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Nation's Highway Fund Being Bailed Out Too

Robert Poole
September 8, 2008, 8:37am

The AP reports:
The federal highway trust fund will run out of money this month, requiring delays in payments to road projects in Michigan and other states, Transportation Secretary Mary Peters said Friday. The trust fund -- a federal account used to help pay for highway and bridge projects -- will run about $8.3 billion short by the end of September, Peters said during a conference call with reporters.
Richard Simonwrites:
With the nation's highway fund running low faster than expected, the Bush administration did a political U-turn Friday and urged Congress to approve an $8 billion rescue plan that the White House had previously opposed. The fund's condition has worsened as high gasoline prices have led motorists to cut back on driving and buy more fuel-efficient cars, reducing the gasoline tax revenues that support highways. To address the shortfall, the House this summer voted to transfer money from the government's general fund to bail out the highway account.
When it enacted the six-year surface transportation bill known as SAFETEA-LU, Congress deliberately challenged the Bush Administration to a game of chicken. And last Friday, the Bush Administration conceded. Here's what happened. In the extensive debate that preceded eventual enactment of the bill, the leaders of the House Transportation & Infrastructure Committee–Reps. Don Young (R, AK) and James Oberstar (D, MN) strongly advocated a large increase in the federal gas tax, to permit a major increase in transportation spending. The White House made it clear that the President would veto any such tax increase, so eventually the big spenders backed off. But they still front-loaded the bill with spending levels greater than projected gas-tax revenues, intending to draw down the accumulated balance in the Highway Trust Fund to zero by the end of the six-year period. Even at the time, with gas prices below $3 a gallon, there was a chance that by the final year there would not be enough funding to cover planned spending, so this was a gamble even before the past year's rise in fuel prices that reduced gasoline purchases and hence gas-tax revenue. But Congress's big spenders took that risk, in order to be able to include a record $24 billion in earmarks in SAFETEA-LU. If the money ran short for FY 2009, they figured, state DOTs would beg and plead for additional money from somewhere, to avoid drastic cuts in spending in an election year. The day of reckoning arrived last week–and the big spenders won their bet. In a dramatic reversal of its previous position, the White House agreed to support an $8 billion rescue of the Highway Trust Fund, transferring that sum from the general fund to the Highway Trust Fund. In other words, general taxpayers, even those who don't drive, will now be hit up yet again for another federal bailout. As Transportation Secretary Mary Peters has said repeatedly, our current centralized, politicized approach to transportation funding is truly broken. This latest sorry episode is yet another illustration of that fact. Reason Foundation's Transportation Research

Robert Poole is Searle Freedom Trust Transportation Fellow and Director of Transportation Policy


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