A newly proposed carbon tax bill is creating a fissure in the Republican Party, with conservative groups coming out in fierce opposition Monday to legislation introduced by a House GOP lawmaker.
Several conservative groups bashed a measure introduced earlier in the day by Rep. Carlos Curbelo (R-Fla.) that would impose a tax on carbon-emitting companies.
Americans For Tax Reform President Grover Norquist called the bill a political loser.
“Carbon doesn’t pay taxes — families pay taxes, people pay taxes, taxpayers pay taxes,” Norquist said at the National Press Club. “This is just the most recent effort by the left to find a way to get into your pockets.”
Conservatives took turns denouncing the legislation, which would impose a tax on companies that emit gases that contribute to climate change. Opponents highlighted the hundreds of dollars in energy price hikes it could bring to U.S. households.
They also characterized Curbelo as a Republican who is trying to appease Democrats. Curbelo is running for reelection in a congressional district that presidential nominee Hillary Clinton won handily in 2016.
“There is no appreciation to be gained by the real Democrats by pretending to be a Democrat,” Phil Kerpen, president of American Commitment, said of Curbelo. “There’s a Republican consensus against this bill. It’s a bad idea, and any Republican who is tempted to embrace it will see very little friends on both sides of the aisle.”
The event was held down the hall from where Curbelo introduced his legislation two hours earlier.
Curbelo’s bill would repeal federal taxes on gasoline, diesel and aviation fuels and replace those with a $24 per metric ton tax on carbon dioxide emissions that would increase annually.
The measure also breaks with the party’s long-standing opposition to policies that punish the fossil fuel industry for carbon pollution.
The carbon tax in Curbelo’s bill would apply to coal mines, fuel refineries, certain manufacturing facilities, natural gas processors and fossil fuel importers. It would likely increase the cost of products and services that use fossil fuels, and revenues from the tax would go toward infrastructure, low-income households and climate mitigation projects.
Many of the conservative speakers at Monday’s event disputed that a carbon tax would thwart rising temperatures and climate change.
“Science is a distraction, it’s a rhetorical gotcha,” said Marlo Lewis, a senior fellow at the Competitive Enterprise Institute. “Of course I believe in manmade global warming, but it’s much better than they’ve told us.”
Norquist said it was unnecessary to look at the science to see that the proposal would not help the free market.
“You don’t have to get into the science,” Norquist said. “You can get into the question of, ‘have more free market solutions led to lower emissions as new technologies and fracking have evolved?’ And people who told us this couldn’t happen were wrong.”
The bill is adding fuel to an already fiery debate about whether fossil fuel companies should be held responsible for emitting greenhouse gases.
Last week, the House passed a mostly symbolic resolution introduced by Majority Whip Steve Scalise (R-La.) that spells out opposition to a potential carbon tax. While Republicans hailed the vote outcome as a victory, six GOP members opposed it; a similar measure introduced by Scalise in 2016 received unanimous Republican support.
Republicans at Monday’s press event warned that those six members would have to deal with voting against the party as they seek reelection.
“Such a foolish vote is only a mistake for the members who vote that way,” said Kerpen.
Norquist said the vote might become crucial for midterm election races.
“Every single congressman who voted against Scalise should be educated — all citizens should know where their congressman or senator or state legislator stands on making their energy affordable for them, and I think all center-right groups will work on highlighting that,” Norquist said.
The U.S. Department of Transportation announced this week that it is sending almost $23 million to public transit systems across the Sunshine State that were damaged by Hurricanes Harvey, Irma and Maria.
The Federal Transit Administration (FTA) is sending $22.8 million to 15 public transit systems based in Florida. This is part of $330 million that Congress approved for the FTA’s Emergency Relief Program back in February. The bulk of those funds–$223.5 million–are headed to Puerto Rico while Texas is getting $23.3 million and $6.7 million is for the U.S. Virgin Islands.
U.S. Sen. Bill Nelson, D-Fla., who advocated for those funds on Capitol Hill, applauded the news.
“This is welcome news for a number of transit systems in Florida,” said Nelson this week. “For months they’ve had to struggle to find ways to pay for damages caused by last year’s devastating hurricanes. Thankfully, they’re finally getting some relief.”
Most of the FTA money headed to the Sunshine State is penciled in for South Florida. The Miami-Dade Department of Transportation and Public Works is getting $11.4 million while the South Florida Regional Transportation Authority is getting $1.14 million. Broward County is getting $857,000, Collier County is penciled in for $226,000, the city of Key West claiming $209,000 and Lee County receiving $515,000.
Other systems across the state are also getting FTA money with the Jacksonville Transportation Authority getting $734,000, Lynx/Central Florida Regional Transportation Authority receiving $432,000, the Pinellas Suncoast Transit Authority getting $80,000 while $111,000 is headed for Sarasota County, $153,000 to Brevard County, $57,000 to Charlotte County, another $110,000 to the Hillsborough Area Regional Transit Authority, $70,000 to the Manatee County Board of County Commissioners and Tallahassee’s StarMetro getting $41,000.
If promises were concrete and asphalt, this country would have the world class infrastructure that President Donald Trump keeps talking about. Unfortunately, it takes careful planning, political will and, most importantly, billions of dollars. All those characteristics are in short supply in the Trump administration.
Infrastructure is an early casualty of Washington’s fixation on the November mid-term elections. Retiring House Speaker Paul Ryan, R-Wis., Senate Majority Leader Mitch McConnell, R-Ky., and others are signaling that Trump’s $200 billion federal infrastructure plan is all but dead for this year.
Even Trump admits infrastructure is dead until 2019—or maybe forever. He has been talking about infrastructure improvements for at least three years since the early days of his candidacy, often calling U.S. roads and bridges akin to “a Third World country.”
“I don’t think you’re going to get Democrat support very much,” Trump said in Ohio recently, before adding: “And you’ll probably have to wait until after the election, which isn’t so long down the road. But we’re going to get this infrastructure going.”
Maybe yes, but maybe no. There is the not-so-small area of how to pay for these improvements without resorting to usual Washington bookkeeping and scorekeeping trickery. Truckers and the U.S. Chamber of Commerce briefly floated a nickel-a-year increase in the fuel tax—18.4 cents a gallon on gasoline, 24.4 cents on diesel, unchanged since 1993—but that trial balloon crashed and burned by the no-tax pledge signed by most Republicans in Congress.
In more bad news, a planned infrastructure fund by the private equity firm Blackstone that was said to be creating up to $40 billion in private money has been slow to get off the ground. Saudi Arabia was supposed to be the fund’s largest backer, but they have backed off. Saudi money was supposed to be half of the $40 billion.
According to a New York Times report, Blackstone’s goal is now $15 billion, but even that figure is suspect because of lukewarm returns on infrastructure investments.
So that leaves truckers and other motorists absorbing billions of dollars in delays and repairs due to outdated infrastructure at highways, bridges and intermodal facilities around the country.
American Trucking Associations President and CEO Chris Spear has estimated the trucking industry currently loses nearly $50 billion annually to congestion. “That is unacceptable,” he said recently. “We must unclog our arteries and highways and make our infrastructure safer and more efficient by investing in our roads and bridges.”
Jim Burnley IV, who was Transportation Secretary under Ronald Reagan, said working on an infrastructure program in an election year is a neat political trick—and one just not possible in the current political climate.
“Sadly, that’s probably true,” Burnley, now a partner with the Venable Inc. law firm in Washington, told LM. “We’re just not in a political environment where big, bold infrastructure programs are available.”
With the Highway Trust Fund collapsing, Burnley said, the time is ripe for bold, new thinking. According to the Congressional Budget Office (CBO), from 2021 to 2026 trust fund revenue is projected to total $243 billion. But outlays will amount to $364 billion, resulting in an imbalance of $121 billion. Each year during this period, the trust fund faces shortfalls of between $19 billion to $23 billion, the CBO says.
“Was it this hard when I was there? Yes,” Burnley said. “I hope Congress will have the political will to really come to grips with that fundamental resource. That doesn’t mean dramatic increases in the fuel tax. There are almost an infinite other ways to do it. But the political will has to be there—and right now it isn’t.”
Even if funding is coming from Washington, a majority of it appears heading to rural states that supported Trump. Transportation Secretary Elaine L. Chao recently said DOT awarded more than 64% of this round of TIGER funding was for rural projects, as opposed to bottlenecks in and around urban areas.
The only thing the White House has been able to produce on infrastructure this year is a vow to expedite review and permitting for major U.S. infrastructure projects. It establishes a lead federal agency with a commitment to oversee any major projects, but few details how this will streamline complex deals. Under the current process, agencies may conduct their own environmental review and permitting processes sequentially resulting in unnecessary delay, redundant analysis, and revisiting of decisions. Now federal agencies conduct their processes at the same time.
But at least that was welcome news in some quarters of the business community looking for any action on infrastructure.
“(That) is a welcome change that will not only expedite review and approval of important infrastructure projects, but also help increase American competitiveness and economic growth,” said Mike Burke, Chairman and CEO of AECOM and Chair of the Business Roundtable Infrastructure Committee. “While much work remains to revitalize our nation’s aging infrastructure, this is a vital step forward in accelerating long-overdue infrastructure improvements throughout the country.”
Illinois Roads and Transportation Builders Association President and CEO Michael Sturino said while the plan helps cut through red tape, it probably won’t help Illinois because it favors rural (Republican-leaning) states at the expense of blue states.
“This is really going to go to more of the Wyomings, and the Oklahomas, and the Dakotas, those very sparsely populated states,” Sturino told the Illinois News Network.
About the Author
John D. Schulz has been a transportation journalist for more than 20 years, specializing in the trucking industry. John is on a first-name basis with scores of top-level trucking executives who are able to give shippers their latest insights on the industry on a regular basis.
Another top adviser to President Trump is leaving the White House. An administration official tells NPR that DJ Gribbin, architect of the president’s $1.5 trillion infrastructure plan, “will be moving on to new opportunities.”
This latest staff departure comes as the infrastructure plan hits a roadblock in Congress.
A little over a year ago, Gribbin left his job at Macquarie Capital, a finance and asset management firm where he focused on public-private partnerships, to take the lead on crafting a infrastructure plan for the president. The proposal relies heavily on using incentives to attract private investments.
Trump initially promised he’d deliver a trillion-dollar infrastructure plan in his first 100 days, but it took more than a year until Gribbin and the White House would unveil and deliver the plan to Congress in February. And the president upped the ante, calling it “the biggest and boldest infrastructure plan in the last half-century,” promising it would generate a $1.5 trillion investment in rebuilding the nation’s highway, railways, bridges, tunnels, airports, seaports and water systems.
But the Gribbin-drafted proposal calls for federal spending of just a fraction of that, $200 billion over 10 years, with the rest coming from state and local governments and private investors.
Gribbin told NPR’s All Things Considered that America is up to the task. “It’s apparent that cities and states and counties are eager to invest more in infrastructure,” he said.
And he pushed back on the notion that the administration can’t ask state and local taxpayers for such funding, when a much a bigger federal investment in infrastructure is long overdue.
“All of these funds come from taxpayers — right?” said Gribbin. “And if you go out and you ask the public, you know, where do they want to invest? They have much more confidence if they write a check locally that that money will be spent in a way that they can be held accountable for than if they send a check to Washington.”
He also added in a briefing for reporters that “this is in no way, shape or form … a take-it-or-leave-it proposal. This is the start of a negotiation.” And White House officials added that “the president has said he is open to new sources of [federal] funding,” including an increase in the gas tax. “We want it to be bipartisan.”
Nonetheless, the plan has received a cool reception in Congress. It calls for the $200 billion in federal funding coming from unspecified cuts elsewhere to the federal budget, which Democrats vehemently oppose. Democrats also want a much bigger portion of the infrastructure spending to come from federal sources, such as the gas tax, while many Republicans refuse to consider a gas tax hike to fund it.
At an event to promote the infrastructure plan in Ohio last week, Trump went off script and acknowledged his plan to rebuild and repair the nation’s roads and bridges isn’t going anywhere fast, telling the crowd, “you’ll probably have to wait until after the election” in November.
Regular readers of this column for Public Works Financing know that I’m a big fan of tolls as a better highway funding source than fuel taxes. But even those who aren’t big fans of tolling should be concerned about the coming demise of fuel taxes as the primary source for funding America’s highways.
Back in 2005, I served on a special committee appointed by the Transportation Research Board (TRB). Our challenge was to examine likely future changes in vehicle propulsion and the demand for highway travel. Even then, it became clear to all 14 members that fuel taxes were not sustainable, long-term. Our report, The Fuel Tax and Alternatives for Transportation Funding, explained why we’d reached this conclusion and suggested steps toward finding a replacement. They included:
Retain and strengthen the users-pay principle;
Expand the use of tolls;
Test what we now call mileage-based user fees; and,
Find a stable source of tax funding for transit.
Our findings were reinforced several years later when the congressionally-appointed National Surface Transportation Infrastructure Financing Commission assessed a wide array of replacements and concluded that replacing per-gallon taxes with per-mile charges (mileage-based user fees—MBUFs) was the best way forward.
For the last five years or so, a growing number of state DOTs have operated pilot programs to test various ways of implementing MBUFs to replace per-gallon fuel taxes. They have learned that it’s wise to offer people several alternative ways of having their mileage reported and that it might make sense to have private firms provide the interface with vehicle operators to alleviate concerns over government monitoring people’s travel. They’ve also found that actual experience with a per-mile charging system alleviates most of the concerns people have based only on what they’ve read about the idea.
The transition from per-gallon to per-mile will be a major shift in transportation funding. So it is critically important that we think hard about the scope of this change. As I see it, there are four serious flaws with the 20th century model of paying for highways via per-gallon tax in addition to dependence on one particular mode of vehicle propulsion. The others are:
Most fuel taxes are not indexed for inflation;
The original users-pay/users-benefit principle has been seriously breached;
Fuel taxes are viewed by people as taxes, not payments for highway use; and,
Fuel tax revenues are sent to politicians, not directly to highway providers.
Ideally, we should fix these four flaws as part of the transition from per-gallon to per-mile.
Problem one is the smallest change. A growing number of US toll roads now index their toll rates to the Consumer Price Index (CPI) or some other inflation index; this has been made a lot easier thanks to all-electronic tolling. Eight states have recently indexed their fuel taxes to inflation, too, so inflation-indexing state MBUFs should not be a big deal.
Problems two and three are related, I believe. Highway users readily accepted gas taxes when they began at the state level in 1919, because they were sure that although it was called a tax, it actually operated as a pure user fee: all the revenues were deposited into a dedicated state highway fund, so the users-pay/users-benefit principle was visible and widely understood. But in the second half of the 20th century, that principle was eroded, bit by bit, as state highway departments became state transportation departments. In a large number of states, the dedicated highway fund morphed into a state transportation fund, supporting a whole array of transportation modes. Congress did the same thing with federal fuel taxes, starting in the 1970s. But the large majority (and in some cases all) of the revenue still comes from “highway user taxes.” Thus, while users-pay has been retailed, the users-benefit part of the deal has been seriously undercut.
And that, I believe, has contributed to the public perception of a “gas tax increase” as simply a tax increase, and therefore something to be resisted. House Speaker Paul Ryan (R-WI) objected vociferously to recent calls for a federal gas tax increase, right after Congress had given most Americans a tax cut. A whole array of taxpayer groups seconded that motion, and the odds of Congress enacting a federal fuel tax increase look very small.
That kind of battle does not, for the most part, occur when your cell phone company increases rates in order to add more cell towers to give you better reception. Nor does it occur when your electric company replaces an aging coal-fired power plant with a state-of-the-art gas-fired plant. A well-supported rate increase for such a project is likely to be approved by the state regulatory commission without much fuss. In these and other cases, what you pay is clearly a user fee—one that meets the users-pay/users-benefit principle. And this is true even when the supplier in question is a municipal electric, gas, or water utility. You pay utility bills, not tax bills.
Those utility cases are also different from highways in that you pay the user fees directly to the provider of the service. Here again, the same is true whether the utility is run by the local or state government or is an investor-owned company. You are charged based on how much or what category of service you use, and you pay the provider, not the government. The only case where this is true in the highway sector is toll roads (whether private or public).
My point here is that the emergence of viable methods of charging per mile also makes it feasible to de-politicize highways and re-organize them along the same lines as the other public utilities on which our economy depends. If we are going to go through the great effort it will take to change the method of paying for highways, let’s at least attempt to fix all the flaws that are now evident with today’s fuel tax model.
Robert Poole is director of transportation policy and Searle Freedom Trust Transportation Fellow at Reason Foundation.
This column first appeared in Public Works Financing.
Members of the National League of Cities are meeting in D.C. this week to make their case for more federal funding.
It’s no secret that America’s crumbling roads and bridges and chronically struggling transit systems need help: The American Society of Civil Engineers estimates it would take $2 trillion to bring the nation’s infrastructure into an “adequate” state of repair. That dire situation has been a recurring theme of President Donald Trump’s never-ending infrastructure week.But the proposal the White House finally released last month to address the problem has drawn criticism from city leaders for shifting the funding burden onto the backs of state and local governments. At the National League of Cities’ annual conference this week, mayors and city council members declared rebuilding infrastructure as their number-one priority in the year to come. And they’re determined to negotiate better terms on Trump’s infrastructure deal.“A good plan is not a good plan unless there’s money connected with it,” said NLC executive director Clarence Anthony at a press conference Monday morning. While the White House proposal, “Rebuilding Infrastructure in America,” is often billed as a “$1.5 Trillion Infrastructure Plan,” many critics have noted that this figure is misleading at best. Instead of direct federal funding, Trump’s proposal requires cities to prove they can shoulder up to 80 percent of the bills for federally funded infrastructure projects themselves. That sum would then be matched by a federally sourced 20 percent. In all, only about $200 billion of that $1.5 trillion would come from the feds.City leaders are now in D.C. to lobby lawmakers for a better deal. “We are asking our partners—because we do recognize you as partners—in the federal government to rebuild with us as we rebuild our cities,” said NLC vice-president Karen Freeman-Wilson, mayor of Gary, Indiana.On Monday, delegates met with DJ Gribbin, the special assistant to the president for infrastructure policy; on Wednesday, they’ll talk with House and Senate leaders, particularly key members of the infrastructure committees. And on Thursday, they’ll go straight to the White House to make their case. “At minimum, we’re asking for an equal partnership of 50 percent funding from the federal level to local governments,” said Anthony.“The 80-20 split is off the table,” added Los Angeles city council member Joe Buscaino. “An equal partner is an equal partner.”Mark Stodola, mayor of Little Rock, Arkansas, and the president of the NLC, outlined four critical infrastructure areas: water, transportation, broadband internet, and workforce development. “We’ve got to make sure we provide a sustainable investment,” said Stodola. “We’ve got to address not only the existing infrastructure backlog, but also long-term funding streams that are necessary to maintain this infrastructure.”The statistics are daunting: More than 6,000 bridges are structurally deficient, and 41 percent are over 40 years old; access to broadband internet, meanwhile, is lacking for 78 million people, due to connectivity issues or prohibitive cost. Cleveland city council member Matt Zone also emphasized the importance of climate resiliency in rebuilding: 2017 was already the most expensive year for natural disasters in history, due to extreme events like hurricanes Maria and Harvey, costing $306 billion in damages. “We’ve got to invest in durable infrastructure, not just infrastructure—infrastructure that doesn’t need to be continuously rebuilt when every storm happens,” Zone said.Instead, the White House is going in the opposite direction, proposing $275 billion in cuts to the U.S. Army Corps of Engineers, a key player in post-storm emergency response, and $30 billion from HUD’s Community Development Block Grant Program, which funds affordable housing and allows cities to use discretionary funds for infrastructure resilience projects.And it’s not just that local budgets don’t feel like inflating their infrastructure contributions. A lot of them can’t: In 47 states, preemption measures curb cities’ ability to raise their own revenue to meet infrastructure needs; in 22 states, cities can’t use sales tax hikes to fund infrastructure.The NLC presser also touted some of the creative funding fixes cities have employed recently, such as L.A.’s Measure M, which raises transit funding via a sales tax increase (and which was recently cited approvingly by an unnamed Trump staffer). Other cities have turned to public-private partnerships: Virginia’s high occupancy toll lanes on the Beltway got a funding boost from a private firm; and New York and New Jersey are reconstructing the Goethals Bridge with the help of an Australian bank.Smaller communities—the ones that need a federal assist the most—have also raised cash by selling off public utilities like water systems, but studies show that residents often end up getting charged more for the same product. “Our ability to pay doesn’t change the need for that infrastructure,” said Gary’s Freeman-Wilson, “but it certainly determines our ability as local elected officials to deliver.”Bipartisan aspirations on immigration and health care reform have been dashed before, and leveling funding to 50/50 is an ambitious target. But at Monday’s press conference, Stodola expressed confidence that the NLC’s negotiations in the coming days will bring results.“It seems like Congress has got their feet in concrete, and they need to take them out,” said Little Rock Mayor Stodola. “So we’re going to break that rock. We’re going to knock them out of that concrete, and by golly we’re going to take it to them on the Hill.”About the Author
From President Trump’s Camp David retreat with cabinet officials and congressional leaders at the beginning of this year, word emerged that the president and his advisers are divided on the best policy for infrastructure. Gary Cohn, director of the National Economic Council, presented a detailed plan to make $200 billion in federal investments in order to unleash $1 trillion of total infrastructure investment through public–private partnerships, a plan that has now been leaked to the media. The president himself, meanwhile, reportedly prefers a more straightforward national building program.
Any discussion of infrastructure spending needs to recognize the stark reality of the American cost disease. As explained in a December New York Times report on the New York subway, when the United States builds infrastructure, it often costs more than any similar industrialized country would consider spending. New York City brings the cost disease to its highest fever, but even cities that excel at cost containment by American standards would have their numbers thrown out on their ear in many other countries. Liberals sometimes wave away cost concerns by reemphasizing the need for any particular project, and conservatives sometimes blithely presume that any project is wasted money. But all parties involved must recognize and address the cost disease, which drastically reduces the amount of infrastructure Americans can get out of any particular budget figure. Building a tunnel six times more expensive than one in France means that you get one-sixth the tunnel that you should. As transit researcher Alon Levy has shown, the American cost disease is real, and the situation is dire.
While the entire basis of these cost overruns is still not known, it is clear that American labor costs significantly contribute to project-cost inflation. Prevailing-wage standards, set under the Davis-Bacon Act, are a frequent target of the ire of conservatives, who charge that the requirements empower unions to run up prices and drain the public purse. These prevailing wages certainly inflate costs, and repeal or reform of Davis-Bacon would help the taxpayer receive a fair value for his investment. However, competitor nations such as France and Spain cannot be said to possess weak unions or ungenerous labor laws, and those nations still manage to build infrastructure for a fraction of American per-mile costs. Davis-Bacon repeal is no silver bullet, and further reforms will be needed.
As Jarrett Walker explains in his book Human Transit, operation costs in industrialized countries are dominated by labor. Simply put, people are expensive in rich countries, and hiring workers requires paying significant wages and benefits. Thus, one of the most effective ways to exercise fiscal prudence is to ensure that human personnel are not wasted in their transit work. Unfortunately, wasting person-hours seems to be American transit’s most consistent accomplishment. Subway trains that should be able to be run by computer often must be managed by one or two drivers, and tunnel-digging machines that the French operate with fewer than ten people are managed by more than two dozen well-compensated Americans.
Capital costs, meanwhile, are also inflated by “buy American” procurement rules attached to federal infrastructure financing. When local governments take advantage of federal grants or loans to expand their infrastructure, they are required to buy at least 60 percent of rolling-stock components, such as rail cars and buses, from American manufacturers. (Current law requires that level to rise to 70 percent by 2020.) Manufactured goods, on the other hand, must be 100 percent American in materials and manufacture. While well-intentioned in their concern for American manufacturing, such policies can further inflate the cost of infrastructure. For example, according to the American Action Forum, Americans pay 34 percent more for their metro cars than the global average. Even with such policies in place, contracts often go to the most competitive global firms, which then set up separate manufacturing facilities in the United States. The profits are passed back to the foreign headquarters, while taxpayers pay the price for not being able to access the normal industry supply chains.
For the American taxpayer to receive assurance that his money is being spent wisely, any major infrastructure investments should be accompanied by actions to treat the cost disease. Already, the governors of New York and New Jersey are expressing indignation that the Trump administration has renounced an Obama-administration plan to fund half the ballooning cost of their new tunnel-building program. They would do well to turn that indignation toward their own transit authorities for wasting historic amounts of money. The 50 percent of the projected cost that the governors were already willing for their states to pay should be beyond sufficient to complete the entire project, and then the concerned states would not have to go through federal procurement channels at all.
Furthermore, when the national government picks up significant portions of the tab, it often incentivizes projects that should never have been undertaken at all. In 2010, self-described “recovering engineer” Charles Marohn pointed to a project in Staples, Minn., that cost $9.8 million to build an overpass above a railroad in order to connect two state roads and ease the congestion that came from waiting for train cars to pass. Staples has a population of 3,000. The federal government offered it $8.8 million for the project, and the state of Minnesota chipped in for the other $1 million. While the good people of Staples might enjoy their uncongested cross-town connection, Marohn wryly predicted that if they “were asked to simply pay 10 percent of the cost, . . . this project would not be happening.” Most federally supported projects are not so heavily subsidized, but a more customary 80 percent federal match was enough for the Louisiana city of Shreveport to attempt the decidedly retro project of bulldozing a working-class, mostly black neighborhood to build an urban highway connector through the city in the name of economic development.
The good news is that even as Washington continues to argue over the best way to make infrastructure investments, private actors are already emerging to offer innovative means of transportation. Whether with cars, trains, or the humble bicycle, new companies are stepping up to unleash American mobility, and each innovation holds the potential to reshape demand for other infrastructure components as people adjust their living and travel patterns.
Virginia’s McAlester’s Field Guide to American Houses conveys this recurring effect in a few pages as it details the development of American neighborhoods. Towns and cities were first built to be accessed most regularly on foot, meaning that homes, workplaces, and shops necessarily intermingled, all built on relatively narrow plots of land. The advent of horse-pulled streetcars stretched out development along a commuting pattern that opened up land for neighborhoods of residential rowhouses. The electric streetcar created spokes of development, populated by detached houses, emanating out from city centers. Because the neighborhoods still had to be navigated on foot after residents disembarked from the streetcar, though, homes in these early suburbs were built on relatively narrow lots. The automobile filled in the land between the streetcar spokes and eventually pushed out to fields opened up by freshly paved highways, allowing direct access to ranch houses and split-levels built on much wider lots.
We may now be approaching a similar point of transformative change through the explosion of private transportation services. The most well-known newcomers to the transportation scene are ridesharing companies such as Uber and Lyft. By enabling people to turn their personal cars into de facto taxis, the services upended the long-standing taxicab-medallion cartel system and tapped an explosive reserve of unmet consumer demand for point-to-point mobility. Uber and Lyft are also among the most active investors in what is widely projected to be the next phase of the automobile’s development: the autonomous vehicle.
Cars are far from the only mode of transportation undergoing significant innovations, however. In Florida, the “Brightline,” the first private passenger-rail project to be constructed in the United States in a century, is taking paying customers. The privately funded, financed, built, and operated line connects West Palm Beach and Fort Lauderdale, with stations in Miami and Orlando set to follow over the next few years. And Texas Central recently passed its first major federal environmental review on its way to constructing the first true high-speed-rail system on the American continent. Texas Central will connect Houston and Dallas, the fourth- and fifth-largest metro areas in the country, and it will run without state subsidies.
Creativity is also bubbling up in the bicycle world, as many American urban centers have seen bikeshare programs emerge. The market appears to have decided that the time is ripe for such systems to make money. Companies such as Ofo, Mobike, and Limebike are surging into city centers and finding huge numbers of customers. Seattle, for instance, had just wound down its failed city-run bikeshare program when three dockless bikeshare companies filled the void, building the second-largest city bikeshare fleet in the country without spending a single public dime. In China, such dockless bicycle companies, which offer cheap and easy last-mile connections, have dried up the ridesharing services’ market in short-range trips and driven demand back into transit.
To commit enormous federal funds right now while the forms of American mobility are so rapidly shifting, then, would be to bet one’s stack of chips while one’s hand is still being dealt. Instead of rushing to build new roads and highways based on past habits, we should turn our focus to rescuing and reinforcing the investments we have already made. The “crumbling” bridges and roads that President Trump decries will not crumble any less because a new bypass is being built on the other side of town, and maintenance liabilities are already outstripping many communities’ capacity.
Instead of starting another highway-building program, the United States would do well to focus on maintenance, to devolve planning and funding decisions to localities, and to ensure that the playing field is level enough to accommodate whichever road the future of transportation goes down.
– Mr. Coppage is a visiting senior fellow at the R Street Institute, where he studies conservative urbanism and the built environment.
The purpose of the Annual Report of the Council of Economic Advisers is to provide the public and the economic policy community with a detailed account of the performance of the U.S. economy in the preceding year and with an analysis of the Administration’s domestic and international economic policy priorities for the years ahead. In this Report, we thus review the salient policy developments of 2017 and preview policy aims for the coming years, in the context of the Administration’s unified agenda to expand our economy and the economic prosperity of all Americans.
The U.S. economy experienced strong and economically significant acceleration in 2017, with growth in real GDP exceeding expectations and increasing from 2.0 and 1.8 percent in 2015 and 2016 to 2.5 percent, including two successive quarters above 3.0 percent. The unemployment rate fell 0.6 percentage point, to 4.1 percent, its lowest level since December 2000, while the economy added 2.2 million jobs, an average of 181,000 per month. Notably, manufacturing and mining—having lost 9,000 and 98,000 jobs, respectively, in 2016—added 189,000 and 53,000 jobs during 2017. Labor productivity grew 1.1 percent, compared with a decline of –0.1 percent in 2016, and average hourly earnings of private employees rose 2.7 percent, compared with average growth of 2.1 percent during the preceding 7 years. Reflecting the economy’s outperformance of expectations, the January 2017 Blue Chip consensus forecast of 2.3 percent GDP growth in 2018 was revised upward in February 2018 to 2.7 percent.
The four quarters of 2017 thus marked a nontrivial trend shift. From 2010 through 2016, real output in the United States grew at an average annual rate of 2.1 percent, while labor productivity grew, on average, by less than 1 percent. The pace of economic recovery was slow by historical standards, particularly because recent research has confirmed Milton Friedman’s original observation that in the United States, deeper recessions are typically succeeded by steeper expansions, and that this correlation is in fact stronger when the contraction is accompanied by a financial crisis. Since the nineteenth century, the recent recovery was one of only three exceptions to this pattern.
In the Report, we provide evidence that the historically anemic recovery from the Great Recession was not independent of policy choices, and accordingly we proceed to identify the exacerbating factors in the weakness of the post-2009 recovery and the current Administration’s strategies and menu of policy options to address them.
First and foremost, on the historic Tax Cuts and Jobs Act (TCJA), we find that investment and labor productivity have been inhibited in recent years by the coincidence of high and rising global capital mobility and an increasingly internationally uncompetitive U.S. corporate tax code and worldwide system of taxation. This combination had the effect of deterring U.S. domestic capital formation, thereby restraining capital deepening, productivity growth, and, ultimately, output and real wage growth, with the economic costs of corporate taxation thereby increasingly and disproportionately borne by the less mobile factor of production—namely, labor. Indeed, the five-year, centered-moving-average contribution of capital services per hour worked to labor productivity actually turned negative in 2012 and 2013 for the first time since World War II. We estimate that by lowering the cost of capital and reducing incentives for corporate entities to shift production and profits overseas, the corporate provisions of the TCJA will raise GDP by 2 to 4percent over the long run, and increase average annual household income by $4,000.
Similarly, we discuss a large body of academic literature indicating that an excessive regulatory burden can negatively affect productivity growth, and thus overall growth, by attenuating the flow of new firms’ entries and established firms’ exits, and also by amplifying the spatial misallocation of labor and creating employment barriers to entry. We furthermore highlight actions the Administration has already taken to eliminate inefficient and unnecessary regulations, with the effect of raising prospects for innovation, productivity, and economic growth.
On labor markets, we find considerable evidence suggesting, as with regulation, that postrecession efforts to strike a new optimum on the frontier of social protection and economic growth may have sacrificed too much of the latter in pursuit of the former. We also find that while demographic shifts owing to the retirement of aging Baby Boom cohorts exerted strong downward pressure on the labor force participation rate, factors other than demography accounted for one-third of the overall decline in participation during the recovery, and half the decline since the cyclical peak in the fourth quarter of 2007. For instance, we find that increases in fiscal transfers during the Great Recession intended to mitigate the demand-side effects of rising unemployment generated persistent negative effects on the prime-age labor supply. Meanwhile, structural unemployment coterminous with imperfect geographic mobility—exacerbated by regulatory restrictions, drug abuse, and inadequate investment in infrastructure—have similarly intensified downward trends in labor force participation among prime-age workers.
These challenges, however, particularly those of low labor productivity growth and declining labor force participation, are not policy-invariant. For example, policies that incentivize highly skilled and experienced older workers to defer retirement, such as the marginal income tax rate reductions enacted by the TCJA, can have important implications not only for labor force participation but also for productivity. Moreover, by raising the target capital stock, we expect the TCJA to result in capital deepening, again contributing to productivity growth and rising household earnings.
Relatedly, we document the deficiencies of our current public infrastructure, and investigate the adverse effects of these deficiencies on economic growth and consumer welfare, as well as potential remedial policy options. In particular, we examine how the fundamental mismatch between the demand for and supply of public infrastructure capital could be ameliorated by utilizing existing assets more efficiently and by adjusting longrun capacity to levels best matched with local needs, which would allow local governments more flexibility in giving prices a larger role in guiding consumption and investment decisions, and in streamlining environmental review and permitting processes. Moreover, addressing the current inadequacies of our public infrastructure would help to attenuate the coincidence of structural unemployment with imperfect geographic mobility—again, exacerbated by regulatory restrictions—that has been a factor in the decline of labor force participation.
We also look at issues in international trade policy and actions the Administration has taken and could take to generate positive-sum, reciprocal trade agreements with our trading partners. Specifically, in addition to reviewing the benefits of economic specialization and consequent gains from trade, we also demonstrate how instances of unfair trade practices by a subset of our partners have had the effect of limiting the potential gains from trade to the United States and the world, with particularly adverse consequences for the U.S. manufacturing sector. Addressing these issues would raise productivity by encouraging greater investment in sectors where the U.S. economy enjoys a comparative advantage, especially but not exclusively energy and agricultural products.
We then turn our attention to the health of the true catalyst of U.S. economic growth: the American worker. Although the Affordable Care Act (ACA) expanded insurance coverage to at most 6 percent of the U.S. population—through Medicaid, marketplaces, and the dependent coverage provision—we survey a large body of academic literature that estimates the effect of insurance coverage on health to be substantially smaller than commonly presumed. Indeed, for the first time in over 50 years, U.S. life expectancy declined in 2015 and 2016, suggesting that factors such as drug abuse, particularly of opioids, and obesity may have a larger impact than insurance coverage alone can redress. Instead, we find that increased choice and competition, along with a recognition by policymakers that the determinants of health are multidimensional, may constitute more efficient avenues for improving health outcomes, particularly among lower-income households. Fundamentally, it is the view of this Council that healthy people not only live longer, more enjoyable lives but are also an essential component of reversing recent trends in labor productivity and labor force participation.
We then consider the emerging challenge of cybersecurity, particularly in the context of our ongoing transition to an information economy. Malicious cyber activity presents new threats to the protection of property rights, including rights to intangible assets and even information itself, and thus imposes large and real costs on the U.S. economy. Given the existence of positive externalities from investing in cybersecurity, we discuss policy options that might shift this investment to its socially optimal level, including public-private partnerships that promote basic research, protecting critical infrastructure assets, disseminating new security standards, and expanding the cybersecurity workforce.
Finally, we examine the year in review and survey the years ahead. Acknowledging underlying strengths and challenges, the Administration’s November 2017 baseline forecast, which excludes the effects of the TCJA, projects that output will grow by an overall average annual rate of 2.2 percent through 2028. The policy-inclusive forecast, however, which assumes full implementation of the Administration’s agenda, is for average annual real GDP growth through 2028 of 3.0 percent. We expect growth to moderate slightly after 2020, as the capital-output ratio approaches its new steady state level and the pro-growth effect of the individual elements of the TCJA dissipate, though the level effect will be permanent. However, expected further deregulation and infrastructure investment will partly offset the declining contribution to growth of tax cuts and reforms toward the end of the budget window. The policy-inclusive forecast is conservative relative to those of previous Administrations, and in fact is slightly below the median of 3.1 percent. Moreover, the baseline forecast is precisely in line with the long-run outlook given in the 2017 Economic Report of the President, reflecting our view that nonimplementation of the current Administration’s policy objectives will imply a reversion to the lower growth trend of recent years.
Preliminary indicators suggest that markets indeed detect a trend shift. In the weeks immediately following the TCJA’s passage, over 300 companies announced wage and salary increases, as well as bonuses and supplementary 401(k) contributions of $2.4 billion affecting 4.2 million workers, citing the new law. In addition, by the end of January 2018, this Council tallied $190 billion in newly announced corporate investment projects that were publicly attributed to the TCJA, revealing that firms are responding to the TCJA as theory and empirical evidence predicted.
As a society, we hold many values and aspirations, including but not limited to expanding economic prosperity, that may not exist always and everywhere in complete harmony. It is the view of this Council that in recent years, the pursuit of alternative policy aspirations at the expense of growth has imposed real economic costs on the American people, in the form of diminished opportunity, security, equity, and even health. We therefore endorse an agenda for returning the American economy to its full growth potential.
With the release (PDF) of its Legislative Outline for Rebuilding Infrastructure in America, the Trump administration announced its intent to rely on state, local and private investment to provide the lion’s share of new infrastructure funding. Local projects with the highest non-federal share of funding would have priority and a project’s economic benefits to the public would take a back seat to revenue potential in the plan’s ranking system. But with its lack of new federal funding, the plan may not be the best path to economically beneficial or creative solutions to America’s most serious regional, national and long-term problems.
The plan would diminish the federal role in funding and regulation and reduce requirements for environmental permit reviews that the administration blames for slowing project approvals. Private developers would be incentivized to play much larger roles in financing public infrastructure.
State and local governments today bear 62 percent of the cost of building new transportation and water infrastructure and 92 percent of their annual operations and maintenance costs. Annual public spending on transportation and water across all levels of government currently exceeds $400 billion (PDF). The federal share is under $100 billion. Freight railways are almost all privately owned, but private ownership accounts for less than 1 percent of America’s surface transportation and water infrastructure assets.
The president’s plan asserts that federal spending of $200 billion over the next 10 years will unleash some $1.3 trillion in new spending by states, local governments and private developers for a total of $1.5 trillion. But most of the $200 billion would likely come from cuts in existing infrastructure and other domestic programs—it would not be “new” money on top of current federal infrastructure programs unless Congress acts to raise the gas tax or generate other new revenues.
How the six- or seven-fold increase in state, local and private investment would happen is a mystery. The plan includes $20 billion for federal spending on “transformative projects,” defined as projects with positive impacts unlikely to attract private investment.
Block grants to rural states for spending on infrastructure are another element of the plan, with a total set-aside of $50 billion. Rural economies need a boost, but the vast majority of aging infrastructure and most economic growth are in highly urbanized states.
Even more important than imprecision about national spending priorities is the absence of clarity about the future federal role and the need to raise new revenues and increase direct spending on infrastructure. With the interstate highway system complete, many believe federal leadership in transportation funding is no longer necessary and that the federal share of transportation spending, now less than 25 percent of the annual $220 billion (PDF) total, can continue to decline. They maintain that local projects should be supported by local resources, public and private. This is already the case for water and wastewater utilities where the federal share is only 4 percent, although most local governments depend on federal subsidies through tax-exempt municipal bonds for financing and low-interest loans through federal and state programs.
Federal retreat is appropriate for projects that largely benefit local populations. But an entirely different class of projects could bring widespread benefits to larger regions and the nation as a whole. Such projects would transcend state boundaries and promote clearly national goals. Harbor improvements, major flood control works on the nation’s great rivers,and the interstate highway system were the reasons the federal government years ago began funding “internal improvements.” The Clean Water Act of 1972 cleaned up the nation’s rivers and streams. It initiated a massive public works program to help cities of all sizes build secondary sewage treatment plants to comply with new water quality standards.
The nation has different needs now, but there still are national needs. More than 60 percent of the interstate highway system was built before 1970, and a renewed national road network is needed no less in the current era of fast-changing new road and vehicle technologies than it was in the 1950s. Freight hubs connecting rail, roads and ports around the country are congested and reaching their limits. The plan would allow states to toll interstates to raise needed money for improvement, but it does not mention how the bankrupt federal highway trust fund could be put on sound footing.
Urban mass transit—considered a national asset in other countries—provides economic and environmental benefits that cannot be fully financed by fares. The plan requires local governments to capture land value increases near transit stations to fund transit, but does not commit sufficient federal money to match local revenue. Coastal and riverine cities are struggling to keep up with increasing threats from stormwater flooding, with federal spending on recovery from natural disasters—mostly flood-related—exceeding $300 billion in 2017 alone. Federal spending on protection could save federal money on recovery.
The conversation about national infrastructure policy should be not only about which level of government or which private investors will put up the money. It should be a call for imagination and vision of what U.S. infrastructure needs to be for a prosperous 21st century. The conversation could and should transcend party politics. Achieving that could be the biggest transformative project of all.
This commentary originally appeared on U.S. News & World Report on February 16, 2018. Commentary gives RAND researchers a platform to convey insights based on their professional expertise and often on their peer-reviewed research and analysis.
The White House Feb. 12 released the detailed infrastructure package that President Donald Trump promised throughout his first year in office. It arrived the same day the administration issued its FY2019 budget, the day has finally come.
The introduction of the 55-page “Legislative Outline for Rebuilding Infrastructure in America”, says: “To help build a better future for all Americans, I ask the Congress to act soon on an infrastructure bill that will: stimulate at least $1.5 trillion in new investment over the next 10 years, shorten the process for approving projects to 2 years or less, address unmet rural infrastructure needs, empower State and local authorities, and train the American workforce of the future.” The president adds, “My administration is committed to working with the Congress to enact a law that will enable America’s builders to construct new, modern, and efficient infrastructure throughout our beautiful land.”
The plan details differ little from what Trump administration officials have discussed for months. The main focus is largely on incentivizing state and local governments and private sector entities to use their money to capture some of the $200 billion the administration proposes to spend. The plan also reforms and speeds the construction project approval process at the federal level and increases workforce capacity to carry out the jobs that may be needed and created because of this investment.
As expected, the Trump administration’s infrastructure package does not address the looming Highway Trust Fund (HTF) solvency problem. Beginning in FY 2021, the HTF will need roughly $18 billion per year, on average, to avoid severe cuts in the amount of annual investment levels of the federal highway and transit programs during subsequent years. In fact, the proposal only raises the HTF in passing and without addressing the looming fiscal crisis. Moreover, the package does not include a way to pay for the $200 billion in federal resources the president is recommending.
Here is a breakdown of how the package intends to leverage the federal dollars to produce as much as $1.5 trillion in total investment:
Infrastructure Incentives Program ($100 billion), a competitive grant program for projects including major investments by states, localities, and the private sector. It would be administered by the U.S. Department of Transportation (DOT), U.S. Environmental Protection Agency (EPA) and the U.S. Army Corps of Engineers. The plan does not say how much would be allocated to each agency. As part of the selection process, the plan does weight heavily towards how much new, non-federal revenue can be brought to the table for a project. The federal share is capped at 20 percent per project, and no state can receive more than 10 percent of the $100 billion.
Rural Infrastructure Program ($50 billion) that aims to improve the condition of infrastructure, enhance regional connectivity and access to markets and employment opportunities and spur economic growth outside cities. Eligible projects would include transportation, broadband, water, power and electric infrastructure. In this program, 80 percent of the funding would be distributed by a formula based on population of less than 50,000, and lane mileage. The remaining 20 percent would be distributed via a performance grant program for states that submit a comprehensive infrastructure investment plan. Tribal and U.S. territorial areas would also be eligible for funding under this program.
Transformative Projects Program ($20 billion) would provide federal funding for, “bold, innovative, and transformative infrastructure projects that could dramatically improve infrastructure” but are, for various reasons, considered too risky for private sector investment. The U.S. Department of Commerce would oversee this program, with consultation as needed from other departments, and eligibility would include all previously mentioned uses of infrastructure as well as “commercial space”. Up to 50 percent of planning costs and 80 percent of construction costs could come from this program.
Infrastructure Financing Programs ($20 billion) would allocate an additional $14 billion for the expansion of existing federal credit programs, including the Transportation Infrastructure Finance and Innovation Act (TIFIA), Railroad Rehabilitation and Improvement Financing (RRIF) program and Water Infrastructure Finance and Innovation Act (WIFIA). This additional funding would allow the administration to further diversify the portfolios for these programs. Specifically, port and airport infrastructure projects would be eligible for TIFIA credit assistance, which is currently limited to highway, bridge, transit and certain intermodal projects. The RRIF program would be amended with incentives for short-line freight and passenger rail projects.
Another $6 billion would be used to broaden eligibility for tax exempt Private Activity Bonds (PABs). This financing tool has been an option for certain highway and freight facility projects since 2005, subject to an overall cap of $15 billion. The proposal would remove this cap (as well as similar state volume caps) to strengthen the certainty of PABs’ future availability. The administration would also enable PABs to be used for reconstruction projects, longer-term private leases and concession arrangements, and a number of new non-transportation infrastructure categories.
Federal Capital Financing Fund ($10 billion) to help federal agencies purchase real property and pay for it over a 15-year period rather than the current requirement that this be done within one year. The fund would help finance these purchases and the relevant department would repay the fund in 15 installments via annual appropriations. The aim is to save money in the long run by hopefully avoiding some cost-prohibitive leases.
Transportation Financing and Contracting
The administration’s proposal would enable states to toll existing Interstate facilities, and use tool revenues to benefit certain surface transportation infrastructure projects beyond the scope of the tolled facility itself. Similarly, states would be able to commercialize rest areas on Interstate highways, provided they “reinvest” the proceeds in the same corridor.
The administration also seeks to eliminate normal federal-aid requirements for highway and transit projects where federal dollars are “de minimis” and for smaller projects largely out of the federal-aid highway right-of-way. A state would also have the option to repay a project’s federal share to the HTF and terminate the need to comply with federal requirements in its maintenance and operations. In the same vein, “federalization” requirements for projects funded by state infrastructure banks would be reduced. The proposal would also raise the threshold for “major” highway projects from $500 million to $1 billion, in order to decrease the number of these larger projects subject to additional supervision and administrative requirements by the Federal Highway Administration (FHWA).
Enable federal land management agencies (such as FHWA’s Federal Lands Highway Division) to use a wider variety of alternative contracting and project delivery methods.
Expand existing pilot programs intended to encourage public-private partnerships (P3s) and partnerships between public agencies for transit capital projects, and enable the privatization of airports.
Authorize utility relocation for highway and transit projects to take place prior to completion of the National Environmental Policy Act (NEPA) process.
Require the use of “value capture financing” as a prerequisite for certain transit capital
grants. As an example, private entities benefiting from a transit project may be asked to share in its cost through a tax, fee, assessment or other arrangement.
Establish an Interior Maintenance Fund that would allow the U.S. Department of the Interior to keep half of the revenues collected from new energy and mineral exploration in order to address the deferred infrastructure maintenance backlog – including roadways – within the inventories of the National Park Service and the U.S. Fish and Wildlife Service.
Allow the disposition of federal real property, making it easier to sell federal government-owned assets that may better be managed or owned by states, localities or the private sector.
Project Approval Process
President Trump’s infrastructure proposal would make significant changes to the environmental review and approval process for transportation construction projects. The proposal builds on his August 2017 executive order on reforming the permitting process by setting a two year time limit for environmental reviews. Specifically, the lead agency on any project would have 21 months to complete an environmental review and then additional permitting requirements from other agencies would have to be completed three months thereafter. A number of reforms to NEPA are also made, including limiting the range of alternatives to options which are feasible and eliminating duplication of agency review efforts. The plan would also revoke EPA’s authority to review NEPA decisions made by other agencies.
The proposal also calls for changes to major environmental laws impacting transportation construction. Specifically, the plan would remove EPA from the wetlands permitting process (making the U.S. Army Corps of Engineers solely responsible for such permits) and eliminate EPA’s ability to retroactively veto Clean Water Act permits. Additionally, the Clean Air Act’s transportation conformity process would be altered by requiring that it apply only to the most recent set of National Ambient Air Quality Standards (NAAQS). This would eliminate the problem of counties struggling to meet old standards when new ones are introduced. The plan would also eliminate duplicative regulatory requirements for historic sites and parklands.
NEPA delegation – such as that currently done by FHWA – would also be expanded to other agencies under the proposal. Additionally, the program would be broadened to include delegation of regulatory responsibilities outside of NEPA, including Clean Air Act transportation conformity decisions, flood plain determinations and noise policies. Also, changes would be made to the way in which courts review challenges to transportation projects. Under the plan, courts would only be able to halt transportation projects for legal challenges in “exceptional circumstances.” In addition, federal agencies are directed to establish guidelines on the timeliness of data used in environmental permitting decisions. Once these guidelines have been established, courts will not be able to entertain challenges to agency data based on whether or not the information is current.
Because of an anticipated increase in construction and other employment resulting from infrastructure legislation, as well as related economic growth, the administration proposes numerous improvements and reforms to federal education and training programs. These include:
Expand Pell Grant eligibility to individuals seeking a vocational certification or credential, often through a short-term educational or apprenticeship program.
Reform the Perkins Career and Technical Education program with the objective of improving access to high-quality technical education in secondary and post-secondary institutions. This would include directing a larger share of Perkins funding to high schools, in part to “fast track” interested high school graduates to infrastructure-related jobs.
Grow the eligibility for the Federal Work Study program among students pursuing career and technical education, particularly low-income and low-skilled students seeking quick entry or reentry to the workforce.
Require states accepting federal dollars for infrastructure projects to allow participation by workers with skilled trade licenses from other states.
Trump Administration’s FY 2019 U.S. Department of Transportation Budget Proposal
Conventional Washington wisdom says that any administration’s budget request is usually “dead on arrival.” That may be especially true this year. Congress and the administration agreed Feb. 9 on overall discretionary funding levels for both defense and non-defense spending for FY 2018 and FY 2019. The deal by congressional leaders and the president increased spending by more than $300 billion over FY 2017 funding levels, a portion of which will undoubtedly go towards transportation programs. The question is which programs?
The budget deal combined with the Trump administration’s infrastructure package release make the transportation sections of the FY2019 budget somewhat subdued. However, the president’s budget is helpful in that it demonstrate the areas the administration feels should be emphasized and those that may be reduced or eliminated. Congress controls the “power of the purse,” however, and will make most of the funding decisions, despite the administration’s request.
Federal Highway Program
For FY 2019, the administration’s budget for highways conforms to the amount enacted in the FAST Act, as it did for FY 2018. The budget recommends $46.001 billion in new contract authority, up from $44.924 in FY 2018, and an obligation limit of $45.269 billion, up from $44.234 in FY 2018. Both FY 2019 figures represent an increase of 2.3 percent over FY 2018. In addition, $739 million of contract authority could be obligated above the limitation, bringing total obligation authority for the year to $46.007 billion. This represents a significant change from the FY 2018 budget, when the administration recommended freezing highway program funding for FY 2019 at the FY 2018 level.
Nonetheless, the long-term outlook for the highway program remains highly uncertain. At current funding levels, outlays from the highway account exceed projected revenues by about $8-$9 billion per year. The balance in the highway account will be dissipated by the end of FY 2021. In response, the administration’s budget includes the following adjustments:
First, the administration’s budget assumes a freeze on new contract authority and obligations at $43.969 billion per year through FY 2028. By contrast, the FAST Act provides for annual growth of just above 2 percent, or close to $1 billion, annually. A freeze thus means the obligation limitation in FY 2028 would be about $10 billion less than continuation of the FAST Act.
Even more critical, however, is the forecast that outlays for highways will have to be cut from $47 billion in FY 2021 to $36 billion in FY 2022 and beyond. In essence, rather than raise new revenues, the administration is proposing to limit payments to states and contractors from the Highway Trust Fund after FY 2021 to no more than projected HTF revenues under current tax rates. To fill the $11 billion gap, states would have to use their own funds, stop construction work on some projects, or slow down reimbursements to contractors.
Public Transportation Program
The Mass Transit Account of the Highway Trust Fund is the source of funding for the Transit Formula Grants program, which includes money for a wide variety of transit needs, including operations and maintenance of urban transit facilities, bus purchase and repair, repairs to fixed guideway transit systems, transit programs in rural areas, and transit for seniors and persons with disabilities, among others. For FY 2019, the Trump administration proposes to provide $9.90 billion for the Transit Formula Grant program, down from $10.5 billion in FY 2018. Longer term, like the highway program, the Highway Trust Fund can continue to pay for the transit program only for another couple years before revenue constraints force a cut. Following FY 2021, the administration’s budget proposes a reduction in outlays for the transit formula program from $10.1 billion to $6.3 billion in FY 2023 and beyond. Absent new revenues, this would mean significant program cuts or a greater burden on state and local governments to fund mass transit needs.
Only a small fraction of Formula Grant funds, however, are used for construction of transit facilities. Most funding for major transit project construction goes through the Capital Investment Grants/New Starts program. In recent years, this program has been funded from the general fund and requires an annual appropriation. For FY 2019, the administration’s budget recommends cutting new money for this program to $1 billion, down from $2.4 billion in FY 2018, and using the funds only to continue construction activity on ongoing transit projects. There would be no federal funding for new transit projects. Longer-term, the budget projects funding for Capital Investment Grants to remain at the $1 billion level through FY 2028.
Highway Trust Fund
A $70 billion infusion of general funds into the Highway Trust Fund under the 2015 FAST Act will, according to the FY 2019 budget, keep the trust fund solvent through FY 2021. After that, however, the trust fund will not be able to maintain existing funding for highway and transit improvements without new revenues, either in the form of another general fund transfer or an increase in highway user fee revenues.
Unfortunately, this critical issue is not addressed in either the FY 2019 budget or the Administration’s Rebuilding Infrastructure in American plan. According to the FY 2019 budget, the federal motor fuel and truck taxes will generate no more than $42 to $44 billion per year in revenues into the Highway Trust Fund for the foreseeable future. At the same time, annual outlays of $55 to $58 billion per year from the trust fund would be required just to maintain existing levels of investment in the federal highway, transit and highway safety programs. As a result, the balance in the highway trust fund would be depleted by the end of FY 2021.
The administration’s response to this bleak Highway Trust Fund forecast is two-fold:
After FY 2021, limit outlays for the federal highway, transit and transit safety programs to Highway Trust Fund revenues. As the table shows, this means cutting outlays by about $13 billion.
Shift responsibility for investing in transportation infrastructure to state and local governments, as well as the private sector.
The Trump administration once again is advocating for the privatization of the nation’s air traffic control system. House Transportation & Infrastructure Committee Chairman Bill Shuster (R-Pa.) passed legislation out of his committee in 2017, but it did not advance beyond that stage and has generated substantial opposition from Republicans in the House and Senate. Under the administration’s approach, the aviation passenger ticket taxes would be reduced and the new entity would impose new user fees to support the system.The budget proposes continuing Airport Improvement Program (AIP) funding at $3.35 billion—the level at which it has been since FY 2012. The AIP is the federal capital construction program that airports use to build and maintain runways, taxiways and other critical infrastructure.
Other Transportation Programs
The Trump administration FY 2019 budget also calls for:
No funding for the National Infrastructure Investments program, or TIGER Program, which was initiated by the Obama administration and provides grants from the federal general fund for a variety of transportation projects—highway-related activities are the historically largest recipient of the program. Congress provided $500 million in FY 2017.
A $962 million cut in Amtrak funding over FAST Act authorized FY 2019 levels, a 57 percent reduction, and cuts to several other smaller rail programs.
$1.25 billion, or 21 percent, cut to the Army Corps of Engineers budget from what was enacted in FY 2017. These programs, among other things, support port and water infrastructure activities.
Now that the Trump administration’s infrastructure plan is public, the real work begins in the halls of Congress. The authorizing committees will likely hold hearings on the administration’s plan in the coming weeks and will, hopefully, begin crafting legislative language to move promptly through the House and Senate.
The president’s detractors, including the media, will likely focus on what’s missing from the plan. Some of that criticism is justified, given the absence of a HTF user fee solution. However, ARTBA will continue pressuring Congress and leadership on both sides of the aisle, in particular, to move an infrastructure package forward that includes a HTF revenue solution as its foundation.
President Trump’s plan is like the starter’s gun at an Olympic speed skating race. In order for a package to be completed before Congress begins to focus full time on the November midterm election, we need to work hard to make sure this package moves at a record-breaking pace.