Friday, November 02, 2001

Texas and the "TEA-21."

Senate State Affairs starts interim eyeing federal highway money

by James A. Cooley

The Lone Star Report
Volume 6, Issue 11
Copyright 2001

The essential building material needed by Texas to construct highways is not asphalt and concrete, but billions of dollars in cash. The biggest pot of highway money belongs to Uncle Sam, and members of the Senate State Affairs Committee received a primer Oct. 29 on how the money is allocated.

Some ways in which Texas might be able to get more money was also a prime discussion item.

The key to understanding federal highway funds, according to the Texas Department of Transportation (TxDOT) witnesses, is to examine the Transportation Equity Act for the 21 Century, or TEA-21. This legislation, passed in 1998, covers almost all aspects of transportation funding for six years. Several provisions in the bill represented important victories for Texas.

TEA-21 is enormous in scope, with $218 billion in transportation funds authorized over its six-year lifespan. This represents a 40 percent increase in funding over the prior legislation, though with an inflation adjustment, the increase drops to 19 percent.

The grumble from the so-called “donor states” who contributed federal transportation tax revenue far in excess of what they got back was addressed in several provisions.

First, the bill created the highest minimum guaranteed return of any transportation bill at 90.5 percent of a state’s federal contribution. Then, crucially, TEA-21 applied this 90.5 percent standard to 97 percent of all federal transportation money that was distributed. Just three percent of discretionary spending falls outside the minimum guarantee.

The results for Texas under TEA-21 were pleasing. The state went from getting just 74 percent of its total contributions back to now getting about 88 percent. All told, the state saw a 68 percent increase in funding from a bill that had a 40 percent increase in available dollars.

This meant approximately $800 million more each year, out of a total federal allocation to Texas of a bit over $2 billion.

The question of equity is one that both TxDOT and lawmakers have a keen interest in resolving. Despite the improvements found in TEA-21, there are still wide variations between what the various states pay in and then get back.

Washington, D.C., has the absolute best deal going with a full $9.23 return on each dollar, whereas states like Texas, California, and Florida have to make do with 88 cents each. Nine out of the twelve largest population states in the country send in more than they get back; the other three – New York, Pennsylvania, and Massachusetts – get more back than they pay in.

Some inequities are inevitable, as large states with small populations (e.g., Montana) would be hard-pressed to have a functioning highway system if they didn’t get back more than they paid in. However, very generous rates of return for some states don’t sit well with others.

This has led to calls from the donor states to establish a new equity standard of 95 percent and apply this standard to all federal transportation funds, including discretionary funding.

This, and other items, will be debated when the transportation bill comes up for reauthorization in 2003.

The bill has another provision that was seen as a plus by transportation funding advocates: budgetary firewalls. In brief, the bill’s trust fund revenues are off-limits for spending in other programs. If Congress cuts funding in TEA-21, that doesn’t make the money available for other uses. This tends to provide an incentive to leave the money alone.

TxDOT also gave praise to the RABA (Revenue Aligned Budget Authority) language in the bill. This means that federal motor fuels collections that exceed the bill’s authorization can be distributed for transportation. For fiscal year (FY) 2002, this provision means 16 percent more federal money available for highway spending.

Retaining the RABA language is seen as another very important goal for 2003.

Texas also benefited from a TEA-21 provision that dropped the reductions that a state incurred in its formula funding whenever it managed to win some additional discretionary funds. This has led to an aggressive push for discretionary funds.

While Texas did better than it did in the past, it still gets just 52 percent back of what it sends in.

The state hopes to get around this inequity by working with the congressional delegation to earmark money for specific Texas projects. Roughly half of the 52 percent that Texas got in FY 2001 discretionary fund was due to such congressional earmarking.

TxDOT and lawmakers agreed that the fairest approach for the state was more reliance on funding formulas and minimum guarantees and less on discretionary spending. State Affairs Committee Chairman Florence Shapiro (R-Plano) likened much discretionary spending to a “pork barrel” and noted the generous amount of discretionary Borders and Corridors transportation funds obtained by West Virginia – a state with neither borders nor corridors.

What Texas should seek in the next federal transportation bill was a subject that elicited several suggestions. At the top of the list was putting more money in the pot. TxDOT cited the American Road and Transportation Builders Association (ARTBA) criticisms that current transportation spending is roughly half of what is needed simply to maintain current service levels.

The good news is that a few billion may be available that doesn’t even require transportation tax hikes.

For example, the federal Highway Trust Fund is growing at a rate faster than the obligations authorized under TEA-21. There is projected to be $50 billion in this fund by FY 2009. This fund balance growth could allow an extra $5 billion in transportation spending between FY 2004 and FY 2009.

Trust fund-generated interest is being transferred into the General Fund for other programs. Retaining it in the trust fund could mean an extra $1.5 to $2 billion annually.

The touchy subject of ethanol fuels and how they are taxed is another option. For instance, 2.5 cents of the 13-cent federal tax on ethanol and other alternative highway fuels is transferred to the General Fund for a loss of $400 million to transportation. Also mentioned was that Ethanol-blended fuel is taxed at 5.4 cents lower than standard gasoline. This unequal tax treatment means a loss of $1.1 billion in highway revenues.

The general policy goal favored by both committee and agency was the shifting of much of the funding and project priority decision-making to the state level.

Sen. Ken Armbrister (D-Victoria) suggested that the federal government should consider its successful experiment with block grants for health and human service programs as an example for transportation funding. ?

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