In a letter Tuesday, Transportation Secretary Anthony Foxx warned the Obama administration will begin delaying reimbursements to states for infrastructure projects on Aug. 1 if Congress cannot come up with a solution to replenish the diminishing Highway Trust Fund. This move could create problems for highway and road construction profits at the height of the summer travel season.
Foxx’s letter, which was directed to state transportation officials, said checks to states will only be sent twice a month and will only be partial reimbursements. States typically receive “same day” reimbursements for many construction projects.
The Department of Transportation is undertaking the new procedures to keep a positive balance in the Highway Trust Fund, in which the department expects a shortfall beginning sometime in August. The fund is financed through gasoline taxes, which have not been raised in decades and currently provide inadequate revenue. Both parties in Congress disagree on how to solve the problem. In his letter, Foxx said states will experience cuts in federal funding until Congress finds a long-term solution to the crisis.
“The Department will continue to take every possible measure to fully reimburse your State for as long as we can. However, as we approach insolvency, the Department will be forced to limit payments to manage the reduced levels of cash available in the Trust Fund,” Foxx wrote in the letter.
“This means, among other things, that the Federal Highway Administration will no longer make ‘same-day’ payments to reimburse States.”
The Department of Transportation said, on average, states should expect a 28% cut in federal funds for construction projects. This dire warning comes as President Barack Obama is set to ramp up pressure on Congress to find a solution to the shortfall. Obama is set to speak about the issue Tuesday on the Georgetown waterfront with the Key Bridge in the background. The bridge connects Rosslyn, Virginia, with the Georgetown neighbourhood of Washington.
The Highway Trust Fund is a transportation and infrastructure fund financed by gasoline taxes. But the government now spends more money on those projects than it collects from the gas tax, which has not been raised in over 20 years.
Republicans and Democrats in Congress are still divided on both a short-term solution to finance projects through the rest of the year and a long-term fix for the shortfall. Two senators introduced a bipartisan plan to incrementally raise the 18.4 cents-per-gallon gas tax, but there is little political inclination to make such a move in an election year.
Sen. Patty Murray (D-WA), who has taken the lead on the issue among Democratic leadership, has said Congress should get rid of “wasteful” tax loopholes to offset more funding for the Highway Trust Fund. House Republicans rallied around a proposal to offset the fund’s expenditures by scaling back U.S. Postal Service deliveries on Saturdays, but that proposal has been largely abandoned.
“The clock is winding down for Congress to avoid lurching toward another unnecessary crisis — this time with a construction shutdown,” Murray said in a statement on Tuesday. “States and businesses need certainty to create jobs and grow local economies, and as today’s announcement shows, failing to solve the shortfall would mean the exact opposite. Workers and businesses shouldn’t have to pay the price for another manufactured crisis out of Washington, D.C. — so I hope Republicans find a way to push the Tea Party aside and avoid this crisis.”
Here’s a chart from the Department of Transportation projecting how the fund will run dry near the end of August:
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