Politico: Highway fund stares into the abyss

This is a story from Politico.

By Adam Snider

3/26/14 4:17 PM EDT

The federal trust fund that pays for road, bridge and transit projects is on the verge of entering unknown territory: going dry.

Unless Congress acts, the Highway Trust Fund will start running out of money in July for the first time in its 58-year history, with no real precedent for what happens next. But the likely possibilities are ominous, including furloughs of employees in federal safety agencies and sharp cutbacks in the checks that the Department of Transportation sends to its state-government counterparts.

State DOTs would in turn have to cut or curtail their own projects, triggering job losses during the peak months for road work.

“We have the potential of missing an entire construction season,” said Michael Lewis, director of the Rhode Island Department of Transportation.

His state’s only funding program for roads and bridges is one that matches the federal program, which typically pays for 80 percent of a project’s cost. If the federal money stops flowing, Lewis said, “We’ve got nothing.”

That’s one message he’ll deliver when he testifies Thursday at a Senate hearing on the new transportation bill that Congress must pass by Sept. 30.But the highway fund will need rescuing months before then, based on the government’s latest estimates, although DOT doesn’t know exactly when the money will run out.

Former Transportation Secretary Ray LaHood, who served for five years under President Barack Obama, warned that an empty trust fund would “cause a complete calamity in transportation and infrastructure funding.” It would be “a total dereliction of congressional leadership,” he said in a comment to POLITICO.

The reasons for the depletion have been long in coming: Congress hasn’t raised the gasoline tax in 20 years, allowing inflation to erode the amount of construction work that the levy buys. More fuel-efficient cars and the economic downturn have cut into how much money the gas tax raises. And while the fund has come close to running out several times before, it’s never truly gone broke.

DOT officials readied for a depleted Highway Trust Fund in 2008, warning states that their reimbursement checks would be pro-rated and come less often. Congress heeded the call then, moving quickly to approve an $8 billion bailout.

But several more bailouts totaling tens of billions of dollars later, it’s not clear if the gridlocked Congress could pull off the same feat this time.

Failing that, DOT has few options.

The 19th century Antideficiency Act means the fund can’t run a deficit, and DOT can’t control the money coming in. So the department is left with implementing a simple budgeting philosophy: Spend only what you have, matching outlays with income.

The pay-as-you-go approach would affect the daily reimbursements sent to states that have already paid upfront for projects under construction. Payments might come less often and be trimmed, but DOT wouldn’t actually “bounce checks” — despite what Transportation Secretary Anthony Foxx has said as he continues to urge lawmakers to find the needed money.

Department officials have two options if the balance hits critically low levels, and neither is attractive to states. If the fund has only 85 percent of the money needed to pay for projects, for example, it could either fully fund 85 percent of the projects or could give all projects 85 percent of their needed amounts. DOT could also blend the two approaches.

The cuts could entail scaling back the daily reimbursements to several times a week, which can affect cash-flow for states that have already spent the money. The effects would be especially large for states that rely heavily on the federal program, such as sparsely populated Western states that have tens of thousands of miles of roads but few people paying the gas tax.

Employees of the Federal Highway Administration and the Federal Motor Carrier Safety Administration are also paid from the trust fund, as are some staff at the National Highway Traffic Safety Administration. Furloughs could be on the table, meaning reviews of new highway projects and key truck and car safety programs could grind to a halt.

Depletion of the trust fund would come as a one-two punch. The highway account that pays for road and bridge projects should run out in July, while the transit account will survive into the next fiscal year — but not long after.

DOT will have to act well before the fund’s balance hits zero, however. Officials estimate that the highway account needs about $4 billion in cash liquidity to maintain timely spending, and the transit account needs $1 billion. If the balances dip below that recommended cushion, the agency will have to act.

To top it off, DOT doesn’t even have up-to-date numbers on how much is in the fund and doesn’t know when zero day will arrive. The latest estimate says late July for the highway account, but that’s several weeks earlier than predicted in February. DOT officials know how much they send each day to states, but the Treasury Department updates the fund’s income only every quarter.

And sometimes Treasury gets it wrong, two former top DOT officials said.

The government typically collects one large check from oil refineries — the ones actually paying the gas tax — that includes items like Social Security, payroll and other taxes on top of the fuel excise tax. Treasury then estimates how much is earmarked for the Highway Trust Fund, and later reconciles earlier guesses against production numbers and other data from refineries. Sometimes that means DOT gets less money for the highway fund than it thought earlier in the year.

The Congressional Budget Office has offered two scenarios to bring the trust fund back into line in the long term, neither of which would sit well with lawmakers: Eliminate virtually the entire $51 billion road and transit program for the upcoming fiscal year, or boost the 18.4-cents-a-gallon gas tax by 10 cents. The official congressional scorekeeper projectsthat the fund will be $13 billion short through 2015, with the figures skyrocketing in later years. Just 5½ years from now, it will be $95 billion in the red.

“The administration has repeatedly called for increased infrastructure investment to avoid such a situation,” DOT said in a statement noting the administration’s four-year, $302 billion proposal in the president’s budget request.