# Highway and Transit Program Reauthorization Legislation in the 2nd Session, 108th Congress > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/crs%3ARL32226 ## Record - **Collection:** Congressional research report - **Document type:** CRS Report - **Published:** December 15, 2004 - **Citation:** RL32226 ## Text Order Code RL32226 CRS Report for Congress Received through the CRS Web Highway and Transit Program Reauthorization Legislation in the 2nd Session, 108th Congress Updated December 15, 2004 John W. Fischer Coordinator Resources, Science, and Industry Division Congressional Research Service ˜ The Library of Congress Highway and Transit Program Reauthorization Legislation in the 2nd Session, 108th Congress Summary This report discusses significant legislative provisions in the two principal bills that were the subject of congressional discussion to reauthorize federal highway, highway safety, and transit programs in the 108th Congress. These are the Safe, Accountable, Flexible, and Efficient Transportation Equity Act of 2003 (SAFETEA)(S. 1072)(“Senate bill”) passed by the Senate on February 12, 2004, and the Transportation Equity Act: A Legacy for Users (TEA-LU)(H.R. 3550)(“House bill”) passed by the House on April 2, 2004. Throughout the year, the congressional reauthorization debate focused largely on money issues. There was an expectation within the highway community that new reauthorization legislation should contain significantly higher funding levels then existing legislation. No large source of new revenue for these trust fund financed programs became available, however. The American Jobs Creation Act of 2004 (October 22, 2004, P.L. 108-357), however, provided for modest increases in revenue, primarily as a result of changes in gasohol taxation. Other than funding, the provision of these bills that seems to engender the most controversy is the long-standing donor-donee state problem. Both bills tried to resolve the tension between so-called donor and donee states, by seeking to increase funding now, or in the future, and creating mechanisms to guarantee each state a higher rate of return on their proportional contribution to the highway trust fund (95% in both bills versus 90.5% in current law). The House bill, however, would have accomplish this by requiring a reopening of the reauthorization funding debate before the end of FY2006, in order to insure that additional funding is found for donor states without taking future funds away from donee states, a politically unpopular alternative that may have complicated final action on this legislation. As proposed, neither bill makes major structural changes to the core highway programs. Both bills, however, add new highway programs. This is especially the case in the House bill which creates, among other things, a multi-billion dollar program to construct projects of national/regional significance. A Conference Committee was unable to reach agreement on a final bill prior to the end of the 2nd Session. In the interim all federal programs authorized by this bill continue to operate until May 31, 2005 on the basis of extension legislation (P.L. 108- 310). Further work on the reauthorization issue now becomes the purview of the 109th Congress. This report has been updated to reflect actions taken in the waning days of the 108 Congress. Some sections of the report were not subject to end of session update, but all are nonetheless current as of the last congressional consideration of the specific subject under discussion. This report will not be subject to further updates. This report does not contain extensive background information about the operation of federal surface transportation programs. Those seeking this information should consult CRS Report RL31665, Highway and Transit Program Reauthorization. th CRS Highway, Highway Safety, and Transit Reauthorization Policy Staff Area of Expertise Name CRS Telephone Division John Fischer Bob Kirk RSI RSI 7-7766 7-7769 Trust Fund Issues John Fischer Bob Kirk RSI RSI 7-7766 7-7769 Donor/Donee & Formula Issues Bob Kirk John Fischer RSI RSI 7-7769 7-7766 Highway, Railroad, & Truck Safety Paul Rothberg RSI 7-7012 Auto and Traffic Safety Paul Rothberg RSI 7-7012 Intelligent Transportation Systems (ITS) Paul Rothberg RSI 7-7012 Transportation Enhancements & Planning Glennon Harrison RSI 7-7783 Transit Program Issues Randy Peterman RSI 7-3267 Intermodal/Freight Issues John Frittelli RSI 7-7033 CMAQ Linda Luther RSI 7-6852 Environmental Streamlining Linda Luther RSI 7-6852 Conformity with the Clean Air Act Jim McCarthy RSI 7-7225 Recreational Trails Sandy Johnson RSI 7-7214 Transportation Infrastructure Policy John Fischer RSI 7-7766 Surface Transportation Security John Frittelli RSI 7-7033 Highway and Transit Program Data Hussein Hassan John Williamson RSI RSI 7-2119 7-7725 Highway Program Issues Division abbreviations: RSI = Resources, Science, and Industry Division. Contents Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Overview of Legislative Proposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Extension Legislation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Conference Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Conference Actions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Highway and Transit Finance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Highway Trust Fund Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Trust Fund Budgetary Treatment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Revenue Raising Proposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 No New Funding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Donor-Donee State Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 The TEA-21 Minimum Guarantee Program . . . . . . . . . . . . . . . . . . . . . . . . 17 The House Minimum Guarantee Proposal . . . . . . . . . . . . . . . . . . . . . . . . . . 18 The Senate’s Proposed Equity Bonus (EB) Program . . . . . . . . . . . . . . . . . . 21 Donor - Donee Conference Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 Statistical Caveats . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 House “Re-Opener” Provision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 Highway Program Structural Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 Apportioned Programs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 Allocated (Discretionary) Programs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 Highway Program Formula Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 Existing Formula Program Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 New Programs’ Formulas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 New Directed Spending . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 Highway Program Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 Flexibility/Transferability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 High Priority Projects (Earmarking) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 Innovative Financing Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 Bonding Proposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 Transportation Enhancements (TE) Program . . . . . . . . . . . . . . . . . . . . . . . 34 Transportation and Community and System Preservation (TCSP) Program . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 Pedestrian and Bicycle Mobility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 Appalachian Development Highway Program (ADHP) . . . . . . . . . . . . . . . 38 Recreational Trails Program (RTP) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 Congestion Mitigation and Air Quality Improvement Program . . . . . . . . . 40 Environmental Streamlining . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 Conformity of Transportation Plans and State Implementation Plans (SIPs) . . . 46 Highway and Commercial Vehicle Safety Programs . . . . . . . . . . . . . . . . . . . . . . 47 Intelligent Transportation Systems (ITS) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 Research and Development and Technology Deployment . . . . . . . . . . . . . . . . . 54 Transit Reauthorization Proposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 Formula (Apportioned) Transit Programs . . . . . . . . . . . . . . . . . . . . . . . . . . 56 Discretionary (Allocated) Programs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 Other Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 Rail Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62 House bill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62 Senate bill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62 Intermodal Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63 Intermodal Freight Connectors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63 Rail Freight Infrastructure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65 Appendix 1: Transportation Budget Terminology . . . . . . . . . . . . . . . . . . . . . . . . 67 List of Tables Table 1. Authorizations for Surface Transportation Programs in Selected Reauthorization Legislation FY2004-FY2009 . . . . . . . . . . . . . . . . 4 Table 2. Proposed Funding: Transportation Enhancements Program, FY2004-2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 Table 3. Proposed Funding: Transportation and Community and System Preservation (TCSP) Program, FY2004-2009 . . . . . . . . . . . . . . . . . . . . . . . 35 Table 4. Proposed Funding for the Safe Routes to School Program, FY2004-2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 Highway and Transit Program Reauthorization Legislation in the 2nd Session, 108th Congress Introduction This report discusses significant legislative provisions in the two principal bills that were the subject of congressional discussion to reauthorize federal highway, highway safety, and transit programs in the 108th Congress. These are the Senate bill S. 1072 (the Safe, Accountable, Flexible, and Efficient Transportation Equity Act of 2003, or SAFETEA) passed by the Senate on February 12, 20041, and the House bill H.R. 3550 (the Transportation Equity Act: A Legacy for Users, or TEA-LU), passed by the House on April 2, 2004. Although reauthorization is more that a year overdue all highway, highway safety, and transit programs continue to operate as a result of extension legislation. A Conference Committee was unable to complete its work prior to the end of the 2nd Session. From the public’s perspective the ongoing surface transportation reauthorization debate is taking place against the backdrop of growing concern about congestion and sprawl in urbanized areas, and increased concern about maintaining access to markets and the rest of the national transportation system in rural areas. The congressional debate focuses primarily on money. Given the large increase in funding made available by the last reauthorization bill, the Transportation Equity Act for the 21st Century,2 better known as TEA-21, there appears to be an expectation in some quarters that the reauthorization under discussion should also provide for a large increase in funding. At the time TEA-21 was passed, a confluence of circumstances provided for a considerable boost to highway trust fund revenues. Unfortunately, for those seeking extensive new funding, no similar confluence of events appears likely any time in the near future. As a result, much of the discussion turns on whether significant additional funds can be found for federal surface transportation programs, or whether funding for these programs will be limited to the modest growth forecast for the highway trust fund over the next six years. If new funds can be found, many of the provisions put forth in House and Senate legislation may be adopted in some form during the reauthorization process. Without significant new funding sources, however, a 1 On May 19, 2004 the Senate adopted H.R. 3550 and inserted the language of S. 1072 into the bill to facilitate conference consideration. For the purposes of this report the Senate bill continues to be referred to as S. 1072. 2 P.L.105-178 and P.L. 105-206. Federal highway law is codified in 23 U.S.C. Other transportation provisions included in TEA-21, such as transit, are codified in 49 U.S.C. CRS-2 competition for the existing pot of funds will almost surely ensue amongst the various state, regional, and programmatic stakeholders. So far this competition has stifled the reauthorization debate and led to further extension of the TEA-21 framework. This report begins with a brief overview of the House and Senate bills followed by an examination of how the two bills deal with the problem of constrained budgetary resources and donor-donee state issues. It then examines the proposed programmatic changes for the Federal-Aid Highway programs. Environmental and Safety provisions and issues are then discussed. Finally, the bills’ mass transit and intermodal provisions are examined. Overview of Legislative Proposals This report focuses on the two pieces of legislation under consideration in the House and the Senate that were the principal vehicles for the reauthorization debate in the 108th Congress, SAFETEA and TEA-LU. The Senate completed action on its bill, S. 1072, on February 12, 2004. The House has also completed action its bill, H.R. 3550, doing so on April 2, 2004. The bill as approved by the House, however, provided funding at a level well below what the Committee originally intended at introduction. To emphasize this point the Committee at its March 25, 2004 markup also passed a similar bill, H.R. 3994, with higher funding levels, but did not report it. Prior to House and Senate consideration, the Bush Administration submitted a bill of its own indicating the Administration’s reauthorization views and priorities. This bill was introduced by request in both the House and the Senate as S. 1072 and H.R. 2088, respectively, which are hereafter referred to as the Administration bill. It should be noted that the Senate bill carries the title Safe, Accountable, Flexible, and Efficient Transportation Equity Act of 2003 (SAFETEA) originally proposed by the Administration bill. The Senate Committee on Environment and Public Works further chose to use S. 1072 as their markup vehicle and amended the bill by including their own provisions in the nature of a substitute. S. 1072 in its Senate passed form, however, is the Senate bill, and although it contains provisions proposed by the Administration, the bill itself is dramatically different from the introduced version of the bill. In both the House and the Senate, multiple committees have a role in reauthorization. In the House, most of the bill, as discussed above, is under the control of the Committee on Transportation and Infrastructure. The House Committee on Science contributes to the research title of the bill (H.R. 3551) and the House Committee on Ways and Means has jurisdiction over the revenue title (H.R. 3971). All three Committees reported legislation that became part of H.R. 3550 during Floor action on April 2, 2004. In the Senate, the Senate Committee on Commerce, Science, and Transportation had previously marked up a bill, S. 1978 (S.Rept. 108-215), authorizing the Motor Carrier Safety Administration and National Highway Traffic Safety Administration CRS-3 (NHTSA) programs under its jurisdiction. This bill, with a manager’s amendment, became part of S. 1072 during floor consideration. The Senate Committee on Banking, Housing, and Urban Affairs, which has jurisdiction over Federal Transit Administration (FTA) programs, marked up its portion of the reauthorization bill, which was also attached to S.1072 as an amendment. Finally, the Senate Committee on Finance has jurisdiction over the revenue title of the bill. The Finance Committee title, the Highway Reauthorization and Excise Tax Simplification Act of 2004 was marked up in committee on February 2, 2004. This title was also added by amendment to the now Senate passed version of S. 1072. Much of the discussion about the reauthorization bills has centered on the total spending envisioned in each proposal. The Senate bill is believed to contain $318 billion in total spending authority for the period FY2004 - FY2009. The House bill as passed by the House now contains $275 billion, which is dramatically below the $375 billion figure found in the introduced version of the bill. Either bill is above the Administration’s stated position that total spending be set at $256 billion over the next six years.3 A break-out of expected program authorizations by major activity is shown in Table 1. Neither the House nor the Senate proposal can be funded by current revenues projected from the programs’ existing funding sources. As will be discussed later in this report, the Administration bill could, perhaps, be financed from current revenue sources. The Bush Administration has gone on record against the level of spending proposed by S. 1072 and has indicated its intent to veto any bill of such size that Congress might generate.4 A letter signed by the Secretary of the Treasury and the Secretary of Transportation on February 11, 2004, indicated that they would recommend a presidential veto of any bill that included new taxes, bonding, or unrelated provisions dealing with issues like Amtrak (which is included in the Senate bill). The Senate passed its bill by a vote of 76-21. Senate bill managers, therefore, believe that barring changing the Administration’s mind on this issue, they could override a veto.5 The Administration, in a March 30, 2004 Statement of Administration Policy, is also threatening a veto of the House passed version of H.R. 3550 at its $275 billion spending level. This veto threat came as a surprise to many House Members. The bill passed the House with a possibly veto proof margin of 357-65. It is, therefore, unclear whether the President would be able to sustain a veto of this legislation. For procedural reasons the Senate brought H.R. 3550 to the floor on May 19, 2004 and adopted it with the text of S. 1072 inserted in the nature of a substitute. 3 The Administration bill as introduced allowed for $247 billion in total funding. The President’s budget submission for FY2005 adjusts this figure upward to the $256 billion amount. 4 The full text of the Administration’s letter, indicating its objections to the bill, can be found at [http://www.whitehouse.gov/omb/legislative/sap/108-2/s1072sap-s.pdf] 5 Rothman, Heather M. Senate Reducing Extension as House Works to Scale Back Transportation Bill. Daily Report for Executives. BNA Inc. Washington. February 25, 2004. p. A-34 CRS-4 This action facilitates a conference and allows the Senate to meet the constitutional requirement that tax bills originate in the House. Table 1. Authorizations for Surface Transportation Programs in Selected Reauthorization Legislation FY2004-FY2009 ($ billions) Bill Title Highways Administration Bill House Bill Senate Bill (estimate) 206.4 217.5 255.0 Safety 6.0 6.0 6.0 Transit 43.6 51.5 56.5 Total Authorization 256.0* 275.0* 318.0* Source: Washington Letter on Transportation. T&I Committee Approves Six-Year $275 Billion Reauthorization Bill. March 29, 2004. p.1. * There are several ways a table such as this can be constructed. This table shows the totals most commonly associated with each bill. There are, for example, know issues with the totals for the House and Senate bills, which in both cases might be different than those shown here. By one analysis6 the House bill contains total authorizations of $283.8 billion. Extension Legislation As mentioned earlier, all existing highway, highway safety, and transit programs continue to operate on the basis of legislation that extends the program structure of TEA-21. Congress is now on its sixth program extension (P.L. 108310). This extension continues the highway program until May 31, 2005. The existing authorization had been extended previously to February 29, 2004 (P.L. 10888), to April 30, 2004 (P.L. 108-202),to June 30, 2004 (P.L. 108-224),to July 31, 2004 (P.L. 108-263) and to September 30 (P.L. 108-280).7 It was hoped at the time that the first extension was passed that this would give Congress sufficient time to complete action on a reauthorization bill early in the second session. This was not the case, and it is now clear that the reauthorization discussion will be taken up again in the 109th Congress. By choosing a May 31, 2005 termination date for the existing programs Congress has given itself some leeway to find a solution to the funding debate that has so far stifled long-term reauthorization legislation. It was the hope of many on the authorizing committees that a new Congress and a newly reelected President will be more sympathetic to the idea that transportation needs require significant additional funding. It was also the hope of the authorizers that additional sources of funding for these programs would be identified before May 31, 2005. To some extent this has already been the case as a result of the changes in gasohol taxation 6 7 Transportation Weekly. V5. March 29, 2004.p. 1- 22. For more information on extension legislation, see CRS Report RS21621, Surface Transportation and Aviation Extension Legislation: A Historical Perspective. by John Fischer and Robert Kirk. CRS-5 afforded by the enactment of the American Jobs Creation Act. It should be pointed out that the potential $24 billion in new revenues that these change might raise over the next six years are still far below the amount needed to fund the program at the levels under discussion during conference. Conference Issues There are numerous and significant differences between S. 1072 and H.R. 3550. All these were to have been resolved in conference. Deciding on the total authorization level is the most obvious and perhaps most difficult policy issue that needed to be resolved. As mentioned above, a veto threat looms over either of the total funding amounts contained in the two bills, and the Bush Administration threshold is well below the amount required to fund either of the bills in their current form. The donor-donee issue will be one of the Conference’s most difficult issues. Both the House and Senate solutions to this problem require more funding now, and in the case of the House even more in the future, before either can provide states with the 95% return on contributions to the trust fund that many desire instead of the existing 90.5%. Also in play is the scope of the program to be covered by the minimum guarantee or equity bonus.8 Leaving programs, such as the House passed high priority project program in, or out of, the scope can dramatically effect a state’s expected annual funding. There are several large new allocated (discretionary) programs in the House bill that require significant new funding. As written, funding decisions for these programs will be made by FHWA, although many expect these funds to be earmarked if the programs are included in the conference report. At least initially, these new programs reduce the proportion of the funds provided by the bill that are available for core apportioned (formula) programs. Many state’s prefer apportioned funds that are under their control as opposed to dedicated discretionary funds. Hence it is likely that the Conference will be required to determine the final ratio of programs under state versus earmark or FHWA control. Although environmental issues were not an important part of the floor debate in either the House or the Senate, some environmental interests remain concerned about certain provisions in the bills dealing with streamlining and conformity. For example, the House bill includes a statute of limitations on legal claims and specific deadlines for project milestones during project environmental review. Also, there is a major difference between House and Senate bills on the Section 4(f) publically owned lands and historic sites provisions. How significant these issues will really be remains to be seen. The issue of earmarking will be a major part of the Conference. The House passed version of H.R. 3550 contains 2,884 specifically enumerated high priority 8 “Scope” has become the term most used to describe what programs within the total federalaid highway program will be included in the rate-of -return on trust fund contributions calculation. CRS-6 projects under the highway program and numerous additional earmarks for transit projects. The Senate bill, however, is bereft of earmarks. It is widely believed, however, that the Senate will insist on a significant share of any earmarking that might emerge in the conference bill. For transit the major issue is also money, with project designation (earmarking), especially of new rail starts, a not to distant second. The principal issue to be resolved in the traffic safety (NHTSA) portion of the bill is the criteria to be used to determine which states qualify for funding under the Section 405 (occupant protection) and Section 410 (alcohol countermeasures) programs. All of the items discussed above are discussed in more detail later in this report. Conference Actions The Conference Committee met on several occasions beginning in June 2004. On three occasions the conferees adopted a relatively small number of legislative provisions that had been agreed upon during staff meetings. Larger and more important decisions were put off pending a decision by Members on total program size and on how to solve the donor-donee issue. During June and July 2004, House and Senate conferees exchanged a series of informal overall funding proposals. The first House proposal would have provided for $298 billion in total spending with guaranteed obligations of $288 billion (getting to these numbers required a $10 billion rescission of existing unspent contract authority). The Senate countered with an offer of $303 billion in total spending, of which $290 billion would be guaranteed (this offer requires a $13 billion rescission). Just prior to the beginning of the summer district work period (July 22nd) the conferees met once more and each made newly adjusted offers. The House offer was for $299 billion in total authority, with $284 billion guaranteed ($15 billion rescission). It was alleged, but not confirmed, that the Bush Administration would accept these numbers and sign a bill that included them. The Senate offer was $301 billion in total spending, of which $289 billion was guaranteed ($12 billion rescission). At this meeting it was decided that further efforts to reach a compromise on the final bill would have to wait until September. Staff was directed to work with FHWA to determine how either of the offers would effect state distribution of funds and how the donor-donee framework would be adjusted by these competing offers. When Congress returned it continued to investigate a number of funding alternatives. None, however, proved satisfactory to all parties. Although several public statements were made by Conferees about the desirability of completing work on a bill during the 108th Congress, no real progress appears to have been made. Instead, Congress passed the aforementioned extension legislation delaying the need for long term reauthorization until early in the 1st Session of the 109th Congress. CRS-7 Highway and Transit Finance Highway Trust Fund Background The highway trust fund consists of two separate accounts — highway and transit — which are sometimes mistakenly referred to as separate trust funds. In practice, the highway account and the transit account are discussed as though they were separate entities, with the highway trust fund being synonymous with the highway account. The highway trust fund is the oldest and largest of the transportation trust funds. The fund was created by a separate revenue title in the Federal-Aid Highway Act of 1956 (1956 Act) (P.L. 84-627). The 1956 Act provided funding for construction of the now virtually complete Dwight D. Eisenhower System of Interstate and Defense Highways. In addition, the 1956 Act provided some funding for other federal highway programs. Over the last 40 plus years, the highway trust fund and the federal programs it supports have been changed numerous times.9 In almost every instance, Congress has chosen to expand the scope of the federal highway program. The transit account was created by the Surface Transportation Assistance Act of 1982 (P.L. 97-424). The transit account gave transit providers a consistent federal funding source for capital spending on new and rehabilitated infrastructure and for other purposes. The highway trust fund is financed from a number of sources including sales taxes on tires, trucks, buses, and trailers, as well as truck usage taxes, but approximately 90% of trust fund revenue comes from excise taxes on motor fuels.10 The majority of the motor fuel revenue dedicated to the trust fund is derived from an 18.4 cents per gallon tax on gasoline (24.4 cents on diesel). The highway account receives an allocation equivalent to 15.44 cents of the tax and the transit account receives the revenue generated by 2.86 cents of the tax. The remaining 0.1 cents goes into the leaking underground storage tank (LUST) trust fund. Trust Fund Budgetary Treatment TEA-21 changed the way the highway trust fund relates to the Federal Unified Budget in two ways: first by creating new budget categories and second by setting statutory limitations on obligations. The act amended the Balanced Budget and Emergency Deficit Control Act of 1985 to create two new budget categories: highway and mass transit. The act further amended the budget process by setting the limitation on obligations for each fiscal year from FY1999 to FY2003 in authorizing rather then appropriations legislation. In addition, TEA-21 provided a mechanism, Revenue Aligned Budget Authority (RABA), to adjust these amounts in the highway 9 For a more detailed history of the trust fund see CRS Report RL30304, The Federal Excise Tax on Gasoline and the Highway Trust Fund: A Short History, by Louis Alan Talley. 10 For a discussion of federal transportation fuel taxes see CRS Report RS20281, Transportation Fuel Taxes and Legislative Issues, by Bernard A. Gelb. CRS-8 account, but not the transit account, so as to correspond with increased or decreased receipts in highway generated revenues. RABA issues will be discussed in greater detail in the next section of this report. It should be pointed out, all of the above notwithstanding, that annual revenues and expenditures affecting the balances in the trust fund accounts remain part of the overall annual federal deficit calculation. The net effect of the changes was to set a predetermined level of funding for core highway and transit programs, referred to in TEA-21 as a discretionary spending guarantee. These categories are separated from the rest of the discretionary budget in a way that prevents the use of funds assigned to these categories for any other purpose. These so called “firewalls” were viewed, in the TEA-21 context, as guaranteed and/or minimum levels of funding for highway and transit programs. Additional funds above the firewall level could be made available for highway and transit programs through the annual appropriations process, but for the most part this did not occur except in FY2003. Coming into the reauthorization debate there were reports that some Members would like to revisit the special budget status of the trust fund. At the time of this writing, however, no specific objections to continuation of the current system have arisen. Both S. 1072 and H.R. 3550 would maintain the existing system. The only change in the bills is in the RABA computation. Reforming Revenue Aligned Budget Authority (RABA).11 When RABA was created it was done with the understanding that highway funds would be increased if revenues to the trust fund increased above expectations and reduced if the opposite occurred. In 1998 it was viewed as unlikely that revenue would decrease, since growth in trust fund revenues had increased continuously during the almost all of the 40-plus year life of the trust fund. Between FY2000 and FY2002, RABA provided almost $9 billion in additional funding for designated highway programs. The RABA adjustment in the FY2003 budget, however, a negative $4.3 billion, surprised even those who expected a small decline in RABA as a result of the recession that began in 2001. The $4.3 billion negative RABA would have resulted in an actual year over year decline of $8.6 billion in federal highway assistance provided to the states. (The previous year’s total had been dramatically increased by a positive RABA adjustment.) This year-over-year drop in the program was more than Congress was willing to allow. As part of the FY2002 second emergency supplemental bill (P.L. 107-206), the RABA adjustment for FY2003 was eliminated. In fact, Congress eventually provided a full adjustment of spending by adding sufficient funds from the unexpended balance in the trust fund to fund the program at its authorized level. The events of FY2003 created interest in amending the RABA mechanism during reauthorization to reduce the chance of very large annual swings in RABA adjustments. Both the House and Senate bills try to eliminate these swings. In both 11 For more information see CRS Report RS21164, Highway Finance: RABA’s Doubleedged Sword, by John W. Fischer. CRS-9 instances this is done by changing the way RABA is computed by the Office of Management and Budget. This is done by eliminating what has been a required “look ahead” computation that tried to predict the direction of the national economy. In addition the Senate bill suspends a RABA adjustment until FY2006. This is likely due to concerns about the level of unexpended balances in the trust fund, among other technical considerations. In addition, S. 1072 requires that no reduction under RABA be allowed so long as the cash balance in the highway account of the trust fund exceeds $6 billion. This again could be viewed as a way to mitigate against a possible repeat of what happened in FY2003. Revenue Raising Proposals Much of the debate about the need for new revenues focuses on the concept of unmet highway and transit system needs as detailed in a report authored by the FHWA and Federal Transit Administration (FTA).12 The report indicates that the costs required to improve the surface transportation system far exceed the projected ability of federal, state, and local governments to pay for them. Transportation organizations, while not advocating major structural changes in the federal highway and transit programs, are advocating an increase in funding comparable to that in TEA-21 (which was 40% plus larger then its predecessor, ISTEA, P.L. 102-240). They do not, however, have a ready source of funds to accommodate this increase. Many, but not all, in the transportation community are reluctant to seek fuel tax increases at this time. The Bush Administration has made it clear for well over a year that it will oppose any increase in federal fuels taxes. A number of Members of Congress, including much of the House Republican leadership, is also on record against fuel tax increases. As a result, the transportation community has been seeking alternative sources of new revenues for the highway and transit program. The discussion below addresses many of the proposed revenue sources that have been under discussion during the 108th Congress. The Senate Committee on Finance agreed to a proposal identifying several sources of additional funding for reauthorization purposes that was made part of S. 1072 during floor debate.13 Supporting documents provided during Finance Committee markup on February 2, 12 There is general acceptance of the idea that there are significant unmet surface transportation capital infrastructure needs. There are, however, numerous questions about their measurement. The FHWA and the Federal Transit Administration (FTA) needs studies of the last few years are viewed as much improved in this regard over the studies done a decade ago. Questions still arise as to how needs are determined, how the costs associated with these needs are derived, and how state “wants” are separated from actual state “needs.” As a result, the issue of highway and transit system conditions and needs is complex and beyond the scope of this paper. Additional information can be found at the DOT website, [http://www.fhwa.dot.gov/pressroom/test020926.htm] and at the AASHTO website, [http://www.transportation.org/bottomline/] 13 As discussed in U.S. Congress. Joint Committee on Taxation, Description of the “Highway Reauthorization and Excise Tax Simplification Act of 2004” (JCX-5-04), January 29, 2004. CRS-10 2004, indicate that an additional $35 billion in revenues could be identified during the reauthorization period if committee provisions were to be adopted. As a result of amendments during floor debate several of the provisions in the markup version were changed. No further discussion as to how these changes effect revenue estimates has been provided. In the discussion that follows, reference is made to the amounts estimated during committee markup. As of this writing, there has been no outside examination as to the accuracy of the revenue estimates assumed in the committee’s documents. Also, several of the revenue sources identified do not provide “new” money to the Treasury and are instead redistributions between Treasury general funds and the trust funds. In the Senate proposal each of these redistributions is offset by other changes in tax law that are primarily not transportation related and are beyond the scope of this report. The House Committee on Ways and Means has acted on a substantial portion of its Title of the reauthorization bill by passing H.R. 3971, the Highway Reauthorization Tax Act of 2004. This bill provides $17.7 billion in additional revenue for the highway trust fund over the next six-years. The bill’s provisions are similar to those found in the Senate bill insofar as changes in ethanol fuel taxation and reduction of fraud and abuse activities are concerned. All of the provisions of H.R. 3971 were attached to H.R. 3550 during floor consideration. Prior to the end of the 2nd Session Congress passed the American Jobs Creation Act of 2004 (P.L. 108-357). This legislation was primarily directed at solving an international trade problem. It also addressed a wide range of other revenue issues. In the case of transportation the act addressed many of the revenue provisions discussed in this section. The authors of the bill hope that the provisions enacted will raise $24 billion over six years in additional revenue for the highway trust fund. Redirecting a Portion of the Gasohol Tax (2.5 cents) to the Trust Fund and Increasing Trust Fund Receipts by an Amount Equivalent to the Existing Gasohol Exemption (5.2 cents). As part of federal policy to promote the use of ethanol as a substitute for gasoline, fuel that is up to 10% ethanol (gasohol) has been exempt from a portion of the federal fuels tax, usually 5.2 cents per gallon. In addition, 2.5 cents of the tax levied on gasohol based fuels has been deposited into the U.S. Treasury’s general funds. From the perspective of the transportation interest community, these factors are depriving the trust fund of income that it deserves. Gasohol users use the highway system and in this view, are not paying their fair share for its upkeep and improvement. According to some estimates, transferring the 2.5 cents currently deposited in the general fund to the trust fund would net the fund more than $700 million per year. Crediting the trust fund with the equivalent of the 5.2 cent exemption, not currently collected in any form, would result in more than $1.5 billion per year.14 This $2.2 billion plus per year would obviously make a significant potential contribution to the highway program. In both instances, it should be pointed out that while there is a 14 Rothman, Heather. New Bill Seeks to Adjust Method of How Revenues are Credited to Highway Trust Fund. Daily Report for Executives. BNA Inc. Washington. July 3, 2002. p A-4. CRS-11 significant net increase to the trust fund there is a concomitant opposite effect on Treasury general funds. The problem for those supporting changes in gasohol taxation is the unified budget. With the budget back in a deficit situation any action that will potentially increase the overall deficit will be greeted with a certain amount of caution and potential opposition. Diverting the 2.5 cents is a straightforward decision about the appropriate destination for these funds in the budget. Crediting the trust fund with funds equivalent to the 5.2 cent exemption is more problematic. The $1.5 billion would likely have to be derived from funds already deposited in the Treasury from non-transportation sources. Those who perceive that a redirection of an annual $1.5 billion might come at the expense of other government programs important to them can be expected to object to such a move. The ethanol issue was a part of the 1st Session’s as of yet unresolved debate about federal energy policy.15 A part of that debate concerned the proposed “volumetric ethanol excise tax credit” (VEETC), which essentially would have taxed ethanol at the full transportation fuels tax rate and deposited these funds in the highway trust fund. Ethanol producers would be offered a tax credit equivalent to the increase in taxation from the general funds. The Senate Finance Committee adopted this provision in its February 2, 2004 markup, estimating that it would provide $14 billion for the trust fund during the six-year reauthorization period. H.R. 3550 now contains a similar provision, estimating that these changes will raise $15.1 billion over the same period. Ethanol provisions addressing both the 2.5 cent and 5.2 cent issues are included in the American Jobs Creation Act. The authors of the act believe that these provisions will raise a combined $18 billion for the trust fund during the life of the bill. An additional $900 million is also provided to the trust fund by making the 2.5 cent change retroactive to FY2004. Paying Interest on Highway Account Unexpended Balances. All U.S. Treasury managed trust funds, with the exception of the highway trust fund, receive interest payments on their unexpended balances. One of the changes made as a result of TEA-21 was to stop paying interest on the unexpended balance in the highway trust fund. The rationale behind this decision was the creation of RABA, which is supposed to reduce growth in the unexpended balance by making funds more immediately available for highway projects. For a number of reasons that are beyond the scope of this report, the unexpended balance in the highway trust fund continued to grow, albeit at a much slower rate, during most of the TEA-21 reauthorization period. Interest payments could be source of additional funds for the trust fund. According to Congressional Budget Office (CBO) testimony in May 2002, interest payments to the fund for FY2004 alone have been expected to amount to $550 million (this assumes that the gasohol taxes 15 For detailed information, see CRS Report RL30369, Fuel Ethanol: Background and Public Policy Issues, by Brent D. Yacobucci and Jasper Womach. CRS-12 described above have been redirected as discussed).16 While interest rates would remain positive in the near term, it is doubtful that they would approach the predictions of 2002. An intervening drop in the trust fund’s unexpended balance, combined with historically low interest rates on treasury bonds has lowered the expectations of those expecting large annual returns from this revenue raising proposal. The whole issue of paying interest on trust funds is a controversial subject. Interest payments are essentially intergovernmental fund transfers. The federal funds needed to pay interest do not represent new revenues for the federal treasury. Proponents of paying interest on the highway trust fund believe it is only fair for the Treasury to pay for the use of money derived by special purpose revenues, in the same way a bank pays interest on savings accounts. Opponents of this practice, however, believe that such payments only raise the cost of government in general and that all federal revenues should be treated the same, regardless of how they are collected. The Senate has adopted a provision that will allow for payment of interest on highway trust fund balances. This provision is expected to provide $2 billion over six years. It should be pointed out that most of these interest payments are expected to accrue in the early years of this period as balances in the trust fund are expected to decline if S. 1072’s increased spending provisions are enacted. The House bill is devoid of a similar provision. Spending Down Trust Fund Balances. Related to the interest issue is the fact that both the highway account and the mass transit account continue to carry positive unexpended balances. Spending down these balances has been an issue in the past and was an important part of the TEA-21 debate. It should be pointed out, however, that the unexpended balance is not a “surplus,” as it is frequently and incorrectly referred to by some in the transportation community. Rather, a considerable portion of these funds are reserved to cover the fund’s existing obligations. The House, Senate, and Administration proposals all rely on spending down the unexpended balance in the trust fund. The Senate proposal expects to spend down the balance to an amount no lower than $6.5 billion in any year during the next reauthorization period. There is, however, a limit to how low the balance in the trust fund can go. The trust fund has a fiduciary protection measure know as the Byrd rule (for former Senator Harry Byrd of Virginia) that has been a feature of the highway finance system for most of the last four decades. In simple terms the Byrd rule prevents the further obligation of federal highway funds if the current and expected balances in the trust fund fall below a certain level. The Senate bill, in a potentially controversial move, changes the Byrd rule to allow the spending proposed in S. 1072 to occur at a rate that otherwise could have triggered the rule’s spending restrictions. 16 U.S. Congressional Budget Office. Status of the Highway Trust Fund. CBO Testimony, by Kim P. Cawley. May 9, 2002. CRS-13 Tax Fraud and Abuse. An issue of long standing is the concern that all fuel tax revenues are not being collected as required. Alternately there is a concern that illegal tax avoidance activities are reducing total revenue collections. A discussion about tax compliance has been a feature of each of the last several reauthorization bills, including ISTEA and TEA-21. The resultant provisions in ISTEA and TEA-21 focus on improving revenue collection activities and on identifying additional problems with revenue collections. Funding has been provided in the past to FHWA and Internal Revenue Service (IRS) efforts to improve collections and reduce fraud. Hearings held in the 107th Congress by the Senate Committee on Finance identified continuing collection issues. As a result the Committee has concluded that improved collections could raise an additional $4 billion over the six-year life of the authorization and has included related provisions aimed at raising this amount of additional revenues. During its markup, the Senate Committee on Finance added a provision that redirects over $2.1 billion from the airport and airway trust fund to the highway trust fund. Of this amount 89% is directed into the highway account and the remaining 11% is directed into the mass transit account. According to the Committee, this is an amount that they believe corresponds to the use of aviation fuel, which is taxed at a lower rate, in surface transportation vehicles. This, in the Committee view, is an instance of tax avoidance and/or abuse that needs correction. During the amendment process this provision was modified. Instead of a fixed annual amount, the Secretary of the Treasury is tasked with identifying and estimating the amount of aviation fuel being used in surface transportation vehicles and crediting the highway and transit accounts appropriately. No estimate of the amount of revenues this will provide has been made at this time. The House bill contains similar provisions. The House bill estimates that fraud and abuse enforcement activities should provide the trust fund with slightly more than $2 billion in additional revenues during the reauthorization period. A provision addressing this issue is included in the American Jobs Creation Act. The authors of the act believe this provision will provide the trust fund with an additional $5.1 billion over the next five years. Ending Fuel Tax Exemptions. An issue not discussed in detail during the last year is the concept of ending fuel tax exemptions for a wide range of fuel users, such as; local governments, certain agricultural interests, and school bus operators. The Senate Finance Committee markup estimates that it will be able to increase trust fund revenues by $8 billion over the next six years by changing the manner in which exemptions have been collected or funded and by changing a number of other tax provisions. A major change proposed at markup appears to require all fuel users to either pay the federal fuels tax and seek a refund or to immediately document their exemption from payment. Under the provision, these groups remain exempt from taxation, but reporting as to what would have been paid in the form of fuel taxes is required where it was not before. All of the funds identified here are not new money. Rather, they are transfers from Treasury general funds that are offset elsewhere in the bill by new revenue sources. There is no similar provision in the House bill. Additional Senate Finance Markup Provisions. During markup, the Senate Finance Committee considered a wide range of tax provisions. Some of these provisions have a relationship to transportation, e.g. redirecting the proceeds for the CRS-14 gas guzzler tax from Treasury general funds to the trust funds. The majority of the provisions in this portion of the Senate revenue title, however, especially those treated as offsets to increased highway spending, change federal excise tax laws in ways that are well outside the scope of this report. The House, similarly, added nontransportation tax provisions to its bill as part of the rule for floor consideration. Revenue and Other Forms of Bonding. After a year of somewhat public discussion the Senate Committee on Finance has decided not to include any bonding provisions in the revenue section of the bill. The American Association of State Highway and Transportation Officials (AASHTO) began consideration of a bonding mechanism by proposing the creation of a new $59.5 billion bond program as an alternative vehicle for financing surface transportation projects. Its plan would have created a organization to be know as the Transportation Finance Corporation (TFC) that would be established by Congress to issue bonds. The TFC would issue tax credit bonds for sale in the open market. Senate Finance actively considered a proposal that would have created a bonding mechanism for transit funding during the 1st Session of the 108th Congress.17 Under the proposal the 2.86 cents dedicated to the mass transit account would have been redirected to the highway account and tax credit or other bonds would have been issued to fund the transit program. This proposal was met with considerable criticism from the transit community. It was also met with a veto threat from the Bush Administration which viewed the issue of bonds as a “grave threat to the general fund and the government’s ability to control spending.”18 Although Senate Finance dropped its proposal, the use of bonds continues to be discussed in the context of reauthorization and, as will be discussed later in this report, bonding provisions were added to S. 1072 during the floor amendment process. The House Ways and Means Committee also considered bonds as part of its revenue proposal. An earlier bill considered by the Committee, H.R. 3967, contained the same ethanol, and fraud and abuse provisions as H.R. 3971. Also included was a provision that allowed for private activity bonds for the funding of transportation infrastructure. Ultimately, however, the Committee dropped its bond proposal and reported H.R. 3971 without a bond provision. Increasing and/or Indexing the Federal Fuels Tax. The American Road and Transportation Builders Association (ARTBA) took the lead in actively promoting an increase in the federal fuels tax.19 Its “two cents makes sense” proposal would raise the federal fuels tax two cents per year during the life of the next reauthorization. According to ARTBA raising the tax by 8 cents would raise an additional $ 17 billion for highways and transit. This, in ARTBA’s view, would go a long way to meeting the unmet needs of the system. 17 Details of Senate Highway/Transit Revenue Plan Emerge. Transportation Weekly. Vol. 4, issue 26. May 13, 2003, p. 1. 18 Bush Administration Announces Veto Threat of TEA-21 Successor. Daily Report for Executives. BNA Inc. No. 144. July 28, 2003. p. G-6. 19 [http://www.artba.org/government/tea-21/tea_21.htm] CRS-15 Depending on the source of the estimate, a one cent increase in the fuel tax will add between $1.5 billion and $1.8 billion to the trust fund on an annual basis. It has been argued that if Congress and the President are unwilling to raise the fuels tax they should at least consider indexing it in the future. Supporters of this idea believe that the trust fund should be indexed to the consumer price index (CPI) or some other measure of national economic activity to allow revenues to the trust fund to keep pace with inflation. Over the last decade indexing would likely have added a few cents to the fuel tax with a concomitant increase in revenues. This mechanism, however, may provide the greatest benefit during periods of high inflation, which has not been the case in recent years. Although not specifically endorsing the ARTBA proposal, Chairman Don Young of the House Committee on Transportation and Infrastructure, as well as other Members of the Committee leadership, have endorsed an increase in the federal fuels tax.20 This has mostly been proposed in the context of indexing. At first, discussion of this idea centered on retroactively indexing the fuels tax back to the last time it was raised in 1993. More recently the indexing under consideration has been prospective for the next six-year authorization period. In either case, it was hoped that the fuel tax increase would amount to about 8 cents. No fuel tax increase, however, is proposed in either the House or the Senate bills. Long Term Viability of the Trust Fund System. Many observers are concerned that the funding uncertainties created by the FY2003 RABA debate and increasing interest in identifying alternative power sources in the auto industry, e.g., fuel cells and hybrid power, should alert Congress and the transportation industry to the fact that its long-standing trust fund revenue sources should be reviewed. There is a growing recognition of this problem, but specific suggestions as to how the long term health of the trust fund could be ensured are few in number. Both H.R. 3550 and S. 1072 contain provisions that would create a commission, or in the case of S. 1072 commissions, to study this issue so that its recommendations might be acted upon during the next reauthorization cycle. No New Funding Much of the lobbying in preparation for reauthorization is, as shown above, predicated on the belief that some significant level of new funding can be identified for the highway, highway safety, and transit programs. Given the existing state of the economy and concerns about the costs associated with the war on terrorism, homeland security, and the costs of sustaining our effort in Iraq, such a conclusion, however, is far from foregone. If none of the revenue raising proposals discussed above are ultimately adopted, income to the trust funds is still predicted to increase. According to one estimate the additional income available for the trust fund during the six-year reauthorization could be between $10 billion and $17.6 billion. This increase, however, is modest by comparison with the program growth experience during TEA-21. In addition, this 20 Wolfe, Kathryn A. Young May Drop Bid to Hike Gas Tax to Get Highway Authorization Moving. CQ Today. November 6, 2003. CRS-16 increase is subject to revision and is closely related to the fate of the national economy during the expected six-year reauthorization period.21 This increase will not provide the funds that many highway program advocates view as essential to improving highway and transit infrastructure. This is especially true in the current environment with states facing their own budget crises. Neither S. 1072 nor H.R. 3550 can survive in their current form without significant new funding. Among pending bills, only the Administration bill, or some derivative thereof, could be enacted and stay within the no new revenue test. The most significant potential problem that could result from a no new funding scenario is the likelihood of an enhanced donor/donee struggle that might very well spill over from the highway program into the transit program. There also would likely be enhanced competition between programmatically focused interest groups, e.g., highway safety vs. transit, etc. This competition for scarce resources could, in the extreme, divert attention from any of the many new programmatic initiatives under discussion and change the whole tenor of the reauthorization debate. (CRS contact: John Fischer) Donor-Donee State Remedies How closely a state’s annual return, in the form of federal-aid highway funds, should match a state’s highway user tax payments is a long-standing and on-going controversy, as are attempts to guarantee a minimum “return” on these payments.22 Often referred to as the “donor-donee” state debate, the controversy pits “donor” states (states that receive less than a dollar in highway funds for each dollar the state’s highway users pay to the highway account of the highway trust fund (HTF)) against the “donee” states (states that receive more than a dollar for each dollar their highway users pay to the highway account). TEA-21 guaranteed a minimum 90.5% return from the highway account of the HTF on each state’s estimated payments to the highway account (based on the latest fiscal year for which data are available, generally two fiscal years earlier). Both the House Transportation and Infrastructure Committee (T & I) and the Senate Environment and Public Works Committee (EPW) leadership have pledged to work toward a guaranteed 95% return. The House T& I bill, as introduced, included language detailing how and under what conditions the minimum guarantee will be increased to 95%. The much smaller version of TEA-LU passed by the House did not include the language of the introduced version that would have phased in a guaranteed 95% share return by FY2009, effectively leaving 21 [http://www.transportation.org/publications/HTMLJournal.nsf/ViewItems/] Based on a August 2004 Department of Treasury estimate it now appears that actual collections to the trust fund over the next few years could be lower then the estimates described in this paragraph. 22 This section only examines the existing minimum guarantee program in brief, focusing on the donor-donee and minimum guarantee debate within the context of the House bill and the Senate bill. For a background and issue discussion of the donor-donee/minimum guarantee debate see CRS Report RL31735, Federal-Aid Highway Program: “DonorDonee” State Issues, by Robert S. Kirk and CRS Report RL32409, Highway Program Equity Guarantee Issues. CRS-17 the guarantee at 90.5%. The Senate bill would use an “equity bonus” mechanism to bring all states up to 95% by the last year of the authorization.23 The main difficulty faced in both the House and Senate is that a bill that simply reduces the shares of donee states to increase the shares of donor states may have difficulty overcoming a filibuster by donee states in the Senate. To construct an MG mechanism that can overcome this obstacle, ISTEA and TEA-21 both had provisions that could be seen as “hold harmless” provisions that maintained certain base shares for all states. This meant that part of the process of bringing donor state shares up to the MG percentage required increasing the overall federal highway program size (since donee state funding could not be reduced). This process has been very expensive. The MG program under TEA-21 became the largest Federal-Aid Highway program in the final years of the TEA-21 authorization cycle. To raise the guaranteed rate of return significantly, the TEA-21 MG framework will have to be altered unless significant new revenue sources can be found to support the HTF. The TEA-21 Minimum Guarantee Program The TEA-21 minimum guarantee had three components: Guaranteed Base Share. TEA-21 guaranteed each state a percentage share of the total program, defined as all the apportioned (formula) programs: Interstate Maintenance Program(IM), National Highway System Program (NHS), Surface Transportation Program (STP), Highway Bridge Replacement and Rehabilitation Program (HBRRP), Congestion Mitigation and Air Quality Program (CMAQ), Metropolitan Planning, Recreational Trails Program, Appalachian Development Highway System Program, and Minimum Guarantee, as well as High Priority Projects. These programs constitute the “scope” of the program. The State base percentages are in a table set forth in title 23 U.S.C. 105 (b). Minimum State Payment. Each state was guaranteed that as part of the minimum guarantee it would receive at least $1 million in Minimum Guarantee funds. Guarantee of a 90.5% Return on Tax Payments. Each state was guaranteed at least a 90.5% share return on its share of tax contributions to the highway account of the HTF (based on the most recent year for which the data are available — generally from two fiscal years before). If the guaranteed base share was less than a 90.5% return to a state, then the share was adjusted upward until the 90.5% share was reached. Other states’ base shares (but not their apportioned dollars) were squeezed down to make room for these share increases and to prevent the national share total from exceeding 100%. At this point each state had a new adjusted percentage share and no share was lower than 90.5%. As mentioned earlier, to accomplish states’ adjusted base shares, without taking money away from any of the states, required increasing the entire national MG program size to the point it was large enough to drop the share of the state that 23 See Congressional Record, v. 150, Feb 3, 2004: S508-509. CRS-18 needed the largest national MG program to achieve its adjusted base share (under TEA-21 the District of Columbia determined the national program size). This increase in the program size in turn determined the distribution amount of the MG funds needed to fulfill all aspects of the MG including the 90.5% minimum. This adjustment process required a great deal of money. As mentioned earlier, during the last years of TEA-21 the MG program was the largest Federal-Aid Highway program. Minimum Guarantee Distribution. Each year, the first $2.8 billion of Minimum Guarantee funds were administered as Surface Transportation Program (STP) funds, except that set-asides for Transportation Enhancements, Safety Construction, and certain population-based sub-state allocations did not benefit from this distribution. Any Minimum Guarantee funds above $2.8 million were distributed to the five core programs: STP, IM; HBRRP; NHS; CMAQ. The distributions to the states were based on the ratio of each core program’s apportionment to the total apportionment of all five programs for each state.24 The House Minimum Guarantee Proposal As introduced, TEA-LU would have amended the existing MG program (23 U.S.C. 105), rather than replace it. The bill provisions would have made changes in the guaranteed return, the list of programs under the MG program umbrella, and the distribution of MG funds. The House-passed versions of TEA-LU would leave the rate of return at the TEA-21 level of 90.5% but retain the changes in the programmatic “scope” of the bill as introduced. Guaranteed Specified Return. TEA-LU, as introduced, would have achieved a guaranteed 95% state return on payments to the HTF by guaranteeing 90.5% for FY2004, 91% for FY2005, 92% for FY2006, 93% for FY2007, 94% for FY2008, and 95% for FY2009. As was true under TEA-21, the estimated state highway user tax payments to the HTF (other than the Mass Transit Account) are based on statistics from the latest fiscal year for which data are available (usually two fiscal years prior). The phasing in of the 95% return over the life of the authorization would have had advantages during the current authorization cycle but could have posed problems for authorizers when they faced the next reauthorization cycle. The big advantage of phasing in the increase is that it saves money while fulfilling the promise to raise the guaranteed return to 95%. On the other hand, it shifts the heaviest burden on the trust fund to the last year of the authorization, possibly constraining future authorization increases in FY2010 and beyond. As introduced, TEA-LU included a budgetary escape valve on the ramp-up to 95%, which would have suspended the provision if the annual obligation limitations listed in the bill were not fully funded. Should this have happened in any fiscal year of the authorization, the guaranteed return would have defaulted back to 90.5%. 24 23 U.S.C. 105(c)(1). CRS-19 TEA-LU, as Reported, and as Passed by the House. The version of TEA-LU, reported out of the Transportation and Infrastructure Committee and eventually passed by the House, cut over $70 billion in contract authority for highway programs from the funding level in the original bill. Within this financial context, the guaranteed specified return was held at the TEA-21 level of 90.5%. The language in TEA-LU, as introduced, that ramped up the rate of return to 95%, was dropped. On the other hand, as is discussed below, the House-passed bill retained the “scope” of the guarantee set forth in TEA-LU as introduced. The bill, however, as is discussed later in this report, includes a “re-opener” provision that would cut off funding of all non-safety apportioned programs on September 30, 2005, if Congress has failed by then to enact legislation that would ramp up states’ guaranteed rate of return to 95% by FY2009. The “Scope” of the Guarantee: the Highway Programs Under the MG Umbrella. TEA-LU maintains the base share guarantee that the apportioned funds for the listed highway funds be allocated among the states in a way to guarantee each state percentage of the total apportionment for the listed programs be equal to the percentages set forth in section 23 U.S.C. 105(b). In the past, state shares have been adjusted during the authorization debate for a variety of reasons, including garnering support for the bill. TEA-LU, however, does make changes in the TEA-21 list of programs that are included under the MG umbrella (changing what is commonly referred to as the scope of the MG).25 First, it adds a number of new and modified existing programs to the MG program group: the Coordinated Border Infrastructure; Infrastructure, Freight Intermodal Connectors; Safe Routes to School; Highway Safety Improvement; and High Risk Rural Road Safety Improvement. Second, the bill moves the High Priority Projects Program (HPP) out from under the MG umbrella. Third, it placed a number of new or greatly expanded programs outside the MG program group: including Projects of National and Regional Significance; Dedicated Truck Lanes; Highways for Life; Pedestrian and Cyclist Equity; 511 Traveler Information; Hydrogen Infrastructure Deployment, as well as the expanded National Corridor Infrastructure Improvement Program. TEA-LU’s changes in the scope of the MG are controversial and is believed by some observers to create problems for the functioning of the MG. By placing a significant number of new and expanded programs outside the MG umbrella, the House bill, as reported and eventually passed by the House, would restrict the impact of the MG calculation of guaranteed apportionment shares to roughly 84% of the total program.26 Donor states are concerned that this situation would mean that they will have to successfully compete for earmarks in the allocated (non-MG programs) to achieve even the lowered 90.5% rate of return level relative to the all the highway programs. This arrangement has the advantage of keeping down the overall program costs. It also means, however, that when donor states eventually compare their dollar 25 “Scope” usually refers to the percentage of contract authority in a reauthorization bill that is subject to the MG. Less often it refers to the programs covered by the MG umbrella. 26 Under TEA-LU, as introduced, the scope would have been roughly 80%. CRS-20 returns on dollar contributions to the HTF, many will still fall below the specified share return. Another issue concerns earmarking. Because the MG sets the overall amount of funds that states get for the programs under the MG umbrella, earmarking within this group of programs does not generally bring any new money to the state.27 These earmarks merely allow Members of Congress to set project priorities. The core formula program totals for each state adjust through changes in the MG distribution for the impact of the designation. An earmark outside the MG group of programs will actually increase the amount of money going to the state. This makes shifting the HPP out of the MG group especially controversial because the $11.1 billion authorized would, through earmarking, significantly impact the state shares when eventually calculated on a dollar for dollar basis. The $6.6 billion Projects of National/Regional Significance Program could also impact state shares.28 With roughly $37 billion of the $225 billion (contract authority) provided for Federal-Aid Highway programs outside the MG program, most donor states did not favor TEALU’s MG proposal when the bill was brought to the floor. Some donor states, however, did well enough in obtaining HPP earmarks that, according to some analysis, they might be better off if the HPP were kept outside the scope of the MG.29 Both the issues of scope and the impact of earmarking on the MG program surfaced during debate on the floor of the House in the form of an amendment (H.Amdt. 514) offered by Representative Johnny Isakson of Georgia. The amendment would have brought both the HPP and the Projects of National and Regional Significance within the scope of the MG. The amendment also would have increased funding to the core highway formula programs. However, the wealth of earmarks and perhaps the hesitance of some donor state Representatives to break with the Transportation and Infrastructure Committee leadership, softened the cohesiveness of the donor state coalition and the amendment was defeated. Minimum Guarantee Distribution. TEA-LU, as passed, keeps the basic TEA-21 distribution paradigm, with one major exception: the bill raises the portion of the MG funds reserved for STP, under the “remaining distribution” provision, from $2.8 billion under TEA-21 to $2.87 billion for FY2004, $2.94 billion for FY2005, $3.02 billion for FY2006, $3.09 billion for FY2007, $3.17 billion for FY2008, and $3.25 billion for FY2009. STP is the highway program with the broadest eligibility criteria. Its formula also is least dependent on total lane miles and most dependent on estimated tax payments to the highway account of the HTF. This also squeezes down the relative MG amounts going to the other core formula programs (IM, NHS, CMAQ, HBRR). 27 For HPP earmarking within the scope of the MG to bring increased money to a state its dollar total would need to exceed the state’s MG payment (minus the $6 million minimum MG payment received over the life of the authorization). 28 The HPP was reduced by nearly $4 billion and Projects of National/Regional Significance were reduced by $11 billion in TEA-LU, as reported. 29 See Transportation Weekly, v. 5, March 29, 2004. P. 7-8,14. CRS has not verified the accuracy of this analysis. CRS-21 The Senate’s Proposed Equity Bonus (EB) Program The Senate has taken a different approach from the House. The Senate bill would replace the entire MG program with an “Equity Bonus” program (EB).30 As is true with the House bill, the Senate bill would achieve a 95 % return on payments to the highway account of the HTF by FY2009, the final year of the authorization. It would eliminate the base state share percentage table used in TEA-21 and in the House bill. Basically, the individual program formulas would determine the initial apportionment and the equity bonus would be added to these levels. The Equity Bonus. The Senate bill directs the Secretary of Transportation to allocate to the states for each of the fiscal years 2004 through 2009 sufficient funds to ensure that each state receives at least a 95% return (to EB specified programs ) on its estimated payments to the highway account of the HTF (subject to a number of rules and limitations discussed below). The Senate bill would keep nearly all the programs subject to MG under TEA-21 (IM, NHS, STP, CMAQ, HBRR, Recreational Trails, Appalachian Development Highway System, and metropolitan planning) subject to the equity provision. In addition the Senate bill, as passed, also includes the new Highway Safety Improvement Program, the infrastructure performance and maintenance program, the safe routes to schools program, the railhighway grade crossing program, as well as the EB program itself, under the EB program umbrella. As of Senate passage, the HPP program has not been included among the EB programs.31 The estimated scope of the EB program is roughly 93%, slightly lower than TEA-21 but significantly higher than TEA-LU’s 84%. The bill protects some states that would lose percent share under the EB’s 95% share. States with a population density of less than 20 people per square mile, a population under one million, or a median household income under $35,000 would get either the 95% share or their average share of allocations under TEA-21. Equity Bonus Special Rules and Limitations. The EB is also subject to certain rules and limitations which taken together can be seen as placing a floor and a number of ceilings on the program. Special Rules. All states are to be allocated enough funds to ensure that each state gets at least 110% of its TEA-21 annual average. ! No negative adjustment may be made to any state’s apportionment during the EB allocation. ! 30 The Equity Bonus provision was introduced as a modification to the EPW committee amendment in the nature of a substitute during initial floor consideration on February 3, 2004. See Congressional Record, Feb. 3, 2004: S506-09. See also Transportation Weekly, v. 5, Jan. 27, 2004: 1, 5-10, and Washington Letter on Transportation, v. 23, Jan. 26, 2004: 3-4. 31 Historically, EPW has held its HPP list of projects out of its reported bill only to add it during conference negotiations. CRS-22 ! Not withstanding the limitations (see “Limitation on Adjustments” below) the amendment requires that no state in any year may drop below 90.5%. Limitation on Adjustments. EB allocations are not to be given to states under certain conditions. If a state’s total apportionments of all the designated EB programs exceeds the state’s average TEA-21 apportionments by the following percentages the state gets no bonus. ! ! ! ! ! ! FY2004 ceiling: 120% of state’s TEA-21 average FY2005 ceiling: 130% of state’s TEA-21 average FY2006 ceiling: 134% of state’s TEA-21 average FY2007 ceiling: 137% of state’s TEA-21 average FY2008 ceiling: 145% of state’s TEA-21 average FY2009 ceiling: 250% of state’s TEA-21 average This is the main mechanism that phases in the 95% share goal by the final year of the authorization. It also holds down the cost of the EB program. Equity Bonus Distribution. The distribution of the EB is to the core formula programs (IM, NHS, STP, CMAQ, HBRR, the Highway Safety Improvement Program and Metropolitan Planning). The bonus would be distributed to each program based on the relative share each state received for each program based on the program formulas. Metropolitan Planning, however, would receive no bonus. The initial $2.8 billion that under TEA-21 went to STP is not in the EB proposal. EPW committee staff produced a table that projected the state percentage share return on payments over the life of the bill.32 The process of ramping the donor states up to 95% return appears to have a variable impact on states. For example, Michigan and Indiana achieve a 95% return in FY2004 while California and Texas remain at 90.5% until FY2009. As mentioned earlier some sparsely populated, low population, and low income states receive some protection under the proposal. However some donee states, New York and Pennsylvania, for example, face significant share reductions. Donor - Donee Conference Issues Conferees face reconciling the House and Senate bill equity guarantee provisions that differ in approach, scope, and rate of return. The House bill retains the basic TEA-21 minimum guarantee structure. Perhaps its main advantage is that it is a known program with a six year track record. On the other hand, the way the MG is calculated and implemented is complex and has been shown to at times to have unexpected outcomes. The Senate Equity Bonus (EB) program is a new approach which in concept is much simpler than the MG. Some of this simplicity, however, is lost with the protections, special rules and limitation adjustments 32 This table was reproduced in modified form in Transportation Weekly, v. 5, Jan. 27, 2004: 10. CRS-23 imposed on the bonus. Even so, it probably a simpler equity paradigm than the TEA21 model, although there is no track record to judge it by. Scope is a major issue for conferees. There are really two scope issues that will need to be dealt with. First, is the breadth of the scope as a percentage of total funding. The scope of the House bill is roughly 84%. The scope of the Senate’s EB proposal is roughly 93%. This percentage could change depending on the treatment of the HPP project list in conference. Applying each bill’s guaranteed rate of return against the scope of the two bill means that, in effect, the rate of return in the House bill it is 90.5% of 84% of the total bill (prior to the September 30, 2005 “re-opener” requirement) while in the Senate it builds to become 95% of roughly 93% of the total bill in the last year of the authorization. Second, is the issue of the choice of programs within the scope of the eventually decided equity provision. The House bill has significantly more new or reconfigured programs than the Senate bill. Part of the scope decision making process will have to be which programs are kept in the final bill and which are dropped or altered. In the past, donor states almost always argued for the broadest scope possible. The experience in the House with the Isakson amendment, however, may indicate that donor state support for the broadest scope possible may not be as predictable as in the past. The core of the equity debate is the proper level of the MG rate of return on state payments to the HTF. Providing for a substantial increase in the guaranteed minimum guarantee percentage is an expensive proposition. As mentioned earlier, the MG became the largest highway program under TEA-21. Even the House bill as introduced, which had roughly $70 billion more in contract authority than the Housepassed version, could only achieve a 95% guaranteed return by phasing in the increase over the life of the bill. The much smaller bill passed by the House retains the TEA-21 guarantee of 90.5% coupled with the re-opener provision. The case can be made that the re-opener provision in effect makes the House bill an 18 month reauthorization bill. The Senate’s EB gets to the 95% guarantee, but only by delaying the bonus for some of the large donor states until the last year of the authorization. Despite the dissatisfaction over the delayed nature of their 95% guarantee by Senators from major donor states, the Senate bill may have an advantage in conference in that, it does get all the donor states to the 95% goal, even if it is only in the last year of the authorization. Once that level has been achieved it could set a precedent that could be difficult for future authorizers to ignore. On the other hand, debate on the House floor brought up concerns that too broad a scope aligned with a percentage guarantee as high as 95% could constrain Congress from dealing with all federal transportation needs, the spending for which could not always rationally be spread across all states. Statistical Caveats A number of statistical issues have an impact on MG and EB proposals. The use of non-current data (i.e., revenue estimates from two years prior) may skew the state donor-donee ratios and lead to conclusions about donor or donee status that are questionable. Also state-by-state data on payments to the highway account of the HTF are estimates based on extrapolations from state tax data and may not always be accurate or up to date. The economic cycle can have an impact on revenues and the budgetary process that can lead to years when revenues and spending levels differ CRS-24 significantly from each other: this can have an impact on rate of return. Finally, the MG and EB proposals attempt to achieve a specified “share” return on two year old payments data. Distribution equity, however, is almost always judged by Table FE221 in the annual FHWA Highway Statistics Report33, which compares estimated dollars paid and apportionments and allocations received in the same year. This statistical disconnect means that even an effective MG or EB program will face criticism when the same year dollar for dollar return data are released. In addition, the impact of proposed revenue changes on states’ relative shares of payments to the HTF are hard to gage over the life of the reauthorization. These changes could change some donor states to donee states, or vice versa, over the next few years. It could also impact the calculation of program size under the MG. The difficulties with statistics are particularly acute during the reauthorization process. Because reauthorization deals with changing law and looking to the future there is an enormous amount of uncertainty in any statistical analysis. Many assumptions must be made which may or may not prove to be accurate as the future moves into the present. The share of payments data, which begins the MG calculation, change from year to year and not always in predictable ways. This alone can have a major impact in donor-donee outcomes and especially on the projection of total program size. The projection of state-by-state allocations over a six year authorization, although perhaps not as unpredictable as the revenue data, is also uncertain. (CRS contact: Bob Kirk) House “Re-Opener” Provision As mentioned earlier, the introduced version of H.R. 3550 was a $375 billion bill. With that amount of money it was possible to ramp up the state share of programs under the MG structure on an annual basis, with all states receiving 95% by FY2009. The House Committee on Transportation and Infrastructure reluctantly bowed to House Leadership and reported a $275 billion bill. As rewritten to accommodate this lower funding level the MG level remains at the 90.5% level through the life of the bill. The Committee remains very concerned that $275 billion is insufficient funding for the federal transportation program and that this amount does not allow for any increase in the MG level. Seeking to force the issue of funding in the future, the reported bill contains a provision (Section 1124) that causes automatic termination of most federal-aid highway programs after September 30, 2005 unless certain conditions are met. This so-called “re-opener” or “trigger” provision is designed to insure that Congress must raise funding and addresses the donor-donee issue in a manner that raises each state’s share to 95% by FY2009. The re-opener provision is straightforward. If Congress has failed to enact legislation that increases funding or otherwise allows the MG to rise to 92% in FY2006, with an additional one percent increase in each subsequent fiscal year, most federal highway program funding ends. At the same time a hold harmless provision in the section requires that no state receive less as a result of this provision and that each state receive an amount of additional assistance at least comparable to a Consumer Price Index (CPI) measured rate of inflation. 33 [http://www.fhwa.dot.gov/policy/ohpi/hss/index.htm] CRS-25 This is a controversial provision. Some will view its inclusion in the bill as evidence that H.R. 3550 is not actually a six-year bill, but really a two-year bill (18 months at this point). The Bush Administration objects to this provision because it requires additional funding that could ultimately raise the final cost of the bill to a level it finds unacceptable. It is unclear how the Senate might react to this provision in Conference. Highway Program Structural Changes Apportioned Programs Funds for all of the programs discussed here are apportioned to the states on an annual basis using formulas found in TEA-21. As a result they are sometimes referred to as the “apportioned” programs. In some instances, apportioned programs are also referred to as formula programs. Under TEA-21 most highway funding is reserved for five major programs, which are usually referred to as the core programs. They, along with the minimum guarantee, accounted for the vast majority of highway spending: 86% of the FY2003 authorized amount. These programs are: the national highway system program (NHS); the interstate maintenance program (IM); the surface transportation program (STP); the bridge replacement and rehabilitation program; and the congestion mitigation and air quality improvement program (CMAQ). Each of these programs provides funding for specific segments of the federal-aid highway system and/or other statutorily enunciated activities, e.g., congestion relief projects using CMAQ funds. In addition to the “so-called” core programs there are a couple of additional and much smaller apportioned programs in TEA-21, e.g.: metropolitan planning and the recreational trails program. Because the minimum guarantee program is so large it could also be thought of as a core program; it provides additional apportioned funds for each of the five core programs. By the last year of TEA-21, the minimum guarantee was, in fact, the largest highway program. In the FY2003 authorization, for example, it provided fully 20% of all funding. New Apportioned Programs — House and Senate. Both the House and the Senate bills add one new program to the core, the Highway Safety Improvement Program (HSIP). Originally proposed by the Bush Administration, this program consolidates a number of existing safety programs into a new formula grant program. (HSIP is discussed in greater detail in the safety section of this report.) The Senate HSIP contains a new “safe routes to school” program. The House creates a much larger safe routes to school program as a separate formula program. (This program is discussed in greater detail in the pedestrian and bicycle mobility section of this report.) As discussed earlier, the House bill continues the existing minimum guarantee program, leaving that aspect of the core program structure unchanged. The Senate bill adopts a new “equity bonus” program that apparently will only provide funds to those CRS-26 states whose annual highway program funding falls below a certain level. (It also restricts funding above a certain level for all states). The House creates additional apportioned programs that would not necessarily be considered core programs. Among these is a new freight intermodal connectors program, with $1.37 billion in funding over the next six years. The Senate creates a similar program for freight transportation gateways, but does not fund it separately. Rather S. 1072 requires each state to use up to two percent of its NHS funding for intermodal freight terminals and other freight related activities. (These programs are discussed in more detail in the intermodal section of this report.) New Apportioned Programs — Senate. As introduced the border planning, operations, technology, and capacity program in S. 1072 was an allocated program. As amended on the floor, however, it has become a formula program. This program is a successor to the TEA-21 created National Corridor Planning and Development Program (part of the CORBOR program), now limited to specific border states, but with broadened project eligibility. New Apportioned Programs — House. The House breaks up the existing national corridor planning and development and coordinated border infrastructure program (CORBOR) program (which is currently an allocated program) and creates a new formula coordinated border infrastructure program. This program provides funding for new and improved infrastructure within 20 miles of the Mexican and Canadian borders. The program receives $1.1 billion over the life of the legislation. One other fairly large formula program is created in H.R. 3550, a high risk rural road safety improvement program, which receives $675 million over six years. This program is focused on fixing problems on rural roads with higher-than-average fatal accident rates. A significant new apportioned program in the House bill is not a separate program. H.R. 3550 creates a new congestion relief program, but funds it from existing core program obligations. States are required to reserve a computed portion of their total apportionments for specified congestion relief activities. Allocated (Discretionary) Programs All remaining highway programs are subject to allocations that are based on criteria established in highway authorization and appropriation law. They also may be, and usually are, subject to congressional earmarking. In TEA-21 all of the programs in this category were smaller than the core programs, although there were some programs with significant funding levels. The largest allocated program in TEA-21 was for congressionally mandated high priority projects (earmarks) that were specifically designated in the act. Other relatively large programs in the allocated category are the federal lands program, the aforementioned national corridor planning and development and coordinated border infrastructure program (CORBOR), the interstate maintenance discretionary program, the bridge discretionary program, and the transportation and community and system pilot preservation program (TCSP). CRS-27 New Allocated Programs — Senate. The Senate bill creates one large new allocated program, the infrastructure performance and maintenance program (IPMP). The IPMP, which was also part of the Administration bill, is for so-called “ready to go projects.” Funding is limited to projects that improve operations and/or preserve or maintain existing highways or other infrastructure. The Secretary of Transportation is charged with developing an allocation program that provides for funding of projects that can be obligated within 180 days. The bill initially provided $12 billion for this program over the six-year authorization period, with the money front-loaded, i.e., more funds are available in the first few years than in later years. As a result of floor amendments, however, IPMP is now funded at the $2 billion level, and only for FY2004. During floor consideration a new, but unfunded, multistate international corridor development program was added to the bill. This provision is focused on the movement of freight from ports through and to the interior. New Allocated Programs — House. The House bill contains several large new allocated programs. In fact, much of the new money in the House bill is for the allocated programs. The largest new program is for projects of national or regional significance. This program receives $6.6 billion. These funds are reserved for very large projects costing over $500 million or the equivalent of 75% of a state’s annual total program apportionment. The criteria for selection are to be determined by the Secretary of Transportation and the Secretary is empowered to provide selected recipients with formal “letters of intent” in the same manner that new-start transit projects are funded. Considerable latitude is provided in this program, which can, for example, be used to fund multi-state projects that are difficult to arrange under the existing highway program. The other large new allocated program is for congressional high priority projects (earmarks). H.R. 3550 provides just over $11.1 billion for these projects, which are widely distributed amongst Members. As reported the bill lists 2,884 separate projects. This is 1,034 more projects then were included in TEA-21. The Senate does not have a comparable provision in its bill. Senate earmarks have been added, however, to previous reauthorization bills, normally at the conference stage. (CRS contacts: John Fischer and Bob Kirk) Highway Program Formula Changes Under TEA-21, most of the funds distributed by the Federal-Aid Highway program were apportioned to the states based on apportionment formula factors set forth for the individual programs under Title 23 of the U.S. Code. The major existing formula programs are IM, NHS, STP, HBRR, CMAQ, Recreational Trails Program, and Metropolitan Planning.34 Some program formulas include a combination of weighted factors such as lane miles, vehicle miles traveled, and estimated tax payments to the highway account of the HTF. Other programs are primarily based on a single factor such as the relative state share of total cost to repair 34 The MG program and the proposed Equity Bonus program also apportion funds by formula. For a discussion of these programs see the “Donor-Donee Remedies” section. CRS-28 or replace deficient bridges (HBRR) or weighted non-attainment and maintenance area population under the Clean Air Act (CMAQ). Existing Formula Program Changes Neither the House nor Senate bills make major changes in the existing program formulas. The bills do, however, make some adjustments that are of note. The Senate makes adjustments to the underlying calculation under CMAQ of weighted non-attainment and maintenance area population, in part to add the Clean Air Act’s new particulate matter standard into the underlying calculation. The Senate bill would require each state to set-aside 2% of its NHS apportionment to carry out the proposed Freight Transportation Gateways/Freight Intermodal Connections program. S. 1072 also provides a number of formula program set-asides for the New Strategic Highway Research Program, including set-asides of $15 million from IM, $19 million from the NHS, $13 million from the HBRR, $20 million from STP, and $5 million from CMAQ. The House bill (section 1205) includes a provision that requires that $3 billion of amounts authorized under NHS, IM, STP, and CMAQ be utilized to expand deployment of intelligent transportation systems. The House bill also creates a $20 million NHS set-aside for the construction of ferry boats and ferry terminal facilities in Alaska, New Jersey, and Washington. New Programs’ Formulas35 House and Senate. The proposed Highway Safety Improvement Program (HSIP) formula distribution is weighted 25%, in the ratio of total federal lane miles in each state to the total lane miles of the federal-aid highways (FAHP) in all states; 40%, in the ratio of total FAHP vehicle miles traveled (VMT) in the state to total VMT on all FAHP highways; 35%, in the ratio of estimated tax payments from users in each state to the estimated tax payments by highway users in all states. The minimum payment is set at 0.5%. Senate Bill. The Senate bill includes only one significant new formula program that does not appear in the House bill. Border Planning, Operations, Technology, and Capacity Program. Funds are distributed on the basis of four factors, each of which receives equal weight. First is a ratio of the average annual weight of all cargo entering a border state (defined in the bill) from Canada or Mexico to the total of such cargo entering all border states. The second factor is a similarly computed ratio using the average trade value of cargo. The third factor is a ratio of the number of commercial vehicles entering a border state to the total number of such vehicles. And the final factor is the same computation using passenger vehicles. House Bill. In addition to HSIP, discussed above, the House bill includes a number of new or changed programs whose funds are to be apportioned according to formula. 35 TEA-LU, as reported and as passed, made no changes to the formulas discussed in this section. The formulas are the same as in TEA-LU, as introduced. CRS-29 Coordinated Border Infrastructure Program. Under TEA-21, this was an allocated (discretionary) program. Under TEA-LU, the funds are to be apportioned under the following formula: 20% in the ratio of incoming commercial truck crossings in a state to the total incoming commercial truck crossings in all border states; 30% in the ratio that incoming personal vehicle and bus crossings into a state to the total of incoming personal vehicle and bus crossings in all border states; 25% in the ratio of total weight of incoming cargo in a state to the total weight of incoming cargo in all border states; and 25% of the ratio that the total number of ports-of-entry in a state bears to the total number of ports-of-entry of all border states. Freight Intermodal Connectors. Sums are to be distributed as follows: 33.3% in the ratio of the freight intermodal connectors in a state to the number of freight intermodal connectors in all states; 33.3% in the ratio that a state’s estimated payments by the state’s highway users to the highway account of the HTF bears to the total of such payments by all states; and 33.4% in the ratios apportioned for the NHS. Motor Vehicle Congestion Relief. The portion of a state’s apportionments from core programs to be obligated for congestion relief activities is determined by multiplying the amount apportioned to the state under IM, NHS, STP, and CMAQ by 10% and then by the percentage of the state’s population residing in urbanized areas of the state with a population of over 200,000 people. High Risk Rural Road Safety Improvement. Funds are to be apportioned as follows: 1/3 in the ratio that each state’s public road lane mileage for rural minor collectors and rural local roads bears to the total for all states; 1/3 in the ratio that the population of non-urbanized areas in a state bears to the non-urbanized area population for all states; 1/3 in the ratio of the total vehicle miles traveled on public roads in each state bears to the total vehicle miles traveled on public roads in all states. Safe Routes to School. Fund are to be apportioned among the states in the ratio that the total student enrollment in primary and middle schools in each state bears to the total student enrollment in primary and middle schools in all the states. No state is to receive an apportionment of less than $2 million. (CRS contact: Bob Kirk and John Fischer) New Directed Spending Motor Vehicle Congestion Relief. Section 1201 of the House bill directs that any state with an urbanized area of over 200,000 people must obligate, for congestion relief activities, from their IM, NHS, STP, and CMAQ apportionments an amount determined by multiplying these programs’ totals by 10% and then by the percentage of the state’s population residing in urbanized areas of over 200,000 people. The bill directs that 40% of the funds be spent on projects that cost less than $1 million and can be completed within one year. Another 35% is to be spent on projects that have no cost limit but must be completed within three years. The final 25% be spent on either the within-one-year or within-three-years category projects, on transit capital projects, or on congestion relief activities such as telecommuting, ridesharing, alternative work hour programs and value pricing. The provision CRS-30 appears to be designed to encourage states to act on relatively small, low cost projects that can be quickly completed. (CRS contact: Bob Kirk and John Fischer) Highway Program Issues Flexibility/Transferability Flexibility as used in the context of the highway and transit programs refers to the ability of states to transfer funds apportioned in one program, e.g., STP, and use these monies to finance activities funded primarily by other federal programs, e.g., transit.36 These conditions are also known as transferability provisions. Increased funding flexibility has been an important part of the last two highway reauthorizations, TEA-21 and ISTEA. There are often statutory limits on how much funding in any given program can be transferred to another activity. There are also additional rules preventing certain types of program transfers. States and localities have usually sought the widest possible latitude for transferability. The authors of highway and transit legislation, however, have believed that a national purpose is served by requiring that each state spend at least a portion its federal funding for programs that they view as having national importance. Both the House and Senate bills contain provisions that enhance transferability. The Senate bill includes several such provisions, two of which are particularly notable. First is a provision that allows highway funds to be transferred to other Federal agencies and allows them to administer projects in certain instances. A second provision allows the Secretary of Transportation to approve transfers of funds between states for the funding of one or more specific projects and, in addition, to allow states to transfer funds to FHWA for the same purpose. The House bill also contains multiple instances that allow for greater transferability of funds between programs and jurisdictions. For example, transportation systems management and operations activities are considered eligible uses for STP, NHS, and CMAQ funds. In another instance, recreational trails funds can be used to provide what is normally the state or local matching requirement. Finally, an important aspect of the new proposed program to fund projects of national/regional significance is the ability of multiple states, local governments, and in some cases private firms to enter into agreements to pool funds from multiple sources. (CRS contact: John Fischer and Bob Kirk) 36 The highway programs have limitations on how funds can be transferred among programs. Further information on the TEA-21 structure can be found on the DOT website at [http://www.fhwa.dot.gov/tea21/factsheets/index.htm]. CRS-31 High Priority Projects (Earmarking) In the view of some industry observers, the most controversial feature of TEA21 is found in Section 1601, which establishes the “high priority projects program.” This section lists 1,850 specifically identified projects throughout the United States and provides a specific dollar authorization for each project. In total, almost $9.4 billion in authorizations are provided for this program. This compares with 538 congressionally designated projects in ISTEA that were provided with $6.2 billion in funding. The growth in earmarking, however, is not isolated. Earmarking in transportation appropriations legislation has also grown dramatically in the last decade. In fact, certain programs, such as CORBOR and TCSP that were established as competitive discretionary funding programs in TEA-21 are now entirely earmarked in appropriations legislation. Earmarks have some significant effects on policy questions that arise as part of the reauthorization debate. Earmarking in TEA-21 does affect the donor/donee computation. Within the context of a state’s total program spending, for example, if the state receives a significant number of earmarks, the state will see its discretion over total program spending somewhat reduced. As mentioned earlier H.R. 3550 identifies 2,884 high priority projects (at an estimated cost of $8.6 billion). Approximately $11.1 billion is reserved for high priority projects in the bill. The project list was included as part of a manager’s amendment adopted during committee markup of the bill. The Senate bill does not reserve funding for earmarks. There are, however, two set-asides for specific bridge projects in the bill that might be construed by some as earmarks. During TEA-21 consideration the Senate bill was devoid of earmarks. Senate high priority projects were added in conference. (CRS Contact: John Fischer and Bob Kirk) Innovative Financing Provisions Created by highway legislation primarily in the 1990s, innovative financing mechanisms attempt to use the guarantee of future highway funds as a way to speed project completion and to leverage additional funds for highway projects. There are three mechanisms currently in use: grant anticipation revenue vehicles (GARVEEs); credit assistance available as a result of the Transportation Infrastructure Finance and Innovation Act (TIFIA); and state infrastructure banks (SIBs). Each of these mechanisms has specific strengths and weaknesses that have been studied and described by GAO, CBO, and FHWA.37 37 U.S. GAO. Transportation Infrastructure: Alternative Financing Mechanisms for Surface Transportation. Testimony before the Committee on Finance and Committee on Environment and Public Works. September 25, 2002. Available online from the GAO website at [http://www.gao.gov/new.items/d021126t.pdf]. See also the FHWA website at [http://www.fhwa.dot.gov/innovativefinance/] and U.S. CBO, Innovative Financing of Highways: An Analysis of Proposals, January 1998 online at the CBO website at (continued...) CRS-32 The House and Senate bills make changes in two of the federal innovative finance programs: TIFIA and the SIB program. Most of the changes may be viewed as perfecting changes in the programs but other changes are more significant. TIFIA. This program provides three types of federal financial assistance for major transportation projects: secured loans, loan guarantees, and standby lines of credit. Both the House and Senate bills reduce the minimum project size threshold from $100 million to $50 million. The House bill also lowers the minimum project threshold for intelligent transportation system projects from $30 million to $15 million. The Senate bill would provide $130 million annually to support TIFIA’s leveraging activities; the House bill, as reported, would provide $130 million for FY2004 and then $140 million annually for FY2005-FY2009. SIBs. Under the SIB program, federal funds are used to help capitalize state infrastructure revolving funds. Under TEA-21, the program was limited to four states, Missouri, Rhode Island, California, and Florida. Both the House and Senate bills would allow any state to enter into an agreement with DOT to establish SIBs eligible to be capitalized with federal funds drawn from core highway program funds. Public-Private Partnerships. It has long been contended that enhanced use of public-private partnerships in the creation of transportation infrastructure could result in reduced overall costs and more efficient project delivery. The concept has been discussed for some time and is already allowed in certain instances. S. 1072 contains a provision that tries to force the Secretary to broaden the use of these arrangements by creating a public-private partnerships pilot program. This program requires that the Secretary identify at least 10 public-private partnership projects as part of the already existing innovative finance program framework. To accomplish this, the bill provides funding of $10 million per year for the six year reauthorization period. (CRS contacts: John Fischer and Bob Kirk) Toll Projects. S. 1072. SAFETEA contains two provisions dealing with toll projects. The first changes the eligibility provisions in the TEA-21 created interstate system reconstruction and rehabilitation pilot program. The TEA-21 provision required an analysis that found tolls to be the only practical way to pay for a reconstruction project. The SAFETEA substitute requires that the analysis show that using tolls would be “the most efficient, economical, or expeditious way to advance the project.” The second provision is the Senate’s inclusion of the Fast and Sensible Toll (FAST) Lanes Program. Although it uses the same name, it varies significantly in detail from stand-alone legislation that had been introduced earlier in the 108th Congress.38 The program would allow the use of tolls to create new high occupancy lanes on existing interstate highways in urbanized areas. These lanes, also known as HOT lanes (high occupancy toll), are viewed as a tool useful for potentially reducing 37 (...continued) [ftp://ftp.cbo.gov/3xx/doc320/finhways.pdf]. 38 H.R. 1767 and S. 1384. CRS-33 urban congestion. The tolls collected could be used to pay for the debt service incurred by their construction and for certain other purposes. S. 1072 provides $11 million per year for this program. H.R. 3550. TEA-LU includes two provisions that involve tolling. Section 1208 (HOV Facilities) includes a provision that would allow state departments of transportation to allow vehicles not otherwise eligible for HOV use, to pay a toll charged by the agency to use the HOV lanes. The provision requires that the tolls be collected automatically, that toll amounts be varied to manage demand, that violations be enforced, and that low-income individuals be permitted to pay reduced tolls. During debate, an amendment (H.Amdt. 513) by Representative Mark Kennedy of Minnesota eliminated three existing toll provisions from the bill and introduced a new proposal for “Fast Fees” in Section 1603. The amendment repeals the Congestion Pricing Pilot Program, begun under the Intermodal Surface Transportation Efficiency Act of 1991 (ISTEA; P.L.102-240), which allowed the Secretary of Transportation to enter into agreements with state and local governments to carry out up to 25 congestion pricing pilot projects. The amendment also struck Section 1603, the Interstate System Reconstruction and Rehabilitation Toll Pilot Program, which would have reestablished the TEA-21 pilot program that allowed a state to collect tolls on an Interstate System highway, bridge, or tunnel for the purpose of reconstructing and rehabilitating the facility. In addition, the amendment struck Section 1604, the Interstate System Construction Toll Pilot Program, would have allowed a state or compact of states to collect tolls on a highway, bridge, or tunnel on the Interstate System for the purpose of constructing Interstate highways. The Fast Fees provision is a modified version of the Freeing alternatives for Speedy Transportation (FAST) ACT (H.R. 1767; S. 1384). The provision would direct the Secretary of Transportation to establish an Interstate System FAST Lanes program under which a state or public or private entity designated by a state, could collect tolls for the purpose of reducing traffic congestion by constructing one or more additional lanes on the Interstate System. The FAST Lanes program requires that all tolls be collected electronically and that revenues are only to be used for: debt service on investment, a reasonable return on investment of any private investor, costs for improvement and proper operation and maintenance of FAST Lanes and existing lanes if these improvements are necessary to integrate the existing lanes with the FAST Lanes or for the construction of an interchange from the FAST Lane to existing lanes, or for the establishment by the state of a reserve account to be used for the long term maintenance and operation of the FAST Lanes. Fees may only be collected on and for the use of FAST Lanes. The use of FAST Lanes must be voluntary. Revenues may not be used for any other project. Once the debt, return on investment, related improvements are paid for and the reserve account is funded, the tolls would be lifted. Although the amendment passed, opponents made a number of arguments against the provision. First, some argued that states should have more flexibility on the use of the toll revenue. They also argued that it would prevent the tolling of existing Interstate System lanes. The other opposition came from trucking interests that expressed concern that states would be allowed to add toll lanes to any Interstate CRS-34 System highway that added new lanes. Others objected to the tolls as essentially being a tax.39 Bonding Proposals The Senate bill, as passed, includes two bonding provisions. One amends the Internal Revenue Code of 1986 to allow the issuing of tax-exempt private activity bonds to finance highway projects and rail-truck transfer facilities. Any surface transportation project that receives assistance under any Title 23 program would qualify, as would any international tunnel or bridge that likewise receives federal assistance under Title 23. Any truck-train transfer facility project would also qualify. A $15 billion limit is placed on the aggregate face amount of the bonds that can be issued. The bill includes spending offsets for federal revenue losses under the provision. The second bonding provision would establish a Build America corporation that would be able to issue Build America bonds to support eligible highway, mass transit, or congestion relief projects. Funding, however, is not provided and there are no provisions amending the U.S. Tax Code to provide for any special tax treatment of Build America bonds. (CRS contacts: John Fischer and Bob Kirk) Transportation Enhancements (TE) Program Under the House and Senate bills, the Transportation Enhancements program would be similar to the program under TEA-21. Currently, 10% of the funds apportioned under the Surface Transportation Program (STP) must be allocated to transportation enhancement activities, e.g. bike paths, landscaping and scenic beautification, and historic preservation. Because STP funding is set to rise under both bills, the 10% set-aside for TE activities ensures that additional funding will become available for enhancement projects. The Senate bill contains one revision to the definition of TE activities. Under acquisition of scenic easements and scenic or historic sites, historic battlefields would be included. The House bill does not propose a revision of TE activities. Neither bill contains any other modifications to the TE program. Table 2. Proposed Funding: Transportation Enhancements Program, FY2004-2009 (millions) FY2004 FY2005 FY2006 FY2007 FY2008 FY2009 Total FY2004-09 H.R. 3550 605 620 636 652 668 685 3,866 S. 1072 688 812 842 844 886 899 4,971 Note: Figures for both the House and Senate bills were generated by assuming that the existing 10% set-aside for transportation enhancements will be continued. 39 Transportation Weekly. V.5, April 7, 2004. P. 9. See also Congressional Record. V. 5, April 2, 2004. P. H2066-H2070. CRS-35 Transportation and Community and System Preservation (TCSP) Program The TCSP program, established under TEA-21, was designed to assist in planning, developing, and implementing strategies to integrate transportation and community and system preservation plans and practices. TCSP funding was authorized for projects that aimed to improve the efficiency of the transportation system; reduce environmental impacts of transportation; reduce the need for costly future public infrastructure investments; ensure efficient access to jobs, services and centers of trade; and examine development patterns and identify strategies to encourage compatible private sector development patterns. Under TEA-21, TCSP spending was authorized at $20 million for FY1999 and $25 million per year for FY2000 through FY2003. As envisioned in TEA-21, state and local governments, metropolitan planning organizations (MPOs), and tribal governments would be eligible to apply for competitive TCSP grants. Competitive grants were awarded in FY1999. For FY2000 to FY2003, TCSP projects were earmarked in the annual transportation appropriations bills. TCSP funding amounted to $13.5 million in FY1999, $31.1 million in FY2000, $46.9 million in FY2001, $273 million in FY2002, and $89.5 million in FY2003. Sec. 1115 of H.R. 3550 would provide a six-year total funding authorization of $195 million for the TCSP program. The House bill proposes no other changes to the program. Sec. 1814 of S. 1072 would provide $50 million per year, or a six-year funding authorization of $300 million for the program. The Senate bill would codify the TCSP program in 23 U.S.C. S. 1072 also amends 23 U.S.C. 133(b) by allowing states to obligate funds apportioned under the STP for TCSP activities. Table 3. Proposed Funding: Transportation and Community and System Preservation (TCSP) Program, FY2004-2009 (millions) FY2004 FY2005 FY2006 FY2007 FY2008 FY2009 H.R. 3550 25 30 35 35 35 35 S. 1072 50 50 50 50 50 50 Pedestrian and Bicycle Mobility The House and Senate bills continue to provide a significant level of funding for bicycle and pedestrian programs that encourage a greater number of non-motorized trips, and pedestrian and cyclist safety, health, and education. The major federal program that has supported pedestrian and bicycle mobility since the passage of ISTEA is the Transportation Enhancements (TE) program (23 USC §133(b)(8)), which is unchanged with respect to provisions for bicyclists and pedestrians in both the House and Senate bills. That program permits states to CRS-36 allocate [Text truncated at 120,000 characters. The full text is on the page linked above.] --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/crs%3ARL32226. Public record. Not legal advice.