By Eric Jay Toll for Arizona Builder’s Exchange
Water was pouring in and a steady flow was going out. The volume of water flowing into the lake behind the Glen Canyon Dam was equal and even a little more than the volume of water pouring into the Colorado River under U.S. 89. Downstream users are all promised a certain amount every year.
Think of Lake Powell today.
There’s still water flowing into the lake, but the water flowing from Glen Canyon Dam into the downstream Colorado River is a much higher volume than the flows into the lake. There’s still water coming in, but not enough to keep the lake level from dropping. The downstream users are still required to receive that federally-specified amount, but there’s not enough water to fill the orders, yet.
That’s identical to the situation with the Federal Highway Trust Account. In Moving Ahead for Progress in the 21st Century Act (MAP-21), the federal transportation authorization law, Congress tells the Federal Highway Administration how much money it is to deliver to each of the 50 states and assorted territories and districts. The source of the money is the 18.4-cent gasoline and 24.4-cent diesel fuel tax paid at the pump. This is a fixed amount paid per gallon; not a percentage like sales tax.
AZBEX talked with representatives of ADOT, FHWA, regional governments and major cities. From the background information provided, a foggy image emerges. Much like the sequestration no one believed would come into play, agencies are unsure of the impact on projects and cash flow.
Trust Fund Empties in August
Although the terms “insolvency” and “bankruptcy” have been tossed around in the media, these are not correct. The fund has run dry several times in the past five years. Congress appropriated $14.7B from the general fund in Fiscal Year 2009-10, $2.4B in fiscal 2011-12, and $6.2B in fiscal 2012-13. This year, Congress already authorized $10.4B to be added to the trust account, but $750M was cut by sequestration, leaving $9.7B to cover the projected overdraft. The problem is that another $15B is needed. The gridlocked Congress is trying to resolve that problem now—meanwhile primaries and the midterm elections loom.
The cost of highway infrastructure construction, repair and improvement has risen nearly 30 percent in the more than 20 years since the gas tax was last raised. Combine this with a 40 percent increase in fuel efficiency, a reduction in total miles driven, and a 20 year inflation rate, and the Institute on Taxation and Economic Policy (ITEP) says that we are within six months of a $15B shortfall in transportation dollars.
ITEP is wrong. In reality, the Highway Trust Account will run out of money by mid-August.
ADOT and FHWA representatives say that the trust fund is used to reimburse Arizona and local governments after construction is complete. Because the state is assured of a certain funding level for pre-approved projects, when the work is completed, ADOT opens the faucet and the reimbursement quickly pours out of the trust account reservoir. If Congress doesn’t act, ADOT can still open the spigot, but the reimbursement will trickle at drought levels.
Spokesperson Laura Douglas tells AZBEX that ADOT has developed various cash flow scenarios based on the information from FHWA. The department estimates it has adequate operating capital to handle the proposed delays through September.
Predictions of contractors pulling up stakes and heading for the yard are not likely scenarios for approved and programmed projects. Payments to contractors and consultants will not be affected—only the rate at which the state is reimbursed by the federal government.
Dark Days of September
In the middle of the midterm election campaigns, Congress will need to reauthorize MAP-21. Instead of its normal ten-year transportation funding program, MAP-21 was an interim program passed in 2012 for two years to give Congress the opportunity to work out a long-term transportation program. Just as wrongly predicted that federal legislators would never allow sequestration to take effect, September 30 marks the end of MAP-21, and there is no replacement program in sight, only primaries and midterm elections.
The balance point is how to handle the declining cash flow into the Highway Trust Account against the rising cost of highway infrastructure. If Congress cuts funding to avoid supplementing the trust account from the federal general fund, ADOT says, “…then there would need (for) significant reductions to the ADOT’s capital program. Given this possibility, the department is developing various funding reduction scenarios and assessing the impact of each of those scenarios.”
ADOT is already $350M short in its capital needs for next fiscal year (AZBEX, Mar. 22). The agency approved a $5.7B five-year CIP in in March covering fiscal years 2014-15 through 2018-19. The total is $500M less than last year’s five-year CIP adopted for fiscal 2013-14 through 2017-18 (AZBEX, Mar. 11).
The Aviation Trust Fund comes from separate legislation that is appropriated through the end of September 2015. Expansion plans at Sky Harbor, Gateway, Tucson and other state airports is not impacted by the end of MAP-21.
Transit on the other hand faces serious impacts. Arizona receives $30M a year for new capital equipment, improvements, maintenance and facilities. If the Highway Trust Account runs low on funding, the transit agencies could be severely affected.
Watch for parts 2 and 3 of this series:
- June 6: Hitting Arizona Where it Hurts
- June 13: Return to Long-Range Transportation Funding