Hearing on Impacts of Expected Highway Trust Fund Insolvency
June 25, 2009
I’m very pleased we are having this hearing today. This is a critical issue. We recently learned that the Highway Trust Fund will run out of money some time before August of this year, and will require an infusion of $5 to $7 billion to get through the rest of fiscal year 2009. In addition to the funds required for 2009, $8 to $10 billion will be required for 2010. This amount will be higher if an extension longer than 12 months is enacted.
It is critical to fix this shortfall. Failing to do so will delay planned and ongoing road projects and result in people being laid off. This would be unacceptable any time, but more so during today’s economic downturn.
Oklahoma’s Secretary of Transportation, Gary Ridley, has notified me that if we fail to fix the Trust Fund Oklahoma and most other states will not have the cash to honor infrastructure projects that have already reached agreement. As a result, my state will be forced to deprogram between $50 and $80 million in projects. This will be done by cancelling new projects and existing contracts that have already been signed, in addition to slowing down projects that have already broken ground. Clearly this would have a detrimental effect on the economy and will negate any gains made by the stimulus—which as I’ve said before, dramatically under invested in infrastructure.
This must be prevented. The good news is the Administration announced yesterday they were committed to fixing this within the next 6 weeks. They also proposed an 18 month extension. I think the reality is that since we don’t have a way to pay for a long-term bill, an extension is probably in order.
This Monday there was a meeting between the bipartisan leadership of the 3 authorizing committees in the Senate (EPW, Banking, and Commerce) and the Administration. The Senators at the meeting were unanimous in their desire to have a clean, long-term extension, which would include a Trust Fund fix. This is good news, because it cuts down the likelihood of it getting bogged down in policy fights.
There are a number of ways to fix the Trust Fund shortfall. We fixed a similar shortfall last year by remedying a wrong that was done in 1998 when $8 billion paid by road users was transferred from the Trust Fund to the General Fund.
But TEA-21 actually made 2 negative changes to the Trust Fund in 1998: the first being the $8 billion transfer from the Trust Fund to the general fund that was restored last September and the second ended the long-standing practice of crediting the Trust Fund with interest on its cash balances.
Repaying the Trust Fund for lost interest would result in about $13 billion in cash. If interest were also paid on the $8 billion that should have been sitting in the trust fund, the lost interest would amount to about $17 billion.
According to the Congressional Research Service, every other major trust fund is credited with interest on cash balances: from Social Security to the Airports and Airways Trust Fund. In fact, I am not aware of any other trust fund that is not credited with interest on cash balances.
It was wrong to stop crediting the Trust Fund with interest. Correcting this wrong would be sufficient to prevent Trust Fund insolvency.
The bottom line is that I’m confident that Congress will fix the Highway Trust Fund shortfall. How we do it is yet to be determined–the interest approach is just my preference.