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The Senate's Pathetic Pay-Fors

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As we all know, the federal Highway Trust Fund (HTF) was intended to be fully self-supporting from the various federal taxes paid by highway users, mostly on gasoline and diesel fuel. But for most of the past decade, this user-tax revenue has been about $10 billion a year short of the roughly $50 billion a year Congress continues to spend on highways and transit. Because Congress refuses to set priorities among the myriad programs now funded by the HTF, each time it reauthorizes the program, under current budget rules it must find about $10 billion per year of “pay-fors” somewhere else in the federal budget—a combination of non-transportation spending cuts and revenue increases.

On July 30, 2015 the Senate passed a “six-year” reauthorization bill called the DRIVE Act, and various transportation groups are pushing hard for the House to do likewise. But the pay-fors in the DRIVE Act are a sick joke. First of all, as in prior under-funded bills, Congress counts as pay-fors changes that are supposed to occur over the next 10 years, some of which may never happen because no sitting Congress can bind a future Congress. Second, in the DRIVE Act itself, the alleged 10-year pay-fors provide only enough money to cover the first three of the bill’s six years.

And it gets worse. When the House subsequently passed a short-term extension of current law, it used $8.5 billion of the pay-fors the Senate had been counting on for its six-year bill. The adjusted total of Senate pay-fors, according to an assessment in Eno Transportation Weekly (Oct 2, 2015) is $36.1 billion. But the two biggest items on that grab-bag of spending cuts and revenue increases are highly questionable. Nearly half ($17.1 billion) is supposed to come (over 10 years, remember) from reducing the amount of interest the Federal Reserve pays to banks on funds they deposit with the Fed. A recent Bloomberg News headline notes that “Big Banks [Are] Working Overtime to Tweak Highway Funding Bill” to eliminate this change. The second biggest revenue increase is to sell 101 million barrels of oil from the Strategic Petroleum Reserve—at an average price of $89/barrel. Good luck with that one! The others are a rag-bag of small-change items, such as continuing the odious practice of shifting the proceeds from a per-passenger TSA tax (heretofore used to partly fund TSA’s budget) to support the HTF instead. Needless to say, airlines and other travel groups are lobbying hard against that pay-for.

This whole process makes a mockery of the users-pay/users-benefit principle on which the federal and state highway trust funds were based. And it threatens the integrity and independence of the Highway Trust Fund, as well. The HTF, like the other federal transportation trust funds, is exempt from across-the-board budget cuts—but only as long as it is at least 90% supported by user taxes and user fees. But for most of the last decade, with Congress using general fund money to cover about 20% of the annual HTF budget, that protection is technically not there. And that means if and when the federal budget is in a real crisis (say, when one of the entitlement trust funds goes belly up, which could happen within the next few years for at least one of them), the HTF itself would be subject to across-the-board budget cuts, instead of being exempted.

I understand why a large majority in both houses is unwilling to vote for an increase in federal fuel taxes: most voters oppose doing that, because they have lost trust in the Highway Trust Fund. But if that is the case, the wiser remedy is to figure out what the most important HTF programs are, fund those, and let the states take over the lower-priority ones, if they think they

are still worth supporting. That would preserve the integrity of the HTF and might start rebuilding public trust in this currently mis-named entity.

(This article first ran in the October 2015 edition of Surface Transportation Innovations)

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