Clock's ticking on a highway program in peril

September 2008, - Cover Story

by Oliver B. Patton, Washington Editor, Former Washington Editor - Also by this author

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The clock has begun ticking in earnest on reform of the federal highway program. A year from now, in October 2009, the current program will expire. Before then, the nation will have to resolve the most difficult and contentious transportation problems it has faced since the beginning of the Interstate era.

"This period ahead is the most perilous for surface transportation that I've seen in 43 years," said Rep. James Oberstar, D-Minn., chairman of the House Transportation and Infrastructure Committee.

"Rising fuel prices, a slowing national economy, congestion on a scale that exceeds that of the immediate pre-Interstate years, put us at the most critical juncture in the history of surface transportation. The challenge is huge. We have to have a transformational program."

Oberstar noted that for the first time ever, Americans are driving fewer miles than they drove the year before. Vehicle miles in June 2008 fell 4.7 percent compared to June 2007, continuing a trend that began last November as fuel prices took off, the Department of Transportation reported. One effect of the drop is a decline in fuel tax revenues into the Highway Trust Fund.

Oberstar said his goal is to have a "framework proposal" ready by the end of February. He intends to take that proposal to the country with a bipartisan team of political leaders - including Gov. Ed Rendell of Pennsylvania, a Democrat, and Gov. Arnold Schwarzenegger of California, a Republican - as well as supporters from the private sector.

The committee's proposal will draw from the work of a bipartisan commission chartered by Congress to explain the scope of the problem and suggest remedies.

Earlier this year the National Surface Transportation Policy and Revenue Study Commission concluded that the highway program is in crisis and needs radical reform. It called for fundamental reorganization at the Department of Transportation to make the program more accountable and responsive, and for a massive increase in funding, mainly through higher fuel taxes but also with additional tolling and private investment.

The DOT reforms would emphasize goals and performance standards rather than modes of transportation. More than 100 programs now run by the highway, transit and railroad administrations, and the auto and commercial vehicle safety administrations, would be refocused into 10 programs, and a new national freight program would be created.

The commission also said federal programs should be limited to those with a true national interest, and state and local agencies that receive federal money must be held accountable for performance. And the commission stressed the need to speed up the process of taking a project from concept to completion - a cycle that now can take 14 years or longer, during which time costs go through the roof.

The commission called for annual investment in the range of $225 billion to $340 billion over the next 50 years for all modes. The current investment is $85 billion.

The money should come from a variety of sources, including tolling, congestion pricing and private investment, but mainly from fuel taxes, the commission said. It called for increases of 5 to 8 cents per gallon per year over the next five years, and then indexing the tax to inflation. But fuel taxes cannot be the fund-raising mechanism of the future, the commission added. It said that by 2025, the country needs a tax system based on vehicle miles traveled.

A minority of the commission, representing the views of the Bush administration, also called for reform but opposed raising fuel taxes. They said the money should come from greatly increased private investment and tolling techniques such as congestion pricing. The minority also wants to reduce the federal role in governance and give more power to states and localities.

In early August the administration laid down its marker for the upcoming debate. In a statement that picks up the thread of the minority report, DOT Secretary Mary Peters said, "Without a doubt, our approach to transportation is absolutely broken in a way that no amount of tweaking, adjusting or adding new layers will improve. And the sad reality is that Americans have lost confidence in our ability to invest their transportation dollars either wisely or well. It's time instead for a new, a different and a better approach."

This bleak assessment set up a call for a complete overhaul of federal decision-making and funding. Some of the organizational reforms the administration suggests echo those recommended by the commission - restructuring and consolidating federal governance of the program, and setting performance standards, for example. But its recommendations for financing the program reflect a deep ideological divide between the administration and the majority of the surface transportation community.

The administration calls for leaving fuel taxes as they are, and greatly expanding private investment, tolling and congestion pricing. It would not expect congestion pricing to replace fuel taxes as the primary source of revenues right away, but it does see that technique being used as a quick remedy for traffic congestion in urban areas.

The administration also contends that this type of pricing will ensure trucks pay their fair share of highway use costs. It says the current tax scheme of the heavy truck use tax and tire taxes does not cover the damage caused by heavy trucks.

In the view of the commission majority, the administration is clinging to an anti-tax, federalist orthodoxy despite powerful evidence that a more flexible, pragmatic approach is needed right away. The majority made it clear that while it does not like the idea of higher fuel taxes, it cannot see an alternative for the near term.

Oberstar is firmly in the majority's camp. In a statement, he said the administration's plan is being offered in the waning days of President Bush's term and "calls to mind ... the dead hand reaching out from the past to affect the future."

"This crowd," he said in an interview, referencing the administration, "has spent seven and a half years trashing any revenue source other than fees and has worked to create a public mindset against taxes. Well, a fee is a three letter word that spells tax. That's nonsense. They have worked hard to create a mindset that really is against investment. That clearly is retrograde."

Oberstar made it clear that the T&I Committee's proposal will contain a mix of financing techniques, but mainly a tax measure that is indexed to the cost of highway construction. There have been proposals in the past to link fuel taxes to the Consumer Price Index, but he prefers construction because those costs are outpacing the CPI.

He said he anticipates a highway and transit program in the range of $450 billion to $500 billion.

The current system dispenses federal money through a variety of grants, loans and bonds. As Oberstar prepares his proposal he will be considering a number of new options:

Infrastructure banks that use debt financing to raise money. Among the suggestions here is a National Infrastructure Bank, modeled after the Federal Deposit Insurance Corporation, that would develop financing packages for big projects of regional and national significance. Presidential candidate Barack Obama is on record supporting this idea.

A National Infrastructure Development Corporation comparable to Fannie Mae, the federal home loan guarantor, that would make infrastructure loans and issue infrastructure debt securities.

A Transportation Finance Corporation that would allow two or more state infrastructure banks to collaborate on regional projects.

A Rail Infrastructure and Development Act that would allow states to issue bonds for high-speed passenger rail development. It is essential, the National Surface Transportation Policy and Revenue Study Commission said, that the country develop high-speed passenger rail between major urban areas to relieve highway congestion.

A Freight Trust Fund that would be fed by new freight-related user fees to help communities address their freight infrastructure needs.

Creation of a capital budget for long-term investments such as infrastructure projects. The current system treats all expenditures the same, which critics say allows spending for current consumption to crowd out spending for long-term investment. This idea is not new, but has not prevailed in the past due to opposition from federal budgeters who believe that up-front scoring is better for budget discipline.

The Leadership Question

The details of this issue are massively complex but the political challenge is straightforward. No matter how the money is raised - through taxes or through public or private tolling - the public has to see that its investment is being put to good use. Step one in making that happen is to reform the system of governance, and that will require leadership.

It is not clear at this point what role John McCain or Barack Obama might play in this process. Neither candidate has presented a detailed position. Each has signaled his general approach, however.

As the ranking Republican and former chairman of the Senate Commerce, Science and Transportation Committee, McCain has long experience in transportation issues. He has acknowledged the need for reinvestment in infrastructure and safety but would like to see a smaller federal role in the process. He is a fierce opponent of congressional earmarking practices.

Here's what he said about this year's transportation appropriations measure: "It is time for Congress to start making choices among competing priorities. In this bill we are not underfunding transportation, we are misdirecting infrastructure funding to earmarked projects that are questionable and certainly not urgently needed."

One close observer, Tim Lynch, senior vice president of the American Trucking Associations, said it will be difficult for a President McCain to endorse a fuel tax increase. "He has pretty much ruled that out. So I guess our challenge with McCain is to convince him that the program can be fixed and is worthy of additional support."

Earlier this year, McCain promoted the idea of a summer holiday from federal fuel taxes as a way to ease the pressure of rising fuel prices. Opponents said this would cut the flow of much-needed revenues into the Highway Trust Fund, and the idea went nowhere.

Obama supports a major federal role in the program. In a position paper on his web site, he calls for infrastructure investment to improve economic competitiveness, safety and homeland security, and to create new jobs. He is an advocate of the National Infrastructure Bank, which would use $60 billion in federal money over 10 years to supplement current federal programs.

Strengthening the transportation system will be a top priority, Obama says.

Lynch said that trucking's challenge with Obama will be to ensure that the necessary reforms are made, "and ensuring that the dollars are going to benefit the folks that are actually paying the fees."

ATA, representing the biggest commercial highway user, has said it is willing to support a fuel tax increase provided the money is properly spent. And Lynch, for one, does not believe that the public is inalterably opposed to an increase.

"At the local level, where there's a much more direct connection between what they are promised and what they are delivered, I think by and large those kind of referenda and ballot initiatives pass," he said.

At the federal level, however, that connection has been lost. "Part of it is the failure to have any real vision for the program, and part of it is the 6,000 (earmarking) projects ... the infamous bridge to nowhere."

He does not expect that Congress will eliminate earmarks - nor should it, because not all earmarks are bad. "You could make the argument that the Woodrow Wilson Bridge (on I-95 over the Potomac River near Washington, D.C.) was an earmark," he said."But I think you can establish some criteria that get it away from the notion that the (Highway) Trust Fund is some piggy bank or ATM machine that you can go to and get whatever you want out of it."

Lynch pointed to a measure the House recently passed providing $1 billion for states to repair and replace deficient bridges. The bill includes a provision by Oberstar to ban congressional and administration earmarks. "Whether that's going to be applied across the board to the whole program, that remains to be seen. But clearly when (Oberstar) says that on at least one portion of the program, it shows a commitment on his part."

Still, Lynch said, "There's a lot of work to be done to convince the public."

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