The Heritage Foundation

Issue Bulletin #223

April 12, 1996

April 12, 1996 | Issue Bulletin on

Why H.R. 842 Is Anything But "Truth in Budgeting"

(Archived document, may contain errors)

April 12, 1996

WHY H.R. 842 IS ANYTHING BUT "TRUTH IN BUDGETING"

Within the next few days, the 104th Congress will decide whether it will attempt to re- form transportation policy or whether it will permanently preserve the status quo. The mistitled Truth in Budgeting Act (H.R. 842), which would move the highway trust fund off budget, would be a missed opportunity for Congress to redesign and localize govern- ment involvement in areas vital to the health of the economy. At a time when transporta- tion problems are increasingly local in nature, an Eisenhower-era, centrally directed pro- gram offers no solutions, and H.R. 842 would do nothing to alter that deficiency. The Truth in Budgeting Act has nothing to do with truth in budgeting. Its sponsors con- tend that it is essential to protect federal highway spending from congressional budget cutters who want to divert the $20 billion-plus in revenues raised by the federal fuel tax toward deficit reduction or to other programs. But insulating the trust fund from budget scrutiny would make it more difficult for Congress to set clear budget priorities. More- over, experience demonstrates that the risk of a congressional diversion of trust fund money to other purposes is overstated. In fact, federal highway programs have benefited from federal spending well in excess of the dedicated fuel tax receipts allocated to the trust fund. Since 1957, total federal spending on highways has exceeded highway trust fund receipts by more than $37 billion, making the diversion of highway revenues to other programs unlikely. Table I presents a year-by-year analysis of highway receipts and spending. Enactment of the bill would set back the prospects of transportation reform, regional equity, and honest budgeting. Specifically, by removing the highway trust fund off budget: 0 Highway spending would be given preferential treatment and, unlike other programs, would be absolved from making any sacrifices in the name of fis- cal restraint and a robust economy. The bill would make it more difficult to achieve sound public finance decisions because it would allow lawmakers to avoid hard budget choices. Should pork-baffel highway spending be more important than spending for national security or for any of the many programs targeted to the needy and disabled? Lawmakers should be required to confront such questions and make choices; the bill would allow them to evade that obligation in the case of highway spending. 0 What is left of the federal budget would understate the federal govern- ment's level of spending and taxes, and therefore also understate the size of the federal government. In FY 1996, $302 billion, or 19.2 percent of spending, was off-budget. H.R. 842 would add from $30 billion to $35 billion to that figure. 49 Highway programs would be removed from ongoing congressional over- sight, and the outdated and inequitable allocation of pay-in and pay-out by the states would be preserved. In the current allocation scheme, the 27 donor states that subsidize the 23 recipient states (and the District of Columbia) would re- main unchanged. Table 2 presents the states by gain or loss, with several states such as Florida, Georgia, and Kentucky receiving from the trust fund less than three- quarters of the share paid in. 0 The highway program would be removed from the annual appropriations process and congressional oversight, taking away the incentive to improve a program that has not changed fundamentally since its origins in the 1950s. The diminished oversight that accompanies a shift off budget would make more dif- ficult the development and enactment of any of the reform proposals to transfer, de- volve, block grant or give back some or all of the highway revenue and spending authority to the states. Once the program is moved off budget and no longer is sub- ject to annual budget review or periodic authorization, Congress would have fewer scheduled opportunities to review and improve the program, and, therefore, fewer opportunities to subject it to needed reform. This final point is critical. H.R. 842 would make it extremely difficult to reform out- dated and ineffective transportation policies. Putting the program off budget and no longer subject to regular congressional review, authorization, and appropriation means that several prominent proposals to shift more of the resources and program management to the states would face greater obstacles to serious consideration and ultimate enactment. Such devolution is needed. With the interstate highway system completed and with most transportation problems now largely local in nature, a centralized program operated by a Washington bureaucracy makes no sense. The proposals include the modest reforms endorsed by the Step 21 Coalition (repre- senting 22 states), which would streamline highway program procedures, make more equitable the allocation of funds among states, and preserve the integrity of trust fund re- ceipts, among other goals. More comprehensive and better targeted to the needs of the states is legislation soon to be introduced by Senator Connie Mack (R-FL). Under Sena- tor Mack's "give-back" plan, all states would be given the right to collect the fuel tax and spend the receipts on transportation projects of their choosing, without interference from the federal bureaucracy or the politically influential special interests.

would limit future federal highway involvement to the maintenance and improvement, as needed, of the existing interstate highway system. Washington's continued involvement in transportation substantially raises the costs of local highway projects. The imposition of federal mandates means that narrow, yet influ- ential, constituent groups, such as organized labor and highway construction and material supply companies, benefit financially. 2 One such feature of federal policy that benefits or- ganized labor is the Davis-Bacon Act, which is attached to the highway program. This Act requires that workers on all federally financed highway construction projects be paid wages that often are 20 percent to 40 percent higher than local norms. It is estimated that this provision alone adds $202 million per year in unnecessary costs just to California's highway program.3 Spending approximately $20 billion per year in both large and small construction pro- jects, the highway trust fund is far and away the country's largest source of civilian pork- barrel spending. Various interest groups, companies, and industries that benefit from its current mode of operation understandably perceive any movement away from the status quo as a risk to their long-established lucrative relationships with government. This is why lobbyists for construction companies are mounting such an effort to gain passage of legislation to move the trust fund off budget.

In a recent interview, T. Peter Ruane, President of the American Road & Transporta- tion Builders and the leader of the industry coalition backing H.R. 842, claimed that there were 230 strong votes for the bill "and another 40 we think we can deliver."4 Taxpayers should hope that Ruane is wrong and that there are enough Members of Congress who re- alize that H.R. 842 would be an enormous obstacle to transportation reform. Instead of hiding the program by moving it off budget, Congress should turn its attention to solu- tions that are local in emphasis, and should work cooperatively with the Senate, the states, the House Budget Committee, and the Transportation Subcommittee of the House Appropriations Committee to develop a reform package that will better address the trans- portation needs of the country.

Ronald D. Utt, Ph.D. Visiting Fellow

TECHNICAL NOTES

Table 1 Source: Columns titled General Fund Appropriations, Highway Trust Fund Expendi- tures, and Total Federal Expenditures - All Highways are from Highway Statistics, as re- printed in a memorandum dated April 15, 1995 from John W. Fischer and William A. Lipford of the Congressional Research Service to the Honorable Nick Smith on the sub- ject of "General fund spending for highways." Column entitled Highway Trust Fund Re- ceipts is derived from Historical Tables, Budget of the United States Government, Fiscal Year 1997 (Washington, D.C.: U.S. Government Printing Office, 1996), Table 2-4, pp. 34-39. Column titled excess highway spending is the difference between receipts (col. 3) and total expenditures (col. 4).

Table 2

This presentation and return ratio differs from that presented in Table FE22 1, which purports to show that all states, except Kentucky, received a greater share of funds than they contribute, an outcome that is mathematically impossible. This DOT misrepresenta- tion of state status is accomplished by comparing actual current fuel tax payments into the fund with prospective spending from the fund, with the latter always larger than the former because it includes interest earnings and unexpended balances in the fund, an ap- ple to oranges relationship. Table I presents the same information but in a way that com- pares apples to apples (or grapes to grapes) by measuring the share paid in with the share paid out. For example, in the case of Kansas, the table indicates that its payment into the fund accounted for 1. 159 percent of fund revenues, but received only 0.96 percent of spending, making it a donor state, while Pennsylvania accounted for 4.7 percent of reve- nues, but received 4.9 percent of spending, making it a recipient state. All states in bold face type are donor states. Source: Federal Highway Statistics, 1994, U.S. Department of Transportation, Federal Highway Administration, Table FE-22 1, Page IV- 18. Columns 1 and 2 are from columns 2 and 6 of Table FE-22 1, and column 3 is the ratio of columns 1 and 2

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About the Author

Ronald D. Utt, Ph.D. Herbert and Joyce Morgan Senior Research Fellow

Show references in this report

I The Senator's plan Senator Mack's intentions are briefly described in "Dear Colleague Letters" dated February 14, 1996, and March 7, 1996. For a detailed description of how such a give-back program might work and benefit the states, see Ronald D. Utt et al. "How to Close Down the Department of Transportation," Heritage Foundation Backgrounder No. 1049, August 17, 1995, pp. 6-14.

2 For a detailed analysis of how these mandates adversely affected California's program, see Tom McClintock, "Unfunded Federal Mandates in Transportation: The Case for Unilateral Devolution," The Claremont Institute, Briefings, 1995-46, September 25, 1995.

3 Ibid., p. 5.

4 Nancy Ognanovich, "Off-Budget Bill's Supporters Plan FloorVoteWeek of April 15:'Bureau of National Affairs Daily Reportfor Executives No. 5 1, March, 15, 1996, p.G-4.