Travellers aren’t the only ones who should be worried about Congress’ next big economic crisis.
Political analysts and groups with an interest in the outcome are starting to become anxious about the battle brewing this summer over the Highway Trust Fund — and they’re not convinced any of the likely solutions being floated on Capitol Hill will solve the problem one leading lawmaker has dubbed a potential “construction shutdown.”
The Highway Trust Fund, which is financed by gasoline taxes and pays for transportation and infrastructure projects, is set to run out by the end of the summer. The federal highway money will begin to dissipate at the beginning of next month and stop altogether by Sept. 30.
In a letter to state transportation officials sent Tuesday, Transportation Secretary Anthony Foxx said funding for transportation projects would begin to be affected Aug. 1 if Congress does not take action. Foxx also warned states should expect about a 28% cut in federal funding for construction projects.
The fund is headed towards insolvency because the government now spends more money on those transportation and infrastructure projects than it collects from the gas tax, which has not been raised in over two decades. If the fund dries up, it could have dire consequences for the economy and cost the country hundreds of thousands of jobs, according to some estimates.
These consequences make the fund’s expiration date one of a few deadlines, including the reauthorization of the Export-Import Bank’s charter, that has analysts worried about the economic headwinds coming out of Washington this year. These fears intensified when House Majority Leader Eric Cantor stunningly lost his Republican primary battle to a Tea Party insurgent.
In an email to Business Insider, Guggenheim Securities analyst Chris Krueger indicated the so-called construction shutdown is one of the main potential economic headwinds coming out of Washington this year. He also described the climate on the Hill as the “new hysteria” and warned it could make a solution “difficult” to reach.
“The new leadership slate has a difficult challenge in the ~140 days to the midterms, with many conservative/Tea Party groups pushing for a more aggressive/confrontational leadership style,” Krueger wrote. “Thankfully for the markets, there are few fiscal fights on the horizon this year, though. However, the highway bill and the Export-Import Bank could well fall prey to this new hysteria, as both face expirations before the midterms.”
Thus far, Congress has failed to agree on a solution, and the federal government has begun amping up its warnings to states. The Obama administration has estimated as many as 700,000 jobs could be lost and about 112,000 active construction projects could be affected by either being delayed, deferred, or halted. Sen. Patty Murray (D-Washington), who has been the Democratic leadership’s point person on the issue, has warned of the potentially disastrous “construction shutdown.”
President Barack Obama, sounding rather exasperated on Tuesday, pushed the four-year, $US302 billion plan his administration has advocated as a solution to the problem — which has no chance of passing through Congress.
“It’s not crazy, it’s not socialism,” he said in remarks in front of the Georgetown waterfront with the Key Bridge in the background. “
It’s not the imperial presidency — no laws are broken. We’re just building roads and bridges like we’ve been doing for the last, I don’t know, 50, 100 years.”
During testimony before the Senate Finance Committee earlier this year, Joseph Kile, the assistant director for microeconomic studies at the Congressional Budget Office identified two possible solutions to what the CBO has described as an “impossible situation.” Kile suggested Congress could either drastically cut spending in the fund’s two accounts or increase the gas tax by at least 10 cents per gallon.
In an election year, lawmakers are loath to support either of these options. The gas tax hasn’t been raised since 1993. Last month, two senators talked about the unthinkable solution — they introduced a bipartisan plan to save the fund by incrementally raising the 18.4 cents-per-gallon gas tax. But with voters heading to the polls this November, the prognosis for the proposal is grim as there little political appetite for raising taxes on drivers among both the Republican-controlled House and the White House.
The most likely solution is a short-term extension to boost the fund through the end of the year. Right now, the proposal that has the most “energy,” according to one Senate Democratic aide, is one unveiled last week by Senate Finance Committee Chair Ron Wyden. Wyden’s proposal would infuse about $US9 billion into the fund through offsetting methods aimed at increasing revenue through tax compliance and higher taxes on heavy trucks, among others. Senate leadership is open to a short-term solution.
In an email to Business Insider, Murray, the No. 4 Democrat in the Senate, expressed support for a short-term fix for the Highway Trust Fund.
“The most important thing we can do right now is prevent this looming and completely unnecessary crisis, so I’m hopeful Republicans will push aside the Tea Party fringe, and find a way to get a deal with us that would, at the very least, avoid a construction shutdown this summer,” Murray said. “And as soon as we’ve ensured workers and businesses across the country won’t pay the price for another manufactured crisis coming out of Washington, D.C. we should absolutely look for a longer term solution.”
However, Wall Street analysts are unconvinced a short-term solution would do much to solve the overall problem.
The reason: States cannot plan any long-term infrastructure projects in a three-month window, which they would be working with if the Highway Trust Fund is extended only through the end of the year. There would be no guarantee federal dollars would continue to flow to the states for these projects in 2015. Krueger said this would effectively kill any largescale infrastructure projects for the time being.
“This means state departments of transportation are basically left filling potholes because it takes a lot longer than three months to build large bridges, overpasses, etc.,” Krueger explained.
Furthermore, even a short-term plan to save the fund might not be able to get off the ground.
The Senate Finance Committee is expected to vote on Wyden’s measure soon after they return next week from Congress’ July 4 recess. There is no guarantee, however, it will pass muster with the Republican-controlled House, whose leadership until recently had pushed a plan that would have offset a new cash infusion to the Highway Trust Fund by limiting U.S. Postal Service deliveries on Saturdays.
That plan fizzled amid resistance from conservative groups and some of the House’s more conservative members. House Speaker John Boehner is waiting to see a plan from Republican House Ways and Means Committee Chair Dave Camp (R-Michigan) next week.
Like the Ex-Im Bank fight, the debate over replenishing the Highway Trust Fund has created some strange alliances in Washington. Conservative groups like the Club for Growth and Heritage Action oppose throwing more federal money into the Highway Trust Fund, viewing it as another broken program in Washington. They have advocated devolving highway funding to individual states to let them decide their own infrastructure needs.
The White House, meanwhile has found common ground on the issue with Republican-leaning, business-friendly groups like the U.S. Chamber of Commerce that have strongly advocated finding a solution. The Chamber even put out an explainer on its website about the issue that pushed Foxx’s message.
It seems only one thing is certain as Congress barrels towards its next big economic crisis — the business world is worried.
“If Congress does not act, states should expect to see reduced and delayed reimbursements for projects,” the Chamber’s explainer read.
“Some states have decided not to start construction, due to the probable chance that there will be bills they can’t afford and unfinished projects without funding. By failing to improve transportation systems, the conditions of roads will not improve, let alone be maintained. Not only will the population be in danger, but the economic opportunities that highways provide will suffer, too.”
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