funding levels, policies, and programs for 2021, plus huge funding increases and a few policy tweaks, in Division A of the bill, and then a four-year reauthorization bill with new policies and programs (and even higher funding levels) for 2022-2025.

The House bill provided an additional $21.0 billion in contract authority for 2021 on top of the clean $58.7 billion – a 36 percent funding increase, almost all of which was made available as general-purpose “flexible” funding for states and transit agencies. There is no House-Senate or Democratic-Republican agreement as to how far above 2020 funding levels an extension should go (if at all).

In addition, states cannot spend their contract authority (except for $600 million or so per year) without a corresponding provision in the annual transportation appropriations bill (the “obligation limitation”), and here the H.R. 2 extension and whatever will happen later this month diverge. H.R. 2 wrote its own appropriations provision to allow the extra 2021 money to be spent. The Appropriations Committees will not allow this to happen in a surface transportation bill. So any extra contract authority above the 2020 levels shown above will be subject to the obligation limitation in the continuing appropriations resolution (CR) that also has to pass by September 30, and with the announcement late last week that Speaker Pelosi and Treasury Secretary Mnuchin had agreed to move a “clean” CR, that means that highway and transit programs won’t be able to ramp up spending in the next few months, even if a surface transportation extension bill increases contract authority levels.

(The hope, apparently, is that a surface transportation extension increases contract authority levels in the budget “baseline” starting on October 1, and then, whenever a final 2021 appropriations bill is enacted (December, or February), the Appropriations Committees will increase the obligation limitations and allow the extra money to be spent, in time for letting contracts for the spring construction season.

A funding increase in the form of contract authority that is built into a permanent baseline is distinct from one-time emergency funding for COVID, which the Congressional Budget Office has agreed not to carry forward in its baselines.

But there are things that could be included in a surface transportation extension that would provide immediate fiscal relief for states and localities.

Temporary 100% federal share. One item of temporary relief that could be included in extension legislation is a provision temporarily increasing the federal share of the cost of highway and transit projects up from the standard 80 percent (90 percent for Interstate and some safety projects) to 100 percent, similar to that in section 102(c) and 103(d) of Division A of H.R. 2 as passed by the House. This would relieve states and transit agencies for having to use any of their own taxpayer-provided funds for federal-aid projects during fiscal 2021, allowing them to use their own money for other projects.

This is an easy inclusion in an extension because it doesn’t actually cost the federal government any money. The proof of this is in the Congressional Budget Office score of H.R. 2. CBO scores Division A (the one-year surface extension) as only increasing federal outlays by $25 million over ten years, and we are told that is entirely due to the extensions of the availability time of some safety money.

The downside of that, though, is that increasing the federal share of project cost means that each federal dollar buys less pavement and fewer buses and railcars, which in turn leads to every dollar supporting fewer American jobs. For example, $10 billion in federal transit money at an 80 percent federal share pays for $12.5 billion in transit projects. At a 100 percent federal share, $10 billion only buys $10 billion.

There is plenty of precedent for this coming from the authorizing committees. In 1958, Congress temporarily increased the federal share on some highway funds from one-half to two-thirds of a project (almost prompting President Eisenhower to veto the bill).

Then, in February 1975, January 1983, and October 1991, Congress fought economic downturns by temporarily increasing the federal share of many projects to 100 percent. In all four cases, the increased federal share was temporary, and in all cases, it was a temporary loan of funding from the federal government to states – once the economy had improved, the states were expected to pay the money back.

Public Temp. Fed
Year Law Share? Duration?
1958 85-381 Two-thirds 7.5 months
1975 94-30 100% 4.5 months
1983 97-424 100% 21 months
1991 102-240 100% 24 months

Flexibility in use of funds. Another item that could be included in a surface transportation extension at no cost to the federal government would be flexibility for funding recipients to use federal capital funds for operating expenses, temporarily. This kind of flexibility was also included in the House bill. However, this is inherently linked with any future COVID relief bill. Without additional highway and transit funding (whether in the extension itself or in a separate COVID bill), allowing recipients to use capital funds to meet operating costs will mean a significant reduction in capital spending overall.

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