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What Do the Results of Election 2012 Really Mean for the Transportation Industry, and What is the Prognosis for MAP-21?

By Mark S. Kuhar

For the 2012 election season, it is all over but the shouting. Many people are glad it is over. Many more people are shouting. The National Stone, Sand and Gravel Association summed up Election Day like this:

“After two years and billions of dollars spent on the presidential and congressional races, 2013 will still look a lot like 2012 in Washington. President Obama was re-elected and Democrats kept their Senate majority, picking up Republican-held seats in Massachusetts and Indiana. An independent won the seat of retiring GOP Sen. Olympia Snowe in Maine and will caucus with the Democrats.

“Senate Republicans have been able to flip only one seat currently held by Democrats into their column – Nebraska. Even with 23 of 33 seats on the line, Democrats have added two seats to their senate majority. On the House side, Republicans held their majority, but it is unclear whether their final number will be up, down or dead – even from where they are in the current Congress.”

American Road & Transportation Builders Association President and Chief Executive Officer Pete Ruane said the following about the election results:

“The centerpiece of both campaigns was about growing the economy, creating jobs and getting America’s fiscal house in order. Despite the deep divisions evidenced in the election results, there are certain priorities in which we all agree. Developing a comprehensive solution for the nation’s staggering transportation infrastructure challenges is one of these areas, and is wholly consistent with the economic and budgetary priorities shared by both parties. It begins with the establishment of a dedicated and sustainable transportation-related revenue source, not on the further reliance of limited general funds. Urgently needed infrastructure improvements should not add to the deficit or detract from other government programs.”

The transportation-related proposals put forward by the Simpson Bowles Commission, for example, provide a road map for the continued success of the user fee principle and long-term solvency of the federal Highway Trust Fund.

“The two-year highway and transit law – MAP-21 – proved at least one thing,” Ruane said. “There is still strong bipartisan support on Capitol Hill for transportation improvements. The law includes worthy national goals and greater accountability. When fully implemented, it will help make the surface transportation programs more efficient. Now it’s time to finish the job by providing a long-term solution that will provide the revenue stream necessary to ensure the nation’s highway, bridge and transit network promotes economic growth rather than impedes it.”

MAP-21 Dead Ahead
As we look ahead, what do the election results mean for our industry? Patton Boggs, one of the best law firms in the country focused on mining and construction materials, offers an extensive examination of MAP-21 and its potential impact:

On July 6, 2012, President Obama signed into law the Moving Ahead for Progress in the 21st Century Act (MAP-21), a two-year reauthorization of the nation’s surface transportation programs. As MAP-21 extends only through Sept. 30, 2014, the Obama Administration and 113th Congress will again confront the need to reauthorize or extend the nation’s highway and transit programs and the fundamental question of how to pay for them.

The most important issue underlying the future of the surface transportation program is the financing question. Incoming revenue into the Highway Trust Fund, primarily from the gas tax, is insufficient to support current expenditure levels. The federal gas tax is set at a fixed 18.4 cents per gallon and has not been increased since 1993. At the same time, increases in fuel efficiency and changes in driving patterns due to higher gas prices have led to a decrease in gas tax revenue, resulting in an ever-widening gap between revenues and authorized spending levels. The Congressional Budget Office estimates this shortfall will further accelerate with implementation of the new Corporate Average Fuel Economy (CAFE) standards announced in August 2012.

Increasing the gas tax was not a consideration during the debate over MAP-21, reflecting the political forces that have kept the gas tax frozen in place for nearly 20 years – and that have been magnified by record gas prices and a sluggish economy. Just to keep the program at current levels, MAP-21 transfers $21.2 billion from the General Fund and other sources into the Highway Trust Fund. Since 2008, Congress has transferred approximately $56 billion into the Highway Trust Fund to maintain its solvency. Merely extending the program at current levels beyond Sept. 30, 2014, is projected to require approximately $15 billion in additional revenue per year to supplement declining Highway Trust Fund receipts.

Against this backdrop, MAP-21 is a transitional bill, providing two years of funding certainty and time to address the fundamental long-term financing question – while also setting a policy direction for the future. Responding to the constrained funding environment, MAP-21 places a core focus on maximizing the value of existing resources.

  • It expands innovative financing opportunities, increasing funding for the TIFIA low-interest loan program nearly tenfold.
  • It broadens tolling opportunities and takes steps to facilitate public private partnerships (PPPs).
  • It streamlines the environmental process to accelerate project delivery and encourages innovative delivery methods.
  • It consolidates programs, and eliminates most discretionary programs, to give states and transit agencies more flexibility and certainty.
  • It moves toward a more performance-based planning process to focus investments on achieving strategic outcomes.
  • It takes steps to define and prioritize systems that are in the federal interest, targeting over 60 percent of highway funding to preserving and improving an expanded National Highway System consisting of the nation’s most important highways; and requiring the designation of a Primary Freight Network consisting of the nation’s most significant freight corridors.

MAP-21 also authorized appropriations for a new Emergency Relief program at the Federal Transit Administration (FTA), paralleling the Federal Highway Administration’s (FHWA) existing program. While there are available funds for FHWA’s program, the current CR does not provide funding for FTA’s program as it only extends existing appropriations from FY2012. In the aftermath of Hurricane Sandy, funding for both the FTA and FHWA Emergency Relief programs may be revisited as part of a potential supplemental appropriations bill during the lame duck session.

Looking at Congress
While MAP-21 serves as a bridge, it ends at a crossroads. The Obama Administration and 113th Congress face three fundamental choices for the future of the program:

  • Increasing the gas tax or raising dedicated new revenue from other sources.
  • Reducing spending to align with available revenue.
  • Continuing the General Fund transfers and short-term policies that have sustained the program since 2008.

These choices of how to finance and how much revenue to generate are in turn intertwined with questions of what to finance and what the federal role in transportation investment should be.

There remains broad opposition to an increase in the gas tax, especially given current prices at the pump. Neither the President nor the House or the Senate is likely to endorse one, especially standing on its own. There have been a wide range of other ideas floated on how to raise additional revenue.

The President campaigned on a proposal to use the “peace dividend” from winding down the wars in Iraq and Afghanistan as a financing source. There have been various proposals to link transportation and energy revenues, either through new taxes on wholesale oil sales and speculative trading of oil futures (a Democratic proposal from the 111th Congress); or expanding domestic oil and gas drilling and devoting the new revenues to transportation (a Republican proposal from the 112th Congress).

Others have proposed indexing the gas tax for inflation or converting the current fixed per-gallon tax to a percentage sales tax. There does not appear to be any political will for converting to a mileage-based fee or Vehicle Miles Traveled (VMT) tax, although many experts point to the VMT as the most sustainable and equitable long-term solution.

Another possibility receiving increasing attention is addressing transportation finance as part of a “grand bargain” or comprehensive fiscal reform package. In its final report, the Simpson-Bowles Commission recommended gradually increasing the gas tax by 15 cents over three years and limiting spending to those receipts. During the Super Committee process, the “Gang of Six” proposed maintaining the current gas tax but raising $133 billion over 10 years for transportation as part of comprehensive tax reform.

Turning to non-transportation revenue sources, however, raises separate concerns about departing from the user fee principle embodied in the gas tax. Because highways and transit are funded through a Trust Fund with their own dedicated user fee, the funding is not subject to annual appropriations – nor to sequestration – and authorizing legislation is able to provide guaranteed multi-year funding or “contract authority.” If the user fee link is severed, so too may be the special budgetary status of the surface transportation program.

The other fundamental choice is to reduce spending to align with Highway Trust Fund receipts. Without additional revenue, spending would have to be cut by 30 percent to stay within available Trust Fund balances. There is a view that if additional revenue cannot be raised, the federal program has no choice but to live within its means and should be refocused on the core elements of the nation’s transportation system – those of clear and longstanding federal interest.

Those holding this view generally call for available revenues to be bolstered through further expansions in innovative financing, tolling and PPPs, and for federal requirements to be further streamlined to reduce costs and provide states with maximum flexibility.

Prioritizing Investment
Under continued Republican leadership, the House is likely to favor accelerating the direction set in MAP-21 and – under any funding level – will likely seek to prioritize investment in the higher order systems, further streamline the environmental process, and make greater use of tolling, innovative financing and PPPs. The Senate and Obama Administration will want to maintain the policy compromises established in MAP-21 and not go further.

During consideration of MAP-21, for example, two of the most significant bi-cameral debates were about:

  • The extent of environmental streamlining.
  • Whether to modify or eliminate altogether the set-aside for bicycle and pedestrian projects, which became a proxy for the broader debate about the scope of the federal program and federal role.

In both cases, the House wanted to go farther than the Senate – and that dynamic is expected to continue. While the Republican House has generally been less supportive of funding for urban transit systems, MAP-21 confirmed there is a fundamental core of bi-partisan and bi-cameral support for dedicated transit funding.

Ultimately, the fundamental question facing the 113th Congress is whether and how to raise additional revenue, followed by the question of what the federal program will look like under the various constraints. In the 112th Congress, the Republican House, Democratic Senate, and Obama Administration grappled with these choices and in the end came together to enact a short-term bill that maintained current spending levels and relied upon another General Fund transfer.

The same players now return for the 113th Congress, but facing a greater challenge. The financing gap continues to grow, such that even another two-year bill at current levels would require some $30 billion in additional revenue. Policymakers will also have to address the reauthorization with only limited time to see the effects of the policies put in place in MAP-21. Short on the heels of MAP-21 and facing an even larger revenue shortfall, Congress will confront the future of the program with heightened recognition that fundamental decisions need to be made, but faced with difficult and complex choices.

Congress Returns to Work
Paralyzed for months by the tight and divisive 2012 presidential election, Congress returned to Washington on Nov. 13 to face a long list of hard issues and votes that would have given even the most collegial Congress fits, according to the National Stone, Sand and Gravel Association (NSSGA).

The most serious of issues faced is the “fiscal cliff” that is looming on Jan. 2, which is a $600 billion combination of rising tax rates and expiring preferential tax policies. This is a historic and completely obvious threat to the nation’s economy. Although Highway Trust Fund programs are exempt from the cuts due to provisions of MAP-21, NSSGA and its coalition partners will be vigilant as Congress deals with these difficult fiscal issues.

If that weren't enough, also looming at the beginning of 2013 are $1.2 trillion in “sequestration” cuts from discretionary spending, half of which would come from the Department of Defense. Without congressional action, the defense industry nationwide will be sending out hundreds of thousands of pink slips to be served with the Thanksgiving turkey.

Meanwhile, an already weak economy has seen GDP growth slide from 3 percent at the end of 2011 to 2 percent in the first quarter of this year, 1.3 percent in the second and 2 percent in the third (according to numbers released Nov. 2). The Congressional Budget Office has predicted that the U.S. will be in a recession in 2013 if the tax increases and sequester go into effect. That means more pain for American families and possibly a return to double-digit unemployment.

Presidential election years are always a tricky time for anyone looking to get anything done in Washington; neither party has much incentive to cooperate, and for the minority party, the prospect of controlling the White House come January acts as a powerful incentive to do nothing. But this year has been significantly worse. With Republicans in control of the House, Democrats of the Senate, and partisanship at an all-time high, the atmosphere has been toxic even on good days – and the election has only made it uglier. With the recent election results, it is difficult to see any significant changes coming.

The wheels of government were grinding to a halt long before the electoral homestretch began in September – dozens of critical bills were essentially put on hold in Congress while federal agencies began slow-walking numerous environmental, labor and health regulations. With the elections over, we know who will be president and in control of the House and Senate. However, just one glance at Congress’ record on making decisions casts a dark shadow over hopes of a lot getting done during the Lame Duck session.

Voters Approve State, Local Transportation Initiatives
While the results of the presidential and congressional elections garnered the lion’s share of attention on Election Day, voters on Nov. 6 demonstrated the importance of transportation by approving 68 percent of the measures to increase or extend funding for highways, bridges and transit, according to the American Road & Transportation Builders Association (ARTBA).

The association tracked 31 measures overall – five were statewide initiatives and 26 were local. All of the seven bond initiatives were approved by voters. Eighteen measures were for increasing, extending or renewing a sales tax for transportation purposes, two were property tax extensions and one was for a local gas tax. The total value approved was $2.4 billion.

The results are consistent with previous elections, ARTBA said. In 2010, voters approved 61 percent of similar measures, 78 percent in 2008, 77 percent in 2006 and 76 percent in 2004.

“The results show the American people are looking for solutions to address their transportation challenges and are willing to pay more if they know the revenue generated will be used for its intended purpose,” said ARTBA Chief Economist Alison Premo Black, who compiled the list.

Three of the four statewide measures to raise additional transportation funds passed with an average approval rate of 63 percent. Arkansas voters approved a one-half cent increase in the state sales tax to cover a $1.3 billion bond issue for roads and bridges. The temporary sales and use tax will help fund improvements for state highways and bridges, county roads, city streets and other surface transportation. Alaska voters approved a bond issue of $453.5 million for transportation.

Although a strong majority of voters (65 percent) in Los Angeles supported Measure J, which would have extended the 30-year one-half sales tax passed in 2008 for an additional 30 years, the ballot initiative needed a 66 percent super majority for approval. The current sales tax measure is set to expire in 2039. Had the measure passed, it would have extended the current sales tax to 2069.

Three ballot initiatives did not specifically ask voters to increase funding for roads, bridges or transit, but they did address transportation issues. Voters in Michigan opened a path to one of the largest bridge projects in the nation by rejecting an initiative that would have required a statewide referendum before building an international crossing to Canada.

The referendum was initiated by the owner of the Ambassador Bridge to prevent a new crossing over the Detroit River. Earlier this year, the Canadian government announced an agreement with Michigan Gov. Rick Snyder (R) to build and pay for a new, publicly owned bridge between Windsor, Ontario, and Detroit, just two miles south of the Ambassador Bridge. The Canadian Transport Minister said the bridge will now be built “as soon as possible.” The cost of the project is estimated to be $1 billion.

Voters in Cornelius, Ore., rejected a measure to repeal the local fuel tax, which is used to improve roads. Residents of Virginia Beach, Va., approved a nonbinding referendum in support of having the local city council explore extending a local light rail system into the city.