With Congress approving the five-year, $305 billion FAST Act, short for “Fixing America’s Surface Transportation,” earlier this month, which was subsequently signed into law by President Obama, it signals a true end to what felt like a never ending game of political football.
That game was not fun for anyone really, as it was based on a single play: applying short-term extensions, 36 to be exact, to keep surface transportation funding intact going back to 2009.
But with long-term certainty now intact, coupled with the FAST Act containing various freight- and transportation-related provisions, there are clearly some things to be optimistic about, while there are also things in the bill that remain concerning like long-term funding.
To get a better sense of some of the bill’s highlights, I recently caught up with James H. Burnley, a partner at Washington, D.C.-based law firm Venable LLP and former Secretary of Transportation under the late President Ronald Reagan.
A transcript of our conversation follows below.
What are some of the most significant aspects of the FAST Act in your opinion?
First and foremost, the fact that it is a five-year bill is very significant, because it permits state and local agencies to depend to substantially agree on federal aid for highway and transit programs to do longer-term planning and implementation plans to improve our infrastructure in both areas.
It is hard for some people not directly involved in such programs to understand how disruptive it is to have these short-term extensions as it creates a dynamic where planning is disrupted and the execution of those plans is disrupted because most public agencies by law are not allowed to make commitments until they know they’ve got the funding. A five-year bill matters, it really does matter.
What is most notable about the freight- and infrastructure-related provisions in the bill?
For the first time ever in such a bill, Congress recognized the need to dedicate resources to improve infrastructure specifically designed or at least designed in part to move freight. Everything is yet to be sorted out as to how those programs will be implemented, but it is significant that for the first time freight is singled out and that there are dedicated resources that are substantial.
It is up to DOT to implement that legislation, and I am sure folks in the logistics and freight transport community will be very interested in how that plays out over the next five years and how that implementation is handled by DOT.
How does this bill, specifically on the freight side, match up with projected higher freight flows in the coming years should that come to fruition?
Continued economic growth over next ten years could lead to more fright flows. We already have a driver shortage, and it will continue to be an impediment to move more freight if we don’t have some flexibility in how that workforce is hired and trained. But the bill is taking steps to address that with a pilot program to permit drivers 18 or older that are veterans to drive across state lines.
There are states that already permit that with no reported safety issues. It would have been preferred to have seen more robust language with that, but at least it is a step.
In regards to how the FAST Act will be funded, it is a bit of a mixed bag, with the federal gasoline still intact but not being raised and still paying out more than it takes in, as well as some other methods like raiding the Federal Reserve’s rainy day fund, a reduction in the dividend formula that the Fed uses to reimburse banks’ interest, and plans to sell oil from the Strategic Petroleum Reserve, among others. All that said, how do you view the bill’s funding mechanisms?
I think this is the last time on the federal level that Congress and Administration will be able to avoid dealing with the revenue question. We will have a new Administration fairly soon and whoever is in power will basically have a five-year window to come to grips with the need to either dramatically downsize federal programs to meet current revenue flow, which will be diminishing as fuel economy standards continue to become more stringent every year, or reshape how we collect revenues for federal programs.
I don’t think it is likely that regardless of which party controls which parts of government that there is going to be any more of an appetite in five years than there was this time to increase fuel taxes sufficiently to cover even current levels of spending due to things like CAFE standards kicking in and less fuel being burned every year.
With the fuel tax not as effective as it needs to be, what are some other potential options?
That fuel tax-based system does not work anymore, and the tax needs to be raised to much so the politics of that are impossible I think. So what we may see is a renewed interest in alternative funding mechanisms starting with a vehicle miles traveled (VMT) tax, which is already being used in pilot programs in California right now.
The perception is that is those go well it will make it all the more likely that the attention will turn to VMT in the years to come. It is a sensible approach particularly when you have policies designed not only to reduce the amount of gas and diesel burned by trucks and cars that are propelled by those products and programs in place to encourage vehicles to have alternative fuels first and foremost electric cars. And at this point I don’t think anybody can argue with a straight facer that they get a free pass.
What about tolling as a financing option?
There are a lot of questions about tolling particularly about existing facilities. When you talk about tolling, you have to be careful to talk about the use of tolls to generate new revenues for new facilities and infrastructure versus slapping tolls on existing infrastructure. Those are different debates and with respect to both there is still a lot of resistance, particularly in trucking industry although the American Trucking Associations at least has indicated a willingness to consider it on a project-by-project basis for financing new infrastructure but there is longstanding skepticism there.
I think tolls will continue to inevitably be a part of the debate but again tolls are not ultimately going to be a substitute on a universal basis for fuel taxes and that is what we need to find: a universal substitute for fuel taxes. It may be something you phase in gradually but because of the projected revenue shortfalls overt the next four or five years between the expenditures authorized in this bill and what fuel taxes will generate, there won’t be enough to close the gap in that timeframe.
There just won’t be enough and it can’t happen again. There is already close to a $20 billion gap in fuel tax revenue that is growing rapidly year-by-year going forward. My confident prediction is that we have played that out.
What are some forward-thinking financing options that are not part of the FAST Act?
Another idea out there and was part of this debate and will be part of the discussion going forward but did not ultimately become part of this are variations on some sort of infrastructure bank. And there are a lot of different thoughts on how to do that as it provides the opportunity to mix public and private funds to a certain extent and if structured correctly it lets you get some leverage.
I think it is likely to be part of the discussion for the next go around as we approach the expiration date of the FAST Act or even before it expires.
Related: Time for Congress to Focus Seriously on Addressing Transportation & Infrastructure