With the balance in the Highway Trust Fund dropping much faster than expected, U.S. Transportation Secretary Mary Peters has directed her department for the first time to restrict highway-aid reimbursements to state departments of transportation and urged Congress quickly to approve an $8-billion infusion for the trust fund's highway account. Peters said on Sept. 5 that if nothing changes, the highway account will show a zero balance as early as Sept. 30.
Peters called on Congress to enact legislation similar to a bill the House passed in July, which would transfer $8 billion to the trust fund from the general fund. But to avert the looming crisis Peters wants the bill to be amended so that the funds would be available immediately, not on Oct. 1, as the House bill now provides.
Until Congress adds the new money, Peters said that the Federal Highway Administration will restrict the release of federal road and bridge construction funds to state DOTs. Those state agencies incur financial obligations for highway project contracts and seek reimbursement from FHWA.
Peters says that because of the deteriorating trust fund-picture, FHWA will make its electronic reimbursements to states only once a week, instead of twice a day as it does now.
In addition, the amount paid will be pro-rated to reflect how much money has flowed into the trust fund from fuel taxes and other levies. For instance, Peters says if the trust fund has enough money to meet only 80% of the aggregate amount states request, each state DOT will get only 80% of the sum it asked for. States would be made whole on their "invoices" when more money flows into the trust fund. The limitations will go into effect Sept. 11, Peters said, unless the legislation is enacted by then.
State DOTs are worried about the impact of the change in payments. "This unprecedented action by the FHWA is going to have grave repercussions for the states, for hundreds of thousands of workers in the construction industry, and the driving public," said John Horsley, executive director of the American Association of State Highway and Transportation Officials. He added, "It will worsen the financial crises many states are already facing, and it will delay or halt needed transportation projects and leave contractors and suppliers with IOUs instead of cash to pay their workers."
Peters' support for the transfer of money is a major change from the past position of the Bush administration. "This is not an ideal solution," Peters told reporters. "This is not what we feel we should be doing." But she said that "the state of the Highway Trust Fund has now moved from a theoretical to a practical problem, and states should not have to suffer the consequences."
DOT says a key reason for the problem is that as highway travel has fallen in recent months, fuel-tax revenue flowing to the trust fund has declined more sharply than forecast earlier. Phyllis Scheinberg, US DOT's chief financial officer, said that estimated trust fund revenue from May through September totaled $3.1 billion less than earlier projections.
In addition, spending of highway projects has remained high in the busy summer construction months. The net effect, DOT says, is that it expects that in September, the trust fund will have $2.7 billion in receipts, but FHWA will have $4.4 billion in reimbursement requests from state DOTs.
Beyond the immediate remedy, Peters also wants the house and Senate "to get to work on a fiscally responsible and effective transportation spending bill for bill for [the 2009] fiscal year." Longer-term, as Congress works on a new multi-year surface transportation bill, due by Oct. 1, 2009, she also reiterated her call for an overhaul in the highway financing system to reduce the dependence on the fuel tax.
One other possible solution to the trust fund's woes would be to raise the federal gasoline tax, which now is 18.4 cents per gallon. But Peters said, "I do not recommend and would not recommend that we increase the motor-fuel tax," saying that the sharp drop in trust-fund revenue is evidence that there is a need to move away from reliance on the fuels tax.
Peter Ruane, CEO of the American Road and Transportation Builders Association, said, "We are encouraged the Bush Administration put politics aside today to address a very serious problem--the Highway Trust Fund's solvency." He called on the Senate to act rapidly to pass legislation like the trust-fund bill the House had cleared in July.