May 26, 2016

The dysfunction in the federal budget process, currently on vivid display in both chambers of Congress, is causing the chairmen of the House and Senate Budget Committees to pursue ways to reform the budget process in what could be the first comprehensive re-examination of the process since 1990. The chairman and the acting ranking member of the Senate Budget Committee have gone so far as to circulate a discussion draft of a list of process reform ideas suggested by committee members, while the House Budget Committee held a hearing this week to discuss reform options.

If budget leaders are looking to rationalize the budget process and make it more efficient, there are some odd specifics relating to transportation trust fund programs that might be addressed.

The split-funding problem. Programs funded from the Highway Trust Fund*, as well as the Airport Improvement Program, are the only programs in the federal government that are classified as both discretionary spending and mandatory spending. This is the accidental by-product of some budget control decisions made in the mid-1970s and some scorekeeping decisions in the 1980s. The budget authority (contract authority) for these programs is classified as mandatory, but the outlays are classified as discretionary because they are (at least in theory) controlled by annual obligation limitations in appropriations bills.

This has the effect of exempting these programs from most kinds of budget discipline. The statutory budget regime has two types of budget control – one for mandatory programs (PAYGO) and one for discretionary programs (the spending caps in the Budget Control Act). PAYGO only measures mandatory outlays and federal revenues. The BCA caps only measure discretionary budget authority. Because these transportation trust fund programs have mandatory budget authority but discretionary outlays, they are exempt from both the PAYGO rules and the annual spending caps. This also means that these programs are exempt from budget sequestration, because sequestration is a tool used to enforce PAYGO and the budget caps.

It also means that the annual Congressional budget process doesn’t really control these programs either. The annual budget resolution gives an allocation of discretionary outlays to the Appropriations Committees for these programs, but allocates their budget authority to the transportation committees. This means that the budget resolution has no say in the “real” spending levels for these programs (the annual obligation limitations), which are not mentioned in the budget resolution. This also has the effect of exempting these programs from having to be re-examined every few years when Congress passes a budget reconciliation bill to reduce the deficit. The transportation committees cannot be assigned reconciliation directives to reduce trust fund contract authority spending under their jurisdiction – since the outlays from those programs are not under their jurisdiction, the authorizing committees won’t get any deficit reduction credit from the scorekeeping entities for cutting contract authority.

Back in the days when the Highway Trust Fund was self-supporting, its Congressional backers could point to that self-sufficiency as reason why their exemptions from sequestration, reconciliation, spending caps, and PAYGO were not a big deal. But Congress has had to bail out the Highway Trust Fund to the tune of $144 billion from general revenues over the last eight years. If certain spending programs are given statutory exemptions from all budget restraints, it should not be surprising when those programs start exceeding their bounds.

In the past, efforts to fix the split-funding problem have gone nowhere, because if you make the programs all one thing or all the other, you create winners and losers. If you make the programs completely mandatory, the Appropriations Committees lose most of their authority over these programs and would therefore try to prevent such reforms from taking place. If you make the programs completely discretionary, the transportation authorizing committees lose most of their power and they of course would try to kill budget process reform.

There is a middle ground that could fix some of these problems. Section 302 of the 1974 Budget Act could be amended to require that the annual Congressional budget resolution give the Appropriations Committees a separate allocation of transportation obligation limitations and associated outlays. This would at least allow the “real” spending levels for these programs, in the aggregate, to be explicit in the budget resolution for the first time, and it would segregate their outlays in a sensible manner (outlays controlled by discretionary budget authority in one allocation, outlays controlled by obligation limitations in another allocation).

If the Budget Committees so desired, the Budget Control Act could be amended to establish a separate cap for transportation obligation limitations (backed by sequestration in the event of an overage), which might or might not be adjusted by Congress during the periodic re-negotiations of the spending caps.

The “90 percent rule.” For decades, supporters of higher Highway Trust Fund spending levels pointed to section 401 of the Budget Act of 1974 as a reason why HTF spending did not increase the federal deficit. That section is supposed to prevent bills creating new contract authority from coming to the floor in the House or Senate unless that contract authority is supported by a “trust fund, 90 percent or more of the receipts of which consist or will consist of amounts (transferred from the general fund of the Treasury) equivalent to amounts of taxes (related to the purposes for which such outlays are or will be made)…”

The 90 percent self-sufficiency rule was added via an amendment on the Senate floor by Sen. Sam Nunn (D-GA) when the Budget Act was under consideration in 1974 and was adopted by a vote of 80 to 0. But the point of order has proven difficult to use. The Gramm-Rudman-Hollings legislation of 1985 elevated certain points of order to supermajority status in the Senate (requiring 60 votes to waive), but section 401 was not among them. And section 401 only prevents a bill from coming to the floor, killing the entire thing – it is not a “surgical” point of order like some others that can strike out an offending provision within a larger bill, so legislators are hesitant to raise it. Finally, most budget-busting legislation doesn’t come to the Senate floor unless bill sponsors have already built a supermajority of 60 votes for one big vote on waiving all of the budget rules.

As things stand, the FAST Act provided a $70 billion general fund bailout of the HTF to keep it solvent over the five-year FY 2016-2020 period, during which $208 billion in real user tax receipts are anticipated to be deposited in the Trust Fund. 208 divided by 278 means that only 75 percent of HTF deposits over this time come from taxes “related to the purposes for which outlays are or will be made,” well below the 90 percent threshold. But no one bothered to raise a point of order in the Senate because the fix was in.

The Senate Budget Committee leaders are considering increasing the number of votes needed to waive budget discipline above 60. If they take a comprehensive look at points of order, they might consider either fixing the 90 percent rule in section 401 (by making the point of order surgical, so it can fix bills rather than kill them, and by increasing the number of votes it takes to waive the point of order) or else just acknowledge that its time has past and repeal the point of order.

Whither the Byrd Test? From the inception of the Highway Trust Fund in 1956, a spending restraint mechanism was built into the law governing the Trust Fund. Senate Finance Committee chairman Harry Byrd’s (I-VA) amendment added section 209(g) of the Highway Revenue Act (now 26 U.S.C. §9503(d), as amended), which provided for automatic cuts in highway contract authority apportionments to keep Trust Fund spending in line with projected future tax revenues. The “Byrd test” was successful in forcing Congress to increase gas taxes in 1959 to prevent the automatic cuts from taking place, and it acted as a restraint on spending during various authorization debates in the 1960s through the 1980s. But the 2005 SAFETEA-LU law changed the calculation method to make it possible for the Trust Fund to run out of money before triggering the Byrd test’s automatic cuts – and, surprise surprise, the Trust Fund did indeed go broke three years later.

However, fixing the Byrd test (and the ill-defined “Rostenkowski test” set up in 1982 for HTF Mass Transit Account spending) is up to the House Ways and Means Committee and the Senate Finance Committee – it is outside the Budget purview. But it might be possible for Budget to set up some kind of parallel process outside the Internal Revenue Code for automatic adjustments to such spending programs to prevent trust funds from running out of money.

Conclusion. Established transportation interests might oppose budget process reform that could restrain spending, and other interests might oppose reforms that could encourage tax increases. But opponents of reform should be required to answer this question: What is it about the performance of Highway Trust Fund programs in the last decade that justifies their continued exemption from budget sequestration, discretionary spending caps, statutory PAYGO rules, and periodic re-examination through the budget reconciliation process?

For more information, see the issue brief from May 12, 2014 from ETW’s predecessor publication, Transportation Weekly, entitled “Do We Still Need the Highway Trust Fund?”

*$739 million per year of HTF contract authority is classified as completely mandatory, but this is less than 2 percent of total HTF spending.