Feds' Transportation Dollars Will Be Tight

If states had any doubt about how much transportation money they might be getting from Washington this year, recent events offered a good clue. First came positive news for states that want federal money. On Tuesday (Feb. 8), Vice President Joe Biden announced that the Obama administration would seek another $53 billion over the next six years to build high-speed rail projects.


But the bigger hint came from Capitol Hill, where Republicans control the U.S. House and where the announcement landed with a thud. "This is like giving Bernie Madoff another chance at handling your investment portfolio," chided U.S. Rep. John Mica, a Republican who heads the House Transportation and Infrastructure Committee.

Mica argued that the administration squandered opportunities in the 2009 federal stimulus plan to build a network of efficient high-speed rail routes, especially in the Northeast corridor. Instead, he said, the Obama administration picked projects where slower trains would run between distant cities, possibly attracting a small number of customers.

The divisions over transportation between Obama and congressional Republicans go well beyond high-speed rail. The president is trying to make the case that improving the country's entire physical infrastructure-including roads and railways but also high-speed Internet connections-will make America more competitive and generate jobs in the short term. But GOP lawmakers, whose numbers surged following the November elections, want to scale back federal spending across the board, and they are especially suspicious of Obama's emphasis on rail and transit.

The clash comes at a critical moment. Congress once again is slated to draw up a multiyear surface transportation package. It promises to be a difficult chore. The main source of federal money for transportation projects-the gasoline tax-has not kept up with the demand from states that want to build or repair bridges and highways. This year, too, most of the federal stimulus money that has helped states maintain roads during the economic downturn will run out.

Before the 2010 election, when Democrats had majorities in both houses of Congress, they still could not muster a compromise on a new surface transportation bill. The last major program expired in late 2009, and Congress has kept it going only through a series of temporary measures, the latest of which expires March 4.

"With the clear message of the November elections to tighten federal spending and begin to get the federal deficit under control, growing the program is no longer on the table," says John Horsley, the executive director of the American Association of State Highway and Transportation Officials . "The challenge we're going to have is protecting current levels of authorized spending so that we don't lose jobs… If you cut highway investment and transit investment, that is certain to kill jobs. That's our pitch."

Republicans in charge

It is not clear how the federal government can pay for a new round of transportation improvements.

The federal gas tax has not increased since 1993, and almost nobody expects Congress to touch it any time soon. Meanwhile, inflation, recession and a move toward more fuel-efficient vehicles have all worked to eat away at the buying power of the tax money collected at the pump. Congress twice has had to shore up the Highway Trust Fund with general treasury funds to keep the building program going. Even with the extra help, the trust fund is expected to run dry again by 2013 at the latest, falling far short of the money needed to sustain a five- or six-year building plan.

Indeed, Congress appears to have almost no appetite for raising new revenues, particularly in the House, where all tax proposals must originate. The Republican Study Committee , a group of 175 conservative House members, is calling for a $2.5 trillion reduction in federal spending over the next decade. The plan would eliminate federal funding for Amtrak and new mass transit projects. The cuts would be "body blows" for the respective programs, Horsley says.

The group's recommendations are unlikely to become law in their present form, but congressional budget writing committees are taking a look at reducing all federal funding to the level of several years ago. That, too, would be a blow to transportation.

Uncertainty over the path Congress will choose makes it hard for state agencies to plan for the upcoming construction season. State transportation departments are also waiting for their individual legislatures to make budget decisions. Without knowing how much money they have to spend, most state agencies will not award contracts for projects and may not even ask for bids, Horsley says.

The most likely scenario is that Congress will approve another short-term extension of transportation funding before the current plan expires in March. Then, after a series of hearings across the country, federal lawmakers will draft a six-year plan, says Justin Harclerode, a spokesman for Republicans on the House transportation committee.

It is still unclear whether either the short-term extension or the longer plan will include cuts in money to the states, Harclerode says. (An initial plan from the budget-writing committee, however, would cut high-speed rail by $1 billion by October, the end of the federal fiscal year.) The final numbers in the transportation package, Harclerode says, will depend on how much private capital can be raised to go along with federal tax money. In other words, public-private partnerships.

More private funds?

This year could see a "resurgence" of those arrangements, predicts Sean Slone, a transportation policy analyst at the Council of State Governments . The Republican enthusiasm in Congress for public-private deals is only part of the reason why.

States have little money to put into transportation. Most are coping with budget deficits for core functions such as paying for schools and health care for the poor. So they do not have money to make up for smaller payments from Washington for transportation, or for the diminished buying power of their own gasoline taxes. On top of that, Slone argues, the public in many states is no longer as afraid of public-private partnerships as it once was. As ventures like the leasing of the Indiana Toll Road and public-private operation of the Dulles toll road in Virginia have become more common, Slone says, state officials have become more comfortable with the idea, too.

While most of the potential partnerships deal with toll roads, bus systems are another possibility. Public-private deals for high-speed rail between cities seem less likely, although the chairman of the U.S. House railroads subcommittee and other lawmakers from the Northeast are exploring the possibility of using that form of financing in their region.

Private investors have a surplus of capital and not enough opportunities to invest it, according to D.J. Gribbin of Macquarie Holdings , which owns more than $300 billion worth of infrastructure, Last year, investors showed their willingness to get involved, laying out more than two and a half times as much money as they did the year before, he said at a recent transportation conference in Washington, D.C. But the money went to a smaller number of projects, which happened to be bigger in size, because that was all that governments offered, Gribbin says. 

Public-private partnerships will not be able to help every state, warns Horsley of AASHTO. "If you're a rural state like Vermont or Wyoming, you just don't have the traffic volume to make tolling or public-private ventures funded by tolls work out," he explains. "Rural states especially depend on fuel tax-funded resources, and tolls and these equity contributions from big banks doesn't help them much."


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