The Reauthorization Conundrum – An Innovation Briefs Analysis

As the month of February draws to an end, the status of the surface transportation reauthorization remains very fluid. Under pressure from the Senate, which passed its reauthorization version (S. 1072) on February 12 by a vote of 76 to 21, House transportation leaders reluctantly agreed to shorten the previously approved four-month extension of the current law (TEA-21) to two months. The new extension, signed by the President on February 29, will expire on April 30, 2004. The shorter deadline is placing House transportation leadership under greatly increased pressure to resolve internal disagreements and vote out its version of the bill in the coming weeks in order to allow sufficient time for a House-Senate conference and a final vote.

But a House consensus still appears elusive. House transportation leaders have given up hope of holding out for their previously announced target of $375 billion, having concluded that raising the gas tax in an election year to generate the needed funds is not politically realistic. Instead, they now are considering a level close to the Senate-passed level of $318 billion, according to congressional sources. This means cutting back or eliminating many projects and programs originally contemplated in the $375 billion measure— a major headache. Adding to the authorizers' dilemma are the demands of a coalition of House members from some 20 states, led by House Majority Leader Tom DeLay (R-TX), for a 95 percent return on Trust Fund contributions during every year of the six-year reauthorization period (the Senate-passed bill provides for a 95 percent rate of return only in the final year of the reauthorization).

Whatever the dollar figure the House ultimately settles on, the House-Senate conference on the bill promises to be contentious. Separating the two chambers will be not only differences as to the overall funding level but also different views concerning various programmatic issues such as environmental streamlining, highway tolling, congestion relief and planning provisions. Reconciling the respective revenue titles as developed by the Senate Finance Committee and the House Ways and Means Committee could also be a challenge, although it seems likely that both versions will employ many of the same financing mechanisms. These include crediting the Highway Trust Fund with interest on the trust fund, transferring the ethanol tax to the trust fund, reducing tax evasion, reimbursing the trust fund for various transportation-related exemptions and subsidies (including that for gasohol), and drawing down on the trust balance.

Looming over the ultimate House-Senate compromise bill is the threat of a presidential veto. Speculation is rife as to whether the White House will hold firm on its promise to veto anything that exceeds its proposed funding level of $256 billion or whether a negotiated compromise is likely. One possibility is to reduce contract authority in the Senate bill to the level of obligation limitation (which totals approximately $295 billion – $238 billion for highways and $56.5 billion for transit). "Contract authority is great for press releases but obligation limitation is the number that really counts" one congressional source remarked. A further narrowing of the difference between the Administration proposal and the Senate bill could come about by focusing on outlays (or "spending" in the vernacular). These are estimated at $270 billion over the six-year term of the Senate bill, according to congressional sources. This would place the Senate bill within $14 billion of the White House "spending" target of $256 billion – a difference well within a negotiable range.

There is thus good reason to believe that a confrontation between the White House and Congress over the reauthorization can be avoided— neither the White House nor congressional leadership have much to gain from a prolonged deadlock. The threat of a presidential veto of anything as high as $318 billion remains real and the prospect of it being upheld is judged by most observers as highly likely – at least in the House, where Rep. Christopher Cox (R-CA), chairman of the House Republican Policy Committee, has been gathering signatures from House members pledging to vote to sustain a White House veto. The latest count reportedly shows close to the required majority of 145 members (one-third plus one) willing to back the President in his effort to restrain spending.

There appears to be some sentiment in the House for passing a two-year bill on the theory that it will be easier to seek a gasoline tax increase and fund a more generous bill after the presidential elections. But proponents of a six-year authorization argue that nothing would be gained from a short-term extension because pressures to reduce deficit and restrain spending will continue well beyond November.

While the precise outcome of the ongoing negotiations as to the level of funding and length of term of the reauthorization is hard to predict, it would seem that there is enough good will and self-interest on all sides to negotiate a compromise and enact a multi-year surface transportation legislation during the current session of Congress.

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