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Artba Senate Finance Committee May

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Artba Senate Finance Committee May

  1. 1. 1 Statement of the American Road & Transportation Builders Association “New Routes for Funding and Financing Highways and Transit” Senate Finance Committee May 6, 2014 Chairman Wyden, Senator Hatch and members of the Committee, we appreciate you scheduling today’s hearing to discuss the status of the Highway Trust Fund. After nearly three years of temporary extensions of the federal highway and public transportation programs, Congress approved in 2012 the Moving Ahead for Progress in the 21st Century Act (MAP-21). While MAP-21 certainly initiates many much-needed reforms in the structure and operation of the federal surface transportation programs, the simple truth remains that the Highway Trust Fund’s beleaguered revenue outlook was the primary obstacle that had to be overcome in this process. The leadership of the Senate Finance Committee ended this cycle of short-term measures. The members of this Committee developed a bipartisan plan to supplement trust fund revenues to preserve existing levels of highway and public transportation investment in February of 2012 and, as a result, MAP-21 was able to move forward. Roughly four months after you produced a revenue title for the Senate reauthorization proposal, MAP-21 was signed into law. Your hearing is particularly timely as MAP-21’s revenue provisions created a short-term stabilization for the trust fund supported programs. The U.S. Department of Transportation now projects that it will have to slow down reimbursements to states in August for already approved federal-aid projects to preserve a positive balance in the trust fund. Furthermore, the Congressional Budget Office (CBO) forecast last year that without additional resources all incoming trust fund revenues in FY 2015 will be dedicated to projects already underway. This means the Highway Trust Fund would be unable to support any new highway or public transportation investment in FY 2015. As a result, policy makers will have three straight forward choices: dramatically cut federal highway and public transportation investment and
  2. 2. 2 threaten hundreds of thousands of jobs; continue the recent trend of supplementing trust fund revenues with general funds and, in so doing, add to the deficit; or generate new revenues. Highway Trust Fund Revenue Shortfalls The current crisis facing the Highway Trust Fund should not surprise anyone. The Bush Administration first projected a negative trust fund balance in February of 2006 when it released its FY 2007 budget proposal. This projection became a reality in 2008 when Congress was required to infuse the trust fund with $8 billion in supplemental resources. Three additional trust fund preservation measures were needed in 2009, 2010 and 2012 (MAP-21). The simple reality is that this situation will continue to repeat itself as long as the underlying structural deficit in the Highway Trust Fund is allowed to persist. While the Highway Trust Fund’s revenue challenges are well understood, the cause of this dilemma has been the source of much confusion and, in some cases, outright distortion. To ensure a viable and appropriate solution to the trust fund’s structural revenue shortfall can be identified, all parties must be clear on how this situation occurred:  The Highway Trust Fund was established in 1956 to assure that taxes paid by highway users, not general taxpayers, financed federal investment in highways and bridges. The trust fund has also supported public transportation investment since 1982.  The main source of revenues for the Highway Trust Fund is the federal excise tax on gasoline, currently 18.3 cents per gallon, and diesel fuel, 24.3 cents per gallon. Revenues from three taxes on large trucks are also credited to the Trust Fund.  The trust fund’s revenue base has not been adjusted since 1993. Since that time, federal surface transportation investment has increased substantially to correspond with Americans’ increasing reliance on the U.S. surface transportation network.  Highway Trust Fund revenues financed all federal highway and most transit investment until 2007, when the recession of 2007 to 2009 reduced freight and truck-related revenues significantly below initial projections.  VMT clearly declined during the recession, but it should be noted the variance between when travel levels peaked in 2007 and the period’s lowest point in 2011 was 2.8 percent—a decline far less dramatic than the recurring assertions of a shift in U.S. societal behavior. Further belying these claims, U.S. VMT has remained above 2.95 trillion miles for 10 consecutive years.  The economy is now improving. With employment rising and unemployment declining, growth of highway travel is resuming. In 2012 and 2013, vehicle miles traveled on the nation’s highways rose more than 26 billion miles, offsetting almost one-third of the recession-driven decline.
  3. 3. 3  While revenues are approaching pre-recession levels (see Figure 1), the Highway Trust Fund has been on an unsustainable path for the past 10 years and, as a result, the federal surface transportation programs are now at a dangerous crossroads. Congress has three options for addressing the revenue shortfall:  Permit highway and transit program funding to fall to the levels that can be supported by existing revenues. According to CBO, this would require complete elimination of highway investment and all trust fund supported transit spending beginning in October.  Continue MAP-21 highway and transit investment levels by making annual transfers from the general fund. CBO projects preserving existing levels of surface transportation investment by this means would require this Committee to find an average of $16 billion every year.  Close the HTF revenue gap by raising rates on existing highway user taxes or enacting new taxes. CBO testified in 2013 that this could be accomplished with a 10-cent per gallon increase in the federal tax on gasoline and diesel fuel. Alternatively, Congress could enact new highway user fees, such as a vehicle-miles-traveled (VMT) tax or link
  4. 4. 4 infrastructure investment and energy production as some members of Congress suggested in 2011 and 2012. Clearly public-private partnerships and other innovative financing mechanisms can be a great asset in moving individual projects forward. ARTBA, through its Public-Private Partnerships Division, has been a leading advocate for federal policy in this area for 25 years. However, there is a distinction between the annual programmatic funding that is provided by the Highway Trust Fund and project financing tools. They work exceptionally well together, but one is not a substitute for the other. One of the key things members of the Finance Committee can support in this area is expanding or eliminating the cap on highway and freight Private Activity Bonds. There is widespread awareness of the political obstacles to increasing Highway Trust Fund revenues, but there is less awareness of what the trust fund delivers and the implications of reducing federal transportation investment to the level of existing tax revenues. State-by-State Impact of Federal Highway Investment For almost 100 years, the federal government has shared the cost to the states of capital improvements to highways that are important for the performance of the national economy. Our analysis of data from the Federal Highway Administration, covering the decade 2001-2011, shows that reimbursements to the states from the federal highway program account for an average of 51.6 percent of all state capital investments in highways and bridges. Since most federal aid program funds are used for capital outlays, this measure is an indicator of how important this national program is to each state’s highway and bridge construction market. Figure 2 shows how much each state relies on the federal highway program to finance its highway infrastructure improvements, ranging from 35.3 percent for New Jersey to more than 80 percent for Rhode Island, Alaska, Montana and Vermont. Thirty-two states rely on the federal highway program to support more than half of their annual highway and bridge outlays. How many states could fill the gap if Congress reduces federal highway investment to the level of Highway Trust Fund revenues? How would Oregon and Utah make up the hundreds of millions of dollars it would lose? How will states like South Carolina or North Dakota, which are dependent on the federal highway program for almost 80 percent of their highway capital spending, meet their highway investment needs if Congress slashes the federal highway program?
  5. 5. 5 The most likely result is that state after state would cut its highway construction program, allowing roads and bridges to deteriorate and foregoing improvements needed to keep the U.S. transportation system and economy productive and competitive. Tens of thousands of jobs would be eliminated in the construction industry, supplier industries and the rest of the nation, further weakening the economy.
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  7. 7. 7 Contribution of the Highway Trust Fund to the U.S. Economy A safe and efficient transportation system is one of the fundamental requirements of a modern economy. Virtually every business and industry depends on the national transportation system to obtain needed materials and labor and to get goods and services to customers. Every household depends in some measure on the transportation system for access to work, shopping, medical care, church, family and entertainment. Millions of workers depend directly on the transportation system for jobs - auto workers, bus and truck drivers, airline workers, auto mechanics and gas station attendants, and hotel employees, among others. Jobs: Building and maintaining the nation's transportation infrastructure is itself a major source of jobs in the U.S. Every $1 billion invested in highways supports 27,823 jobs, according to the Federal Highway Administration, including 9,537 on-site construction jobs, 4,324 jobs in supplier industries and 13,962 jobs throughout the rest of the economy. Investment in other modes would support a similar number of jobs. In 2012, almost $119 billion worth of construction work was performed on transportation projects, including highways, bridges, subways, light rail systems, freight rail, airports and water ports. This investment supported more than 3.3 million jobs in the U.S., including just over one million construction jobs. But focusing just on the jobs supported by the Highway Trust Fund sells its importance short. Far more important in the long run is the contribution of highways to economic activity and jobs throughout the entire economy. The simple fact is that more than 70.9 million American jobs in just tourism, manufacturing, transportation and warehousing, agriculture and forestry, general construction, mining, retailing and wholesaling alone are dependent on the work done by the U.S. transportation construction industry. These dependent industries provide a total payroll in excess of $2.67 trillion and their employees contribute more than $230.7 billion annually in state and federal payroll taxes. Freight: In 2010, according to the Federal Highway Administration, more than $16.0 trillion dollars of freight was shipped in the U.S. including $13.0 trillion of domestic shipments and $3.0 trillion of exports and imports. Two-thirds of the total, or $10.8 trillion, was shipped by truck on the nation's highways. Another 17 percent, or $2.7 trillion, involved multiple modes including trucks, which means trucks were involved in 82 percent of all freight shipped in the U.S. in 2010. Rail, air, water and pipelines accounted for the remaining 18 percent of freight shipments.
  8. 8. 8 The Federal Highway Administration estimates that the volume of freight shipments will more than double between 2010 and 2040 to almost $39.5 trillion in constant dollars, with $21.8 trillion of that carried by truck and $10.3 trillion by intermodal combinations that include trucks. The growth will put enormous pressure on every element of the nation's transportation infrastructure. Benefits to businesses: Businesses have always depended on the nation's transportation system to connect to suppliers and customers, but during the past 25 years improvements in transportation have also been a major source of productivity increases and reduced costs for many U.S. businesses. Manufacturers and retailers today use the just-in-time delivery system to assure materials are available when needed in the manufacturing and production process and finished goods arrive at retail stores and customers' docks in a timely manner. This has greatly reduced the need and expense of warehousing inventory, freeing up scarce capital to invest in, and make improvements to, other business activities like technology, product quality and marketing. Just-in-time logistics, however, require a dependable transportation system, which is threatened by the ever-growing problem of congestion on our highways, rails, airports and water ports. Congestion makes transportation slower, more costly and unreliable. Adapting to congestion requires scheduling more time for trips, which raises labor costs, or holding more inventory which ties up capital. When that happens, the economy becomes less productive, costs increase and living standards decline. Personal mobility: Americans are among the most mobile people on earth. In 2009, the latest year for which data are available, Americans traveled a total of 4.85 trillion miles by all transportation modes, or an average of 15,791 miles per person. Most of the travel, 3.9 trillion miles, or 81.1 percent, of the total, was by automobile, truck or motorcycle, an average of 13,799 miles per person. Virtually every trip has an economic purpose or impact on the economy. Most obvious is the daily commute to and from work for the nation's 136 million workers. But every trip to the grocery store or shopping center has an economic impact, as do trips to restaurants, to the movies, to vacation spots, to school, even to church where the weekly offering helps maintain the building and clergy. And many trips are essential to our quality of life, including visits to family and friends, a night out after a hard day's work, or an emergency trip to the hospital. Defense and security: The U.S. transportation infrastructure network is critical to our national defense and homeland security. More than 60,000 miles of roads have been designated part of the Strategic Highway Network, including the entire Interstate Highway
  9. 9. 9 System, because of their important role in transporting military equipment and personnel. Roads also comprise the primary evacuation routes in the event of an attack by a foreign enemy such as that on the World Trade Center in 2001, or a natural disaster like Hurricane Katrina in 2005 and Hurricane Sandy in 2012. These disasters pointedly showed the need for both adequate capacity and redundancy in the nation's transportation system. Can Devolution Achieve an Equivalent National Highway System? Periodically, members of Congress and outside groups suggest drastically scaling back the federal highway program, devolve responsibility for highways almost entirely to state and local governments and reduce the federal gasoline tax to a few cents per gallon. Such legislation has been introduced in this Congress by Representative Tom Graves (R-Ga.) and Senator Mike Lee (R-Utah). The thinking behind this concept is that state and local governments have better knowledge of their highway investment needs than the federal government and thus can make better investment decisions. Proponents of this concept also claim states have a better sense of the willingness of local taxpayers to finance highway improvements and thus could do a better job of determining how and by how much to replace the lost federal aid. First, there is a practical consideration. To make up for the loss of federal highway funds, every state would have to increase its own gas tax or generate other revenue sources—a fact former Senator James DeMint (R-S.C.) promoted when introducing a previous version of the Graves-Lee legislation to devolve the federal surface transportation programs. Although some states have recently raised their own highway taxes, in most states there is no more political will to increase taxes than in the U.S. Congress, which has failed to increase the federal gas tax since 1993 despite growing highway traffic, increased congestion, higher construction costs and the widespread recognition that current revenues are woefully inadequate to support needed federal highway investment. To make up for the federal investments that would be lost under the Graves-Lee proposal, the average state would have to increase its gasoline tax by 21 cents per gallon and its diesel tax by 27 cents per gallon or identify commensurate revenues elsewhere. At a more fundamental level, however, there would not be an incentive for state and local governments to replace lost federal funds. The national benefits that accrue from federal surface transportation investments are a spill-over and are not taken into account when state/local officials compare the costs and benefits of highway improvements. When judging whether specific improvements should be undertaken with non-federal funds, only these specific benefits and costs would be considered. Many projects whose total benefits, including national benefits, exceed costs and thus would be undertaken under the federal highway program, would not pass muster when only local benefits are considered and thus would not be undertaken. Under devolution, thus there would be less total highway investment because
  10. 10. 10 state and local officials would put less value on improvements that have spill-over national benefits. Devolution thus would have the impact of reducing total investment in highway improvements and result in a deterioration of the ability of our highway system to serve the transportation needs of the national economy. Time to Act is Now Mr. Chairman, members of the Committee, there are no illusions about how difficult it is to get major legislation through Congress in the current environment. At the same time, federal infrastructure investment is one of the few areas where both sides have repeatedly demonstrated a willingness to find common ground. MAP-21 passed the House 373-52 and the Senate by 74-19. Measures to reauthorize the Water Resource Development Act were approved in each chamber by even greater margins. At the same time, there is a broad array of stakeholders that are willing and eager to support meaningful action to upgrade the nation’s surface transportation infrastructure network. Groups like the U.S. Travel Association and the National Retail Federation have recently engaged in the transportation policy arena in an unprecedented fashion. These groups did not just flip a coin and decide to launch efforts to call for transportation infrastructure improvements—the inefficiencies in the current system are forcing sectors across the economy to become involved as a matter of self-preservation and remaining internationally competitive. The Highway Trust Fund is not an auto pilot situation that can be addressed when the time is right. In a matter of months, without congressional action federal reimbursements will slow and the FY 2015 appropriations process will not have the resources to support new investment in highway and public transportation improvements. ARTBA has long supported increasing the federal motor fuels tax as a means to stabilize and grow Highway Trust Fund revenues, but there is a host of ways to achieve the same goal. Congress created two separate independent commissions as part of the 2005 surface transportation reauthorization bill and these commissions furnished you with a multitude of alternatives to support future federal highway and transit improvements. MAP-21 called for the creation of long-term strategic planning and performance management processes. That process will be fundamentally flawed unless a long-term revenue solution is established for the Highway Trust Fund, as plans are meaningless without the resources to implement them. There is no need for further studies or time to develop a trust fund solution. The Highway Trust Fund has been facing the same problem with virtually the same alternatives for
  11. 11. 11 action for more than five years. One thing has been proven certain in those five years—more time has not made any of the choices before you easier. No matter how difficult some may perceive the current Highway Trust Fund dilemma to be, it pales in comparison to the incredible value the U.S. surface transportation network provides all Americans and the nation’s economy. We urge you to focus on this value as you work to develop potential solutions to the Highway Trust Fund’s revenue shortfall and stand ready to assist your efforts in this regard.