UPDATE, July 29: The House has passed its short-term measure, and the Senate is expected to pass the House’s version, which the President intends to sign. Congress will revisit the matter in October.
On Wednesday the Senate passed their long term version of a bill for highway and transportation funding; an alternative to the short term House transportation bill passed last week which would provide an $8.1 billion short-term patch until December 18.
The Developing a Reliable and Innovative Vision for the Economy Act (DRIVE Act) authorizes $317 billion over six years for highway and transit programs. However, revenue from the 18.4 cents a gallon gas tax and other transportation taxes and fees is forecasted to bring in only $240 billion in revenue, leaving a $77 billion gap between funding and spending. Over ten years, 47.5 billion is identified, which is still 29.5 billion short of full funding.
Supporters claim that the bipartisan bill sponsored by Sens. Mitch McConnell (R-KY) and Barbara Boxer (D-CA) does not increase the deficit or raise taxes. Instead, the bill relies on multiple offsets and tax compliance strategies. Representative Jim Jordan (R-OH), among others, have bashed the bill for relying on raising revenue instead of cutting spending.
A major portion of the funding offsets in the DRIVE Act, $9 billion, comes from the sale of Strategic Petroleum Reserves (SPR). Selling the crude oil in these reserves has been called a short sighted move by some, who argue that we will be vulnerable to future disruptions in the oil market. (this comes after Congress has already planned to finance part of the Cures Act by selling $5.4 billion worth of the SPR).
$1.9 billion of the offsets comes from extending G-fees increases, which are guaranteed fees used as a risk management tool by Fannie Mae and Freddie Mac to protect against credit losses from borrower defaults. Certain senators have argued against this funding tactic in the past, with Mark Warner (D-VA) criticizing the practice of raiding Fannie and Freddie G-fees to pay for unrelated federal spending. Warner also referred to the practice as a “backdoor tax” on homeowners.
The Senate has already struck one of the Social Security offsets from the original bill. That offset was to finance $2.3 billion by not allowing those with an outstanding felony warrant or those receiving unemployment payments to receive Social Security payments. This $2.3 billion offset had come under fire from Democratic Caucus chairman Xavier Becerra, who believes that using Social Security to pay for infrastructure projects is untenable for Democrats.
There are other offset provisions, including $1.8 billion identified by requiring lenders to report more information on holders of outstanding mortgages, and $2.4 billion by using private debt collectors to collect overdue tax payments. These plans have also been criticized.
Seeking long-term solutions for highway funding is a daunting task, both politically and practically. However, regardless of one’s stance on entitlement reform or the federal government’s role in various projects, funding Transportation with disputed offsets from unrelated departments (and no real spending cuts, to boot) is worth some serious skepticism.
This post originally appeared at the Institute to Reduce Spending