February 2, 2004

February 2, 2004 | WebMemo on Smart Growth

President's Surface Transportation Budget Proposal Holds the Line on Spending

President Bush's proposal to fund federal highway and transit programs at $257 billion over the next six-year reauthorization period will ensure that the impact of federal transportation spending on the deficit is limited through FY2009. Congress should adopt the President's plan, and reject the budget busting proposals now before it.

 

Innovative Financing

By linking future surface transportation spending closely to the fuel tax revenues generated by the current gas tax rate - set at 18.4 cents per gallon - the President's highway/transit program will spend about $20 billion more than it receives in dedicated taxes.

 

Importantly, though, the President's plan for the future of our highway system - titled SAFETEA - endorses greater reliance on such innovative finance mechanisms as interstate highway tolls, new capacity with toll express lanes, partnerships with private sector investors, and new forms of tax exempt financing. If passed by Congress, these innovative tools could bring in tens of billions of dollars - additional resources that would be targeted to America's most congested roads.

 

Poor Alternatives

Among Congressional plans, the proposal put forward in the House by Chairman Don Young and ranking member James Oberstar, TEA-LU, would spend $375 billion - or $119 billion more than the President - and make up the difference by raising the federal fuel tax by 43 percent between now and 2009. Because the fuel tax is one of the most regressive taxes levied by the federal government, the burden of this increase will fall disproportionately on those with modest incomes.

 

Significantly, the current version of the House bill is largely silent on the innovative transportation reforms endorsed by the President and becoming increasingly common at the state level. Essential innovations that Congress should support include more extensive use of tolls, HOT lanes, toll express lanes, private/public partnerships, and tax-exempt private activity bonds.

 

The highway proposal now being discussed in the Senate proposes to spend $311 billion over the next six years - about $55 billion more than the President's plan and about $70 to $80 billion more than federal fuel taxes are estimated to provide over the period. Senate supporters of the bill suggest that the difference will be made up by redirecting several existing fuel-related taxes (such as those paid on ethanol) to the highway trust fund and by tapping into general funds. In effect, much of the $70 to $80 billion dollar difference would be added to the already excessive federal budget deficit.

 

Still, provisions in the Senate's current plan would greatly improve urban mobility by reducing spending on transit (to $33 billion instead of the expected $57 billion) and shifting the savings to highways. Because transit's share of ridership has been shrinking for more than forty years while that for automobiles has been growing, this shift would more closely match actual consumer preferences.

 

Although the Senate's plan would spend more than the President proposes, its proposal does include legislative language to allow for more innovative financial tools to raise revenues for road building and repair without raising taxes. These include proposals to toll interstates under certain conditions and to build HOT lanes financed by tolls, innovations similar to those proposed by the President's budget.

 

Reforming Amtrak?

The President has proposed that Amtrak's subsidy be limited to $900 million for FY 2005 - the same amount proposed last year but $300 million less than the amount Congress ultimately provided this fiscal year. Unfortunately, the President is proposing that this annual subsidy to Amtrak be increased by $500 million, to $1.4 billion, in subsequent years provided that Congress enacts legislation to force a series of structural reforms on the passenger railroad. Given Amtrak's poor financial track record, unfulfilled promises, and opposition to fundamental reform, this proposed subsidy increase is a frivolous luxury the country cannot afford when deficits are reaching a half a trillion dollars per year.

 

Ronald D. Utt, Ph.D., is Herbert and Joyce Morgan Senior Research Fellow in the Thomas A. Roe Institute for Economic Policy Studies at The Heritage Foundation.

About the Author

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