Predicted Highway Trust Fund deficit underscores need to strengthen revenue sources

Jim Fahey
Director of Government Affairs
APWA Washington Office

Perhaps not since before the establishment of the Federal Highway Trust Fund more than 50 years ago has future funding of the U.S. transportation system seemed so uncertain. The Trust Fund—which utilizes primarily revenues generated from motor fuel taxes to pay for highway and public transportation projectsd—is about two years away from facing a deficit. Without at least short-term action by the U.S. Congress before then, the federal program is likely to see funding cutbacks at a time when state and local governments can least afford them.

The Highway Trust Fund is the source of funding for everything from the National Highway System, Bridge and Enhancements programs to transit New and Small Starts. It consists of two accounts, a highway and a mass transit account. The highway account receives 15.44 cents of the 18.4 cents-per-gallon federal tax collected on the sale of gasoline, the transit account 2.86 cents. The remaining 0.1 cent is dedicated to the Leaking Underground Storage Tank Trust Fund administered by the U.S. Environmental Protection Agency. Tax rates on diesel fuel are higher.

The Bush Administration and the Congressional Budget Office (CBO) predict that the highway account balance will become exhausted in 2009, the year SAFETEA-LU, the current surface transportation act, expires. CBO expects that the mass transit account will have sufficient revenues to cover its expenditures until 2012, but the Administration estimates that the mass transit account will become exhausted in 2011.

Several factors are responsible for these predictions. Increasing fuel efficiency is one. So is wider use of alternative fuels and non-fuel based technologies to power vehicles. Another is inflation. Past resistance by Congress and the Administration to raise or index motor fuel taxes has led to an erosion of the purchasing power of this source which provides about 84 percent of revenues to the Highway Trust Fund.

When it passed SAFETEA-LU in 2005, Congress authorized two commissions to study the way highway and transit programs are funded and to devise ways to address future needs. Both have overlapping missions. The first commission, the Transportation Infrastructure Financing Commission, was recently appointed and held its first meeting at the end of April this year. Its 15 members represent public and private sector interests, including a number of finance experts. It has two years to prepare its report.

The second commission, the National Surface Transportation Policy and Revenue Study Commission, known also as the Revenue Commission, was appointed in 2006 and comprises 12 members representing federal, state and local governments, metropolitan planning organizations, transportation-related industries and public interest organizations.

Chaired by U.S. Transportation Secretary Mary Peters, the Revenue Commission is working to examine the condition and future needs of the nation's surface transportation system and the short- and long-term alternatives to replace or supplement the fuel tax as the principal revenue source to support the Trust Fund over the next 30 years. The Commission has met regularly since May 2006 and has heard testimony from national transportation advocates, policymakers, industry, labor and from the public in a series of field hearings.

In March, President Bill Verkest testified on behalf of APWA at a hearing in Washington, D.C. In his testimony, President Verkest stressed the need for a balanced set of approaches to ensure the future sustainability of transportation funding for state and local programs. His first recommendation called for raising the current federal motor fuel tax rate to restore its lost purchasing power, and index it to adjust automatically on a timely interval using an appropriate scale, such as the Consumer Price Index. He also urged the Commission to expand the use of such financing mechanisms as public-private partnerships, tolling, congestion-pricing and pass-through financing.

Additionally, President Verkest recommended that transportation funding solutions include utility system and enterprise fund models; that incentives be developed for technology-based approaches such as vehicle-mileage fee systems; and that local governments be given the right incentives to begin or continue generating funds in their communities (through voter-approved sales tax and bond programs, transportation fees, increased maintenance programs and dedicated taxes).

The Commission will issue its report by December 31, 2007. The report will provide information that Congress will consider when it begins debating the reauthorization of SAFETEA-LU in 2009. The Commission's recommendations and Congress's decisions could set a course for shaping national policy on financing transportation needs for the next half century or more.

Jim Fahey directs APWA's government affairs and advocacy programs and is the primary staff liaison to the Government Affairs Committee. He can be reached at (202) 218-6730 or jfahey@apwa.net.

Findings and recommendations for a Water Utility Sector Management Strategy Report released

Julia Anastasio, Esq.
Senior Manager of Government Affairs
APWA Washington Office

APWA, Environmental Protection Agency (EPA) and five other leading associations that collectively represent the U.S. water and wastewater sector released its final report at the Clean Water Policy Forum in early May. The report culminates a year-long effort designed to advance effective utility management practices. The release of the report is accompanied by a statement of support and an action list from the collaborating organizations as well as a fact sheet for utility managers. According to Assistant Administrator for EPA's Office of Water, Ben Grumbles, "This initiative is a historic step forward in strengthening our partnership with the associations and the utilities they represent. This continuing partnership will allow us to take a major step forward to recognize, reward and measure excellence in utility management to ensure that utility operations and infrastructure are sustainable."

From left to right: Peter Cook, Executive Director, National Association of Water Companies; Diane VanDe Hei, Executive Director, Association of Metropolitan Water Agencies; Ken Kirk, Executive Director, National Association of Clean Water Agencies; Jack Hoffbuhr, Executive Director, American Water Works Association; Benjamin Grumbles, Assistant Administrator, Office of Water, U.S. Environmental Protection Agency; Peter B. King, Executive Director, American Public Works Association; and William Bertera, Executive Director, Water Environment Federation

Formalized in a joint Statement of Intent last May, the Effective Utility Management Collaborating Organizations—the American Public Works Association (APWA), American Water Works Association (AWWA), Association of Metropolitan Water Agencies (AMWA), National Association of Clean Water Agencies (NACWA), National Association of Water Companies (NAWC), the Water Environment Federation (WEF) and EPA—appointed a steering committee of sixteen water utility leaders from across the country to develop recommendations for a joint water utility sector management strategy applicable to water, wastewater and combined water/wastewater utilities.

"Our utilities have a history of innovation and initiative," noted WEF Executive Director Bill Bertera. "Sharing insights gained is especially important now when we need policymakers and ratepayers to make water infrastructure a higher priority."

With input from two focus groups, the steering committee identified common challenges facing the water sector and explored barriers that can limit utilities from making management improvements. According to APWA Executive Director Peter B. King, the "single biggest challenge for public works professionals is sustaining infrastructure performance" adding that learning more about the challenges and barriers facing utilities "will help us more effectively promote innovative approaches to reduce costs and improve performance across utility operations."

The report's findings and recommendations "provide excellent guidance for optimizing water system management," said AMWA Executive Director Diane VanDe Hei. They include the definition of ten attributes of effectively managed utilities and keys to management success; developing a management "tool box" of training and other resources for interested utilities; and suggested sample performance measures to improve utility management across the sector.

"The overall effort has been productive and underscores our industry's commitment to continuously improve the way we manage our nation's water and wastewater resources," said NACWA Executive Director Ken Kirk. AWWA Executive Director Jack Hoffbuhr concurred and stressed that his organization would continue "its longstanding commitment to water providers by working with EPA and the other associations to extend this important work."

Recommended next steps for the group include rolling out the strategy to the water industry; preparing a brief, stand-alone primer for water sector utility managers; continuing the collaboration among the seven organizations; and employing a continual improvement approach to the strategy's implementation over time.

The announcement of the report's release was made by EPA Administrator Stephen L. Johnson during the 2007 National Clean Water Policy Forum in Washington, D.C. A joint effort between WEF and NACWA, the three-day event brings together elected and appointed U.S. officials, government employees and water quality experts to discuss recent trends in U.S. environmental policy, legislation and regulation.

A link to the report is available at www.apwa.net/advocacy. Contact Julia Anastasio for additional information at janastasio@apwa.net or at (202) 218-6750.