Both the House and Senate are poised to begin deliberations over different versions of transportation reauthorization legislation. Though both bills will vary widely in terms of funding levels and policy approaches, they already have one thing in common: they raise significant concerns about how each will be paid for. Taxpayers should be aware that current plans may be little more than smoke and mirrors and have us making old mistakes all over again.

The Senate Energy and Public Works Committee – led by Chair Barbara Boxer (D-CA) and Ranking Member Jim Inhofe (R-OK) – will hold a markup early next week of a proposed two-year, $109 billion transportation reauthorization bill (legislative language is expected today, but we have not seen it yet). This is an increase over both the six-year bill passed in 2005 and current spending (which is higher due to stimulus bill spending), and one glaring omission in the Senate bill will be a pay-for to cover the extra $12 billion in spending the bill would require to support this level of spending. Technically it is the job of the Senate Finance Committee to decide on the offset, but every indication is that Chairman Max Baucus (D-MT) is having difficulty finding the needed cash. His job was made that much harder this week when the House used savings from changes in the 2010 health care law to offset changes to the income tax code. The health care savings was likely Sen. Baucus' best bet, but with Senate and Executive support for the tax code changes, that offset is likely no longer available.

In recognition of the increasingly difficult task the Senate faces in offsetting the additional spending, the Senate bill is rumored to contain a provision lowering its funding levels if an appropriate offset is not identified.

It is particularly concerning, however, that the Senate allows the balance in the Highway Trust Fund (HTF) to be drawn to basically zero, spending down even the small balance that the trust fund currently contains. This is problematic for two reasons. First, the existing balance is largely the result of a transfer of general funds to the HTF, which was necessary largely because the last comprehensive transportation bill, SAFETEA-LU passed in 2005, also drew the HTF balance down to near zero; when gasoline tax revenues failed to match expectations, Congress was faced with either transferring general fund revenues or letting the HTF slide into insolvency. As a result, $34.5 billion was transferred from general funds, giving the HTF some breathing room. The second problem with this approach, then, is that the Senate bill will take us down the same path, and a similar outcome is likely. With gas prices well over $3 per gallon and the economy still struggling, Americans are driving less and driving more fuel efficient vehicles. Revenues into the HTF are likely to remain sluggish. Drawing the balance down to zero as the Senate bill does leaves little or no room to absorb lower revenue levels, and Congress will likely face the prospect of a general fund transfer in the future.

The House also announced this week its intentions to pass a transportation reauthorization bill by the end of the year. Though the Republicans in charge of that chamber initially indicated they would seek a six-year bill at $230 billion – the amount of revenue expected in the HTF over that time – House leadership recently granted Transportation and Infrastructure Chairman John Mica (R-FL) permission to go fishing for additional revenue. It is expected that they will begin work on a $285 billion bill, which is approximately the same amount in the last reauthorization. And as TCS speculated several weeks ago, House Speaker John Boehner (R-OH) made official this week his intentions to use speculative revenues from increased oil and gas drilling to pay for very real concrete through a larger transportation program. According to the Speaker's release, House Republicans “favor an approach that combines an expansion of American-made energy production with initiatives to repair and improve infrastructure and reform the way infrastructure money is spent.”

Leave aside for a moment that this is a fairly radical departure from the “user pays” principle that the HTF has operated under since its inception – where the system's users (drivers) pay for construction and maintenance of the system. The biggest problem with this approach is the speculative nature of future revenues. Paying for a couple of years of transportation funding with expected revenues from an increase in oil and gas drilling that will likely take many years to get rolling is not a responsible budget approach. It's like buying the Ferrari tomorrow because you are sure a raise is coming sometime in the future. If this sounds like a similar story that got us into our current budgetary quagmire, you'd be right.

On a final note, the House proposal will turn on its head the user pays principle which has guided transportation spending over the last 50 years. Not only will this further divorce in the public's mind the importance of funding the program from the system's maintenance, there are major practical issues as well. Transportation spending holds a special place in federal budgeting. Gas taxes are walled-off for use only on transportation projects, but changes to budgeting procedures in 1974 mandated that for that special exception to remain, more than 90 percent of the funds flowing into the HTF must be from direct user fees. A tax on oil and gas drilling is hardly a direct user fee, and this funding will make up far more than ten percent of transportation funding. It is unclear how this issue will be handled.

We feel that Congress either needs to find real offsets or revenue increases to pay for the nation's transportation system or constrain spending to what we can expect through gasoline tax increases. We fear that what we're going to get, however, are budgetary smoke and mirrors that make it look like we have money to burn but drive up the deficit even further. In addition, for the long-term health of the HTF, the Senate should resist the urge to spend the balance down to zero, or we're likely find ourselves in a similarly precarious position in the not so distant future.