FY20 Transit Apportionments Face Automatic 12 Percent Cut

FY20 Transit Apportionments Face Automatic 12 Percent Cut

April 11, 2019  | Jeff Davis

April 11, 2019

Yesterday, the Treasury Department announced that the Mass Transit Account of the Highway Trust Fund has failed its forward-looking solvency test for fiscal year 2020. As a result, unless Congress passes new legislation fixing the problem, apportionments of FY 2020 mass transit formula funding to transit agencies will be reduced by around 12 percent below the levels provided by the FAST Act.

Background. The quarterly Treasury Bulletin was released yesterday afternoon. The first Bulletin of a calendar year (usually released in March, but pushed back to April this year because of the government shutdown) contains, in Table TF-6A, the official results of the self-sufficiency calculations required by section 9503 of the Internal Revenue Code. These provisions were originally written by Senate Finance Chairman Harry Byrd (D-VA) in the 1956 law creating the Trust Fund to ensure that Trust Fund contract authority did not get too far ahead of anticipated tax collections. (Byrd referred to it as putting the Trust Fund on a “pay-as-you-go” basis to differentiate it from the original Eisenhower Administration proposal to finance construction of the Interstate System via borrowing.)

The Byrd Test, now codified in subsection 9503(d), requires that new highway contract authority apportionments to states be reduced by the amount by which “unfunded highway authorizations at the close of the next fiscal year” exceed “the net highway [account] receipts for the 48-month period beginning at the close of such fiscal year.” Subsection 9503(e)(4) was added by the 1982 law creating the Mass Transit Account of the Highway Trust Fund by House Ways and Means chairman Dan Rostenkowski (D-IL) and simply says that “Rules similar to the rules of subsection (d) shall apply to the Mass Transit Account.”

The Treasury Bulletin estimates that the total amount of unfunded Mass Transit Account authorizations for fiscal year 2020 will be $27 billion ($31 billion in unobligated balances plus unpaid obligations, minus a $4 billion cash balance in the account) but that the total account tax revenues over the four-year 2021-2024 period will only be $26 billion, so the Transit Account fails the Rostenkowski Test.

The data from Table TF-6A is reproduced below.

The Byrd Test (Highway Account) and Rostenkowski Test (Mass Transit Account) for Fiscal Year 2020

Billions of dollars. Source: Treasury Bulletin for March 2019, Table TF-6A.
Highway Mass Transit
Account Account
Commitments (unobligated balances plus unpaid obligations, FY 2020) 87 31
Minus:
FY 2020 cash balance 12 4
Equals:
Unfunded authorizations (FY 2020) 74 27
Is this more or less than:
48-month revenue estimate (FY 2021-2024) 148 26
Less Than More than
PASS FAIL
Headroom (passes test by): 74 -1

Treasury (very unhelpfully) rounds the information in the Bulletin to the billion, so 27 minus 26 could be anywhere from a de minimis 26.500 billion minus 26.499 billion all the way to almost $2 billion ($27.499 billion minus $25.500 billion.) However, ETW is informed that the shortfall is around $1.2 billion.

FY 2020 contract authority provided by the FAST Act for the transit program totals $10.15 billion. A small amount of that is for allocated (non-apportioned) programs, but one can use a ballpark of $10.1 billion in formula apportionments, divide it by the ballpark of $1.2 billion in required cuts, and figure out that mass transit formula funding will be reduced by around 12 percent unless Congress acts this year to fix the problem.

How to fix the problem. There are two general ways that this problem can be fixed legislatively. The first would be a simple legislative waiver – a provision of law somewhere along the lines of “section 9403(e)(4) of title 26, United States Code shall not apply for fiscal year 2020.”

The other way to fix the problem would be to reallocate how the $70 billion in general fund bailout money deposited in the Trust Fund by the FAST Act was allocated between accounts. At the time the FAST Act was enacted, it was decided to split the $70 billion 74% to 26% – $51.9 billion deposited in the Highway Account and $18.1 billion in the Mass Transit Account – because at the time, the forecasts figured that would be the amount required to keep each account solvent through the end of the act in September 2020.

Yesterday’s forecast from Treasury has the Highway Account passing the Byrd Test by $74 billion but the Transit Account failing the Rostenkowski Test by $1.2 billion. Congress could simply pass a new law transferring $1.2 billion from the Highway Account to the Mass Transit Account before the start of the fiscal year. The new cash flow forecast from Treasury (shown on page 97 of the Bulletin) shows the Highway Account ending 2020 with a cash balance of $12 billion, so they could spare $1.2 billion to keep the other account solvent. (The transfer of $1.2 billion in balances would simply hasten the date of the Highway Account’s anticipated summer 2021 cash flow insolvency by a week or two and delay the Transit Account’s anticipated summer 2021 cash flow insolvency by a couple of months.)

The Highway Account last failed the Byrd Test in FY 2004, but that was a period where the multi-year TEA21 authorization law expired at the end of FY 2003, and the taxes were also going to expire, which caused a Byrd Test violation. Section 12(d) of that extension (Public Law 108-88), enacted September 30, 2003, fixed the problem by requiring Treasury to assume the taxes were extended.

(Ed. Note: Because the Highway Account failed the test, which at the time required unfunded backlog and one year’s new authorization to fit under two years of future tax collections, the SAFETEA-LU law of 2005 extended the tax side of the calculation from two years to four years. Congressional staff figured that it would be impossible for unfunded backlog and current spending to exceed four years of future revenues. Yet, for transit, it has.)

In either instance, legislation to fix the problem is within the jurisdiction of the tax committees (House Ways and Means and Senate Finance), not the transit policy committees (House Transportation and Infrastructure, Senate Banking, Housing and Urban Affairs). There is usually great sensitivity at Ways and Means in particular about letting other committees, particularly Appropriations, carry provisions within its jurisdiction, so the annual Transportation-HUD appropriations bill (which would normally be the logical place for a mid-course correction to a transportation bill) may not be the legislative vehicle.

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