Testimony of the
American Road and Transportation Builders Association
Subcommittee on Transportation, Infrastructure and Nuclear Safety
Committee on Environment and Public Works
September 30, 2002
American Road and Transportation Builders Association
Subcommittee on Transportation, Infrastructure and Nuclear Safety
Committee on Environment and Public Works
September 30, 2002
Mr. Chairman, Senator Inhofe, members of the Subcommittee, thank you very much for providing the American Road and Transportation Builders Association (ARTBA) an opportunity to testify on highway investment needs and to present its recommendations for the reauthorization of the federal highway and mass transit programs.
I am Dr. William Buechner, ARTBA’s Vice President for Economics and Research and chief economist. Prior to joining ARTBA in 1996, I served 22 years as a senior economist for the Congressional Joint Economic Committee, and I have a doctorate in economics from Harvard University.
ARTBA marks its 100th anniversary this year. Over the past century, its core mission has remained focused on aggressively advocating federal capital investments to meet the public and business community’s demand for safe and efficient transportation. The transportation construction industry ARTBA represents generates more than $200 billion annually to the nation’s Gross Domestic Product and sustains more than 2.5 million American jobs. ARTBA’s more than 5,000 members come from all sectors of the transportation construction industry. Thus, its policy recommendations provide a consensus view.
Mr. Chairman, at the outset I want to express our deep appreciation to you personally and the bipartisan leadership of the committee for its work thus far to maintain the FY 2003 highway program at the current year’s $31.8 billion level.
Earlier this morning, the Federal Highway Administrator, Mary Peters, told this committee that an average annual investment of $75.9 billion by all levels of government during the next 20 years would maintain current conditions on the nation’s highways and bridges. During the past 20 years, the federal share of highway investment has averaged about 45-47 percent of the total, which implies that a federal investment of about $35 billion annually for the next 20 years would meet our highway investment requirements.
You don’t have to be an economist to recognize that, if we are currently investing $32 billion at the federal level, there is something odd about that assessment.
There are three reasons why the $75.9 billion investment figure is understated.
You will note that the American Association of State Highway and Transportation Officials upcoming 2002 “Bottom Line Report,” which is based on the same econometric model and data used by the U.S. DOT, concludes that an annual investment of $92 billion in 2000 dollars by all government levels will be needed from FY 2004 – FY 2009 just to maintain current conditions and performance. This is about $16 billion more per year than in the figure Administrator Peters mentioned this morning.
When ARTBA analyzed the data in the 1999 Conditions and Performance report, and adjusted the data with conservative estimates of future inflation and VMT growth, we concluded that a federal highway program averaging $50 billion per year would be needed for FY 2004 through FY 2009 just to maintain existing structural, safety and travel performance conditions on the nation’s highways and bridges.
When the new Conditions and Performance report is issued later this year, the data will inescapably show that it will take a federal highway investment of at least $50 billion per year just to stabilize congestion at its current level, and more likely a program of $60 billion or even more.
Of course, we must also look at mass transit capital needs which are in addition to the highway investment needs reported by Administrator Peters.
ARTBA has developed a TEA-21 reauthorization funding proposal, which we call “Two Cents Makes Sense,” that shows how the federal share of highway investment requirements during the next six years can be substantially met. We are recommending a federal highway program funded at $35 billion in FY 2004 and then increased by $5 billion per year to $60 billion by FY 2009. This program would bring us to an investment level that would maintain current physical and safety conditions and assure that traffic congestion will not get materially worse over the next ten years. It would also double mass transit investment to about $14 billion by FY 2009.
Our approach would result in a manageable program for both the state DOTs and the transportation construction industry. The funding levels we recommend should be guaranteed and firewall-protected just as under TEA-21. But we would recommend that there not be a RABA adjustment of the kind that caused the funding uncertainty and political problems we saw in FY 2003.
We are suggesting a fundamental change in Highway Trust Fund cash management to assure that highway users pay no more into the trust fund each year than is needed to cover actual outlays from the trust fund. Under our recommended changes, we calculate that a small annual increase in the federal highway user fee of about 2 cents per gallon would be needed at most to meet projected cash outlays from the Highway Trust Fund to fund the program we visualize.
About half a cent of this increase would come from permanently indexing the motor fuels tax to the Consumer Price Index, which would preserve the purchasing power of highway user fees even beyond the reauthorization period. The other 1.5 cents would have to be included in the reauthorization legislation.
To put a 2-cent annual increase in perspective, we have included a chart on page 9 below showing that the average weekly change in the retail price of gasoline during the past year and a half was almost 2.5 cents per gallon.
If Congress were to enact any other source of new revenues for the Highway Trust Fund, like transferring the 2.5 cents per gallon of the gasohol excise from the general fund to the Highway Trust Fund, the necessary increase in the motor fuels user fee would be even smaller.
Finally, our proposal would include a revenue RABA provision to assure that the federal highway program does not contribute to the federal deficit. Under a revenue RABA, if the Highway Trust Fund were to run a deficit during any fiscal year, the user fee would be automatically increased the following year by just enough to make the trust fund whole. Conversely, if the trust fund ran a surplus, then the user fees would be automatically reduced the following year. This would assure that the federal highway program would be completely budget-neutral and would have no impact on the federal surplus or deficit.
ARTBA Recommendations for Meeting Highway and Transit Investment Needs in TEA-21 Reauthorization
In March 2001, the American Road and Transportation Builders Association published its detailed proposals for improving the federal highway and mass transit programs in a 72-page report entitled “A Blueprint for Year 2003 Reauthorization of the Federal Surface Transportation Programs.” This report was the culmination of the work of a task force of over 100 ARTBA members. Our refined funding proposal for reauthorization, “Two Cents Makes Sense,” was released on July 16.
Mr. Chairman, ARTBA’s vision for TEA-21 reauthorization is centered on three goals:
First, cutting the number of deaths and injuries on America’s highways between 2004 and 2009 through targeted capital investments.
Second, ensuring that traffic congestion for the American public and business community does not get materially worse between now and 2009; and
Third, ensuring that the structural conditions of federally-aided highways, bridges and transit systems do not get materially worse over that same period.
These goals can only be accomplished by providing the capital investments the data from the U.S. Department of Transportation and the American Association of State Highway and Transportation Officials (AASHTO) reports suggest are necessary to, at minimum, maintain existing system safety, physical conditions and performance.
New Assessments of National Transportation Capital Investment Needs: AASHTO, USDOT, APTA
The upcoming AASHTO “Bottom Line” report uses Year 2000 data provided by the state transportation departments and the U.S. Department of Transportation’s HERS model to project highway and mass transit capital investment needs over the period 2000 to 2019. The report states that an annual capital investment of $92.0 billion in 2000 dollars will be required during the next 20 years by all levels of government to maintain current conditions and performance on the nation’s highways and $125.6 billion will be needed annually to make all of the economically beneficial improvements identified by the model.
The AASHTO report does not assign a federal share to these needs estimates, nor does it factor in future price inflation. If one assumes the federal share of total highway capital investment, FY 2004-09, will continue to be about 47 percent—the average share over the past 20 years—and that annual inflation will be 2.4 percent—the estimate used in the President’s FY 2003 budget—the “Bottom Line” report suggests:
· The federal share of the investment needed “just to maintain” Year 2000 highway safety, structural and traffic congestion conditions would be $47.7 billion in FY 2004, rising to $53.6 billion in FY 2009.
· The federal share of the investment needed to make all economically justifiable improvements to the highway system would be $65.1 billion in Year 2004, rising to $73.2 billion in Year 2009.
Figure 1graphically depicts how the ARTBA “Two Cents Makes Sense” proposal addresses these investment needs estimates suggested by the AASHTO “Bottom Line” report.
The U.S. Department of Transportation is expected to soon release the biennial surface transportation conditions, performance and investment requirement report it is mandated to submit to Congress. The most recent report, issued in 2000 and utilizing 1997 data, suggested a minimum $50 billion per year federal investment requirement, when adjusted for inflation and historic traffic use. Annual inflation alone would be expected to drive that reported annual investment need beyond $60 billion by FY 2009.
The American Public Transportation Association (APTA) has stated that a $14 billion per year annual federal investment is necessary to meet minimum national transit needs.
Existing Revenue Options
Financing this level of investment will require more revenues than highway users are currently projected to pay into the Highway Trust Fund during the next six years. Based on information such as current highway user fees, expected population growth, number of drivers, vehicle miles traveled and other factors, the Congressional Budget Office and the U.S. Department of the Treasury currently project that revenues into the Highway Account will grow from $30 billion in FY 2004 to just under $35 billion in FY 2009. Projected revenue growth between now and FY 2009 will thus be far less than needed to meet federal highway investment requirements during the next six years.
Nearly two years ago, ARTBA proposed a number of options for enhancing Highway Account revenues. These include:
Table 1 provides the latest revenue estimates for each of these options. These figures were computed by ARTBA's economics and research team based on the most recent available data from the U.S. Department of the Treasury, the Congressional Budget Office and other government agencies.
If all of these revenue enhancements were enacted by Congress, they would add $5 billion to projected Highway Account revenues in FY 2004. This would gradually rise to $9 billion in FY 2009. This would allow the program to grow to $44 billion by FY 2009, far short of the $60 billion needed just to maintain current structural, safety and traffic conditions.
What is abundantly clear is that a minimally-adequate federal highway program after TEA-21 will require significant new revenues, beyond these seven options.
The main sources of funds for federal highway investment are the fees paid by highway users in the form of excise taxes on motor fuels—gasoline, diesel fuel and gasohol. Each penny of the motor fuels excise taxes currently generates about $1.7 billion per year, with about $1.4 billion being deposited into the Highway Account of the Highway Trust Fund and $260 million deposited into the Mass Transit Account.
ARTBA has endorsed an increase in highway user fees as needed to maintain current structural, safety and traffic mobility conditions on the nation’s highways and bridges. But highway users should not be asked to pay any more than absolutely necessary. The proposal I want to outline this morning is designed to provide the necessary level of federal highway investment during the next six years at the minimum cost to highway users
“Two Cents Makes Sense” – A Funding Proposal to Meet the Investment Requirements Outlined by the U.S. Department of Transportation and AASHTO
On July 16, 2002, ARTBA announced a needs based financing proposal for TEA-21 reauthorization—“Two Cents Makes Sense.” The financing plan is a refinement of the funding recommendations ARTBA published in March 2001.
The “Two Cents Makes Sense” plan would provide the revenue stream necessary to double the annual federal investments in highways—to $60 billion—and mass transit—to almost $14 billion—by FY 2009. This proposal is the only one currently being discussed that would grow federal highway investment during the next authorization period to the level the U.S. Department of Transportation (USDOT), the American Association of State Highway and Transportation Officials (AASHTO) and the American Public Transportation Association (APTA) report is the minimum needed just to maintain current safety, traffic congestion and structural conditions.
The “Two Cents Makes Sense” plan would provide steady, predictable and manageable federal highway program increases—in $5 billion increments—from $35 billion in fiscal 2004 to $60 billion in fiscal 2009. Federal transit investment would increase under our proposal in $1 billion annual increments. This would be achieved through:
· more efficient cash management of Highway Trust Fund (HTF) revenues; and
· a small, annual adjustment in the federal motor fuels excise user fee rate to assure the revenue stream necessary to cover the government’s cash outlay in that year for the highway and transit programs.
Our proposal is a logical evolution of the concept embraced by Congress in TEA-21 of directly linking annual highway investment to the user fee revenue stream.
Under our proposal, the TEA-21 budget firewalls and protections would be maintained. This would include annual funding guarantees in the authorization legislation and the budgetary protections for the highway and mass transit programs, including the separate budget categories and the point of order in the House Rules that can be raised against legislation that would reduce the guaranteed funding.
More Efficient Cash Management of Highway Trust Fund Revenues
Under TEA-21, as has been the case for several decades, the federal government has been collecting more highway user revenue each year than it actually needs to pay the annual bills—or outlays—for the highway and transit programs. As a result, this money is being “warehoused” for up to seven years before it is actually spent. That’s why the trust fund balance continues to balloon. Here’s how it happens:
Based on years of analysis, the White House Office of Management & Budget and the Congressional Budget Office have determined federal highway funds spend out over a period extending seven years. This spend out rate is unique among federal programs. Unlike the case with virtually every other federal program, of every dollar obligated during a fiscal year for the federal highway program, only 27 cents will actually have to be paid out of the HTF Highway Account during the first year. The next year, 42 cents will be paid, followed by 17 cents the third year and smaller amounts in following years (See Figure 2).
This “lag” between collection of user fee revenue from motorists and truckers to actual complete spend out of those revenues causes the significant annual growth in the Highway Trust Fund balance. Absent changes, the Highway Trust Fund’s Highway Account balance would grow steadily through FY 2010.
ARTBA proposes to correct this inefficient money management by returning the federal highway program to a true “pay-as-you-go” approach.
Returning to a True “Pay-as-You-Go” Approach
In the reauthorization, Congress would set annual investment targets to work toward accomplishing needs based performance results. This could be accomplished by starting with $35 billion in FY 2004 and ramping in $5 billion increments annually thereafter to $60 billion in FY 2009. This would similarly be done for transit investment. Once these authorization levels are established, the Congressional Budget Office would determine the annual cash outlay needed to fund the new authorization, plus remaining past authorizations.
The reauthorization legislation would also include authority for an annual adjustment of the federal motor fuels user fee excise rate to produce the amount of revenue to the HTF needed to meet the highway and transit program cash outlays for the year. This adjustment would have two parts: (1) a base adjustment to protect that purchasing power of the highway and transit programs that would be linked to the annual Consumer Price Index (indexing); and (2) depending on U.S. Treasury revenue projections for the Highway Trust Fund from all sources during the upcoming year (i.e., could include possible recapture of ethanol revenues, interest on the trust fund, prudent use of the existing HTF balance, revenues from innovative financing) an adjustment in the motor fuels rate above indexing that is necessary to provide the revenue needed to meet the outlay target.
By implementing these recommended changes, it is possible to increase federal highway and transit investment significantly without a large, one time increase in the motor fuels excise user fee rate (which would also exacerbate the HTF balance build up just discussed).
Funding the annual authorizations we have proposed, would, with implementation of the changes we have recommended, require at most an annual adjustment of the federal motor fuels excise user fee rate of 2.2 cents per gallon. Approximately one-half cent of that increase would be the result of indexing to the CPI. If the HTF revenue stream were enhanced by redirection and equitable taxation of ethanol, use of the existing HTF balance, more revenues due to a robust economy—any or all—the annual adjustment in the motor fuels excise user fee rate would be lower than 2.2 cents per gallon (including indexing)! (See Figure 3)
Revenue RABA Provision: An Approach that Eliminates Current RABA Political and Program Planning Problems.
The “Two Cents Makes Sense” proposal would also replace the TEA-21’s RABA (Revenue Aligned Budget Authority) adjustment with a “Revenue RABA Provision.” The necessary user fee increases in Figure 3 were calculated using the most recent Highway Trust Fund projections by the U.S. Department of Treasury and the Congressional Budget Office. When TEA-21 is reauthorized, new calculations, based on the then current data, may indicate user fee increases slightly higher or lower than those in Figure 3.
Under a “Revenue RABA Provision,” if revenues into the HTF during any given fiscal year were to fall short of outlays, then the following year the statutory motor fuels excise user fee rate would be automatically allowed (or certified) to increase by the amount required to offset the deficit and make the trust fund whole. This would eliminate the political problems and program disruptions that have occurred with the FY 2003 transportation appropriation caused by the current RABA construct.
Conversely, if revenues to the HTF were to exceed required outlays during a fiscal year, then the following year the motor fuels excise user fee rate would be automatically decreased by the amount needed to offset the resulting surplus.
This “Revenue RABA Provision” would ensure that the highway and mass transit program does not contribute to the federal deficit during the next six years.
Looking Rationally at the Impact of an Annual Two Cent User Fee Adjustment: The Real World Gas Price Experience
During the past year and a half, the retail price of gasoline has fluctuated by an average 2.5 cents per gallon per week! (See Figure 4). In 14 of the weeks, the average national retail price of gasoline either increased or decreased by 5 cents per gallon or more. In 39 of the 75 weeks shown in Figure 4—or more than half the time—the average retail price nationally fluctuated at least 2 cents per gallon from one week to the next.
What this means, of course, is motorists are used to paying each week the level of annual adjustment in the federal motor fuels excise user fee rate proposed by ARTBA to support a $60 billion federal highway and $14 billion federal transit program by FY 2009!
ARTBA commissioned Zogby International to conduct a national survey of likely voters July 9-12, 2002, which found almost 70 percent would support an annual 2 cent per gallon increase in the federal motor fuels tax rate if the money it generated was used exclusively for transportation improvements. A 2 cent gas tax increase would cost the average driver $12 per year, or 6 cents per day. That compares to the estimated $259 each motorist pays per year in extra vehicle repair and operating costs driving on poor roads.
Tables 2 and 3, found at the end of this testimony, provide an analysis of how our “Two Cents Makes Sense” proposal would benefit individual state highway programs, based on both the existing apportionment formulas and in response to proposals to increase minimum state returns to 95 percent.
Maintenance of Effort Provision to Ensure Program Growth in Every State
A key component of financing highway, bridge and mass transit improvements is the partnership between federal, state and local governments to develop and maintain the nation’s surface transportation network. It is critical for all partners to make an appropriate commitment to transportation investment. Unfortunately, a number of states let their own funds for highway and bridge investment lag upon realizing the increased federal funds they would receive under TEA-21.
To ensure increased federal surface transportation investment actually results in more funds for transportation improvement projects, ARTBA believes the reauthorization of TEA-21 should include a “maintenance of effort” provision that makes increased apportioned federal funds contingent on individual state highway and transit program investment levels consistent with, at least, their prior year investment.
Mr. Chairman, thank you again for the opportunity to testify before the subcommittee on this important subject.
I would be happy to respond to questions.
 This is the average federal share of total public highway capital investment over the past 20 years, including FHWA administrative costs, found in the U.S. Department of Transportation annual publication “Highway Statistics” Table HF-10 for 1995-2001 and “Highway Statistics Summary to 1995” Table HF210 for 1982-1994.
 Council of Economic Advisors, the President’s “FY 2003 Budget of the U.S. Government.”