Another Highway Bailout and How Not to Finance It

Blog Articles · Jun 1, 2014 · Budget and Spending

On May 30, 2014, House Republican Leaders announced a plan to bail out the federal Highway Trust Fund (HTF) to the tune of $15 billion, paying for it with savings generated by reforms to the U.S. Postal Service (USPS). This proposal is flawed on a number of levels and should be rejected by Congress.

Highway Bailout:

Under current law, drivers pay a tax of 18.4 cents per gallon on gasoline and 24.4 cents on diesel fuel, which gets deposited into the HTF. Excessive spending levels set by highway bills enacted in recent years, and many spending diversions to non-road, non-bridge activities, have left the HTF with too many bills to pay but not enough money on hand. An additional $5 billion is needed to keep spending on pace through the end of the fiscal year, and that figure jumps to $15 billion for a one-year extension at current spending levels. If Congress does not bail out the HTF by the end of July, the federal government will continue to collect federal gas tax revenues, but it would have to begin slowing down its reimbursements to state Departments of Transportation.

This would not just be an isolated instance of bad policy in the face of predictable overspending. Since 2008, more than $55 billion has been funneled from taxpayers into the Highway Trust Fund in the form of HTF bailouts-violating the user pays, user benefits principle. With each bailout, the link between highway spending and gas taxes is degraded, making it increasingly difficult to enact structural reforms that turn over the federal highway and transit programs to the states, so they can manage their transportation needs without Washington bureaucrats. Such reforms are found in Sen. Mike Lee (R-UT)'s and Rep. Tom Graves (R-GA)'s Transportation Empowerment Act (S. 1702/H.R. 3486). Yet too many in Washington are content with the status quo: continuing to spend gas tax dollars on projects such as streetcars, bicycle facilities, scenic overlook construction, community preservation, and environmental mitigation (local activities well beyond the scope of federal highway authority). Instead of maintaining its current spending pace, Congress should be using this opportunity to force the program to live within its means, setting spending levels in line with available revenue, while it works to return this responsibility to the states. The states know their transportation priorities better than Washington does.

Fake Postal Offset:

The HTF bailout is to be paid for using savings generated by allowing USPS to cut back on Saturday deliveries. This not a real offset for the following reasons:

1) Ratepayers Realize the Savings, Not Taxpayers: To be sure, modified 6-day delivery and other reforms will generate crucial savings for USPS and its customers, but as an "off budget" quasi-private, self-financed entity, those savings will not be realized by taxpayers, nor should they be. The reforms do provide additional funds for USPS to meet their payments to taxpayers, but do not require them to be used for this purpose. They could be used to defer rate increases or dampen cost-cutting efforts. The reforms are important to help USPS control its costs, but any savings should not go to offset other federal spending, such as bailing out federal surface transportation programs.

2) Either Creating Money Out of Thin Air or Double Counting: According to the Leadership's memo, the plan seems to count as "savings" the difference between a future hypothetical federal bailout to the USPS under its current policies versus one that assumes modified 6-day delivery. In other words, the GOP plan assumes a large taxpayer bailout of the USPS in the future, then claims credit for promising a smaller bailout. This cash cow simply does not exist. The only other explanation of Leadership's plan is that its reforms would both free up cash for USPS to help make their current payments for its large unfunded liability with taxpayers (for their retirees' health care) and to pay for the highway bailout. This would be a case of double counting, similar to Rep. Paul Ryan (R-WI)'s accurate 2011 analysis that Democrats could not claim that $400 billion in Medicare savings could both be used to shore up the Medicare Trust Fund and to offset the cost of Obamacare.

3) Potential Postal Service Bailout Itself: Depending on the version being considered, the proposal could itself amount to a bailout of the USPS. While legislative text or a Congressional Budget Office estimate have not yet been released, the House Leadership memo mentions the President's proposal to allow 5-day delivery. But the President's proposal also infuses USPS "with over $20 billion in cash relief, operational savings, and revenue through 2016" by restructuring payments under current law to taxpayers for their unfunded liabilities (payments USPS is already in default on). In this sense, although the bill would not provide cash directly to USPS, by restructuring existing debt, the plan would be a bailout as it relieves USPS of its current debt obligations. While his proposal intends to amortize this money over 40 years, the recent history of "postal reform" legislation shows that these payments will be strenuously opposed by various stakeholders and never materialize. In other words, Congress would be using a postal bailout to pay for a highway bailout and hoping taxpayers won't notice.

Congress should reform USPS to allow it to cut costs and maintain its payments to taxpayers, but these reforms should not be used as an offset to pay for another bailout of the HTF.