The impending insolvency of the federal Highway Trust Fund poses a threat to state budgets, the construction industry and the overall economy that is real and that is even closer than originally estimated, according to Mike Hancock, American Association of State Highway and Transportation Officials’ president and secretary of the Kentucky Transportation Cabinet.
Hancock testified Wednesday, Feb. 12, before the U.S. Senate Committee on Environment and Public Works hearing on the topic, "MAP-21 reauthorization: the economic importance of maintaining federal investments in our transportation infrastructure."
"We could face serious economic disruptions as early as this summer if USDOT delays reimbursements to the states for projects already completed," Hancock said. "Unless Congress acts to either increase Highway Trust Fund revenues or provide additional General Fund support, the states will be unable to obligate virtually any new federal funds starting in Fiscal Year 2015."
Hancock said the Federal-Aid Highway program apportions about $40 billion a year for daily reimbursement payments to state transportation departments for road and bridge construction projects. In Kentucky, federal funding accounts for roughly half of the state's surface transportation construction program. If Kentucky were unable to obligate any new federal funding in FY 2015, Hancock said the state would be required to postpone more than $350 million in FY 2015 construction lettings and delay the state's entire FY 2015 capital program for one year.
USDOT Secretary Anthony Foxx announced in January that the Highway Trust Fund's Highway Account is likely to run out of money in August. To prevent insolvency, FHWA may slow down reimbursement to states from a daily basis and instead begin reimbursing once a week, or even once a month. This happened 5 years ago in September 2008 when the Highway Account experienced its first cash shortfall and FHWA began reimbursing states on a weekly basis.
Delays in reimbursement from FHWA may prevent states from being able to pay contractors in a timely manner. Contractors – who rely on prompt payments from states – may be unable to pay their workers, subcontractors and suppliers.
"For some construction businesses and suppliers, which survived the recession but are still operating on the slimmest of margins this could simply be the last straw," said Hancock.
Hancock urged Congress to find and implement a viable set of revenue solutions that will prevent this summer's Highway Account cash shortfall and ensure the long-term solvency of the Highway Trust Fund.