States Worry About Dwindling Road Funds
By Stephen C. Fehr, Staff Writer
(Updated 12:30 p.m. EDT, July 24, 2008)
The two main sources of state transportation money are falling precipitously this summer as Americans cut back on driving, threatening to delay or halt crucial work on roads, rails and bridges and breeding an election-year issue for Congress and the presidential candidates.
Both the federal Highway Trust Fund and state road funds rely on federal and state taxes collected on each gallon of gasoline, but revenues are dropping because people are not buying as much gas now that prices top $4 a gallon. The slippage exacerbates a looming crisis with the $40 billion federal highway fund, already projected to run out of money before the start of the next budget year Oct. 1.
Even before oil prices spiked, many states were struggling to finance a backlog of highway and transit projects. Now, not only are states' share of federal road dollars in danger of running short and their own gas tax revenues falling, but they also are paying record prices for petroleum-based materials for building and maintaining roads and bridges. Virginia officials are spending $688 for a metric ton of asphalt this summer, up 272 percent in five years.
"I've never seen a perfect storm like this," said Jack Basso, who has spent 43 years as a federal transportation official and a top executive at the American Association of State Highway and Transportation Officials (AASHTO).
No state is immune. Not counting federal dollars, Nevada's highway revenues are projected to drop 11 percent from a year ago. A portion of Oklahoma's highway fund comes from a sales tax on new cars, but because people are buying fewer cars in a slowing economy, revenue has plunged 30 percent compared to last year. West Virginia lawmakers recently voted to stash $40 million in the state road fund to offset an anticipated decline in revenue from state gasoline taxes.
"Every state has a similar story," said Virginia transportation secretary Pierce Homer.
The immediate concern for state transportation directors and governors is the fate of the federal Highway Trust Fund, from which states receive money to carry out the federal government's road and mass-transit programs. States must put up a share of their own money to qualify for matching federal road dollars.
Bush administration officials estimated in February that the fund would have a $3.2 billion deficit on Oct. 1 because spending is growing faster than revenue. New estimates of the shortfall are expected by the end of the month. On July 28, federal highway officials are scheduled to release new figures showing a seventh straight monthly decline in the number of miles people are driving.
An even bigger shortfall would upset already anxious state officials. States manage big construction projects over long periods of time, obligating a portion of the overall cost each year, so it is important to keep the federal money streaming in.
They are pressing Congress to rescue the federal highway fund before Oct. 1. Any vote could involve the senators running for president, John McCain (R-Ariz.) and Barack Obama (D-Ill.), as well as lawmakers up for re-election.
Governors and state transportation directors have known for months that the federal trust fund balances were falling. What caught many state officials by surprise was $4-a-gallon gasoline, which caused a drop in their own state highway funds as people started buying less gas.
Like the Highway Trust Fund, which derives most of its money from the 18.3-cent-a-gallon federal gasoline tax, state highway funds also are heavily dependent on revenue from state gasoline taxes, which average 18.4 cents a gallon nationally. Many states also funnel money from the sales tax on new car purchases and registrations into their state highway funds. Car sales are down this year, too.
The rise in gasoline prices could not have come at a worse time for many states. Illinois and Virginia lawmakers have held special sessions this summer devoted to financing new infrastructure plans. Idaho Gov. C.L. "Butch" Otter (R) traveled to three cities this month to build a case for revenue increases to close a $240 million shortfall for transportation projects. Some states socked by destructive floods last month will need expensive road and bridge repairs; nine major highways in Iowa were still closed last week because of flood damage.
A congressional plan to cover the $3.2 billion gap in the trust fund faces opposition from President Bush. The chairmen of Congress' two money committees, Sen. Max Baucus (D-Mont.) and Rep. Charles Rangel (D-N.Y.), support rescuing the highway fund by borrowing $8 billion from the government's general fund, which pays for day-to-day operating expenses.
The amount was pegged to the $8 billion that Congress donated to the general fund in 1998 when the highway fund had a surplus.
"In 1998, it was believed that we didn't need the money for highway investments," said Sen. Patty Murray (D-Wash.). "Well, we definitely need it now."
The House voted by a veto-proof margin July 23 to divert $8 billion for highway projects next year. But Baucus' attempt earlier in the Senate to tack the $8 billion onto an unrelated aviation bill was blocked by Sens. Judd Gregg (R-N.H.) and Jim DeMint (R-S.C.), who branded the move a "bailout" of the highway trust fund.
Gregg, DeMint and other lawmakers contend that Congress has wasted billions of dollars from the trust fund on dubious pork-barrel projects for home districts and that the same thing would happen to the extra $8 billion.
Many lawmakers and interest groups predict the matter will wind up in Congress' end-of-the-year catch-all spending measure extending current funding levels into January. Politically, they say, Congress cannot afford to allow the Highway Trust Fund to run out of money. Deep cuts in the federal transportation program would be disastrous in an economic downturn, argue key interest groups such as AASHTO, which estimates 400,000 jobs could be at stake.
Even if Congress approves the $8 billion, Bush has threatened to veto any legislation exceeding his budget. The Bush administration says the highway fund problem is a cash-flow issue that acting Federal Highway Administrator James Ray said can be remedied by advancing funds from the mass-transit account.
Ray recently confused some state transportation officials, they said, by telling them to continue spending their federal transportation money although the highway agency could only pay bills "as cash becomes available."
"That's like saying we're good for the money, but we can't tell you when we'll have it," said one state transportation secretary, who asked not to be named because he must work with Ray.
Despite the uncertainty, state transportation officials say they are proceeding as if Congress will come through with the money. Otherwise, construction projects will veer off schedule.
"We're moving forward," said Nevada transportation secretary Susan Martinovich. "I've got to plan ahead because project delivery takes so long. If we hold up on that, we're behind the curve."
Looming next year is a potentially bigger fight in Washington, D.C., over renewal of the federal highway program for the next five years, including whether there is too much reliance on gasoline taxes as the main source of money.
"We do believe ultimately Washington will find a way" to close the Highway Trust Fund gap, said Vermont transportation secretary Neale Lunderville. "Our economy runs on our transportation system. I can't believe we would stop projects and put people out of work."