Federal Surface Transportation Reauthorization Issues Arizona Department of Transportation

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1 P a g e 1 Federal Surface Transportation Reauthorization Issues Arizona Department of Transportation Background The Moving Ahead for Progress in the 21st Century Act (MAP-21) was a two-year, $105 billion federal surface transportation reauthorization bill that made numerous changes to highway and transit programs and activities. Originally set to expire October 1, 2014, MAP-21 programs were reauthorized last August until June 1, 2015, with about $11 billion in revenue offsets coming from pension smoothing, extending customs duties, and transfers from the Leaking Underground Storage Tank Fund (LUST) into Highway Trust Fund (HTF). Accordingly, MAP-21's short-term authorizations have made it difficult to adequately evaluate overall effectiveness. Going forward, though, numerous issues have emerged, including funding, finance, highways and transit, freight, environmental streamlining, public transportation, and research and technology, and may be addressed in future reauthorization bills. Specifically, the following questions will likely be addressed: Has program consolidation and elimination met intended goals of increasing the focus and efficiency or federal spending? Has project delivery accelerated? Has the emphasis on performance measures made a difference in project selection, construction, and maintenance? Has the absence of earmarks improved the ability to set priorities for federal transportation funds? Funding Issues Funding is a major issue that frames every reauthorization discussion. Although fuel taxes met 20th century transportation needs, this revenue source, providing almost 90% of HTF revenues, no longer keeps pace with HTF expenses. Putting this in perspective, nearly $70 billion has been transferred from the General Fund (GF) into the HTF since 2008, with $15 billion needed each year, or $90 billion over six years. Moreover, if Congress simply reduces HTF spending to match revenues, only $39 billion would be available for surface transportation programs. This represents roughly a 40% difference between revenues and expenses. Though revenue discussions are inevitable, raising revenue is not politically salient in the current Congress, or necessarily with the Administration, and will remain controversial. In fact, a recent $1 trillion transportation spending bill introduced by Sen. Sanders (I-VT) did not even identify a revenue source to meet increased spending levels. And, since 1956, fuel taxes have only increased four times. Hence, ongoing funding issues may discourage a meaningful, long-term reauthorization, as it already has 10 times between 2009 and MAP-21 and most recently with a short-term MAP-21 reauthorization.

2 P a g e 2 Finance Issues To adequately finance the HTF, high-level alternatives include increasing fuel taxes, cutting spending, finding other revenue sources such as repatriation, continuing GF transfers, and increasing private investment. Specifically, the following long-term proposals have received attention: Increasing fuel taxes by $.12 cents over two years and indexing thereafter. Increasing fuel taxes by $.15 cents over three years and indexing thereafter. Replacing existing fuel taxes with a national sales tax on fuels or a national tax levied on oil at the refinery level. Accordingly, this allows revenue to correspond with the price of fuel, which may go up or down relative to supply and demand. Imposing a vehicle miles traveled fee instead of, or in addition to, fuel taxes. Accordingly, this more directly ties highway use to costs and will likely remain a point of discussion relative to increasing fuel efficiency standards and increasing demand for alternative electric vehicles. Imposing a variety of additional federal taxes dedicated to surface transportation programs, such as freight container taxes, increasing heavy vehicle taxes, tire taxes, automobile sales taxes, federal vehicle registration fees, limiting depreciation on heavy luxury vehicles, and import duties. Directing revenues from new energy leasing and production offshore and on federal lands to the HTF. Directing revenues produced through tax reform (i.e., repatriation) to the HTF. Other finance issues surrounding a longer-term reauthorization include: Transportation Infrastructure Finance and Innovation Act (TIFIA). Funded at $750 million for 2013 and $1 billion for 2014, TIFIA s loan capacity is about $16 billion. This program has been very popular and may be increased to meet future project demands. Creation of a National Infrastructure Bank to provide low-cost, long-term loans. Enhance State Infrastructure Banks (SIBs). A major issue for SIBs is capitalization and proposals to provide dedicated federal funding may be adopted. Encourage more public-private partnerships (P3) by establishing a federal office to provide technical assistance and develop more P3 opportunities. Tax credit bonds (i.e., Build America and proposed American Fast Forward). Increasing $15 billion cap on tax-exempt Private Activity Bonds (PABs) Highway Issues MAP-21 authorized about $41 billion each year in 2013 and 2014 for various highway programs, consolidated core programs, and eliminated 60 other programs (66% reduction). Currently, about 92% of highway funding is distributed through five core programs (National Highway Performance

3 P a g e 3 Program (NHPP), Surface Transportation Program (STP), Highway Safety Improvement Program (HSIP), Congestion Mitigation and Air Quality Program (CMAQ), and Transportation Alternatives) and for Metropolitan Transportation Planning. However, rulemakings, guidance, performance measures, and target setting at federal, state, and regional levels remains in development and at various stages. Many long-term outcomes and effects, both intended and unintended, also have yet to occur and adjustments and revisions will inevitably be made over the next few years, thus potentially discouraging a longer-term reauthorization. Other highway issues surrounding a longer-term reauthorization include: Bridge improvements. MAP-21 allows states to use NHPP and STP funds for National Highway System (NHS) bridges. Under MAP-21, the Federal Highway Administration (FHWA) was required to develop a bridge classification system, but states are not required to use classification criteria to set spending priorities. Moreover, there may also be discussion to make eligible non-nhs bridges for NHPP funds. Under MAP-21, tolling authority was broadened to include new Interstate lanes, highoccupancy vehicle lanes, and additional lanes on existing Interstates, but authority to convert other non-tolled Interstate lanes is not allowed. The federal government also lacks authority to directly regulate toll rates, which may become an issue as tolling, availability payments, and credit options increase in popularity. Donor-donee status. Although no state has been considered a donor state since 2008 due to GF transfers into the HTF, this issue may reemerge if HTF revenue sources are linked more directly with highway use. Federal-state partnerships. According to the Bureau of Economic Analysis, states substituted federal spending for state and local spending at an average of 10% since Hence, discussions on the federal role in transportation projects remain ongoing and proposals to devolve more responsibilities to the states may again be introduced. FHWA oversight and state compliance. Since MAP-21 largely delegated FHWA's oversight role to states for Interstate projects, the effectiveness of this change is still being evaluated and may encourage funding an ongoing MAP-21 programmatic review. Emergency Relief (ER). ER funds must now include a resilience plan, though concern has emerged that states may use these funds to make general improvements that might otherwise have been made with other formula funds. Continue working towards concurrent permitting and environmental reviews to accelerate project approval and delivery. Freight Issues Already, discussions are centering on creating a dedicated freight program with a dedicated revenue source that would be deposited into the HTF. For instance, the National Freight Trust Fund Act of 2015 is expected to soon be introduced, which diverts five percent of import fees into

4 P a g e 4 a freight trust fund (estimated $2 billion). US DOT Secretary Anthony Foxx also mentioned during recent testimony that there needs to be a dedicated freight program in the country. Several additional freight provisions will likely be addressed in upcoming discussions. First, MAP-21 also directed that a study of all state Truck Size and Weight (TS&W) laws be inventoried and submitted to Congress by November Second, MAP-21 enacted planning provisions to assist states in identifying highway segments critical to freight movement and also encouraged states to establish Freight Advisory Committees. Moreover, states may be required to establish FACs in future reauthorizations, as some have already proposed, and discussions have also occurred on establishing dedicated funding for freight programs. Third, MAP-21 began addressing the impact of U.S. oil and natural gas production on rural infrastructure, though changes may be forthcoming to ensure more accountability and efficiency. Truck Size and Weight Study The TS&W study will include a cost-benefit evaluation of several heavier and larger truck configurations, as well as potential impacts. Specifically, these configurations include: Increasing the weight limit on five-axle trucks from 80,000 to 88,000 lbs. Adding a sixth axle and increasing weight limits from 91,000 to 97,000 lbs. Increasing the maximum length of double 28-foot trailers to 33 feet. The findings of this study will allow states to work towards greater harmonization of TS&W laws, as well as identify necessary changes to federal TS&W laws and regulations in the next reauthorization. Although increasing weight limits is a controversial subject, it is also something that has been discussed and introduced previously. Primary Freight Network MAP-21 provided for designation of a highway Primary Freight Network (PFN) consisting of 27,000 centerline miles based primarily on freight volume. States, moreover, are allowed to designate Critical Rural Freight Corridors based on the density of truck traffic and if designations connect the PFN or Interstate system. However, no specific federal funding is associated with these designations, which may be addressed to further encourage project and freight prioritization. Although FHWA identified roughly 41,000 centerline miles and mentioned that the PFN should also include Critical Urban Freight Corridors, the PFN remains capped at 27,000 centerline miles. Hence, the next reauthorization may increase PFN centerline miles, clarify the PFN, allow designation of urban corridors, and possibly include federal funding incentives. Oil and Natural Gas Production Trucks moving drilling materials, as well as wastewater, are increasingly impacting highway infrastructure and have also caused environmental concerns due to potential wastewater spills. Although MAP-21 defined high risk rural roads, made them eligible for HSIP funds, and required HSIP funds to be used if fatality rates increased, states have expressed reluctance to invest in

5 P a g e 5 permanent improvements due to the short lifecycle of some well sites, thus making the extent to which companies contribute to offset added road maintenance costs an issue likely to be mentioned by resource-rich states. To address some of the safety issues, MAP-21 created a grant program providing training for local responders. Congress may also revisit certain regulations and requirements for hazardous materials movement and other rural road safety programs. What is more, the emerging availability of natural gas has increased interest in liquefied natural gas (LNG) as fuel for long-haul trucks. Also, since MAP-21 allowed CMAQ funds to be used to build natural gas fueling stations for trucks, addressing unmet training needs for local responders may be addressed. Another issue that may emerge is allowing trucks fueled by natural gas to exceed federal weight limits by the difference between a natural gas tank and fueling system and a regular diesel tank and fueling system. Safety Issues MAP-21 renewed several existing state grant programs and created new grant programs dealing with distracted driving and graduated driver licensing for teens. However, with connected vehicles beginning to emerge, Congress may adopt new regulatory structures or make new sources of funding available. Reauthorization may also include a requirement that automated safety technologies, such as assisted braking, lane departure warnings, and adaptive cruise control, be included in all new vehicles to reduce the number and severity of fatalities and crashes. This would align with a recommendation made by the National Transportation Safety Board and is currently being considered by the National Highway Traffic Safety Administration (NHTSA). What is more, NHTSA is also considering vehicle-2-vehicle (V-2-V) and vehicle-2-infrastructure (V-2-I) communication systems to improve mobility, reduce accidents, increase economic output, and mitigate environmental impacts through Connected Vehicle initiatives. Other provisions of MAP-21 require commercial drivers to use electronic data logs to improve enforcement of hours of service (HOS) rules, U.S. Department of Transportation (DOT) to establish minimum entry-level training standards, and U.S. DOT to establish a national clearinghouse for drug and alcohol test results. However, HOS has been controversial and proposals to delay implementation have already been enacted. Hence, reauthorization may address additional safety concerns, but may also scale back or at least address proposed and current regulations for things like sleep apnea, HOS, and minimum insurance requirements. There are also concerns with the Federal Motor Carrier Safety Administration s new Compliance, Safety, Accountability (CSA) program, which uses data from audits and roadside inspections to focus compliance reviews on operators who appear to pose greater safety risks. However, the trucking industry has raised concerns over CSA s reliability, precision, and confidence. The Government Accountability Office also found challenges with CSA and recommended that FMCSA revise limitations in its Safety Measurement System to better focus resources where they will have the greatest impact.

6 P a g e 6 Environmental Issues MAP-21 made changes to procedures that document compliance with the National Environmental Policy Act. By doing this, environmental reviews are intended to be more streamlined and performance-based. Moreover, MAP-21 added more categorical exclusions, such as emergency repairs, advanced right-of-way (ROW) acquisition, exclusions for projects with limited federal assistance, and better linkages between planning and environmental processes. However, U.S. DOT has only begun implementing those directives, thus making the overall effectiveness in accelerating project delivery largely unknown at this time. To incentivize refueling stations for alternative fuels, tax credits were available, though have since expired. In the next reauthorization debate, though, there may proposals to provide other types of incentives for transit agencies or other tax-exempt entities to install refueling infrastructure for alternative fuels. Public Transportation Issues With highway revenues dwindling, questions over the federal role in transit projects have also occurred. Specifically, if a greater share of government spending should occur at state and local levels. Federal transit needs are estimated at $17 billion each year through 2020, which is much higher than current spending levels ($10.7 billion). Similar to highway spending, expenses outpace revenues now as well as in the future. To address this issue, high-level proposals include cutting spending, continuing GF transfers, and increasing revenues paid into the transit account. There have also been proposals to create a multimodal account in the HTF. Other transit issues surrounding a longer-term reauthorization include: New Starts. This program is the only major HTF program not funded by the HTF. Criticism has also occurred over lengthy delays to develop and deliver projects, with little detailed information currently available. Moreover, MAP-21 added more eligible projects, which are generally more expensive and long-term, thus making a reduction in New Starts somewhat likely in a future reauthorization. Bus and Bus Facilities. Concern among various transit agencies in small urbanized and rural areas has occurred regarding insufficient resources for purchasing buses and building busrelated facilities since MAP-21 reduced this program by over 50% from $924 million to $428 million. To address these issues, proponents have argued that the program should be discretionary, not set by formula, as it was prior to MAP-21. Intercity Passenger Rail. Using the HTF for rail programs, including Amtrak, will likely emerge for two reasons. First, Amtrak s authorization expired in Second, using the HTF is an argument/policy supported by rail advocates. However, adoption is more uncertain and likely to meet strong opposition from critics of passenger rail.

7 P a g e 7 Transportation Research Issues Under MAP-21, federal transportation research programs were funded out of the HTF at roughly $400 million each year for 2013 and Specifically, those programs include Highway Research and Development, Technology and Innovation, Training and Education, Intelligent Transportation Systems, University Transportation Centers, and the Bureau of Transportation Statistics. Moreover, there has been support to restore funding to the National Cooperative Freight Research Program, which was cut under MAP-21, even if it results in a GF subsidy. However, there have been more sweeping proposals to move all federal transportation research programs out of the HTF and into the GF to free up HTF capacity for transportation projects. Hence, going forward, transportation research programs will likely be addressed in a future reauthorization.

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