For decades, the U.S. has neglected its once hailed transportation infrastructure. And despite $27 billion in federal stimulus money from the American Recovery and Reinvestment Act of 2009 to improve roads and bridges, its infrastructure continues to decay.
Today the only thing rambling down US highways is an empty can. The U.S. Congress kicked a big one in late July when it took short-term measures to prevent the bankruptcy of the Highway Trust Fund. Consequently, President Obama was given one option: sign controversial legislation presented by Congress that provides $10.8 billion to replenish the Fund through May 2015.
The bill allows companies to practice "pension smoothing", which lets companies assume higher interest rates when calculating what to contribute to their employees' retirement. That reduces their required contributions into the plans and, in turn, raises the amount of taxes they owe, bringing new revenue to the federal government, i.e. the Highway Trust Fund. Eventually, however, corporations will need to contribute more to their pension funds, thereby lowering tax revenue.
When established in 1956, the Highway Trust Fund was intended to be a self-sufficient account to pay for the freeways that form the National Highway System. But the Fund faces an average annual shortfall of about US$15 billion through 2020.
States and local municipalities are straddled with paying for much of the road and bridge repairs. In fact, four out of five miles of the nation's highways are operated and supported by local government.
The Highway Trust Fund receives money from a federal fuel tax of 18.3 cents per gallon on gasoline and 24.4 cents per gallon of diesel fund and related excise taxes. But given US citizenry's opposition to higher taxes (and the fact fuel prices have continue to escalate over the last decade), legislators have been reluctant to raise federal taxes on gasoline and diesel fuel. In fact, the last time the tax was raised was in 1993.
Meanwhile, more fuel-efficient vehicles and a decrease in miles driven have led to consumers buying less fuel (paying less fuel tax), and consequently, leading to shortfalls in tax revenues. Consequently, many locations are increasingly turning to public-private partnerships to pay for infrastructure improvements.
President Obama has introduced his own transportation bill, the Grow America Act – a US$302 billion, four- year transportation reauthorization proposal that provides increased and stable funding for US highways, bridges, transit, and rail systems. He says it would provide enough money to increase the amount of annual transportation spend to approximately US$75 billion.
The initiative includes a freight proposal to invest US$10 billion in a multi-modal freight program to strengthen U.S. exports and trade and provide US$4 billion to attract private investment in transportation infrastructure. It intends to strengthen the Railroad Rehabilitation and Improvement Financing (RRIF) Program by reducing loan costs, thereby making RRIF more accessible to short line and regional railroads. The proposal also would raise the cap of Private Activity Bonds to US$19 billion, making room for more projects considering a public-private partnership approach to be able to take advantage of this cost-saving tool.
A key element to the Act is how it will be funded. The Administration's proposal calls for supplementing current revenues with US$150 billion in "one-time transition revenue from pro-growth business tax reform". This means ending certain tax breaks for business – tough language for pro- business Republicans who oppose any tax hikes.
Transportation Secretary Anthony Foxx says he is confident that Congress will present an opportunity to pass the Grow America Act. He particularly notes that there is bipartisan interest. But Congress is focused on midterm November elections right now, and Washington is famous for political wrangling.
Given Republicans' desire to challenge all Obama Administration proposals (and desire to control both the House and Senate and the White House in the 2016 presidential election), it's hard to say how far the Grow America Act will get. More likely, the can will be kicked even further down the road.
Meanwhile, by not properly addressing this critical issue, America's position for international trade will ultimately be impacted since poor infrastructure leads to traffic bottlenecks for cargo and inefficient supply chains. Cargo doesn't stop moving just because U.S. leaders cannot decide how to pay to fill a pothole.
But that pothole could cause costly delays to business.
- Author Karen Thuermer, who is based in Washington, DC, has been writing about transportation, logistics and policy for nearly 25 years.