The Bush Administration’s $2.13-trillion budget proposal for the 2003 fiscal year includes a drastic $8.6-billion cut in federal highway funding, causing serious concern in the construction industry about possible delay of projects and potential loss of thousands of jobs.
The 27 percent reduction in funding — from this year’s $31.8 billion to $23.2 billion — is part of a proposal that observers said would launch “a new era of deficit spending” (including an $80-billion deficit for the FY beginning Oct. 1). The new budget would eliminate or cut scores of government programs to support increased spending for defense and homeland security.
In congressional testimony, special reports, press releases, and surveys of states, the construction industry swiftly questioned the highway cuts, which are among the largest in the budget.
“This blow comes at a time when many states are hard-pressed by the faltering economy and can-ill afford further budgetary impacts,” said Brad Mallory, president of the American Association of State Highway and Transportation Officials (AASHTO) and secretary of the Pennsylvania Department of Transportation.
Mallory’s comments were in a forward to a special AASHTO report, called “Shortchanging America,” on responses from 43 states to a special association survey on the potential impact of the proposed reduction.
“It is clear the impacts are even worse than might have been anticipated,” Mallory said. “They will affect both projects ready to bid and those in the pipeline; delay needed improvements in both urban and rural areas; and whittle away at prospects for future highway funding in the next reauthorization at a time when the economy greatly needs the productivity gains which transportation investment affords.”
The report estimated that the cuts “could result in over 150,000 jobs lost in the peak year.” It also warned that, because many states use federal funding for critical preliminary planning and construction activities, the impact will be felt well beyond Fiscal 2003.
AASHTO said that in Pennsylvania, Mallory’s state, “the reduction will include an approximate $100-million total funding impact in other non-construction phases of project development, including design, right-of-way purchase, and utility relocation.
Other states in the survey also saw possible serious slowdowns (see Infrastructure Insecurity).
The psychological impact of the proposed cut on state highway planning is huge .
“Bush’s proposal brings in that element of uncertainty which we thought we removed with the guaranteed funding of the TEA-21 legislation in 1998,” Nick Yaksich, vice president, government affairs, of the Association of Equipment Manufacturers (AEM) in Washington, D.C., told Construction Equipment Guide.
“It brings in some instability. Is that money going to be there in the future? We need to go back and shore that up, make sure the stability is there.”
Jennifer Gavin, a spokesperson for AASHTO, said the fiscal year construction season for at least 30 states begins in July, so that funding uncertainty affects both the upcoming season this summer and their next season beginning in July 2003.
“These states say they need an answer now,” she said. “What we need is a fiscal 2003 correction to get states past the cliff they’re facing. There’s a long pipeline before actual construction. You can’t have a money-here, money-gone process. A lot of projects underway or planned will not happen if this is allowed to continue.”
TEA-21 authorizations conclude with the 2003 federal fiscal year beginning Oct. 1, 2002. Congress is expected to resolve the questions before Sept. 30 because this is an election year. That done, it will then reauthorize highway and transit funding next year in a new transportation bill that will begin in the government’s 1994 fiscal year.
In explaining the cuts, budget officials said the White House was obeying a provision in the 1998 six-year act called “revenue-aligned budget authority” (RABA), which ties highway funding to receipts into the Highway Trust Fund (HTF). The provision was meant to ensure that revenue collected in the HTF above authorization levels would be fully spent. But it also calls for decreases in budget authority and obligation levels should the revenue fall short of projections.
During the past three years, the RABA mechanism brought at least $9 billion into the highway program ($4.5 billion above authorized levels last year).
This year, the downside is coming into play. The Department of the Treasury said revenue into the fund has fallen $4.369 billion short of earlier estimates. The balance in the HTF is currently $19.3 billion.
The HTF, and the highway program, is tied to user fees, which not only include gas tax receipts, but also the sales tax on trucks and tires and other items.
Tax receipts from truck sales, for instance, fell $1.5 billion last year because of the economic slowdown.
Treasury officials also cited lower receipts because gasohol, being more widely used to replace an air-polluting additive to regular gasoline, is taxed at a lower rate than regular fuel.
Industry officials, and members of Congress, questioned the accuracy of the projections, which were made by the Department of the Treasury. Congress is asking the General Accounting Office (GAO) to review the methodology that was used.
“This wasn’t a policy decision of the Administration; it was a budgetary decision,” Yaksich said. “The budget number crunchers looked at the revenue coming in; there’s a process where they look forward and look back and come up with the money. saying ’Here’s what you’ve got.’ A lot is estimations which you can challenge.”
Approximately 80 percent of HTF receipts come from taxes on motorists’ fuel.
“We don’t see a plunge in gas tax revenue which corresponds to the cut,” said AASHTO’s Gavin. AASHTO’s President Mallory said that “state DOT officials are perplexed by treasury’s RABA-related projections because they assume a massive slide in the tax receipts into the trust fund. That is not happening in Pennsylvania. Motor fuel tax receipts in our state. and other states around the country, continue to be steady.”
Many industry organizations also are calling for maintaining the present level of funding by tapping the existing balance in the HTF.
“When we learn that since TEA-21 was enacted that the trust fund’s highway account balance has grown to $20 billion — and includes billions in surplus revenue — we don’t even know why there is a problem,” said Tom Hill, senior vice chairman of the American Road & Transportation Builder’s Association (ARTBA) in Washington, D.C. Hill was testifying before the Senate Environment & Public Works Committee. He is chief executive officer of Oldcastle Materials Inc., Washington, D.C., the largest materials supplier and paving contractor in the United States.
Major questions, however, include: how much of the balance is free to use, how much is already “collaterized” (committed) for highway projects, and how much can meet the short-term funding gap?
Congress is asking that the GAO analyze exactly how much is available in the HTF balance.
“We feel the balance probably will be adequate to meet the 2003 problem,” said Gavin. “We want $8.6 billion, and are hoping to receive it. If we get less, it will be a question of keeping enough money flowing to keep projects moving and alive until the entire amount if reauthorized [in a new highway bill].”
“I think the biggest thing is going to be time,” said AEM’s Yaksich. “There’s bi-partisan support for restoring the cuts. The question is how much of the $8.6 billion you can get back if money is available.”
The National Governors Association, at its annual meeting in Washington, on Feb. 25, supported restoring the entire $8.6 billion. Bipartisan legislation has been introduced to restore at least $4.4 billion of the cut. Rep. Don Young, R-AK, chairman of the House Transportation Committee, called the Bush proposal “a drastic cut” while Sen. Christopher Bond, R-MO, said that highway spending was “a matter of life or death” because it was building safer roads.
The Bush budget plan, for the first time formally assesses the performance of government agencies and programs, and partly links their financing to grades they receive. The Department of Transportation scored low (at least one serious flaw) in four of the five categories that the Administration graded: personnel, competitive sourcing, financial management, and e-government.
Under the proposal, total spending authority would drop 2 percent for the Department of Transportation, 5.7 percent for the Environmental Protection Agency, and 12.7 percent for the Army Corps of Engineers. The $4.2-billion cut for the latter would halt construction of new projects while the agency clears up a backlog of old projects, building dams and dredging harbors.
Money for public housing would be cut by 6 percent, to $6 billion, while the Public Housing Capital Fund, which pays for repairing thousands of dilapidated housing units would be cut 14.7 percent, to $2 .4 billion.
The budget proposal also provides $521 million for Amtrak, which has requested $2.1 billion, but the Administration called the lesser number a “place-holder” until a new policy on Amtrak funding can be considered.
The Bureau of Prisons budget would drop 2.9 percent, allotting $400 million less for new construction than in 2002.
Budget deficits are projected for the next three years, most of Bush’s current term. Under the new budget proposals, the government would use all of the Social Security surpluses to help fund programs for the next two years, and also borrow from the general public. It would then spend more than $100 billion of Social Security funds in the following three years.
The Administration also predicts, however, that the economy will grow at an average rate of 3.1 percent from 2002 until 2012. CEG
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