March 16, 2017 – 10:15 a.m. (Significantly amended and updated 9 a.m. March 17)

President Trump on March 16 released a very broad outline of his proposals for a portion of the spending side of fiscal year 2018 federal budget. These proposals only cover programs funded with discretionary budget authority (about 29 percent of the total federal budget). The other 71 percent of the government is funded via mandatory budget authority – which, along with all tax-related issues, will be addressed in subsequent parts of the budget to be released in May.

The proposals also include revisions to President Obama’s fiscal 2017 budget request, which normally wouldn’t matter this late into the year but are relevant today because eleven of the twelve 2017 appropriations bills have not yet been enacted into law and are awaiting further negotiations before an April 28 deadline.

The Trump proposals call for significant cuts to many transportation and infrastructure programs funded via discretionary budget authority, part of an overall Trump plan to reduce non-defense discretionary spending in 2018 by a total of $54 billion and increase defense spending by the same amount. This was announced several weeks ago by new White House Budget Director Mick Mulvaney.

However, the Trump budget also proposes a surprise revision in spending totals for 2017 – an unspecified $18 billion in reductions to non-defense appropriations, immediately, in the pending omnibus appropriations bill that Congressional leaders are trying to negotiate by the end of April. This is necessary to offset $3 billion in supplemental spending requested for Homeland Security border and immigration activities and part of a proposed $25 billion supplemental defense increase.

This “macro” budget strategy – the $25 billion defense increase and net $15 billion non-defense decrease in 2017 and the $54 billion shift from non-defense to defense in 2018 – is predicated on Congress first passing a new law amending the Budget Control Act (BCA) to permit the shift. Without this new law adjusting the caps, the new defense spending will be automatically cut back to current levels via another round of budget sequestration. And even though Congress could fund non-defense programs collectively below the spending ceiling in the BCA, it has been the experience of the last 40-odd years of the budget process that spending ceilings also act as spending floors. (When was the last time that an Appropriations Committee reported a bill that spent one dime less than its budget allocation?)

Any bill adjusting the caps will require 60 votes to pass the Senate, and finding eight Senate Democrats to support a plan calling for non-defense spending cuts of this magnitude will be extremely difficult. (Keeping all 52 Senate Republicans on board for such a plan won’t be a walk in the park, either – 16 of them are on the Appropriations Committee, and such a gigantic cap adjustment would make their lives much more difficult.)

The difficulty in amending the Budget Control Act spending caps on anything other than a bipartisan basis caused several of the Obama Administration’s budgets to be immediately disregarded by Congress – because those budgets assumed adding tens of billions of dollars to the BCA caps first (and, in the case of surface transportation, assumed other changes in the BCA cap structure). And even though both chambers of Congress are nominally controlled by the same party as the President now, the magnitude of the discretionary spending changes – predicated, we cannot stress often enough, on a change in the BCA caps prior to the spending bills being debated – indicate that bipartisan agreement on the proposed cap changes will be next to impossible.

(The most likely venue for any adjustment in the caps is in the context of the overall deal needed to get 218 votes in the House and 60 votes in the Senate to raise the statutory ceiling on the public debt. This is how the last cap adjustment got through, as part of the Bipartisan Budget Act of 2015, and the whole Budget Control Act was part of the 2011 deal to raise the debt limit in the first place. But the showdown on debt limit won’t happen until the August-October timeframe, depending on how big the Treasury tax collections are next month.)

The big unknown factor is President Trump – how far will he pursue the priorities laid out in his first budget? The first test is next month. The President has asked Congress to cut the pending non-defense appropriations for 2017 by $18 billion and to give him an immediate $25 billion defense increase and an immediate $3 billion for Homeland Security border and immigration priorities. How far can Congress go in disregarding his priorities in the final omnibus appropriations bill (or year-long continuing resolution) in late April before Trump vetoes the package? Or, if Congressional Republicans can somehow get 218 votes in the House for a 2017 appropriations package that meets Trump’s terms, would 41+ Democratic Senators filibuster it and shut the government down for a few days or weeks starting April 28?

Excludes emergencies, disaster relief, and program integrity adjustments. Chained 2009 dollars using GDP deflator per the Bureau of Economic Analysis. 2017-2018 GDP estimates from CBO.

In the absence of clarity on the veto and shutdown questions, the spending levels currently written into the Budget Control Act are likely to prevail, so there is no obvious reason to think the large domestic spending cuts proposed in this budget are any more likely to come to fruition than were the massive domestic spending increases proposed in the last few Obama budgets. (See ETW’s coverage of Obama’s FY16 and FY17 budget submissions.) The budget process is an incremental one governed by inertia – it is inherently difficult to make big changes in any direction.

That being said, here is an overview of the transportation and infrastructure discretionary budget reflected in the Trump FY18 proposals.

(The document released yesterday is frustratingly short on details. Only department-level totals are given, rounded to the hundred million, and while a couple of programs are identified for specific cuts, most are not.)

Department of Transportation.

The FY18 request would reduce the discretionary portion of the USDOT budget from $18.6 billion in FY 2016 budget authority to $16.2 billion in 2018, a reduction of $2.4 billion. As someone pointed out on Twitter, this is a reduction of $1 for every $8 on the discretionary side of the USDOT budget. However, the budget plan released this week does not affect the mandatory side of the budget that provides three-fourths of total USDOT funding (including all Highway Trust Fund programs and the Airport Improvement Program), so the real cut is $1 out of every $32 in total USDOT spending. And if the highly-anticipated “$1 trillion” Trump infrastructure plan adds any additional direct federal funding, it will almost certainly be added to the mandatory side of the budget, not the discretionary side.

(See discussion of the forthcoming infrastructure package later in this article.)

Excludes emergencies and the offsetting effects of contract authority rescissions. Chained 2009 dollars using GDP deflator per the Bureau of Economic Analysis. 2017-2018 GDP estimates from CBO.

The document released this week does not spell out where that $2.4 billion reduction comes from – not completely. (This is incredibly frustrating.) However, we can make some educated guesses where most of it comes from:

Further discussion is below, by mode.

Aviation. The biggest news in the budget request is something that won’t actually pay any fiscal dividend in 2018 – the document expresses support for “a multi-year reauthorization proposal to shift the air traffic control function of the Federal Aviation Administration to an independent, non-governmental organization, making the system more efficient and innovative while maintaining safety. This would benefit the flying public and taxpayers overall.”

This is an endorsement of the approach advocated by House Transportation and Infrastructure chairman Bill Shuster (R-PA) last year which never made it to the House floor (bill text here) – though not necessarily of all the specifics of the Shuster plan. (It is also consistent with recommendations of the Eno Center’s Aviation Working Group.) Shuster’s bill assumed enactment in 2016 and an effective date for the transition of 2020, at which point federal discretionary spending would be reduced by about $12 billion per year because the costs of air traffic control would no longer be part of the discretionary budget.

(If one of Trump’s biggest goals is the long-term reduction in the size of the federal workforce, then moving an estimated 30,000 air traffic controllers and support staff off the federal books would be a relatively pain-free way to accomplish that goal.)

The budget also proposes the elimination of the Essential Air Service subsidy program. This is a long shot. As ETW wrote six weeks ago when discussing how the GOP is now dominated by rural interests and biased against urban-focused programs: “EAS is one of the most rural-biased programs there is, and while its subsides for grossly unprofitable air routes drive free-market types nuts, past attempts in Congress to kill or cut back the program have failed because attacking the program draws fire from all Senators with rural airports and killing it would only save $150 million per year. Appropriators have found it far easier to get greater savings from cutting other programs.” (See below, and also see the table on page 22-24 of this year’s Senate committee report on the DOT appropriations bill that helpfully identifies which airports benefit most from EAS subsidies.)

The detailed budget is expected to leave the biggest discretionary account – FAA Operations – relatively untouched at around $9.9 billion in FY18 and leave the other major FAA account, Facilities and Equipment, relatively intact.

TIGER. The FY18 budget request kills the popular TIGER grant program, which got a $500 million appropriation in FY16. The budget document states that the new FASTLANE grant program, funded at an average $900 million per year out of the mandatory side of the budget, makes TIGER somewhat redundant.

This proposal is unlikely to come to fruition. Remember, the House Appropriations Committee tried to zero out the TIGER program in FY 2012 – the Senate responded with a $550 million appropriation and they compromised on $500 million. The TIGER program has never been authorized by law but instead was a creation of the Appropriations Committees (principally the Senate), and the Senate appropriators held a bipartisan hearing last week that seemed designed to show support for the program. Transportation Secretary Chao admitted at her confirmation hearing just how popular the program is. So the Appropriations Committees are unlikely to accede to the request to kill TIGER.

(Ed. Note: However, remember that even if Congress preserves the TIGER program, it will be the Trump Administration selecting the projects, so one can expect a marked hostility to the kind of bike/ped/streetscape/sustainability projects that the Obama Administration favored with TIGER grants in FY 2015–2016.)

Mass Transit. The document released this week says that it “Limits funding for the Federal Transit Administration’s Capital Investment Program (New Starts) to projects with existing full funding grant agreements only. Future investments in new transit projects would be funded by the localities that use and benefit from these localized projects.”

The Capital Investment Grants (CIG) program got a net appropriation of $2.16 billion in 2016, but the House and Senate were poised to give the program between $2.3 and $2.5 billion in the still-unfinished 2017. Both the House and Senate FY17 bills provided about $400 million for projects that had been proposed but have not yet had their full funding grant agreements (FFGAs) executed. These projects (Maryland Purple Line, Seattle Lynnwood Link, Minneapolis Southwest LRT, Caltrain Peninsula Electrification, and NYC Canarsie) would be left in limbo under the budget – if USDOT will not execute the agreements, it is pointless for the Appropriations Committees to provide the money in FY17 or FY18.

The FTA recently estimated that the FY18 installments of the projects with already-executed FFGAs will be about $1.1 billion, so we are assuming this will be the approximate level in the Trump budget. (If the Trump budget is also assuming no new FFGAs then some of the FY17 money might be used to make early payoffs of existing FFGA projects and then lower the necessary FY18 total somewhat.)

Looking beyond the projects that were listed in the FY17 budget request, some projects that are looking to get federal money from this program during the Trump Administration’s (first) term include Phoenix South Central LRT, Los Angeles Purple Line Section 3, the BART extension to San Jose and Santa Clarita, the Fort Lauderdale streetcar project, double-tracking for commuter rail in Gary, Indiana, the Minneapolis Blue Line, the Durham-Orange LRT project in North Carolina, the tunnel and bridge portions of the Hudson Gateway, Seattle’s Federal Way rail extension, and phase 2 of the NYC Second Avenue Subway.

(Ed. Note: Congress is of course free to fund new subway and light rail segments even if the President does not request the money. But if they do so, the funding for the projects will be considered an earmark under House and Senate rules and will violate Congress’s self-imposed earmark ban. Under the rules, if the President requests a project, it isn’t an earmark, but Congress has forsworn its authority to direct the Administration to fund projects it doesn’t want to fund.)

Amtrak. The budget document says that “The Budget terminates Federal support for Amtrak’s long distance train services, which have long been inefficient and incur the vast majority of Amtrak’s operating losses.” Amtrak’s FY17 budget request estimated that operating losses for long-distance trains would total $555 million in FY17 and that the net capital needs of the long-distance trains would total $277 million. But the document also reiterates support for Amtrak’s state-supported routes and the Northeast Corridor.

A list of Amtrak’s routes and their operating surplus/loss, both in total dollars and per-passenger, by year, can be found on pages 102-107 of Amtrak’s FY17 budget justification.)

Amtrak’s money-losing long-distance routes have always been a target for conservatives who object to the per-passenger subsidy levels required for operation, which are in some cases stupefyingly large. But preserving these routes has always been a priority of Senators from both parties, especially those from rural states, and the trains just keep rolling on. (Ed. Note: Remember when Senate Majority Leader Trent Lott (R-MS) went so far as to put the mayor of tiny Meridian, Mississippi on the Amtrak Board of Directors?)

Infrastructure package. It is important to remember that the discretionary budget presented this week is only a minor portion of total federal transportation spending. At the ongoing CBO January 2017 baseline rates (based on the CR and the FAST Act), USDOT gets a net total of $77.1 billion in total budget authority in fiscal 2017. $58.5 billion is mandatory budget authority (76 percent), mostly from the Highway Trust Fund. The remaining $18.6 billion is discretionary budget authority.

The Trump budget proposes to reduce that $18.6 billion down to $16.2 billion. But whenever the anxiously-awaited infrastructure plan arrives (see below), it is expected to add billions of dollars for new programs to the mandatory side of the USDOT budget, which would increase that $58.5 billion mandatory total to Lord-knows-what.

Budget director Mulvaney said in a press briefing yesterday that the program cuts at USDOT in the discretionary budget “do not mean the President is changing his commitment to infrastructure. Again, far from it.  What we’re saying is, look, for years and years we have built infrastructure like this and it doesn’t work very well …So what we’re doing now is we’re taking it out of the discretionary budget and we’re going to move it into the larger infrastructure plan this summer.”

Regarding timing, Mulvaney said “Regarding moving projects out of the, say, the base budgets for the agencies and into the infrastructure, the infrastructure program is something we’ve just recently started.  It won’t probably come until summer or maybe even early fall.  We have to do Obamacare repeal and replace first, then tax reform second.  That leaves infrastructure probably third, which may come after the August recess in Congress.”

Department of Homeland Security.

It is important to remember that the budget, and the Budget Control Act spending caps, focus on net discretionary spending. This is crucial for programs that are associated with real user fees, like the Transportation Security Administration’s aviation security program, because real user fees show up in the budget as negative spending and offset gross appropriations dollar-for-dollar.

The new budget document does not say how much would be spent on the TSA but it does say that it proposes to “raise the Passenger Security Fee to recover 75 percent of the cost of TSA aviation security operations.” In 2016, TSA aviation security received a gross appropriation of $5.7 billion, which was offset by $2.1 billion in aviation security fees for a net appropriation of $3.6 billion.

If the fees had been set at the level necessary to offset 75 percent of aviation security appropriations in 2016, the fees would have needed to bring in $4.3 billion, more than double the 2016 rate. In FY 2018, the Congressional Budget Office estimates that the $5.60 per one-way trip fees will raise a total of $3.9 billion (not all of that is used as an offset for the TSA discretionary budget), which means that each dollar of fees raises a total of about $700 million. Using this simple rule of thumb, if you need to raise an additional $2.1 billion per year, the fee needs to be increased by about $3 per one-way trip.

The budget document says it “Eliminates and reduces unauthorized and underperforming programs administered by TSA in order to strengthen screening at airport security checkpoints, a savings of $80 million from the 2017 annualized CR level. These savings include reductions to the Visible Intermodal Prevention and Response program, which achieves few Federal law enforcement priorities, and elimination of TSA grants to State and local jurisdictions, a program intended to incentivize local law enforcement patrols that should already be a high priority for State and local partners. In addition, the Budget reflects TSA’s decision in the summer of 2016 to eliminate the Behavior Detection Officer program, reassigning all of those personnel to front line airport security operations. Such efforts refocus TSA on its core mission of protecting travelers and ensuring Federal security standards are enforced throughout the transportation system.”

The budget also promises cuts in the FEMA account that includes port security grants and mass transit/rail security grants, but the language is so vague that we don’t know if the cuts will include those programs or not.

Army Corps of Engineers.

The budget document only has one line relating to the water resources program of the Corps of Engineers, saying that total funding will be cut from $6.0 billion in the annualized 2017 rate to $5.0 billion in 2018. Trump’s funding level would be $400 million or so higher than the level proposed by President Obama for FY 2017. Presidents of both parties try to pare back the Corps’ water program year after year but Congress almost always ignores them. See more info here and here.)

State Revolving Funds.

While the Trump budget takes a meat axe to the rest of the programs of the Environmental Protection Agency, the State Revolving Funds that provide grants to states for drinking water and wastewater infrastructure loans are spared. The budget document says that “The Budget includes $2.3 billion for the State Revolving Funds, a $4 million increase over the 2017 annualized CR level.” To put that in perspective, the $2.3 billion per year for the SRFs are currently about 28 percent of the agency’s total budget, but under the Trump plan, that same $2.3 billion would become 40 percent of the total.

(The Trump budget proposes an overall 31 percent cut in EPA discretionary funding, but once you back the water SRFs out of the equation, the budget actually proposes a 42 percent cut in EPA discretionary funding.)

Free Markets vs. the “Party of Rural America”

The Republican Party has long expressed a faith in free economic markets and has generally been hostile to programs that give economic subsidies to losers in the clash of market forces. This is why many Republicans have long opposed the Essential Air Service program (which pays airlines to maintain money-losing service to small airports) and  Amtrak’s long-distance routes, which annually post losses of up to hundreds of dollars per passenger.

But as the chart below from Sean Trende and David Byler at Real Clear Politics shows, the GOP has become the party of rural and small-town America. And in the Tip O’Neill “all politics is local” department, the communities that are the strongest supporters of the EAS program and of the long-distance Amtrak routes are small, remote cities and towns that would lose easy access to the national aviation and passenger rail systems if the subsidies were to be shut off.

For this reason, it is unlikely that Republicans in Congress (particularly the Senate) will allow these programs to be killed – when principles run afoul of political necessity, politics usually wins.

Congressional Reaction to the Trump Budget

“I am eager to carefully review the President’s budget request.  It is clear this budget attempts to focus on our nation’s real fiscal challenges, and it is Congress’ responsibility to thoroughly examine how and where we allocate the tax dollars of hard working Americans.  Further, this budget request presents an opportunity to have a conversation about our national priorities and the need to address the drivers of our debt.  I look forward to Congress exercising its oversight role and ultimately making funding decisions.” – Mario Diaz-Balart (R-FL), chairman, House Transportation Appropriations subcommittee

 

“This isn’t a skinny budget; it’s a starvation budget. President Trump clearly has no intention of fulfilling his campaign promises to rebuild our nation’s infrastructure or provide new opportunities for economic mobility. These radical cuts would make it impossible to make the investments in our future that a great country must make. Ironically, they would also fail to address the main drivers of the deficit – which makes this budget the ultimate lose-lose proposition.” – David Price (D-NC), ranking minority member, House Transportation Appropriations subcommittee

 

“I appreciate the White House’s submission on how we can be better stewards of taxpayer dollars and strengthen our national security. We are all committed to investing in our men and women in uniform to ensure that we are the strongest military force in the world. The complex international and military challenges we face require special attention, which the previous administration neglected. At home, I’m pleased that the administration is committed to reviewing how our agencies operate to better streamline programs and reduce overlap. We look forward to continuing our discussions with the White House, with our committee members and with the full House as we work towards introducing the Fiscal Year 2018 budget.” – Diane Black (R-TN), chairman, House Budget Committee

 

“Over the last few years, President Trump repeatedly promised the American people that he wanted to rebuild and replace our aging network of crumbling roads, bridges, airports, transit systems, railways, ports, and water systems. The President’s budget, released today, guts many of those very investments—the exact opposite of what he promised.

“He promised to rebuild our ‘third world airports’, but his budget would eliminate air service to 173 rural communities and sever critical access to the aviation system. He promised to triple funding for clean water infrastructure, but his budget cuts clean water investments. He promised to invest a trillion dollars in our infrastructure, but his budget eliminates all funding for long-distance trains, TIGER grants, and new transit projects that create jobs and spur economic growth in our communities.

“Bottom line: this so-called ‘skinny’ budget exposes the big fat lies President Trump has told the American people when it comes to rebuilding our transportation infrastructure. I would pronounce it dead on arrival, but my Republican colleagues have beat me to the punch.” – Peter DeFazio (D-OR), ranking minority member, House Transportation and Infrastructure committee