DEMERS: Obama’s Transportation Budget Is No Friend To Louisiana Industry

Diversion of fuel tax revenues to public transit weakens trucking and multimodal commerce

The Obama Administration’s transportation budget was released last week, and today USDOT Secretary Foxx appeared in front of the House Transportation and Infrastructure Committee to make the Administration’s case for its new transportation proposal. While the Obama Administration’s proposed transportation budget does include $18 billion specifically targeting freight transportation bottlenecks, the budget request’s massive redirection of gas tax revenues to transit should make the proposal a non-starter for Louisiana’s freight carriers and the industries that rely upon them to move their products to businesses and consumers.

The exact level of federal surface transportation spending we will see in the next reauthorization (ranging from MAP-21’s $52.2 billion per year to the $79.7 billion in the President’s budget) will likely not be resolved until May. However, one week after its release, the administration’s transportation budget proposal has drawn criticism based on the how these funds are used.

Transit spending now absorbing disproportionate share of gas tax revenues

Of the 18.4 cents collected via federal fuel taxes on each gallon of gasoline sold, 2.86 cents is now directed to the Mass Transit Account, an arrangement dating to 1997. The last major surface transportation authorization, MAP-21, featured roughly a 20% allocation to transit uses, with $21.3 billion for transit in the two years funded (2012 – 2014), compared to $81.2 for highways. Last year’s ‘Grow America’ and this year’s budget request go even further in allocating $144 billion over six years to transit and passenger rail programs. With a small portion of those funds likely to be directed toward freight rail improvements, the bulk of those funds will be used for transit grants and new intercity rail service.

In 2012 transit and non-highway modes (Amtrak, commuter rail, light rail, bus, etc.) served about five to nine percent of commuters in 2012, and personal cars accounting for 76 percent. The administration’s proposed redistribution of gas tax and other revenues toward transit uses represents a benefit transfer to a predominantly urban, coastally concentrated user base at the expense of national, suburban commuter base and the trucking industry.

Furthermore, the escalating allocation of gas tax revenues to non-highway uses weakens the case for additional investment in transportation infrastructure that would be used by the trucking industry—and their customers—as it is certain that a large portion of any additional taxes raised from this group would not be put to use in a way that directly benefits them. In the Obama transportation budget request, for instance, the administration has taken a page from the Center for American Progress in renaming the Highway Trust Fund as the ‘Transportation Trust Fund’ to underscore the increasing scale of federal involvement in redirecting gas tax revenues—paid by system users at the gas pump—into investments outside of the highway system, such as Amtrak and light rail transit.

Activities funded by a new Rail Account in this new Transportation Trust Fund, would total to$28.6 billion over six years ($10 billion more than the freight program of the transportation request), with almost of of this fund going toward passenger rail services, according to USDOT Budget Highlights. While Class I and short-line railroads do form an integral part of the freight transportation system that supports Louisiana industry, operational improvements and capital investment should be undertaken as part those railroads’ private sector business models, with improvements being made where customers demonstrate profitable demand.

TIGER grant program and executive branch discretion

Additionally, $1.25 billion is dedicated to the TIGER grant program. An ostensibly ‘competitive’ process whereby state and cities submit grant applications typically accompanied by cost-benefit analysis and economic impact models, the TIGER program has, in effect, replaced the Congressional earmarking practice that was banned after Republican victory in the House in 2010. After enabling the migration of discretionary spending on regional transportation improvements from the legislative to the executive branch, the TIGER program has been the subject of criticism from both the GAO and the Reason Foundation, among others, citing a lack of transparency, accountability, and reproducibility in the analysis and ranking of project funding. Increasing this discretionary program from its customary $500 million therefore grows the level of executive authority in transportation spending when such decisions could more optimally be undertaken by the individual states. The implementation of an additional discretionary program—possibly totaling up to $18 billion over six years—specifically for freight system investment would further increase the executive branch’s authority at the expense of the states.

Centralization to D.C. and unusual revenue sources

The president’s proposed transportation budget perpetuates a system of centralized transportation planning that was created for the design and construction of the Interstate Highway System, but has persisted as a means of redistributing funds both in terms of region served—some states are net donors, while others are not—and lifestyle choices (transit vs. car) it prioritizes.

According to the White House, one half of the $478 billion for this six-year reauthorization will be funded through collection of a one-time tax of 14 percent on corporate foreign earnings, regardless of whether or not these earnings have been repatriated. In the time since the administration’s tax proposal was unveiled, Senators Paul (R-KY) and Boxer (D-KY) have introduced a separate, stand-alone proposal that firms might voluntarily repatriate foreign earnings and pay a lower tax rate than in the Obama proposal, with those revenues still directed toward the Highway Trust Fund.

Moving forward

Addressing the long-term solvency of the Highway Trust Fund will require hard decisions with national implications. But what remains unresolved at this point is the role of the federal government, vis-à-vis the role of the states and the private sector in constructing and maintaining the multimodal system that keeps our economy moving.

An argument could be made that there is a federal role in planning and project selection, and that some degree of regional reallocation is in some cases beneficial to Louisiana. For instance, Louisiana features a number of critical freight facilities such as ports and railroads that play an outsized role in supporting our nation’s capacity to export bulk commodities and finished goods. As these facilities attract truck movements at a national scale that far surpasses the traffic volumes necessary to serve local demand, it makes sense that the national beneficiary should have some means of paying to sustain Louisiana’s multimodal transportation infrastructure at a level commensurate to our role in national commerce.

However, this will not be accomplished effectively through the administration’s proposal, which escalates the share of non-highway transit uses of the Highway Trust Fund. Major surface transportation reauthorizations since ISTEA in 1991 have promoted a theme of ‘flexibility’ in funding approaches for the states. However, this flexibility has seemed to point solely in the direction of uncoupling the core purpose of the Highway Trust Fund—the design, construction, and the maintenance of highways—from its main revenue source: gas taxes paid by commuters and trucking companies.

Returning to a paradigm that again puts the states in control of these transportation decisions, as recommended by President Reagan and his USDOT Secretary Drew Lewis, means Washington must scale back from its current role while retaining programs that support infrastructure of significance to the national economy, such as the highways and other facilities that connect Louisiana to industrial users and consumers internationally.

Michael DeMers grew up in St. Tammany Parish and is a graduate of Tufts and Harvard Universities. He has advised state DOT and MPO clients on strategic planning issues, in some cases as a management consultant, and in others a member of DOT staff.

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