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Industry Anxiously Awaits New Highway Bill

Tue August 11, 2009 - National Edition
Giles Lambertson

Christian A. Klein of Associated Equipment Distributors (AED) compares America’s infrastructure crisis in 2009 to a 100-year flood, but that probably understates the problem. A better analogy is the perfect storm with a deep recession, huge new structural deficits and reauthorization of a six-year transportation bill all hitting at the same time.

Industry leaders realistically don’t look for a swift rescue, but they still are pushing for a permanent one. There is some hope that the severity of the crisis might actually help marshal support for passage of a lasting funding solution.

Casual observers of the situation should be excused for not getting too worked up about it. After all, shouting matches every six years over funding of a transportation bill are a Washington tradition. Is this crisis really any different than the others?

“It is a bigger crisis this year for a couple of reasons,” said Klein, AED vice president of government affairs. Make that three reasons:

1) Infrastructure needs are greater than ever,

2) The money to invest in roads and bridges isn’t there, and

3) The construction industry is in terrible economic shape.

Klein rattled off the dire industry statistics … construction spending in the first five months of 2009 is 11 percent less than the same period in 2008 … 1.3 million construction jobs have been lost … the unemployment rate in the construction sector is above 17 percent.

“We have a historic, by my standards and probably by just about anybody’s standard, level of volatility in the construction industry today,” Klein said.

In response to all that, are Congress and the Obama Administration scurrying about in search of a solution? Not that anyone can tell. Rather, political leadership in Washington is focusing on other things, chiefly a push to create a new federal system of health care.

Think about it: Aside from construction trade media, when was the last time anyone saw a headline about, or heard a news anchor mention, the need for additional transportation funding? The issue has not been a front-page topic since the fall of the Minneapolis interstate bridge. Cap-and-trade, Sotomayor and government health insurance have marginalized every other issue.

“I think the distraction factor is enormous,” Klein said just before the House recessed for August. “Because we have to find new revenues, House Ways and Means has to be involved and that committee is completely preoccupied by health care reform.”

Some of the transportation program’s strongest supporters in the Senate are similarly preoccupied. Klein cited the example of Sen. Max Baucus of Montana who has been prominently mentioned in news accounts as he tries to thrash out a bipartisan health care bill.

The construction industry really is seeking passage of two major pieces of legislation, though they are related. One is a beefing up of the Highway Trust Fund to ensure that money dedicated to infrastructure work will be gathered systematically in large enough chunks to do the work. The other is the six-year highway bill itself, which will authorize spending on projects in the immediate future.

The Trust Fund is bedeviled by falling gasoline consumption — due to more fuel-efficient cars and rising gas prices that have curtailed travel. The less gasoline purchased at the pump, the less tax collected for the Trust Fund. At the same time, construction costs (materials, fuel, machinery) have risen dramatically, which means the Trust Fund revenue coming in isn’t keeping up with draws on the account. This deficit pattern first began to show up five years ago.

The most popular answer to closing the gap is to double the federal gasoline tax — a jump of at least 18 cents. That will immediately begin to shrink the difference between revenue coming in and infrastructure expenditures. Once the higher tax is in place, a systematic increase in the gasoline tax thereafter is proposed to maintain a healthy relationship between income and outgo.

“However, increasing the motor fuels tax is not always politically feasible,” acknowledged Don Weaver, chairman of Associated General Contractors (AGC), at a Ways and Means Committee subcommittee hearing in late July. “To take this decision out of the political arena, AGC proposes establishing a federal Highway User Rate Commission to determine biennially the federal motor fuels tax rate to avoid the instability in the annual amount of revenue collected.”

In other words, let an unelected board take the heat. The idea might appeal to the Obama Administration.

The White House has indicated zero interest in even talking about raising the gasoline tax because to do so would interfere with the administration’s primary legislative push — a new national health care system, which also will require new taxes. The administration doesn’t want to hit a tax-weary population at a politically inopportune time with a big jump in prices at the gas pump. However, an automatic increase from a “user rate commission” might deflect objections and finesse the matter enough to win administration support.

“We have long advocated the user fee for the Trust Fund,” Klein said, voicing the AED perspective. “We are a fiscally conservative organization and users of the system are the ones to maintain it. We do need to increase the gas tax 10 cents, 15 cents, or something. I think Americans ’get’ a user fee.”

No lobby group or political faction seems to be lining up behind any funding mechanism besides a higher gas tax. While more toll roads are mentioned, they cannot be the entire answer to the funding crisis. Charging motorists for miles traveled, which would require GPS tracking and obvious intrusion into the private lives of Americans, is not deemed a serious alternative at this point.

“The Highway Trust Fund is the ultimate ’Pay-Go’ program,” Weaver testified. “Highway users pay fees that reflect their usage of the system.”

Somewhat surprisingly, the AGC position is supported this year by the U.S. Chamber of Commerce. The Chamber’s director for transportation infrastructure, Janet Kavinoky, testified at the same subcommittee hearing as Weaver.

“The full weight of the Chamber will come behind an effort to increase user fees to provide the revenue our transportation infrastructure urgently needs,” Kavinoky declared — but added some heavy-duty qualifiers.

In exchange for its support of a gas tax hike, the Chamber is asking that Congress limit earmarks in transportation bills and reform the program to instill better management of funds.

“Congress must ensure federal transportation policy, programs and resources are oriented around national needs …” Kavinoky testified. “Over the years, these programs have devolved into a political redistribution of federal dollars, instead of thoughtful investments benefiting the nation as a whole.”

The Chamber’s pitch essentially is for new revenue for transportation and real reform in spending the revenue. That might be a mile too far for Congress.

Ronald D. Utt believes it is too much to ask. Utt is a former chief economist for the Chamber and now a research fellow at the Heritage Foundation. He expresses little personal confidence in the current Congress to act reasonably and said the public, too, has lost confidence.

“The sense is that giving them more money is a hopeless waste of money. I don’t know that Congress has the capability of altering that perception, which it has worked so hard to develop over the years.”

Congressman James Oberstar of Minnesota’s 8th District is still trying to polish the congressional brand. As chairman of the Transportation and Infrastructure Committee, Oberstar leads House efforts to craft a bill. He also testified at the subcommittee hearing on July 23 and announced that his committee’s reauthorization bill “redefines” the federal role in transportation and streamlines it by consolidating or eliminating 75 programs.

He expects the proposed half-trillion-dollar bill to be welcomed by the construction industry because it will “create or sustain approximately 6 million family-wage jobs.”

The only piece of the puzzle missing, he said, is “identifying the revenue to finance this bill.” Some piece.

Oberstar criticized the Bush Administration for its “unwillingness to make hard choices” and conceded the Obama Administration “is not ready to make choices and proposes to defer a long-term authorization act for 18 months.” But his committee has made choices — or at least recommendations — for funding the bill. Some of the committee choices are:

• Transfering $3 billion from the general fund to the Trust Fund to tide it over untill October.

• Issuing $60 billion in Treasury bonds, to be repaid later.

• Increasing the per-barrel fee on crude oil and imported fuels to $1.08 from the current .08.

• Instituting a .2 percent transaction tax on trading of crude oil futures.

• Implementing other user fees, including doubling of the tax on “heavy vehicle use” and establishing a national car registration fee of $2.75 per car and $5.50 per truck.

• Beginning a transition to taxing of vehicle miles traveled rather than of the fuel consumed to drive them.

In deference to Americans struggling during a recession, the committee recommends that the fuel tax not be raised until after the recession is officially over (two consecutive quarters of economic growth).

Kavinoky shared with the subcommittee members some data purporting to show the impact of the nation’s deteriorating roadways and bridges on personal budgets. One study she cited reported that urban drivers spend $750 more a year on their cars because of rough roads.

“This nation cannot afford to wait for a solution, or to settle for the status quo,” she concluded.

Yet it looks like the nation will have to wait. Professional Congress-watchers expect legislators to bump the problem into 2010 or perhaps 2011. There seems little likelihood reauthorization of a highway bill will occur this year.

The Trust Fund probably will receive emergency funding. Weaver, for example, urged Congress to authorize another $7-8 billion “immediately.” The AGC chairman recommended that Congress “act hastily” to plug the Trust Fund hole, as it did last year.

“Here’s what I think probably will happen,” Klein said. “It is inevitable that we will have to have an extension and most of the talk is about an 18-month extension. We think that is too long. Kick it down the field maybe six months. Our concern is that if you make it 18 months, you start to get into the next presidential political season.”

Yet politics will color the process whenever the decisions are made, as the Chamber’s Kavinoky noted at the subcommittee hearing.

”The reauthorization of America’s surface transportation programs will not be a simple task,” she said. “However, the consequences of inaction and delay are just too great and the benefits of moving forward too considerable for Congress to abdicate …

“What remains is a matter of political will. This debate — particularly the revenue considerations it entails — will never be convenient. But matters of convenience are not what Americans ask of their leaders in Washington.”

True, but Utt nevertheless sees convenience driving the process. His study of the various committee proposals leads him to conclude that they are not something the Chamber probably would be able to support anyway, because they contain “no reform at all. Their existing proposals make it worse than it is already by adding new programs at more cost with no specificity about where the money is coming from.”

He believes the deal finally struck this session will be to extend the current authorization for 18 months. It could be worse, he added. “To continue with the existing law is better than anything else this Congress is capable of doing.”

There might still be some wiggle room on the length of an extension. Sen. George Voinovich of Ohio, the ranking member of the Transportation and Infrastructure subcommittee, has introduced an amendment calling for a 12-month extension. That could become a fallback position if enough resistance develops to the longer delay.

“They are going to get it done,” Klein said, without suggesting just when they might get it done. “They have to. But are they going to get it done the right way, with a sustainable revenue stream? If would be unfortunate if the way they went forward was to take money from the general fund and put it in transportation. That breaks down the user fee concept and leads to less predictability.

“That wouldn’t be the end of the world, but it would be unfortunate if they didn’t take this opportunity to get it done right.” CEG

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