Transportation Officials Await Gas Tax's Fate

If it expires, states won't get payments from Washington, and the feds will lose $100 million per day.
by | August 16, 2011

Remember when Congress temporarily shut down the Federal Aviation Administration?

The move put 4,000 federal employees on furlough, stopped work on construction sites nationwide, and ultimately cost the government about $425 million in lost revenue, since the feds were temporarily barred from collecting taxes on plane tickets.

That was nothing compared to what may be the next Congressionally-driven showdown.
 
When Congress returns from its August recess on Sept. 6, lawmakers will have less than four weeks to renew the federal gas tax or risk losing out on $100 million per day in revenue. That’s because after Sept. 30, the federal government loses the authority to collect the gas tax and make payments from the account that it funds.
 
The tax – 18.4 cents per gallon of gasoline and 24.4 cents per gallon of diesel – goes to the Highway Trust Fund, which provides about $35 billion in federal contributions to road and transit projects run by states and localities nationwide. The federal government will have to stop collecting most of the gas tax if Congress fails to reauthorize it by Sept. 30. 
 
If that happens, the government will miss out on $100 million per day in revenue, according to estimates by Jack Basso, the chief operating officer of the American Association of State Highway and Transportation Officials. He should know: He's a former CFO of the U.S. Department of Transportation. Basso said there's never been a time in the history of the tax, which dates to 1956, that its future has been in jeopardy.
 
A suspension of the tax would trigger a series of problems. First, states would stop receiving the federal government's payments for its portion of project costs, since Washington would no longer have the authority to make them.
 
States could pick up the slack in lieu of federal payments and fund the projects themselves. But that could be a difficult task given the precarious fiscal condition of states. If states can't provide stopgap funding, they'd likely have to suspend their projects, putting thousands of construction workers and others out of work.
 
Basso said he expects Congress to renew the tax, but the recent FAA debacle, which has parallels to this one, has caused people in the highway community to become anxious. 
 
“If you think about the impact of the FAA drop-off – people were screaming about it, and the president was upset,” says Joshua Schank, president and CEO of the Eno Transportation Foundation, a non-profit involved in transportation policy. If the gas tax expires, Schank says, “I’d take that and multiply it by 10. It’s enormous.”
 
Schank doesn’t expect Congress to actually let the gas tax expire, given the job losses the move would likely create. But given the track record of this Congress – which has brought the country to the brink of government shutdown, nearly allowed the country to default on its debt, and temporary halted FAA operations, “all bets are off,” Schank says.
 
But at least some conservatives say it's time for the tax to end. Grover Norquist, who leads the influential anti-tax organization Americans for Tax Reform, told the Platts news service that his organization is urging lawmakers to consider “ending the federal gas tax either cold turkey or phasing it out as soon as possible and allowing states to simply go raise their own taxes, rather than send the money to Washington and get it back with strings.” Transportation advocates fear that those seeking to make an anti-tax stand might use the gas tax as a political football.
 
Suspending the tax wouldn’t get the federal government off the hook for money it already owes, Basso says. It would have to honor its commitments – but it would have less money available. “You don’t have the option to say ‘we decided not to pay you,’” Basso says. 
 
And ironically, if the gas tax does expire, drivers might not even save any money. When the federal government had to stop collecting airline ticket taxes during the FAA shutdown, almost all airlines simply increased their fares by a commensurate amount. That could happen with gas prices, experts say.
 
Also expiring Sept. 30 is the law that dictates how the government spends the money generated by the gas tax, known as the surface transportation allocation. If Congress allows that law to expire, there would be similar effects, though the effect could be even more devastating.
 
AASHTO estimates that each billion dollars spent on surface transportation supports 30,000 jobs. If Congress had to stop spending that money for an extended period of time, theoretically, more than 1.2 million involved in highway and transit projects could be put out of work. 
 
Committees in the Senate and the House are considering two drastically different versions of a surface transportation bill, but it's highly unlikely that they will reach an agreement before the Sept. 30 expiration date, especially since the proposals haven't even gone through committee markups. More realistically, the House and Senate would need to agree to another stopgap measure to avoid shutting highway and transit programs while they continue their deliberations.

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