“NO” on Highway and Transportation Funding Act of 2014 (H.R. 5021)

On Tuesday, the House is scheduled to vote on the Highway and Transportation Funding Act of 2014 (H.R. 5021).  Introduced by Rep. Dave Camp (R-MI), the bill would inject $10.8 billion into the federal Highway Trust Fund (HTF), marking the fifth bailout of the HTF since 2008.  The bill would offset the additional spending over the next decade through a series of revenue raisers, budget gimmicks and budget transfers.  It would also extend existing surface transportation programs until May 30, 2015.

Excessive spending levels set by highway bills enacted in recent years, and many spending diversions to non-road, non-bridge activities, have put the HTF on an unsustainable path. The aforementioned bailouts — which violated the user pays, user benefits principle that has long defined the federal highway program — were predictable and promise to be more frequent in the future.  According to the Congressional Budget Office:

“[O]utlays will exceed revenues by an estimated $167 billion over the 2015–2024 period if obligations from the fund continue at the 2014 rate (with adjustments for future inflation) and the expiring taxes on fuels and heavy vehicles are extended at their current rates.”

In 2011, the House Transportation and Infrastructure Committee proposed a plan that made clear the status quo was unsustainable.  “Congress must align its spending with the amount of revenue collected,” the committee wrote in their widely touted proposal.  The proposal continued:

“Driving the Trust Fund into bankruptcy may result in once again having to rely on general federal revenues and the unpredictable annual appropriations process for transportation funding. This will eliminate the necessary stability the Trust Fund provides states and transit agencies. … We must maintain the long-term viability of the Highway Trust Fund and ensure that the federal government stops spending money it does not have.”

For a variety of reasons, though namely a desire by Congress to spend in excess of revenues, the committee’s plan was discarded in favor of the Senate’s plan, which spent 42-percent more per year.

There is no economic danger in rejecting the proposed bailout and returning to the 2011 principles outlined by the House T&I committee.  The Heritage Foundation’s James Sherk explained the “700,000 jobs at risk” number floating around is the result of the White House “estimating a ‘multiplier’ effect from federal transportation spending.”  In reality, less than 300,000 Americans work in highway, street, or bridge construction.  Nor will there be a “shutdown,” as The New York Times recently noted:

“Because Washington funds about a quarter of road and transit spending, a 28 percent cut to the federal share is a 7 percent reduction to spending over all.”

Additionally, the bill offsets its ten months of spending over a ten-year period, increasing spending in the near-term with no certainty the funds will ever be fully recouped.  Specifically, the bill increases revenue by $6.4 billion through a mechanism called pension smoothing, which increases employers’ taxable income by changing the calculation used to minimum pension contribution levels to some employees.  The disdain for pension smoothing is broad based.  The Committee for a Responsible Federal Budget calls it “phantom savings” and “merely illusory.” The Heritage Foundation warned it “would merely shift tax revenue from the future into the present while destabilizing pensions even further and increasing the risks of a taxpayer pension bailout.”

Another $3.5 billion comes from a one-year extension of customs user fees.  The authority is scheduled to expire in 2023, but there is no question that authority will be extended at that time with or without this bill.  When first enacted in 1985, the fees were “permanent,” meaning they did not have an expiration date.  A year later they were made “temporary” and given an expiration date of 1989.  Since then, the fees have regularly been extended, often times well in advance to serve as a budget offset.  This is a scoring change (simply extending policy through the budget window), not a policy change.

An inability to control spending combined with costly regulations that inflate the cost of projects has rendered the HTF model functionally obsolete.  With each bailout, the link between highway spending and gas taxes is degraded, making it increasingly difficult to enact structural reforms that turn over the federal highway and transit programs to the states, so they can manage their transportation needs without Washington bureaucrats.

As Heritage Action’s chief executive officer Michael A. Needham noted earlier today:

“Instead of governing by emergency fiat and continually kicking the can down the road, conservative reformers have an opportunity to focus their colleagues and their constituents on a real solution — putting more of this authority in the hands of states and localities and actually reforming highway policy.

“There is an undeniable appetite for reform.  Dozens of members, including four members of the Transportation and Infrastructure Committee, have cosponsored TEA and many more are taking a close look or working on their own alternative.  Each “no” vote on Tuesday brings those reforms closer to reality because it signals the inevitable end of the bankrupt status quo.”

Heritage Action opposes H.R. 5021 and will include it as a key vote on our legislative scorecard.

Heritage Action Scorecard
Federalist: Republican Should Stop Bailing Out the Highway Trust Fund
Highway Funding: Is 7 Percent a Crisis?
Highway Funding: 700,000 Lost Jobs?
Another Highway Bailout
Four T&I Committee Members Co-Sponsor Conservative Transportation Legislation (H.R. 4386)
Heritage: Bringing Transportation Decisions Closer to the People: Why States and Localities Should Have More Control