Friday, September 05, 2008

Transportation Secretary Mary Peters warns of "bailout," telegraphing the Bush Administration's latest push for privatized toll roads

Federal Highway Fund Running Out of Money

Secretary's Remarks| Trust Fund Fact Sheet (Department of Transportation)

September 5, 2008

The New York Times
Copyright 2008

WASHINGTON — An important account in the federal Highway Trust Fund will run out of money this month, which could hamper completion of road and bridge construction projects across the country, Transportation Secretary Mary E. Peters said on Friday.

Because the fund is draining away so fast, the Transportation Department will have to delay payments for the local projects, or reduce their amount, Ms. Peters said at a mid-day news conference.

Ms. Peters said her department will begin to dole out money from the fund on a pro-rated basis. For instance, if there are only enough funds to cover 80 percent of the payment requests the department receives for federally financed local projects, the agency will pay only 80 percent of each request.

“Time and again, the president has warned Congress of the pending shortfall and submitted fiscally prudent budgets to close the gap,” Ms. Peters said, in remarks that reflected the political nature of the long-running debate over how to pay for road-building.

State transportation officials reacted to the announcement with alarm. The development will have “grave repercussions for the states, for hundreds of thousands of workers in the construction industry and the driving public,” said John Horsley, executive director of the American Association of State Highway and Transportation Officials.

“It will worsen the financial crises many states are already facing, and it will delay or halt needed transportation projects and leave contractors and suppliers with I.O.U.’s instead of cash to pay their workers,” Mr. Horsley said in a statement.

Whether Mr. Horsley’s dire prediction will come true, or whether the money shortage will be corrected when Congress reconvenes and the lawmakers hear from their constituents, is anybody’s guess. But at least for the moment, the trust fund’s problems have cast a shadow over highway work from coast to coast.

The trust fund’s highway account is being rapidly depleted because Americans have reacted to the high price of gasoline by driving less, Ms. Peters said. The fund gets its money from federal excise taxes on motor fuel: 18.4 cents a gallon on gasoline and 24.4 cents a gallon on diesel. But for months, Americans have been driving fewer miles than before it has been costing them more.

One possible solution would be to transfer money to the highway account from the separate account that the trust fund maintains to finance mass transit projects. That account is much smaller, though, and in any case, Ms. Peters said such a transfer would merely rob Peter to pay Paul. Lawmakers from large cities that rely on trust-fund aid for their transit systems could be expected to resist a transfer.

In July, the House passed a bill that would use $8 billion of general federal revenue — from income and other taxes, not the dedicated motor fuel tax — to finance highway projects. The measure has not gained much traction in the Senate, and until Friday the White House had been hostile to it. But Ms. Peters said on Friday that the administration now endorses the measure, because “immediate action” is required to ensure that the states do not suffer.

© 2008 The New York

U.S. Highway Fund Needs $8 Billion Bailout This Month

Sept. 5

By John Hughes
Copyright 2008

A U.S. trust fund that finances highway construction needs $8 billion from Congress by the end of next week to cover a shortfall as a drop in driving shrinks fuel-tax receipts, Transportation Secretary Mary Peters said.

The federal government will have no money in the fund by month's end and may need to cut payments to states should Congress fail to act, Peters told reporters today on a conference call.

``The cash-flow problem we face is serious,'' Peters said in Washington. A ``significant, precipitous drop-off'' in road travel boosted the shortfall beyond expectations, she said.

Her announcement is a policy reversal for President George W. Bush's administration, which dismissed a congressional bailout plan as a ``gimmick'' a little more than a month ago. Starting next week, Peters said she'll slow state payments to conserve cash, the first time her agency has taken such a step.

Motorists reduced driving for eight straight months through June, when gasoline at U.S. pumps reached $4.09 a gallon. That cut the flow of dollars for road projects from the federal gasoline tax of 18.4 cents a gallon.

The highway fund had an $8.1 billion balance when this fiscal year began Oct. 1, and payments are exceeding collections by $8.3 billion, according to the Transportation Department. The U.S. House approved an $8 billion bailout for fiscal 2009, though the money will be needed this year instead, Peters said.

Bush's budget office threatened a veto on July 23, calling the House transfer ``a gimmick and a dangerous precedent'' that would boost the deficit. The proposal is pending in the Senate as the Democrat-led Congress returns from a recess on Sept. 8.

Conserving Cash

``I'm glad the administration has for once set aside its blind ideology and come on board with what Congress has been trying to do,'' said Representative Peter DeFazio, an Oregon Democrat who chairs the House highways subcommittee, in a statement.

Peters said she is taking other steps to conserve cash. Starting Sept. 8, her agency's Federal Highway Administration will reimburse states for construction projects on a weekly basis rather than the current twice daily.

Reimbursements will be prorated, so that if the fund only has enough money to process 80 percent of pending requests, only that share of each payment will be made, Peters said. The next week, the balance of unpaid requests will be paid, she said.

`Grave Repercussions'

Such ``rationing'' will have ``grave repercussions'' for states counting on federal assistance for road projects, the Washington-based American Association of State Highway and Transportation Officials said in an e-mailed statement.

The government also had more state construction bills come due than anticipated, hastening the drawdown of the trust fund's reserves, said Jack Basso, director of management for the state group, in an interview.

The fund had $23 billion in reserves in 2000. Even before the drop in driving, that money was being drained because Bush and Congress agreed to boost spending in recent years while leaving the gasoline tax unchanged since 1993.

``No one had the guts'' to raise the tax as needed in 2005 when Congress, then controlled by Republicans, and Bush approved highway-funding legislation, said Stephen Sandherr, chief executive officer of the Associated General Contractors, in an interview.

``That's why we're suffering,'' said Sandherr, whose Arlington, Virginia-based trade group represents highway construction companies. Employers' purchasing power has eroded 50 percent under the frozen federal tax, and they may resort to layoffs without swift congressional action, he said.

The peak of the highway construction season, following several months of driving declines, exacerbated this year's shortfall, Peters said. In September, for example, the fund will take in $2.7 billion and spend $4.4 billion, her agency said.

To contact the reporter on this story: John Hughes in Washington

© 2008

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