Obama's Infrastructure Budget is Ambitious But Vague on Funding

The president's budget calls for ambitious infrastructure investments but -- yet again -- doesn't provide many details on how to pay for it.
by | April 10, 2013
 

President Obama's newly unveiled 2014 transportation budget calls for ambitious investments in the country's infrastructure but does little to offer new suggestions on how to pay for it.

The document is the latest White House proposal to underscore a central paradox of the administration's approach to transportation policy. While Obama has, rhetorically, been a major advocate for investing in the country's infrastructure, he hasn't offered policy solutions that outline how exactly to do it.

For full coverage of Obama's budget, click here. 

The president's new budget proclaims that MAP-21, the highway and transit bill Congress passed last year after much delay, provides needed certainty to the transportation community. But, the budget notes, "the administration strongly believes that more needs to be done."

The statement is a bold one: Many in the transportation community criticized the administration for not playing a hands-on role in the deliberations over the surface transportation reauthorization bill. Congress finally passed MAP-21 nearly three years after its predecessor expired. It provides approximately $118 billion over two years for highway and transit programs.

Lawmakers cobbled together funding to pay for the program -- in some cases, basically using convoluted accounting methods -- since a longer-term solution that included a gas tax hike or vehicle miles traveled fee (VMT) were seen as politically unpalatable.

Yet Obama, while reiterating his call for transportation spending, has opposed increasing the gas tax, and the White House has already nixed the possibility of a VMT fee, famously walking back comments on the subject made by Transportation Secretary Ray LaHood. The gas tax was last increased in 1993.

The latest budget doesn't offer any concrete solutions for funding infrastructure. Yet it calls for a 25 percent increase in funding for the next surface bill after MAP-21 expires, saying only, "Beyond the re-authorization window, the budget assumes that the President and the Congress will work together to develop other fiscally responsible solutions."

The only specific funding stream that the budget calls for are so-called peace dividends, or savings derived from ending the wars in Afghanistan and Iraq. "The president's proposal is fully paid for," Deputy Secretary of Transportation John Porcari said in a conference call with reporters Wednesday.

"These infrastructure investments are legitimate investments from this funding source," he added. "Think of it as some nation building we're doing right here at home."

But that concept, which the president has previously touted in last year's budget and speeches, has been dismissed by some as little more than an accounting trick. Transportation advocates and stakeholders have called for dedicated streams of revenue like new or higher fuel taxes to ensure long-term funding is available to pay for things like roads, bridges, and transit.

"The president’s budget repeats his call to increase spending without identifying a viable means to pay for it," said Bill Shuster (R-Pa.), chair of the House Transportation & Infrastructure Committee, in a statement. "We can’t just keep adding to our tab and expect future generations to foot the bill."

Overall, the president's budget calls for $76.6 billion in discretionary and mandatory funding for the Department of Transportation, representing a 5.5 percent increase over the FY 2012 total.

In addition to that total is another $40 billion for his "Fix-it-First" program, designed to improve existing infrastructure assets as opposed to new construction, and $10 billion designed to spur "innovation" in state and local infrastructure. Both those proposals were already outlined in the president's State of the Union address earlier this year and comments at the Port of Miami last month.

"Although infrastructure projects take time to get underway," the White House writes in the budget, "these investments would create hundreds of thousands of jobs in the first few years and in industries suffering from protracted unemployment."

In remarks at the White House Rose Garden Wednesday morning, Obama said the plan would help employment by putting construction workers back on the job. His budget reiterates calls from infrastructure advocates that it is wise to invest in infrastructure now due to low interest rates and construction costs.

Obama previously called for a $50 billion infrastructure investment in 2011 -- it didn't go anywhere -- and past budgets have also regularly proposed huge transportation investments funded by peace dividends.

The president's budget also proposes a $40 billion, five-year rail authorization designed to improve intercity passenger rail and high-speed rail corridors, one of his signature programs. The current rail authorization expires this year and Washington lawmakers involved in transportation policy are expected to take it up this year or next.

"We became the greatest country in the world because generations before us at the courage and foresight to invest in a better future," Porcari said.

Obama's transportation budget reiterated his goal of providing 80 percent of Americans with access to passenger rail within 25 years. But he could face an uphill battle: The High Speed Intercity Passenger Rail program hasn't received funding since 2010, largely due to Washington's focus on deficit reduction and Republicans' opposition to the administration's approach, which some conservatives say is not well-targeted.

Also included in the president's transportation budget is nearly $1 billion investments in the NextGen air control system. The project would switch the country's air traffic management system from one based on radar to one based on satellites. That upgrade and others involved in NextGen would cost the government an estimated $18 billion through 2018, according to a recent Government Accountability Office report.

The system would let planes fly more direct routes, allowing for more traffic in the skies and an estimated 41 percent reduction in aircraft delays compared to what would happen if the system wasn't built, according to the feds.

The budget touts the president's desire to "modernize and improve" the federal permitting process, citing the lengthy process of getting permits and reviews from multiple agencies and jurisdictions that can cause delays. "The president has established a new goal of cutting timelines in half for infrastructure projects in areas such as highways, bridges, railways, ports, waterways, pipelines, and renewable energy," the budget reads.

Other highlights in the president's transportation plans include the creation of a national infrastructure bank -- a previously proposed idea that hasn't materialized yet -- and the creation of America Fast Forward bonds, based upon the Build America Bonds there were developed in 2009.

But many state and local leaders involved in infrastructure are likely to bristle at the budget's proposal to cap tax exemptions and itemized deductions at the 28 percent rate. That plan would impact municipal bonds, the primary tool used by states and localities to finance infrastructure projects.

For months, infrastructure advocates have warned federal lawmakers not to eliminate or cap the exemption on earnings investors get from municipal bonds. While some have characterized that tax-exemption as a loophole, the policy allows state and local governments to offer investors lower rates of return than they'd otherwise be willing to accept. Essentially, the existing policy acts as a federal subsidy to state and local borrowing costs.

Reducing the tax benefit, state and local leaders have argued, means they could have to offer investors higher returns, thus raising the cost of borrowing. It's unclear, however, exactly how sizable that fiscal impact could be.

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