In DC, battle lines drawn over transport funding

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A slow-motion pile-up is coming into view on U.S. highways and Capitol Hill this summer: federal funding for road construction is running out and Congress faces a big fight over how to replenish it.

The trucking industry, many state transportation directors and even a few lawmakers say the simple solution to shore up the Highway Trust Fund and avoid construction layoffs is to raise federal fuel taxes, unchanged since 1993.

But in a congressional election year in which both Democrats and Republicans are wary of voter backlash, the message is clear: Not going to happen.

"We have never proposed or a supported a gas tax," White House spokesman Jay Carney told reporters on Monday.

Republican House Speaker John Boehner also opposes an increase in fuel taxes, an aide said. And earlier this year, Boehner all but ruled out another transfer of general funds to keep the Highway Trust Fund afloat.

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If Congress can't agree on an alternative way to increase transportation money by late summer—or take the easier path of a short-term fund transfer—the consequences could be huge, halting or slowing work on thousands of projects. This could idle hundreds of thousands of workers at a time when the U.S. economy is finally gaining some traction.

A funding crisis would affect the nearly 600 major projects under way in California at a cost of more than $11 billion, said Mark Dinger, spokesman for the state's Department of Transportation.

"In surprisingly short order, the operations of the nation's largest transportation agency could grind to a halt," he said.

The situation parallels the numerous "cliffs" that Congress has faced over the past year on divisive fiscal issues, with a looming deadline and potentially dire economic consequences.

With time running short, an ambitious reform of a funding mechanism that has been in place since the 1956 looks less likely.

The central problem is that the existing per-gallon fuel taxes of 18.4 cents for gasoline and 24.4 cents for diesel are no longer producing enough revenue to fund road, bridge and tunnel projects. This is due largely to improved vehicle fuel efficiency, less driving amid a slow economic recovery and construction cost inflation.

The U.S. Department of Transportation projects that the fund will be depleted by late August, which may force the federal government to curtail disbursements to states weeks earlier, during the height of the summer road works season. The federal government provides about 45 percent of what states spend on road and bridge projects. A related fund for mass transit projects is also running low.

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America's assembly line

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The funding crisis would put at risk projects large and small, from routine repaving along Interstate 95 in Virginia to a $670 million section of Interstate 49 under construction in Louisiana, part of a new expressway corridor that will link New Orleans and Kansas City and speed the flow of goods between Midwest industries and a major U.S. port.

"The highways are our assembly line, and we have to rely on the government to take care of it," said Randy Mullett, vice president of government relations at trucking firm Con-Way.

Washington has kicked around numerous options for filling the funding gap, but the trucking industry favors a fuel tax increase because of its simplicity and because it ensures that the money only pays for transport upgrades. The U.S. Chamber of Commerce has also called for an increase.

Congestion on highways raised truckers' operational costs by $9.2 billion last year, said Sean McNally, a spokesman for the American Trucking Associations, citing an industry study.

Since 2008, Congress has transferred more than $50 billion in taxpayer money to the trust fund, which was intended to be self-sustaining. To stay solvent, it will need an infusion of up to $18 billion in each of the next 10 years, the Congressional Budget Office estimates. The CBO says it would take a 10-15 cents per gallon hike in the fuel tax to fill the gap in the near term if that were the only solution.

Satellite tracking

Other ideas that have been explored, according to lawmakers, aides and trade groups, include new technology that charges taxes based on vehicle miles traveled. But methods requiring electronic satellite tracking devices would raise privacy concerns and require investment in new infrastructure.

In a proposed four-year, $302 billion transportation bill sent to Congress late last month, Obama suggested ending some business tax breaks to boost funding. Republicans have staunchly opposed using such revenues for spending or deficit reduction.

The Obama administration also has floated the idea of allowing states increase their tolls on interstate highways to raise construction funds. But trucking and business groups are worried the funds could end up being used for other purposes. Some Republicans have proposed allowing companies to repatriate overseas profits at lower tax rates, producing windfall revenues that would fund infrastructure spending.

Congress must pass a new transportation bill before it goes on recess in August to ensure that funding is not disrupted. While lawmakers says they want to find a long-term funding stream for projects, transportation officials believe they may have to settle for a short-term extension.

"That's probably the most likely solution," Virginia Transportation Secretary Aubrey Layne told Reuters.

Republican Thomas Petri, who chairs a highway subcommittee in the House of Representatives, agreed, but added: "My worry is that it not deteriorate into a long series of temporary extensions," he said, adding that the continued uncertainty would delay projects, increasing costs.

--By Reuters