Senate Progresses on Surface Transportation Reauthorization

Manatt on Washington

As the 116th Congress begins its August recess, one of the few big issues with bipartisan support—reauthorization of surface transportation programs—is making progress in the Senate. The Senate Environment and Public Works (EPW) Committee, chaired by Sen. John Barrasso (R-WY), has released its draft bill and holds a markup this week.

Following the 2016 election, there had been widespread hope that pursuit of a broader $2 trillion infrastructure package would bring together the Trump administration and Republicans and Democrats in Congress. Confronting the nation’s aging infrastructure beyond highways and transit to include, schools, water systems, broadband expansion and such other public needs was advocated on all sides. Such hope was short-lived, however, as talks broke down on the politics and acrimony between the parties.

Today, aspirations of a broader bill have narrowed to securing reauthorization of surface transportation programs. The current funding and authorization bill, the Fixing America’s Surface Transportation (FAST) Act, is set to expire in October 2020, and both the Senate and the House of Representatives are working toward a five- or six-year replacement bill.

In the Senate, the EPW Committee released its bill, the America’s Transportation Infrastructure Act (ATIA), on Monday and plans to mark up the bill this week. The bill authorizes $287 billion in state highway spending authority for fiscal years 2021 through 2025, a roughly 28 percent increase from the current FAST Act levels. Although all the details have yet to be reviewed, committee hearings previewed the issues to watch for: funding/stable revenue source; rural/urban needs; resiliency and climate change; project streamlining; and safety. A few notable provisions include a new $6 billion bridge program, new grant programs to address transportation-related emissions and climate change, and new federal resources for alternative fueling stations along certain interstate corridors. The other Senate committees with jurisdiction over surface transportation bills (Banking, Commerce and Finance) are working on the issues but have yet to schedule markups.

In the House, which has already recessed, the Transportation and Infrastructure Committee has yet to announce action on a FAST Act replacement beyond hearings. Rep. Peter DeFazio (D-OR), the chairman of that committee, has indicated that he will push for a “robust, six-year transportation bill,” and that he is considering changing or narrowing the criteria for certain Department of Transportation grant programs in the reauthorization. He also wants to bring back congressionally directed spending, or earmarks, in any bill emerging from his committee. His timing for a bill is likely to be late fall or even early 2020.

Politically, the clock is ticking for reauthorization, with the current bill is set to expire after September 30, 2020—at the height of a presidential election that is expected to be hotly contested. As such, leadership needs to move quickly or the bill will get caught up in the heightened partisanship of the general election. If the reauthorization is left undone at the 2020 August recess, the chances of Congress simply extending the FAST Act beyond its current expiration date (as happened with SAFETEA-LU, the 2005 highway bill, ten times) increases significantly.

Funding

Of all the issues to watch for in a surface transportation bill mentioned above (more on those later), how to fund the bill is the most difficult. Finding new revenue sources or offsets for a bill that will likely exceed $300 billion will be the major challenge facing committee members and leadership.

Gas Tax Increase

The most obvious place to start with a transportation bill is by raising the excise tax on fuel, which has not been raised in more than 25 years and still sits at 18.4 cents per gallon for gasoline and 24.4 cents for diesel fuel. The current gas tax accounts for 85 percent to 90 percent of the totals paid into the Highway Trust Fund (HTF) by users, and the failure to increase the tax is a major cause of the HTF’s growing deficit, which the Congressional Budget Office projects will be $19 billion-a-year between FY2021 and FY2025. In the past, raising the gas tax has been opposed by members of Congress who fear that voters will blame them when fuel prices go up dramatically. Attitudes may be shifting, however, as some Democrat and Republican members are calling for an increase and the U.S. Chamber of Commerce, a major business advocacy organization, has called for the gas tax to rise to 25 cents per gallon. At the state level, this change is even more pronounced, with 28 states having raised their own gas taxes since 2013. Nevertheless, opposition to raising the gas tax is still widespread, and Chairman Barrasso has indicated his opposition. As such, the search continues for other revenue sources.

VMT

Another usage-based fee being discussed is a vehicle miles traveled tax, which would levy a tax based on how many miles a motorist travels. Chairman DeFazio has proposed a pilot program to test the feasibility of such a policy at the national level, and a few Western states, including California, have conducted their own limited studies. Implementing such a fee presents substantial administrative, financial and privacy barriers.

P3s

Public-private partnerships (P3s) refer to partnerships between a public entity—be it a federal, local or transit agency—and private investors to finance infrastructure projects. Typically, these private companies would recoup their investments with ongoing user fees in the form of tolls, container fees or building rents. Although these agreements minimize the amount of public-sector funding necessary, there are drawbacks and limitations to their viability. P3s have proven somewhat successful and widespread in Canada and the U.K., but fewer projects in the U.S. have utilized this model. This is in part due to the fact that while investors need to be paid back for their investment, not all projects can support user fees or identify a revenue stream. Since 1993, there have been only 30 surface transportation long-term P3s with project costs totaling $39 billion. 

Other Proposals

Other proposals that have been identified but seem unlikely include switching the fuel tax to a sales tax that would rise with the price of fuel; levying a carbon tax and dedicating funding to transportation programs; levying electric vehicle taxes; selling government-held debt; and selling or leasing government-owned infrastructure assets.

For more than a decade, the deficits in the HTF have been backstopped by transfers from the Treasury general fund. This method of funding transportation has never been made permanent or entirely formal. Doing so would significantly alter the funding structure for federal aid transportation projects, which has been based on users footing the bill. This change would, however, circumvent the difficult politics of raising the gas tax, the administrative difficulties of a VMT and the uncertainty of P3s. 

In sum, the process of reauthorizing surface transportation programs is a complicated process, with the Senate Banking Committee to weigh in on transit programs, Senate Commerce to provide the rail and safety sections, Senate Finance to identify funding and the House to set forth its own proposal. The EPW bill is just the beginning.