Goldilocks And The Obama Budget

Today the Obama administration sent the House a $3.73 trillion budget proposal which would give the United States a first ever four consecutive year run of trillion plus deficits. Like Goldilocks and the beds in the three bears’ house, Congressional Republicans characterize the administration’s proposed spending cuts as too soft, Congressional Democrats say they are too hard, and the Obama White House says they are just right. By the time appropriations legislation passes through the Capitol, however, it won’t likely look like a bed at all. The White House proposal falls far short of Obama’s blue ribbon deficit commission’s recommendations for a $4 trillion deficit reduction.

The Obama budget proposal goes nowhere near the entitlement “third rail” of electoral politics. And, it contains a mixed bag of the bitter and the sweet for the construction sector of our economy. On the positive side, Obama proposes doubling the nation’s share of clean energy electric power by 2035; building high speed internet connections to reach 98% of American homes and businesses; $328 billion in additional funding for transportation infrastructure construction, from sources other than motor fuel taxes; and dropping cap and trade taxes on greenhouse gas emissions. In the negative ledger column, the budget would eliminate home mortgage interest deductions for households with income more than $250,000; $1 billion reduction in grants for airport construction; and another billion dollars cut from water treatment and other infrastructure construction programs.

House Budget Committee Chairman Paul Ryan (R. Wis.) is expected to unveil an alternative budget in April that will take a meat axe to entitlement spending. House Budget Committee Ranking Member Chris Van Hollen (D. Md.) defended the administration’s proposal: “Compared to the slash and burn Republican approach, [the administration’s] budget positions the president as offering a responsible approach to deficit reduction.

Gradual Fuel Tax Hike Proposed

Mindful of the burgeoning federal deficit, yet equally mindful that the federal Highway Trust Fund reauthorization legislation is mired in the House, and finally mindful that infrastructure construction projects will keep folks working as long as funding is in place, Republican Senator George Voinovich of Ohio and Democratic Senator Tom Carper of Delaware have proposed to the Obama administration debt commission that motor fuel taxes be gradually increased one penny every month for the next 25 months. Touted as a debt reducing and jobs creating measure, the proposal would go a long way towards funding the needed $500 billion, six year Highway Trust Fund reauthorization. If the lame duck Congress can get the measure through both houses before the anti-infrastructure Republican majority takes over next year, it could help save the heavy construction sector from the complete disaster that awaits if Congress elects to depend on year by year reauthorization measures that choke long term infrastructure planning by state and local governments which depend on the Highway Trust Fund for 75% of the money they spend each year.

So far, this is the only practical funding increase suggestion to come out of a Congress already deadlocked over the reauthorization legislation so important to keeping our roads, bridges, waterways and drinking water systems in good repair over the long term. As it is, state and local governments will be hard pressed to come up with their 25% matching contribution to keep infrastructure projects moving forward during the near future.

Fuel Tax Shortfall Woes Trashing Road Construction Programs

In statements to the House Transportation - HUD Appropriations Subcommittee yesterday, Transportation Secretary Ray LaHood reiterated that the Obama administration does not want to increase motor fuel taxes to shore up the Federal Highway Trust Fund, despite funding shortfalls amounting to $3.6 billion. Pressed by Subcommittee Chairman John Oliver of Massachusetts about how the executive branch proposes to supply the missing cash, LaHood vaguely referred to public toll roads, toll bridges, public-private partnerships and an "infrastructure bank." Although he cited the average citizen's dire financial straits as the reason for not increasing the federal gasoline tax, it sounded like all his other proposals would just represent a different way of taking money out of the pockets of the driving public.

In a related development yesterday, Michigan DOT Director Kirk Steudle told a legislative committee in Lansing that his department will cancel 137 road projects totaling $740 million in value because the state gas tax shortfall of about $102 million will mean inability to provide matching funds for $576 million in federal highway funds. Michigan Infrastructure and Transportation Association spokesman Mike Nystrom says his state stands to lose $1.9 billion in federal highway grants through 2013 unless the fuel tax shortfall can be remedied. To make up the difference, Michigan gas tax would have to go up from $0.19 per gallon to $0.34 per gallon.

With federal fuel efficiency requirements going up, public transportation usage on the increase in major metropolitan areas, and people just plain driving less because of their economic circumstances, this situation will only get worse. Even should the economy snap back, more miles driven per gallon of gas purchased will constantly increase road wear and tear while at the same time reducing the money available for repairs, improvements, and new highways and streets. And LaHood never said where the money to build all these toll plazas and bridge tollgates will come from.

Unless Congress and 50 state legislatures have the courage to raise taxes and fill in this revenue pothole, the road building segment of the construction industry is going to have it pretty rough over the next several years, in spite of the stimulus appropriations.

Highway Trust Fund Soon Tapped Out

Senate Environment and Public Works Chairman Barbara Boxer convened a hearing today on the President Obama's appointment of Victor Mendez to be Federal Highway Administrator, but the controversy at the session was not about the qualifications of the nominee. Boxer announced, and Transportation Department spokesperson Jill Zuckman confirmed, that the Federal Highway Trust Fund will run out of cash sometime this August, before the end of the fiscal year, and in spite of an infusion last fall of $8 billion in general revenues. According to Senator Boxer's statement, the Fund is nearly $7 billion short of the amount of money needed to pay for current construction projects through the end of the fiscal year on September 30, 2009.

It does not seem likely that a six year reauthorization bill will pass before the current legislation expires, also September 30, 2009, and Boxer says the administration has advised her that as much as $10 billion will be needed through September 30, 2010, to make up for shortfalls in the fuel tax revenues that supply funding for highway, waterway, railway and public mass transit construction and repair projects. Ranking Member James Inhofe complained at the confirmation hearing that the Obama administration held a conference call with Democratic committee members, to the exclusion of Republicans, to discuss these funding problems, and received a commitment from nominee Mendez that the Transportation Department would include members from both sides of the aisle in future communications.

The Federal Highway Trust Fund was created in 1956 as part of the legislation authorizing the federal interstate highway system, and has been fully supported by fuel taxes until the emergency $8 billion infusion last fall. Federal gas tax revenues have been falling since late 2007, due to declines in miles driven by citizens, greater fuel efficiency of vehicles, and increasing ridership of public transportation. Without an increase in the present tax of 18.4 cents per gallon, the situation will get worse and worse as time marches on. Two Congressionally mandated study commissions have recommended fuel tax increases, to as much as 58 cents per gallon, to maintain surface transportation infrastructure. The alternative proposal of a mileage tax would take as long as 10 years to implement, and if driving mileage continues to decline, it still would not solve the problem in the long run. Despite President Obama's adamant refusal to propose a gas tax increase now, Senator George Voinovich said at the Mendez confirmation hearings that such an increase "is the reality of the situation."

With the complex and contentious issue of health care reform now at the top of the Congressional in box, any permanent solution to this problem is unlikely during this session of Congress, and any serious investment in infrastructure repair and construction beyond the economic stimulus appropriations is just a pipe dream.

Highway Reauthorization Stalls Over Funding

Despite the statements by House Transportation and Infrastructure Chairman James Oberstar, Ranking Member John Mica, Highways and Transit Subcommittee Chairman Peter Fazio and Ranking Member John Duncan that the four have agreed on the "major parameters of a surface transportation reauthorization bill which they hope will total between $450 and $500 billion for highways and mass transit, they can't agree on where the money will be coming from. Oberstar wants to increase fuel taxes, but increases in gas and diesel taxes are opposed by Mica and Transportation Secretary Ray LaHood. Although Oberstar promises passage of a bill in June, the dispute over fuel taxes versus mileage taxes as a funding mechanism makes that prediction optimistic. Current funding legislation expires at the end of September.