Executive Briefings

Transportation Funding and the Mad Tea Party

Things were touch-and-go for a while there. Congress and President Obama spent much of the summer tussling over the issue of raising the nation's debt ceiling, and it was beginning to look as though the U.S. would default on its financial obligations on multiple fronts. Thankfully, a last-minute deal saved us all from economic disaster, ensuring the government's continuing ability to invest in major initiatives such as infrastructure development. Right?

If only it were so. What we have instead is a shaky cease-fire in a war that was launched by Tea Party ideologues, and still threatens to undermine the nation's credit rating while increasing the likelihood of a double-dip recession. Infrastructure development, which gets little public attention in the best of times, is sure to suffer.

"You can't shrink your way to greatness" is a popular business maxim, but the future will be all about spending cuts. The budget deal calls for at least $2.4tr of them over the next 10 years, with initial reductions of more than $900bn. The victims of a second round will be determined by a bipartisan, 12-member "super-committee" of lawmakers. Should that panel fail to come to agreement, across-the-board cuts of at least $1.2tr would automatically kick in. Don't count on transportation programs being spared.

Pessimism over the ability of Congress and the Administration to settle on a lasting pact for deficit reduction has caused one bond-rating agency, Standard & Poor's, to lower the nation's long-term sovereign credit rating to AA+ from AAA. The action, prompted in large part by the refusal of Republicans to consider tax increases of any kind, is wreaking havoc with financial markets.

If the nation's infrastructure were a stock, I'd be shorting it right now. "This series of events showed how hostile some folks are to the idea of raising revenues," says Joshua Schank, president and chief executive officer of the Eno Transportation Foundation. "If you don't, it becomes increasingly difficult to fund transportation adequately.

"In the past," notes Schank, "we would have increased the size of the pie to make everybody happy. Now it's a shrinking pie."

The dispute couldn't come at a worse time for transportation interests. Lawmakers had been struggling to reauthorize federal funding for highway and bridge construction, as a replacement for the measure known as SAFETEA-LU. The law officially expired on Sept. 30, 2009, but has been extended several times by a Congress and Administration unwilling to come up with a fresh, long-term solution. The recession of 2008-2009, coupled with the emergence of a political force that seems hostile to virtually any federally funded program short of the military and tax breaks for millionaires, has made that effort all the more difficult.

A key aspect of new any agreement, of course, would be an increase in the federal gas tax, which has stood at 18.4 cents per gallon since 1993. But there's that nasty word again - tax - so don't go placing bets on this happening anytime soon. (Previous increases in the gas tax, by the way, weren't driven by a love of transportation on the part of lawmakers. They were sold as measures to reduce the federal budget deficit.)

Meanwhile, our roads, bridges and tunnels continue to deteriorate, as the U.S. finds itself outspent in that area by the rest of the industrialized world. The nation spends an estimated 2.4 percent of GDP on transportation infrastructure, while Europe invests about 5 percent and China 9 percent. The numbers vary according to who's doing the calculations, but by no measure is the U.S. preparing for the huge increase in global trade volumes that's projected for the next decade and beyond.

We don't lack for proposals to put the nation's economic house in order. Schank cites the work of the bipartisan National Commission on Fiscal Responsibility and Reform, also known as the Bowles/Simpson Commission, as one possible blueprint. Then there's the National Surface Transportation Financing Commission, which was authorized by SAFETEA-LU for the purpose of analyzing future transportation funding needs. Its final report, issued in February 2009, recommended replacing the fuel tax with a charge based on vehicle mileage. It would be supplemented by fees imposed by state and local governments, such as tolls and premiums for rush-hour travel. For the short term, the commission called for a 10-percent increase in the federal gas tax (15 cents for diesel). It also wants to index the tax to inflation, an action that would have prevented the current fuel tax from losing a third of its value since the 1993 increase.

An even more creative idea comes from the Carnegie Endowment for International Peace, which favors a plan for imposing a fee on oil at the point of importation, then allowing the gas tax to rise or fall based on the market price of oil.

Merely authorizing more money for infrastructure isn't enough. Schank urges that any increase in the fuel tax be accompanied by an objective means of determining the most cost-efficient use of federal funds allocated for transportation. "We have no system that looks at what we're making and determines the return," he says.

In fact, President Obama has proposed the creation of a National Infrastructure Bank, to attract private capital for transportation projects while independently assessing the value of each initiative. Sens. Barbara Boxer (D-CA) and John Mica (R-FL) have floated similar proposals. They are urgently needed as a replacement for the current system of choosing transportation projects based on the clout of individual legislators.

Call them "pork," "earmarks" or whatever you want, such projects aren't scrutinized for the value they bring to the nation as a whole. That's why we get so many media-friendly ribbon-cutting ceremonies for brand new construction, instead of efforts to fix what's already in place.

Schank has little hope of expanded funding for transportation in the short term. Last week, President Obama called for yet another extension of SAFETEA-LU, which is currently set to expire on Sept. 30. Congress is likely to keep punting on the issue while the economy is in the doldrums. ("If a double-dip occurs," says Schank, "all of us are going to have a lot bigger problems than transportation getting funding.") On the other hand, a terrible economy and persistent unemployment could be what finally drives the President and moderates in Congress to topple the Mad Tea Party that has taken over Washington, and initiate real action. One can always hope.

Next: Thinking big about infrastructure.

- Robert J. Bowman, SupplyChainBrain

Comment on This Article

Things were touch-and-go for a while there. Congress and President Obama spent much of the summer tussling over the issue of raising the nation's debt ceiling, and it was beginning to look as though the U.S. would default on its financial obligations on multiple fronts. Thankfully, a last-minute deal saved us all from economic disaster, ensuring the government's continuing ability to invest in major initiatives such as infrastructure development. Right?

If only it were so. What we have instead is a shaky cease-fire in a war that was launched by Tea Party ideologues, and still threatens to undermine the nation's credit rating while increasing the likelihood of a double-dip recession. Infrastructure development, which gets little public attention in the best of times, is sure to suffer.

"You can't shrink your way to greatness" is a popular business maxim, but the future will be all about spending cuts. The budget deal calls for at least $2.4tr of them over the next 10 years, with initial reductions of more than $900bn. The victims of a second round will be determined by a bipartisan, 12-member "super-committee" of lawmakers. Should that panel fail to come to agreement, across-the-board cuts of at least $1.2tr would automatically kick in. Don't count on transportation programs being spared.

Pessimism over the ability of Congress and the Administration to settle on a lasting pact for deficit reduction has caused one bond-rating agency, Standard & Poor's, to lower the nation's long-term sovereign credit rating to AA+ from AAA. The action, prompted in large part by the refusal of Republicans to consider tax increases of any kind, is wreaking havoc with financial markets.

If the nation's infrastructure were a stock, I'd be shorting it right now. "This series of events showed how hostile some folks are to the idea of raising revenues," says Joshua Schank, president and chief executive officer of the Eno Transportation Foundation. "If you don't, it becomes increasingly difficult to fund transportation adequately.

"In the past," notes Schank, "we would have increased the size of the pie to make everybody happy. Now it's a shrinking pie."

The dispute couldn't come at a worse time for transportation interests. Lawmakers had been struggling to reauthorize federal funding for highway and bridge construction, as a replacement for the measure known as SAFETEA-LU. The law officially expired on Sept. 30, 2009, but has been extended several times by a Congress and Administration unwilling to come up with a fresh, long-term solution. The recession of 2008-2009, coupled with the emergence of a political force that seems hostile to virtually any federally funded program short of the military and tax breaks for millionaires, has made that effort all the more difficult.

A key aspect of new any agreement, of course, would be an increase in the federal gas tax, which has stood at 18.4 cents per gallon since 1993. But there's that nasty word again - tax - so don't go placing bets on this happening anytime soon. (Previous increases in the gas tax, by the way, weren't driven by a love of transportation on the part of lawmakers. They were sold as measures to reduce the federal budget deficit.)

Meanwhile, our roads, bridges and tunnels continue to deteriorate, as the U.S. finds itself outspent in that area by the rest of the industrialized world. The nation spends an estimated 2.4 percent of GDP on transportation infrastructure, while Europe invests about 5 percent and China 9 percent. The numbers vary according to who's doing the calculations, but by no measure is the U.S. preparing for the huge increase in global trade volumes that's projected for the next decade and beyond.

We don't lack for proposals to put the nation's economic house in order. Schank cites the work of the bipartisan National Commission on Fiscal Responsibility and Reform, also known as the Bowles/Simpson Commission, as one possible blueprint. Then there's the National Surface Transportation Financing Commission, which was authorized by SAFETEA-LU for the purpose of analyzing future transportation funding needs. Its final report, issued in February 2009, recommended replacing the fuel tax with a charge based on vehicle mileage. It would be supplemented by fees imposed by state and local governments, such as tolls and premiums for rush-hour travel. For the short term, the commission called for a 10-percent increase in the federal gas tax (15 cents for diesel). It also wants to index the tax to inflation, an action that would have prevented the current fuel tax from losing a third of its value since the 1993 increase.

An even more creative idea comes from the Carnegie Endowment for International Peace, which favors a plan for imposing a fee on oil at the point of importation, then allowing the gas tax to rise or fall based on the market price of oil.

Merely authorizing more money for infrastructure isn't enough. Schank urges that any increase in the fuel tax be accompanied by an objective means of determining the most cost-efficient use of federal funds allocated for transportation. "We have no system that looks at what we're making and determines the return," he says.

In fact, President Obama has proposed the creation of a National Infrastructure Bank, to attract private capital for transportation projects while independently assessing the value of each initiative. Sens. Barbara Boxer (D-CA) and John Mica (R-FL) have floated similar proposals. They are urgently needed as a replacement for the current system of choosing transportation projects based on the clout of individual legislators.

Call them "pork," "earmarks" or whatever you want, such projects aren't scrutinized for the value they bring to the nation as a whole. That's why we get so many media-friendly ribbon-cutting ceremonies for brand new construction, instead of efforts to fix what's already in place.

Schank has little hope of expanded funding for transportation in the short term. Last week, President Obama called for yet another extension of SAFETEA-LU, which is currently set to expire on Sept. 30. Congress is likely to keep punting on the issue while the economy is in the doldrums. ("If a double-dip occurs," says Schank, "all of us are going to have a lot bigger problems than transportation getting funding.") On the other hand, a terrible economy and persistent unemployment could be what finally drives the President and moderates in Congress to topple the Mad Tea Party that has taken over Washington, and initiate real action. One can always hope.

Next: Thinking big about infrastructure.

- Robert J. Bowman, SupplyChainBrain

Comment on This Article