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House and Senate are Getting Closer to a Highway Trust Fund Fix

Tuesday, July 22, 2014  
The House and Senate are not far apart on legislation that would give the federal Highway Trust Fund (“the Highway Fund”) the needed funding to continue its current projects. According to the most recent report from the U.S. Department of Transportation, the Highway Fund will drop below sustainable levels for funding projects underway on August 1 and transportation funds sent to the state would have to be reduced by 28% thereafter. The gas tax revenues are falling short of funding all the projects that have been authorized.

The U.S. House passed H.R. 5021, which is an $11 billion package that would ensure the solvency of the Highway Fund until May 2015. Both chambers have cobbled together a similar patchwork of programs that will be used in some manner to provide the funding—a transfer of $1 billion from the underground storage tank trust fund intended to clean up leaks, $6.5 billion in taxes from pension smoothing and $3.5 million from extension of customs user fees, are among the biggest sources of funding. The President has expressed support for the House Republican bill.

The House bill has been to the Senate, which has had a similar bill under consideration. The bill from the Senate Finance Committee relied less on pension smoothing and included revenues from increased tax compliance on mortgage interest and child tax credits. The Senate bill also extended the Highway until year’s end with the intent of enacting a long term solution in the lame duck session after the November elections.

The bailout of the Highway Fund was the only “must pass” bill on the Congressional agenda after it returned from its July 4 recess and before its summer recess on August, making it a target for amendments with other issues. The House passed its bill with overwhelming support
(367-55) and without a partisan fight on amendments unrelated to transportation. The path in the Senate may not be as smooth. There still is support from the Senate Democrats to consider their own bill with the extension to year end. The Republicans intend to seek an amendment that would repeal the Davis Bacon prevailing wage act. Another amendment would give the states primary responsibility for transportation projects and reduce the federal gas tax over time,

Both parties in Congress understand the need for funding transportation projects and want the economic benefits for their states. With the President supporting it, the House bill may be the only legislation that can be enacted in Congress before the summer recess.

The current effort to address the Highway Fund is a stop gap measure would allow more time to work on a long term solution funding solution for the Highway Trust Fund and a reauthorization of the Highway Act, which is set to expire on October 1. Congress has been reluctant to consider a six year extension of the Highway Act as it is almost impossible to find a way to fund a lengthy extension and the debate would ignite a controversy on raising the federal gas tax.

Pension smoothing raises revenues by allowing employers with defined benefit pension plans to assume a higher interest rate when calculating the level of funding for their plans, which reduces the employers’ tax deductible contribution and increases their overall taxes.

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