FROM THE EXPERT:
The Road to Dwindling Transportation Budgets
By Sean Slone, CSG Transportation Policy Analyst
With high gas prices prompting many Americans to cut back on driving this summer, states are finding that their two main sources of transportation funding are drying up.
That threatens to delay or bring to a halt ongoing work on roads, rails and bridges around the country and potentially lead to the loss of thousands of jobs. The declining revenues also come at a time when costs for asphalt and other construction materials are straining state transportation budgets. The cost of asphalt alone is up 25 percent to 30 percent this year, while construction inflation is up 40 percent over the last three years.
Federal and state taxes collected on each gallon of gasoline go into both the federal Highway Trust Fund and state road funds. But those revenues are dropping precipitously as Americans cut back on their driving. Vehicle miles traveled on the nation’s roads fell in May by 3.7 percent from a year ago, the seventh consecutive month of year-to-year decline and ninth in the last 12.
The $40 billion Highway Trust Fund is already projected to run out of money before the start of the next fiscal year—which begins Oct. 1—and the recently declining revenues are exacerbating the problem, analysts say. However, the White House Office of Management and Budget in late July actually estimated a shortfall of $3.1 billion for the 2009 fiscal year, a slight improvement over the $3.2 billion shortfall projected in February. U.S. Transportation Secretary Mary Peters said that’s because the federal government has been spending more slowly than they contemplated when the budget was put together.
Nevertheless, states are understandably concerned about the impact of declining revenues and
Stateline.org reported in July that no state is immune to the problem. In Nevada, state highway revenues are projected to drop 11 percent from a year ago. In Oklahoma, revenue has plunged 30 percent compared to last year since a portion of the state’s highway fund comes from a sales tax on new cars and people are buying fewer cars in the sluggish economy. And in West Virginia, lawmakers recently voted to shore up the state road fund by $40 million to offset declining revenues from state gas taxes.
Federal legislation to address the shortfall in the Highway Trust Fund was passed by the U.S. House of Representatives in July. H.R. 6532, the Highway Trust Fund Restoration Act, would restore $8 billion in highway user fee revenues that were transferred to the General Fund in 1998, when the highway fund had a surplus. The bill has now been referred to the Senate Finance Committee for consideration.
CSG expressed its support for the legislation in a letter to chairman Max Baucus and ranking member Charles Grassley. It is hoped the bill would prevent a potential $14 billion cut in federal highway investment and the loss of nearly 380,000 jobs.
But President Bush has threatened to veto any legislation that exceeds his proposed budget. Peters has said that one possible short-term solution would be for the Highway Trust Fund’s highway account to borrow money from the fund’s mass transit account. Public transportation advocates call that “robbing Peter to pay Paul” and say it would reduce the mass transit account to the point where there wouldn’t be enough to fund the federal transit program even at the current level in 2010.
Peters also proposes a longer-term solution involving a new arrangement of paying for highways, based on private capital financing and use of tolls that vary by time of day. Peters also wants to give states more flexibility in setting spending and to make it easier for them to tap private sector dollars.
Meanwhile though, states are struggling to find answers of their own, often having to divert money from new road improvement projects to basic maintenance of existing roads. The situation could only get worse for states if the Highway Trust Fund is allowed to run out of money and if new revenue sources are not found. It all sets the stage for next year, when Congress will consider a renewal of the federal highway program for the next five years.