Supply Chain News / Risk & Compliance / Finance & Credit

Congress Robs from Peter to Pay Paul

July 9, 2012
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At the end of June 2012 lawmakers in Congress approved a bill that keeps highway and transit spending at current levels for the next two years, but there was a catch: They came up nearly $20 billion short.

Rather than cut spending or raise taxes to make up the difference, they tapped the U.S. Treasury, something they had done three times already.

Transportation and budget experts say lawmakers can't have it both ways: The once-self-sustaining mechanism for highway spending no longer works the way it was intended.

For half a century, revenue from federal taxes on gas and diesel fuel paid for the nation's highway projects. But since 2008, lawmakers have transferred $35 billion in general funds into the Highway Trust Fund to keep it from going bankrupt.

Negotiators who sorted out the differences between the Republican-majority House of Representatives and the Democratic-controlled Senate call it a necessary compromise. Fiscal conservatives call it deficit spending.

"We have a shell game up here," Sen. Rand Paul, R-Ky., said before he voted against the bill. "We say one thing's going to pay for it. Now this is going to pay for it. Money disappears."

There are potential solutions on the table, including increasing the gasoline tax or replacing it with another dedicated source of funding. Other proposals would shift more responsibility for funding transportation projects to the states.

Some states have acted already. But it took three years for Congress to agree to a two-year bill, and transportation experts say it's a shortsighted measure that delays making hard choices.

Many in Congress and President Barack Obama are reluctant to raise the gasoline tax. A bipartisan deficit-reduction commission in 2009 proposed raising the tax by 15 cents a gallon. A Senate proposal would index the tax to inflation. Another plan would authorize a study of a tax based on the miles people drive instead of the fuel they consume, known as the vehicle mile tax.

Raising taxes might not be universally popular, but transportation spending is. Lawmakers can point to new highways as tangible evidence that they're doing something for the people they represent.

The Highway Trust Fund was designed to pay for roads with fees from their users, in the form of a tax on every gallon of motor fuel. The current tax of 18.4 cents took effect in 1993 and has lost a third of its spending power since then. Construction costs have gone up, cars have become more fuel efficient, and rising gasoline prices and a weak economy have led Americans to cut back on driving. In short, there's less money for road construction and maintenance under the current structure.

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