Funding and Finance Policies - FAST Act Reauthorization

The Fixing America’s Surface Transportation (FAST) Act enacted in December 2015 represented the first comprehensive, long-term surface transportation legislation since 2005’s SAFETEA-LU. The FAST Act continues to fulfill the Constitutional directive that investment in transportation is a core federal responsibility. Its authorization of $305 billion for federal highway, highway safety, transit, and passenger rail programs from 2016 to 2020 could not have been timelier in supporting our economic growth and maintaining our multimodal transportation infrastructure.

The FAST Act authorizes Federal highway, highway safety, transit, and rail programs for five years from Federal fiscal years (FY) 2016 through 2020. The FAST Act authorized $305 billion from both the Highway Trust Fund (HTF) and the General Fund (GF) of the United States Treasury. The bill preserved HTF solvency with general fund transfers totaling $70 billion through 2020.

The nation needs a significant increase in federal transportation formula funding, beyond FAST Act funding levels, along with timely, sustainable, long-term funding to meet national needs for economic competitiveness, connectivity, safety and security. New transportation revenue options should be considered to supplement or replace the deteriorating federal revenue stream. As investment needs grow, HTF revenues derived from fuel taxes will continue to decline due mainly to increased vehicle fuel efficiency.

Additionally, the FAST Act includes a $7.6 billion rescission of unobligated contract authority scheduled for July 2020. Congress should avoid using rescissions of highway contract authority because they impede state DOT flexibility in programming Federal dollars and can result in cuts to highway funding and services, reducing transportation system performance.

The Committee on Funding and Finance is charged with identifying specific policy issues and recommendations related to funding and finance. This white paper presents recommended policies for consideration by AASHTO and the Transportation Policy Forum.

Increase Federal Funding

  • Current Federal Policy: The FAST Act authorized $305 billion from both the HTF and the GF of the United States Treasury. It provided $225 billion in HTF contract authority over five years for the Federal-Aid Highway Program and $61 billion over five years for Federal transit programs. It also includes funding for highway safety, authorized general funding for rail, and increased emphasis on freight investments through new highway program elements supported by the HTF.
  • Issue: Our nation is currently faced with aging infrastructure, a growing national population, and a major transportation funding shortfall. The American Society of Civil engineers has identified a $1.1 trillion funding gap for surface transportation between 2016 and 2025. It is essential to increase federal funding for surface transportation to sustain national and regional connectivity and mobility for people and business. The federal government must connect the nation. Reducing that role or proposing turn back of the system is not appropriate. The states cannot fund a dynamic and efficient national transportation system alone.
  • Recommendation: Congress is urged to increase federal surface transportation funding significantly above the current FAST Act funding levels. Enhanced federal funding is required for both rural and urban areas of the country to improve the quality of life and to increase the nation’s economic vitality, well-being, and competitiveness. 

Fix the Federal Highway Trust Fund and Strengthen Federal Transportation Funding

  • Current Federal Policy: The HTF serves as the backbone of Federal highway and transit programs and was once supported solely by user fees. Since 2008, the HTF has been sustained by supplementing user fees through a series of General Fund transfers now amounting to $140 billion. According to the Congressional Budget Office, annual HTF spending at current levels plus inflation is estimated to exceed receipts by $16 billion in FY 2020, growing to $23 billion by FY 2027.
  • Issue: HTF revenues, mainly derived from fuel taxes, will continue to decline due to increased vehicle fuel efficiency and growing use of alternative fuel vehicles. Absent legislation, in FY 2021, the HTF is expected to experience a significant cash shortfall leading to an estimated 40 percent drop in highway obligations from the year before, or from $46.2 billion to $27.7 billion, and a near zeroing out of the Mass Transit Account.
  • Recommendation: Congress must provide sustainable, certain, long-term funding to the HTF to support multi-year legislation. There is no shortage of technically feasible tax and user fee options that Congress and the Administration can consider. See the Matrix of Illustrative Surface Transportation Revenue Options appendix for a menu of options to fix the HTF and strengthen Federal surface transportation funding, including funding from sources currently dedicated to the General Fund. Congress should continue to fund the development and implementation of revenue alternatives to the motor fuel tax, such as the Surface Transportation System Funding Alternatives Program, which was established under the FAST Act and provides $95 million in federal share (for up to 50 percent of project cost) over five years to states to demonstrate alternative revenue methods that incorporate a user fee structure to maintain the long-term solvency of the HTF. If Congress does not provide money needed to increase federal surface transportation funding through options included in AASHTO’s Matrix of Illustrative Surface Transportation Revenue Options, Congress should provide the funds through other means.

Prioritize Formula-based Federal Funding

  • Current Federal Policy: The Federal-aid Highway Program is a Federally-assisted state program that is rooted in Article 1, Section 8 of the United States Constitution and confirmed by 23 U.S.C 145. Currently, approximately 90 percent of the Federal highway program funds are distributed to the states by formula. This approach of emphasizing formula funds has a decades long track record of success in supporting long-term capital improvements across the United States. This enables funds to be distributed to states in a stable and predictable manner and allows the Federal program to efficiently deliver projects that have been identified and prioritized through the statewide and metropolitan planning processes.
  • Issue: Recently proposals have been advanced that would greatly increase the discretionary funding programs, with projects chosen by the Federal Government. These proposals combine the discretionary programs with requirements that states and others greatly increase their contributions or greatly leverage Federal dollars. For a variety of reasons, many states cannot leverage funding beyond the current matching requirements. This makes it critical that Congress continue to recognize the importance of continuing the current prioritization of formula funding over discretionary funding. Using discretionary programs, the Federal government must solicit applications and review them before awarding funds which delays the deployment of funds. In addition, not only are grant applications costly both in time and dollars, such grant dollars are uncertain by nature preventing states from properly planning. This results in lost efficiency and added complexity to processes and project delivery. More funding for discretionary programs will likely result in an even lengthier processing timeframe making them an inefficient way to increase investments in transportation infrastructure.
  • Recommendation: Congress should continue to prioritize formula funding over discretionary funding. State and local governments have existing plans and processes in place and can put new Federal formula funds to work promptly.

Eliminate Rescissions of Contract Authority

  • Current Federal Policy: Congress has used rescissions of highway contract authority as budgetary offsets. An $856 million rescission in unobligated contract authority was enacted in June 2017 and a $7.6 billion rescission is scheduled for July 2020 under the FAST Act. The $7.6 billion rescission would be derived from Federal-aid Highway Program categories other than those that are exempt including: Highway Safety Improvement Program, Railway-Highway Crossing Program, and sub-allocated portions of the Surface Transportation Block Grant Program (STBGP). Non-exempt program dollars are required to be rescinded from unobligated balances remaining on that date on a proportional basis.
  • Issue: Rescinding previously-authorized highway contract authority greatly impedes the flexibility of state departments of transportation to program Federal dollars and could result in hard cuts to highway funding and seriously delay project construction.
  • Recommendation: Congress is urged to repeal the scheduled FY 2020 rescission and avoid using rescissions of highway contract authority. However, if a rescission is imposed, no funding categories should be exempt. States should have the flexibility to choose among all the funding categories to rescind so they can reduce the negative impact of the rescission on transportation service and performance. 

Preserve the Current Federal/State Matching Ratio Requirements

  • Current Federal Policy: While there are exceptions, 23 U.S.C. 120 generally requires most federal-aid transportation projects to have an 80 percent federal share and a 20 percent state matching share. This 80/20 Federal/Non-Federal funding share means Federal support is focused on larger capital projects and leverages state and local dollars to be used for a much broader array of projects.
  • Issue: This 80/20 Federal/Non-Federal funding match has a proven track record of success. Many states have recently raised highway revenues. However, some states remain challenged to meet the 20 percent non-Federal match requirements. States and local governments already provide approximately 75 percent of transportation funding for highways and transit. Achieving national goals require our federal partners to contribute an equitable share. There are significant needs for state and other non-federal transportation funding to operate and maintain the federal system as well as provide capital, operating, and maintenance funding for non-federal, state and local transportation systems. The current matching requirements allow state and local dollars to be used to match federal funds and also to be used for non-federal transportation.
  • Recommendation: Maintain the current federal/state matching ratio requirements for projects and explore innovative match strategies (e.g., the sale of toll credits). 

Increase Flexibility and Transferability of Funding

  • Current Federal Policy: The total amount of Federal highway funding apportioned to a state is divided among the individual apportioned programs. Each program has rules that are not always flexible regarding how the funds may be used. Each program is governed by transferability provisions that are established in statute.
  • Issue: AASHTO supports increased flexibility in programs and in transferring funding among the programs. Such reform would enable states to direct funding to better meet their needs, whether for preservation, capacity, safety or other needs. This flexibility in directing funds is especially important when overall funding is insufficient.
  • Recommendation: AASHTO recommends increased flexibility and transferability between highway program funds.

Maintain the Current Balance of Funding Among Highways, Transit, and Highway Safety

  • Current Federal Policy: The Highway Trust Fund supports highway, transit, and highway safety programs. The FAST Act also added a new National Highway Freight Program (NHFP) and a new discretionary program entitled the Nationally Significant Freight and Highway Programs (now known as Infrastructure for Rebuilding America or INFRA) within the highway program. Additionally, the general fund supports rail programs.
  • Issue: The current funding balance along with transferability and flexibility allows states to direct available funding to meet highway, safety, and transit needs. The most recent FHWA Conditions and Performance report estimated the highway backlog at $836 billion and a transit backlog of $90 billion. States need all the tools to address such a high level of need.
  • Recommendation: Maintain the current balance of funding among highways, transit and highway safety from the HTF and continue General Fund support for rail programs. Further increase flexibility within the STBG Program by expanding the state departments of transportations’ share of funding (which will be reduced to 45 percent by FY 2020 under the FAST Act) which can be used in any area within a state. This flexibility includes each state’s ability to direct more of its own STBG program funding to their local partners, over and above suballocated STBG Program funds, if they so wish. 

Provide Flexibility to Toll Federal-aid Highways

  • Current Federal Policy: In most cases, federal law (23 USC 301) restricts states from tolling Federal-aid Highways, which eliminates a potential source of revenue. The Interstate System Reconstruction and Rehabilitation Pilot Program (ISRRPP) was authorized under Section 1216(b) of TEA-21 to permit up to three existing Interstate facilities to be tolled to fund needed reconstruction on Interstate corridors that could not otherwise be adequately maintained or functionally improved without the collection of tolls.
  • Issue: In some states, a portion of the transportation facilities cannot be adequately maintained or functionally improved without toll collection; however, federal law imposes restrictions on states from tolling Interstate routes.
  • Recommendation: Provide increased tolling flexibility to states to maximize revenue-raising opportunities in light of federal funding challenges. 

Support for Financing Tools

  • Current Federal Policy: Title 23 authorizes a number of beneficial transportation financing tools, including the Transportation Infrastructure Finance and Innovation Act (TIFIA), Grant Anticipation Revenue Vehicles (GARVEEs), State Infrastructure Banks (SIBs), and Private Activity Bonds (PABs).
  • Issue: While not a substitute for adequate funding, states need access to financing tools to help maximize the value of existing resources, particularly when federal funding is insufficient.
  • Recommendation: While most projects require Federal support in the form of direct funding rather than financing incentives, Congress should continue to support the financing tools currently provided and support new innovative financing tools. 

Reduce and Simplify Regulations, Requirements, Data Collections, and Process to Expedite the Process

  • Current Federal Policy: Preserve useful program and policy reforms and support additional opportunities to streamline and simplify the federal surface transportation programs.
  • Issue: Notwithstanding efforts by AASHTO, current Federal surface transportation programs are subject to significant requirements and processes. Appropriate reduction of such requirements will save money, increase efficiency, and allow more funding to be used to improve transportation services. Some requirements are particularly tied to finance and funding. Under the current uncertain federal funding conditions, performance management, asset management, and financial planning requirements have far less value for decision making and risk is multiplied. If federal transportation appropriations are not known at the beginning of the federal fiscal year, financial planning, financial forecasting, programming, performance, and asset management are adversely affected. This is further accentuated if these decision systems use financial optimization methods over long-time frames. Many of the financial planning and forecasting requirements are associated with the statutory language “reasonably expected to be available.” For such purposes it is critical to know both ‘how much funding and when the funding will reasonably be available.’
  • Recommendation: There are financial process difficulties caused by federal funding uncertainty in the fiscal constraint and financial planning provisions related to the State Long Range Plan, the Statewide Transportation Improvement Program, the Asset Management Plan, and Performance Management. Defining “reasonably expected to be available” is important. Fiscal constraint and other financial requirements in planning and programming are excessive and should be reduced. At most, they should be imposed for no more than the STIP timeframe. States should have the option to do financial estimates for longer periods if desired.

Other AASHTO committees’ white papers will identify additional Title 23 statutory and regulatory recommendations to improve project delivery to supplement these financial and funding recommendations. Because any inefficient process requirements reduce funding available to improve transportation services, other inefficiencies need to be addressed. They directly affect the ultimate result we all seek—a better transportation system.