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What will happen to federal transportation funding?
The recent announcement by U.S. Secretary of Transportation Anthony Foxx that the Highway Account of the Highway Trust Fund will exhaust its balances this summer—months earlier than previously expected—has many wondering how Congress will respond to the financial challenges facing the federal surface transportation program.
Foxx’s announcement means that the Highway Account will exhaust its balances even before the federal surface transportation act, Moving Ahead for Progress in the 21st Century (MAP-21), expires on September 30, 2014; the Mass Transit Account is expected to follow suit a few months later. Congress will be unable to reauthorize MAP-21 and continue current levels of funding in 2015 and beyond without a significant infusion of resources. As a result, uncertainty and risk cloud the future of federal transportation funding.
The federal gas tax has not been raised since 1993. The Highway Trust Fund has also been hurt by the recession and slow economic growth, which caused user fee revenues to drop, and reduced driving and increasingly fuel efficient vehicles are also taking bites out of federal revenues. As a result, user fee revenue has lagged behind spending, and this deficit will continue into the future. To avoid cutting transportation funding, since 2008 Congress has made up the gap between user fee revenue and spending by transferring $55 billion into the Highway Trust Fund. However, these balances will be exhausted this year, and in 2015 and beyond the Highway Trust Fund will run an annual deficit of about $15 billion.
Congress has three general options to address this deficit:
·         Cut surface transportation funding by about 30 percent for the long term.
·         Raise user fees or other taxes to make up the difference; a fuels tax increase of 8-10 cents per gallon would close the gap.
·         Provide about $15 billion in general fund resources each year.
The implications for Oregon are significant. Oregon receives over half a billion dollars in federal surface transportation funding each year. Because ODOT’s State Highway Fund resources are generally fully dedicated to debt service, highway maintenance, and agency operations, federal highway funds are the only source of funding for new construction projects that preserve and improve the state highway system. If Congress does not provide additional resources for the Highway Trust Fund, Oregon’s federal transportation funding could be cut by over $150 million per year—and the reduction in 2015 could be even larger. A federal funding reduction of this magnitude would force ODOT to cancel or delay a large number of projects in the Statewide Transportation Improvement Program (STIP).
Local governments would be hard hit, as they receive 25-30 percent of Oregon’s federal highway funding, and impacts to transit could be severe. Cuts to transit programs could run more than 40 percent, which could force transit agencies to make deep cuts and cause significant hardship for those who rely on public transit.
Governor Kitzhaber has taken a leading role among the nation’s governors in seeking congressional action on this issue. He recently authored a bipartisan letter with Governor Pat McCrory of North Carolina urging Congress to “act as soon as possible to stabilize the Highway Trust Fund’s revenue situation for the long-term so the successful federal-state partnership that created the Interstate Highway System can deliver the national surface transportation network our nation requires.”
According to Director Matthew Garrett, ODOT will take a conservative approach to its construction program to deal with this significant uncertainty and risk. “If Congress has not resolved funding for 2015 by early this fall, we will have to delay sending some projects to bid and construction,” Garrett said. And the uncertainty will ripple into planning for the future.  “We’re about to start work on the 2017-2020 STIP, but it’s hard to plan projects six years from now when you don’t know how much money we’re going to get six months from now. Until the Highway Trust Fund’s long term funding challenges are addressed ODOT will have to make conservative assumptions about federal funding as we begin to develop the next STIP, reducing the number of projects we will be able to develop.”