Congress DOT Finance

To Ensure Continued Funding, Limiting Expectations on Federal Transportation Reform

» Brookings’ Robert Puentes offers up a two-year reauthorization bill to quell conflict in the Congress over paying for transportation.

After two years of discussions about how to reform the system by which the federal government distributes transportation funding, the debate remains stalled: There is no consensus in Washington on just how much should be spent on transportation, what modes should be financed, and how revenue for the program should be collected. Though then-Chairman of the House Transportation and Infrastructure Committee James Oberstar (D-MN) in 2009 proposed a $450 billion six-year bill, his initiative was ignored by the U.S. Senate and put off by the White House, which had other priorities. Highway and transit funding have been put on life support, financed through $34 billion in infusions from the general fund to support short-term extensions of the SAFETEA-LU bill first passed in 2005.

The arrival of a new Republican majority in the House of Representatives complicates the matter further, as that caucus has been even more hostile to tax increases than the Democrats once in control. There is virtually no interest on either side of the aisle for a fuel tax increase to pay for better transportation infrastructure. And the Obama Administration’s focus on livability and high-speed rail — two features once expected to be featured in any new transportation bill — is not shared by many conservatives, forcing the question of how a compromise bill can be structured to support both Democratic and Republican priorities, especially in the run-up to the 2012 presidential election.

Robert Puentes, Senior Fellow at the Brookings Institution, has introduced a new proposal that attempts to skirt around the problem by implementing a two-year transportation reauthorization bill that relies on existing funding alone and makes only minor changes to the manner in which corridors are financed. Not coincidentally, it would come up for reconsideration only after the 2012 elections. This plan, though so far not endorsed by any members of Congress, nevertheless represents a potentially fertile ground for compromise and could guarantee federal support for transportation investments until at least 2013.

Puentes notes that existing funding for transportation, including receipts from the fuel tax and the infusions from the general fund, should be adequate to maintain existing levels of federal spending until 2013. Therefore, he argues that the question of how to increase those expenditures in the long term (vitally necessary) should be put off until the political storm has passed.

In the meantime, the two-year reauthorization, which Puentes has labeled SAFETEA-TWO, would make minor improvements to the existing law. Metropolitan areas that invest in their own transportation systems such as through the implementation of local-option sales taxes would receive incentives. Highway trust fund dollars distributed automatically to states by formula would be transferable to pay for rail operations. The government would streamline distribution of government infrastructure financing programs such as TIFIA, Private Activity Bonds, and Railroad Rehabilitation and Improvement Bonds, allowing interested bodies to apply for more than one program at the same time. Big, multi-corridor projects such as L.A.’s 30/10 program — currently split up into a number of pieces, limiting their potential implementation — would be fundable through the structure. Public-private partnerships would be encouraged through a special office. And out-of-date programs like the Appalachian Development Highway System would be put to rest.

Puentes also suggests that the Obama Administration’s discretionary transportation funding programs — including TIGER and high-speed rail grants — are not adequately transparent and should be altered to encourage the use of performance outcome measures and cost/benefit analyses. Of course, the new Republican House majority has not laid out its particular interest in extending the lives of those programs. Keeping money flowing for highway construction seems thus far to be the main priority.

On the whole, these are all reasonable ideas: They would provide marginal improvement in the manner in which transportation dollars flow from Washington and they would offer states the assurance that their highway and transit funding is guaranteed — at least for the next two years. They would also set the standard for the next transportation bill, incorporating objective standards to judge the best investments for any one corridor.

The basic principle underpinning Puentes’ plan — that passing a full new transportation bill now is too politically difficult — is hard to dismiss. TEA-21, which preceded SAFETEA-LU, was extended 12 times over the course of almost two years, so there is precedent for delaying action on transportation legislation. But is there a substantive enough difference between the “reauthorization” he is proposing and the extensions currently being passed by the Congress? Is it worth spending potentially months negotiating the outlines of a bill that would be in effect for only two years and that fails to resolve the more basic problems facing the U.S. transportation system, namely a lack of adequate funding?

Puentes’ proposal does advocate funding further research into alternative funding mechanisms, like a vehicle miles traveled fee. And it suggests that a long-term bill to be passed in 2013 incorporate two programs, one focusing on maintenance of the existing system and another on expansion of the system. But it is hard to see how passing a two-year reauthorization would reduce the conflict between the parties about how to fund transportation and what transportation to fund. After all, no matter what happens in the 2012 elections, there will still be disagreements about increasing taxes, and there will remain questions about whether to invest more in highways or transit. These problems will be unresolved.

Nonetheless, a two-year reauthorization may be the only feasible option for now, as the Congress seems likely to spend most of the next two years fighting over what programs to cut to pay for to the just-agreed-upon $858 billion federal tax cut, seeing as how revenue increases are on no one’s agenda. Serious thinking about improving the nation’s transportation infrastructure will be delayed.

23 replies on “To Ensure Continued Funding, Limiting Expectations on Federal Transportation Reform”

This country deserves to have its transportation infrastructure rot.

I cannot fathom the thinking that views $858 BILLION in tax cuts (a good percentage of which is for the rich and puts Social Security on the fast track to insolvency) as more beneficial for the economy than a comparable investment in much needed infrastructure.

This nation is screwed in so many ways.

Okay, so the Social Security trust fund will start running deficits a few months sooner. It’s not a huge deal. I’d be more worried that the payroll tax cut and other stimuli expire after a year while the Bush tax cuts expire after two years.

I like the idea of letting Highway Trust Funds be used for transit/rail or highways. That’s a common sense and practical way to make things balanced and give cities more options and it’s a wonder that it’s not already allowed.

It will become politically unpalatable to let the payroll tax cut expire in two years, as right-wingers will frame it as a “tax hike.”

Thus the lowered tax rate will remain indefinitely thus leading to an earlier insolvency state for Social Security, hastening its long desired demise by the corporate establishment.

Because all Federal spending right now involves “borrowing” cash from the Social Security trust fund. Social Security isn’t short steps from collapse, but the social consequences of looting the fund are that the cash fuels a false debate. It’s not “big government” versus the teabaggers. It’s an entire country demonstrating a fundamental inability to sit down and address real problems. When “conservatives” point their fingers at various European states, trying to identify them as “socialist” spendthrifts, they fail to mention that countries like Greece, Spain, Portugal and Ireland have spent huge amounts of money on infrastructure. All have done far more than the US to invest public money in public assets. Spain is perhaps the best example of this, and I have yet to hear one teabagger cite Spain’s investment in rail as some “socialist” indulgence. They don’t do it because they know their arguments are far too weak, not to mention being plainly wrong.

If you look at a country’s GDP, and you look at its overall approach to both taxation and spending, you can get a good picture of the country’s concept of responsibility. In Sweden, you may see 50% of your personal income go in taxes; that includes public pension, and healthcare, and all the other things government does. Sweden isn’t a spendthrift, and Swedish services are not the “socialist” giveaway that Fox News and the teabaggers would have you believe (imagine MTA contracting out all of New York’s transit operations). Sweden does not typically run a large deficit. In the US, we have two wars which we don’t even include in the budget. We borrow money from a pension fund to cover current expenditure. We don’t invest in infrastructure, and what investments we do make are motivated more by politics than by careful consideration of the best interests of both the economy and the taxpayer. We run shrieking about “Obamacare,” yet Medicaid is by far the largest medical insurer in the country (and far better run than nearly all private health insureres, especially since Blue Cross began converting from mutual companies to stock corporations). Sweden has been on and off a couple of times on a rail tunnel on the west coast, but it’s definitely going to be completed–even with its cost overruns. The US can’t manage to build one new double-track tunnel under the Hudson River, despite the fact that the new tunnel would be well-used from the day of opening.

Social Security is a bellwether. It’s an indicator of a country that refuses to take seriously the business of government. In theory–and it’s a theory taken very seriously in other countries–one of government’s basic responsibilities is to create a stable environment for business, which includes infrastructure investment to facilitate commerce. Another basic responsibility is creating a social safety net, which allows individuals to weather economic downturns without losing everything, and which also dampens populist impulses against business. All of this is why somebody would make a connection between Social Security and transportation funding. Raiding Social Security is irresponsible and self-indulgent, and it’s fully consistent with the current American approach.

The two are connected because the common argumnet against infrastructure funding is “where will the money come from?” But Congress just passed a two year tax cut bill that costs $858 BILLION. Not one peep from the media or political establishment about how this extravaganza will be funded.

At least with infrastructure spending there are visible, tangible benefits to the funding that have measurable economic impacts (jobs created, reduced travel times, increase in land values, etc).

“But Congress just passed a two year tax cut bill that costs $858 BILLION.”

The common argument is that that money belongs to the people who earned it and therefore a tax cut doesn’t “cost” anything.

I think it is more accurate to say that the money is better spent on infrastructure than letting workers keep their own money. After all, our robust but deteriorating infrastructure helped the wealthy amass those fortunes, therefore they should be expected to help maintain and upgrade it.

The common argument is a lot stupider than that – it also assumes tax cuts don’t add to the deficit, based on the theory of a crank (Arthur Laffer) and a couple of people who aren’t published in the relevant field but want the crank to be right so that their taxes get cut (Greg Mankiw).

The Laffer curve was decades ago, I vaguely remember the theory was that there was as “sweet” spot that gets maximum revenue from the lowest taxes. Which is somewhat different than “lower taxes mean more revenue” Take that to the extreme, if the government stopped collecting taxes altogether it would have the maximum amount of revenue. Not that the current crop of Republicans can grasp any of the above.

Laffer’s theory is that the optimum marginal income tax rate is in the 20s or low 30s; above it, tax cuts should increase revenue. (Real research on the subject published by actual experts in peer-reviewed journals puts the number on the far side of 80%.)

Yes, the Laffer Curve was based on the idea that at 0% and at 100%, you’d get $0 tax revenue, so that as you raise the tax rate, you have to get to a point where tax revenue starts falling. Then he’d draw the curve so that current tax rates were above the max revenue point and voila.

When illustrations were drawn in the 80’s, the rates where the max tax revenue were placed were pure politics with no empirical backing, and as Alon notes, the empirical research tends to put it well above 50%.

well….. real people earning actual money would rather have 50 percent ( or even 20 percent ) of something than 100 percent of nothing. Earn more money at your high marginal rate you still bring something home. Choose to not earn it and you get nothing. . . I really want to have the problem of being in a high marginal tax bracket. I really really do. Or have the terrible problems faced by people who may or may no be subject to the AMT. … I should have such problems….

Indeed, since the money was earned in part through the use of physical and social infrastructure maintained by government, and in a complex society most means of earning a living would fall apart without some form of community level decision making, the idea that income is somehow independently earned by anybody is a fiction. In a modern economy, no man is an island.

Yes imagine driving to work if the government decided to stop paving roads, maintaining traffic signals and signs and laid off all the traffic cops….

Maybe the roads and services people use to get to work should be the responsibility of local/state/regional governments and authorities. Maybe we should leave only those that primarily carry interstate commerce to the Feds to fund.

Might make this intractable budget puzzle a bit easy to negotiate.

What you’re proposing is already in large part in place. The federal gas taxes fund numbered national and state routes, but (by and large) not local urban roads. Over the decades those rules have been relaxed, so that many gas tax-eligible roads are regional and there is some federal funding for urban roads, but the interstate anti-urban bias still persists.

It’s a recipe for the end of federal involvement in transportation spending. And that’s a dangerous trend for the future integrity of our country. Our political leaders, especially the Republicans, are playing with fire; the more the federal government becomes a deal with no positive benefits, the more individual states will come under pressure to look beyond the United States to some other arrangement. And with their obsession with obstructing and downgrading domestic policy and deficit-funding military adventures and establishment featherbedding, conservatives are putting us on the same kind of fiscal track that Brezhnev put Soviet Russia in the 1960s and 1970s, and we all know how that ended.

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