The Fuse

Congress Uses Controversial Funding Mechanisms in Long-Term Transportation Bill

by R. Kress | December 04, 2015

After years of near misses, stop-gap funding measures and weeks of tempestuous negotiations, Congress has reached its first agreement on a long-term surface transportation bill in over a decade. The 1,300 page Fixing America’s Surface Transportation Act, or the FAST Act, passed both the House and Senate on Thursday and now heads to the White House for President Obama’s signature. The $305 billion five-year bill will inject much-needed funding into the country’s roads, highways and transit systems. But to raise money for the bill, the government will sell off some 66 million barrels of crude from the Strategic Petroleum Reserve (SPR) and use other controversial funding mechanisms.

To raise money for the bill, the government will sell off some 66 million barrels of crude from the Strategic Petroleum Reserve (SPR) and use other controversial funding mechanisms.

In year one, highways will receive an additional $2.1 billion and an overall boost of 15 percent over five years. The bill provides Amtrak with some $10 billion in funding over the coming five years and mass transit will see another $12 billion. Freight transit will also see a funding boost—a move that’s already been applauded by the Association of American Railroads.

“This legislation is a vital investment in our country. A safe, efficient surface transportation network is fundamentally necessary to our quality of life and our economy, and this conference report provides long-term certainty for states and local governments, and good reforms and improvements to the programs that sustain our roads, bridges, transit, and passenger rail system,” read a joint statement from the transportation bill’s House-Senate conference, which included Jim Inhofe (R—OK) and Barbara Boxer (D—CA).

Tough negotiations over funding

At the heart of the fraught and “challenging” negotiations over the bill was funding. Ultimately, the legislation does not raise the federal gasoline tax and instead uses alternatives to the 18.4-cent per gallon tax, which itself has not provided enough funding to pay for the country’s transportation needs. Instead, the bill is built partly on a House plan that uses some $53.3 billion in Federal Reserve Bank surplus funds to insulate against losses and partly on a proposal out of the Senate that slashes some $6.9 billion in interest paid to banks by the Fed. The American Bankers Association has already blasted this solution (ABA).

“Rewriting a significant portion of the Federal Reserve’s charter and siphoning off a bank dividend payment to pay for highway infrastructure sets a bad precedent that should give other industries serious cause for concern.”

“Rewriting a significant portion of the Federal Reserve’s charter and siphoning off a bank dividend payment to pay for highway infrastructure sets a bad precedent that should give other industries serious cause for concern,” Rob Nichols, ABA CEO and president said in a statement. “Banks shouldn’t be used like an E-Z Pass to pay for highways. Dramatically reducing the dividend rate—without hearings, consultation with committees of jurisdiction, study or analysis of any kind whatsoever—is extremely bad public policy.”

Selling SPR oil undermines energy security

Another funding source comes from selling some $6.2 billion in oil from the SPR.

“[The FAST Act] is largely a highway bill: the vast majority of the funding—around 80 percent of it—goes to highways. Yet, users of those highways are increasingly not funding the program. It’s coming at the expense of energy security by tapping the SPR,” says Deron Lovaas, state and federal policy director for the Natural Resources Defense Council’s Urban Solution Program.

Lovaas sees the FAST Act as a missed opportunity—particularly as it flies in the face of other policy currently being undertaken to boost energy efficiency and reduce demand for oil.

“This bill is increasingly at odds with energy efficiency as a policy goal because all that highway spending means more driving and therefore increasing our dependence on oil and our usage,” he said. “There’s no demand management by charging users for driving so much. Then, there’s this especially offensive [SPR] provision that frames the bill at odds with energy security.”

Instead, Lovaas says he would have preferred to see more funding allocated to public transportation and more urban transit options. He also notes that raising the gasoline tax would reduce demand for oil.

“That kind of program would take us directionally toward a more energy secure future,” Lovaas says.

Longer-term funding still problematic

In addition to the policy implications of cashing in on the SPR, the FAST Act’s funding is problematic in the long term.

“It’s money that’s created through a set of fiscal gimmicks including selling oil from the [SPR] a decade in the future—based on a likely inflated oil price—and taking money from the Fed. It basically scrapes together money from anything but a gas tax increase–the equivalent of scrounging money from any sofa cushions or mattresses in your home,” Lovaas explains. “That’s not great policy because it’s not sustainable. What’s Congress going to do five years from now? And of course no one cares about that which is unfortunate.”

Without a renewable and permanent funding solution to the nation’s transportation budget shortfalls, the bill fails to source the $400 billion that Transportation Secretary Anthony Foxx says is needed over the coming six years to prevent increasing traffic congestion.

 “The FAST Act fails to adequately address the issue of how to sustain the Highway Trust Fund long term.”

“The FAST Act fails to adequately address the issue of how to sustain the Highway Trust Fund long term,” Sean Slone, director of transportation and infrastructure policy for the Council of State Governments (CSG), tells The Fuse. “It continues the shift away from the user fee-based system that has been the foundation of the federal program and relies on what many have called a series of budget gimmicks to shore up its funding levels. It is left to future Congresses to ensure the bill’s shaky promises are kept and to shape a sustainable future for the federal transportation program. That is something that should concern all state government officials even as they celebrate having a long-term bill seemingly in hand.”

John Olivieri, transportation campaign director with U.S. PIRG, highlights that the bill continues the policy and spending agendas of prioritizing road expansion over repairs. He points out that a report from advocacy group Smart Growth America showing that it would take $45.2 billion in state spending to bring roads into good repair while also maintaining existing systems—money that the FAST Act does not come close to allocating. Olivieri explains that road repair should be a top priority, particularly since only 37 percent of roads are currently rated in good condition nationwide—and that percentage is trending downward.

“At first glance, [the FAST Act] appears that it does too little to promote repair over expansion,” Olivieri says. “That makes it very clear that Congress needs to do more to encourage states to spend money more wisely, in particular on repairs which the states have yet to do so far.”

Still, transportation policy advocates are supporting the fact that some action has finally been taken—while still openly calling out its imperfections.

“This one had been on the to-do list for far too long. In an era when Congress can’t seem to agree on much of anything, it makes some sense that they would turn to transportation investment—something that has always had broad, bipartisan support in the past—to seek common ground,” CSG’s Slone says.

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