Cliff Dwellers, Is This a Big Deal?

This post was originally published on National Journal‘s Transportation Experts Blog. You can read the full forum here.

Background and Question

Cliff metaphors abound these days, thanks to our members of Congress. In my travels, I’ve run across the deportation cliff, the human cliff, and yes, the transportation cliff. (Thank you, Rep. John Mica, R-Fla.). To be clear, there are two cliffs in the transportation world. There is the “fiscal cliff,” which would result in an overall cut of about 8 percent in federal funds. That impact on transportation isn’t clear, although it would certainly be a blow. The National Air Traffic Controllers Association says that could result in a furlough of 2,000 to 2,200 air traffic controllers, which could ultimately result in fewer flights. Then there is the approaching 2014 sunset of the surface transportation law, which seems far away but is still of concern for state transportation officials trying to plan out their budgets for major projects. Don’t expect action on that one anytime soon, although lawmakers say they’re ready to get going next year.

Still, the economy for transportation is picking up slightly. Last week, the American Road & Transportation Builders Association released their 2013 forecast of the construction market, predicting modest growth from $126.5 billion to $130.3 billion. That’s not bad, all things considered. Even more interesting is that ARTBA’s economists say the “major wild card” of the fiscal cliff would only impact transportation investment indirectly. That’s not to say the impact couldn’t be dire, but at this point it can’t be quantified. All we know is that state and local governments may be forced to pull back on some projects and that individual businesses may delay capital investments or hiring because of uncertainty. President Obama has asked for $50 billion to invest in infrastructure as part of a cliff deal, although that request has been repeatedly shunned by lawmakers. It’s easy to see them shunning it again. But if they wind up getting a fiscal cliff deal anyway, the DOT’s TIFIA loan program will probably hum along smoothly, as will the regular federal funding mechanism. All will be well, right? People in Washington D.C. are obsessed with the fiscal cliff, but let’s move the discussion beyond that. What are other risk factors to infrastructure in 2013? What is the best prediction of how the fiscal cliff negotiations could impact transportation? How important is it for the construction industry to watch Congress next year? Where will the infrastructure economy grow? Where will it shrink?

Response

Do Better With What’s Available

By Emil Frankel

While federal transportation funding is less directly affected by the looming “fiscal cliff,” there could be impacts on transportation, resulting from the outcomes of broader policy considerations of budget deficits, spending cuts, and comprehensive tax reform. Despite the existence of a dedicated revenue stream, a trust fund, and contract authority — all of which makes most federal transportation funding largely immune to the direct impacts of the sequestration, scheduled for January 1, 2013 — a condition of constrained public resources for infrastructure investment is likely to remain the dominant “fact of life” for the transportation sector for many years.

For the foreseeable future, the level of transportation funding is likely to remain stagnant, as the proceeds of federal motor fuels taxes, on which surface transportation programs depend, decline. Over the last three or four years almost $35 billion has been transferred from the general fund to the Highway Trust Fund (HTF), in order to keep HTF solvent, and to maintain the program levels authorized by SAFETEA-LU. For the 27-month life of MAP-21, another almost 20 billion is to be similarly transferred from the general fund to HTF. In the current fiscal situation, it is difficult to imagine that further such transfers can be sustained.

Despite these fiscal pressures, investment in the nation’s infrastructure (including, but not limited to, transportation assets and networks) is critically important to the economic recovery, on which the nation’s competitiveness, long-term job growth, and fiscal balance ultimately depend. However, adequate investment requires the establishment of sustainable, user-based revenue streams for transportation. To that end, discussion of extending and increasing (and indexing) the federal gasoline tax should be part of the discussions of a fiscal “grand bargain,” as recommended by both the Simpson-Bowles Commission and, more recently, by the Domenici-Rivlin debt reduction task force of the Bipartisan Policy Center (BPC). These discussions should also be the forum for the consideration of the long-term replacement of the gasoline tax with more sustainable, reliable, and appropriate mileage-based user fees.

Will establishment of sustainable revenues be part of the discussions over the fiscal cliff and of the grand bargain in the next few months? If it is not, we are unlikely to see these issues addressed by the Administration or Congress in the next year or two. That political reality makes it more important, than ever, that the new Congress build on the performance-based reforms of MAP-21, as it considers the new surface transportation authorization legislation that will be necessary on the expiration of MAP-21 on September 30, 2014.

While we cannot do more with less, it is urgent that we do better with the public capital that will be available for transportation infrastructure investment in the next few years and that we invest in those programs and projects that will bring the greatest benefits and economic returns. Like the establishment of sustainable revenues for transportation investment, the principles of goals, outcomes, performance, and accountability need to become the key elements of federal transportation programs, even in — indeed, especially in — an environment of scarce resources. That is the new reality.

Related Posts

• Absent Programmatic Reforms, Cutting Transportation Funds is Shortsighted September 19, 2012
• A ‘Grand Swap’ For Transportation Funding August 7, 2012