|FUTURE Projects such as Denver's T-Rex await new funds. (Photo by Gregg Gargan/T-REX)|
The past four years have been golden for transportation engineers and contractors, thanks to the 1998 Transportation Equity Act for the 21st Century, the largest public works funding measure in U.S. history. When it expires on Sept. 30, TEA-21 will have poured out more than $220 billion for highway and mass transit projects around the country, a 40% hike over the six-year program that preceded it.
As Congress now gets set to start drafting a TEA-21 successor, industry executives and state officials are pushing for an encore. They want to boost federal aid by up to 50% from the 1998 law's total. But they would be wise not to bank on such a large jump this time, because U.S. economics have changed dramatically since then.
The federal budget, which enjoyed a $127-billion surplus in 2001, has plunged deeply into the red. States are in even poorer shape, perhaps the worst since World War II, says the National Governors Association. "This is not the best time to be getting this bill out," says Mortimer Downey, a principal with Parsons Brinckerhoff's consulting unit. Click here to view table
Compared to the late 1990s when TEA-21 was germinating, its successor faces a tougher birth. "It's like night and day," says Peter Ruane, president and CEO of the American Road & Transportation Builders Association. But he and other advocates insist a sizable gain is possible.
"We can still make the case that you don't solve congestion and mobility issues without increased investment," says Stephen E. Sandherr, CEO of the Associated General Contractors. "It has an economic benefit that will help us get out of some of the budget problems that we have."
While the industry's Washington lobbyists have a lot at stake in getting a new bill passed, its funding level is "the life blood" for highway contractors, says Cianbro Corp.'s Robert J. Desjardins, vice chairman of the Pittsfield, Maine, company.
Federal funds accounted for about 40% of the $65 billion in highway capital spending in 2000, the U.S. Transportation Dept. says. Sandherr adds that transportation aid spins off to benefit other construction sectors such as utilities and hotels.
As such, states and industry are aiming ambitiously high. The American Association of State Highway and Transportation Officials is recommending a bill that earmarks $45 billion for highways by fiscal 2009, its expected final year. The Associated General Contractors seeks at least $50 billion, while ARTBA proposes $60 billion in the new measure by that time. Those numbers compare with $32 billion appropriated in 2002. For transit, the American Public Transportation Association is calling for $14 billion in 2009, about double the 2002 mark.
The uncertainty makes it hard for construction firms to plan. "We're nervous about how all this will come out," says Thomas E. Barron, executive vice president of Parsons Corp.'s transportation group. "We certainly benefited from the TEA-21 increase and flexibility in funding, and would hope the program would continue at least at those levels." Click here to view chart
The debate is about to intensify. President Bush is set to release his fiscal 2004 budget plan on Feb. 3. His request for the federal highway program will be the dollar figure he's seeking for the first year of TEA-21's replacement. Within weeks after that, the White House will release its detailed legislative proposal for the as-yet-unnamed follow-on.
Federal DOT officials aren't talking about their 2004 spending figures, but observers don't foresee good news. "We expect it to be either a hold-the-line or even a reduction in investment in highways and transit,"says John Horsley, AASHTO executive director. Says Jay Hansen, National Asphalt Pavement Association vice president: "We're going to have to fight like hell to grow this thing."
For fast-growing states like Arizona, which projects a 50% population boom in the next 20 years, "it would be devastating if the federal funding didn't go up," says Stephen Basila, president of Pulice Construction Co., Phoenix. "We are still playing catch-up with our freeway system."
State officials and industry allies say they are not deterred by the expected lack of support from the White House. They are counting on key members of Congress to lead the charge. House Transportation and Infrastructure Committee Chairman Don Young (R-Alaska) has taken the point position. Young, whose panel will draft the House version of the legislation, has proposed a "menu of options" that would provide $60 billion for highways and $12.5 billion for transit in 2009, a House aide says.
In the Senate, new Environment and Public Works Committee Chairman James Inhofe (R-Okla.) will be in charge of developing the highway portion of the bill. He thinks funding should be increased, a committee spokesman says. But so far, Inhofe has not set any target figures. The Senate's transit spending proposals will be handled by the banking committee, led by new Chairman Richard Shelby, of Alabama.
Support from Republican chairmen, along with infrastructure's historic widespread support on Capitol Hill, make it likely that Congress will adopt an increase over TEA-21's level. But will the new bill match its predecessor's 40% increase? "It's going to be very difficult to achieve that, but that doesn't mean we're not going to try," says Ann D. Warner, Bechtel Infrastructure Corp.'s manager of government programs.
There are several possible sources of new money. The longest shot, politically, is raising federal motor fuels taxes. These range from 13.1 per gallon for gasohol to 24.4 for diesel fuel. The last significant hikes were in 1993, including 4.3 for gasoline. Young has an annual fuels tax boost of 2 per gallon on his menu, an idea proposed by ARTBA. The American Society of Civil Engineers backs a 6 total hike. NAPA's Hansen says that Congress must "raise the highway user fee. The entire industry has to get galvanized around this proposal."
But that is at odds with Bush's strong anti-tax stance. The Office of Management and Budget said on Jan. 17 that the administration "strongly opposes" increasing the fuels tax. At this point, Inhofe does not want to consider raising the federal fuels tax, "but he wants to look at other ways of raising the money that we need to pay for highway needs," says his staffer.
Those alternatives exist. "People are continuing to drive more, and the amount of fuel consumed will continue to go up," says Gregory Cohen, vice president for policy and governmental affairs at the American Highway Users Alliance. AASHTO estimates that increased travel would bring in $17.6 billion to the Highway Trust Fund over the bill's six-year life.
Recapturing the interest on the trust fund's balance, which would bring in up to $4 billion, also has wide industry backing. TEA-21 had previously shifted those interest monies to the general fund.
Offsetting gasohol's hit to the highway trust fund would raise still more money. Shifting to the trust fund the 2.5 per gallon of the gasohol tax that goes to the general fund would be worth another $4 billion. AGC's Sandherr thinks the administration may include the transfer in its legislative proposal.
The other gasohol idea would be to have the general fund reimburse the trust fund for revenue lost because of the 5.3 tax differential between gasohol and gasoline. That could add $17 billion, if the consumer price index goes up 2.6% a year, AASHTO estimates. Inhofe is "intrigued by the idea of tying the gas tax to inflation," says the committee spokesman.
Another top priority for industry and states will be retaining TEA-21's budget "firewalls," says Daniel Duff, APTA's chief counsel. Those provisions ensure that the bill's authorized funds turn into actual appropriated dollars. Appropriators were unhappy about this incursion on their turf, and may well try to chip away at the firewalls this time around.
But TEA-21's successor won't be totally about money. It also will give Congress a prime opportunity to rewrite the surface transportation program's "ground rules." With industry and state participants aiming to speed project delivery, one particular legislative target is winning further "streamlining" of the environmental review process.
The Bush administration's bill is not expected to propose major changes in TEA-21's structure. But Federal Highway Administrator Mary Peters told the Transportation Research Board last month that DOT does want to simplify the program. "We hope to reduce the separate funding categories and to consolidate existing core programs to the extent possible," she said. NAPA's Hansen thinks that may mean block grants for highways. Peters also says DOT may propose eliminating some restrictions to innovative contracting, such as design-build, and streamlining rules.
But Congress is likely to rework whatever the administration sends it, fighting to include projects that benefit their home turf and constituents. States represented on House transportation and Senate environment and banking panels of course will fare well. The lineup on key committees has shifted since TEA-21. Alaska looks more solid, thanks to Young's move to the House panel chair and Senate Appropriations Chairman Ted Stevens. Inhofe will take care of Oklahoma. Missouri will do better than in TEA-21, now that Christopher Bond is the Senate infrastructure subcommittee chair. Vermont gains, with ranking environment minority member James Jeffords (I).
California has Senate appropriations and environment committee members and the largest House delegation. But Pennsylvania surely will miss former House transportation Chairman Bud Shuster, TEA-21's major House force.
Another geopolitical challenge will be balancing desires of donor states, whose motorists pay more in fuels taxes than they receive in highway aid, and "donee" states, whose road funds exceed fuels taxes paid. In TEA-21, donors won a 90.5% return on their taxes paid. This round, observers say, donor states, including Oklahoma and Missouri, want at least a 95% guarantee.
But donees, like Alaska, don't want to lose ground. "In order to address that adequately we're going to have to keep shooting for the highest [overall] amount possible," says Bechtel's Warner.
"Even if the program increases, one of the big hangups is going to be the states," says Downey. "Are they going to have the ability to provide the [funding] match that they need to?" For highways, states typically put up 20% of project costs; Uncle Sam contributes 80%. For transit, local shares can top 50%.
States' fiscal pain is severe. South Carolina faces a general fund deficit that could hit $1 billion, says Gov. Mark Stanford. Its highway budget is in even worse shape, says Bob Probst, the state DOT's deputy director for finance. "This is the fourth year in a row with no secondary road repairs," he says. It's a huge problem."
AASHTO's Horsley says that even with deep budget woes, states won't turn back federal aid. "Somehow they find a way to match what comes in because it's such a good deal for them. To get 80 on the dollar, generally you don't pass that up."
If funding fails to match TEA-21's jump, "it absolutely forces us to re-evaluate some of the assumptions we had made," says Jeff Morales, director of the California Dept. of Transportation. Despite higher investment, potential cutbacks loom. Morales also says a shortfall would create "a major hole that will be difficult to fill" for a $3.7-billion Bay Area Rapid Transit extension.
With so many issues up in the air, observers think Congress won't pass a reauthorization measure by the Sept. 30 deadline. That's nothing new, since TEA-21 and its transportation predecessors were months late.
But delays won't help cash-strapped states whose transportation agencies "are looking for money anywhere they can find it," says former Utah DOT Executive Director Tom Warne, now a Salt Lake City-based consultant. "This makes the reauthorization of TEA-21 even more important. It should be reauthorized by Sept. 30, but it probably won't be until next year. The timing of the new highway bill will not be the silver bullet to help us this year."