As we discussed in one of our June blogs, the Highway Trust Fund was quickly being depleted, and by most accounts would be empty by this month if Congress did not act. As predicted, they did act, but not in a terribly responsible way. On July 31, the day before they were to leave for a five week recess, the House and Senate passed a bill that would fund the highway account in the amount of $11 billion, thus ensuring that the states would receive this year’s payouts for their highway projects. However, they seemed unable or unwilling to provide a long – term solution. The current funding legislation is expiring on September 30, but rather than deal with that, they simply extended it until May, 2015, pushing it down the road for the new Congress to handle.
An increase in the gasoline tax has been suggested, but with elections coming up in November, that is not going to happen. Since the tax has not been increased since 1993, this would seem to be a logical solution; but increased taxes seem to have a way of undermining re-election campaigns. The answer then, was to extend the current legislation into next year and let the new Congress take care of it. Members of the Senate had pushed for an extension until December, 2014, which would have forced this Congress to act, but the House was having none of that. As is often the case, the result was a last minute compromise that ensured that no one would miss their vacation.
So where is the money coming from? The bill would make a Monopoly player proud. It relies primarily on a pension smoothing accounting technique which will allow companies to reduce the required payments into their employee pension funds. This will reduce their expenses, increasing profits, and thereby increasing their tax liabilities. The excess taxes would be channeled into the Highway Trust Fund. Another $1 billion will be transferred from a fund that is used to clean up leaky underground fuel tanks. This will of course, make the state highway departments happy – at least into May; but it brings us no closer to a long – term highway funding solution. This will be the 6th time Congress has extended current laws without addressing the major issue – how to develop an ongoing blueprint for improving and maintaining the country’s transportation infrastructure.
Lacking a background in pension smoothing techniques, I have no idea as to whether this plan will work as expected; but to me it sounds a little shaky. Who knows what November will bring? But hopefully, the election will send to Congress representatives from both parties that will have the courage to face this problem and provide a rational solution.