On behalf of its member firms and the design/construction industry, CIRT has joined a cross-section of organizations and businesses on two U.S. Chamber-led letters:

(1) The first letter joins a COVID 19 working group urging Congress to enact temporary protections from the expected surge of coronavirus liability lawsuits against employers and others. The letter does not recommend any specific legislation but stresses the need for Congress to act. [See letter for details]. 

(2) The second short letter simply calls on Congress and the Administration to make key changes to the PPP rules to provide more flexibility and clarity for borrowers. Namely, to: (1) repeal the Paycheck Protection Program’s (PPP) 75%-25% rule; (2) extend the eight-week period for purposes of calculating loan forgiveness,; and (3) extending the June 30^th rehiring and restoration of pay safe harbor date.  These matters are of particular importance to smaller businesses and S-Corps that will likely be more impacted by the PPP program. 

CIRT has joined an AGC lead coalition of design and construction industry associations/groups to call attention to an IRS notice issued regarding taxable aspects of the Covid-19 (Wuhan virus) relief package.  The Internal Revenue Service (IRS) issued Notice 2020-32 is at odds with the legislative text of the CARES Act.  Section 1106(i) of the Act states with regard to the “taxability” of the loan forgiveness available to PPP recipients, any amounts forgiven by a PPP loan “shall be excluded from gross income” (emphasis added). The impact of the IRS’s interpretation is to undue not only the intent but the effect of the Congressionally passed provision, thus undermining the value of the loan program by increasing the taxes companies will owe in the future.  [Details see Letter to U.S. Congress re: IRS].

With the vast numbers of unemployed Americans mounting (over 30 million as of May 1^st), the Business Coalition for Fair Competition (BCFC), which CIRT is a founding member, has called upon Attorney General William P. Barr to curtail the federal government corporation operating under the trade name UNICOR. This program uses federal inmates to produce goods and services that generate annually more than $483 million.  But more important, it is a mandatory source of federal supply for these goods and services, meaning it is a sole source monopoly.  Under normal circumstances, private business could forego these opportunities and dollars, but the country is far from being in normal times.  Every dollar in the private sector is vital in saving a private sector job.  [Details see Letter to Attorney General Barr].

Allowing businesses to use losses to offset income earned in prior years (Net Operation Loss or NOL) is a longstanding anti-recession policy with solid bipartisan support. It was adopted after the 9/11 terrorist attacks, after Hurricane Katrina, and again following the financial crisis (Great Recession of 2009-10). It is simply a way to give businesses suffering losses the ability to recognize those losses more quickly. Thus, if companies are being forced to sell assets this year to raise capital to keep the businesses running, the CARES Act helps by allowing these businesses to offset any capital gains they realize against their active business losses, reducing the tax hit at the end of the year. Using active business losses taxed at high rates to offset capital gains taxed at low rates is extremely inefficient and not something that would happen in normal times. But, as the S-Corporation Association, points out these are not normal times and businesses need the liquidity.

This benefit is limited to "trade or business" losses that have already passed through the passive, at-risk and other tests. Losses from investments in passive assets, like those made by many hedge funds, do not benefit. Moreover, any losses claimed this year will not be available in the future. The NOL and loss limitation relief are primarily timing benefits. Lower taxes in 2020 will equal higher taxes in 2021 and beyond. Anybody claiming not to know the bipartisan NOL provision was part of the relief package simply wasn't paying attention, or is playing fast-and-loose with the truth for political reasons.

With the forced shut-down of U.S. business activities as part of the fight against the COVID-19 (Wuhan virus) pandemic, Administration and Congressional leaders are seeking ways to buoy the economy.  Infrastructure, one of the long-term mainstays or stimulating the economy, has come back to the fore after being dormant during the hyper-partisan political wrangling in D.C.  The President has indicated interest in a possible $2.0 trillion dollar package aimed at infrastructure initiatives, while House Speaker Pelosi has focused more on including elements of the “Green New Deal” and other Dem-leaning policies vs. a precise figure.  Notwithstanding, the “devil” will be in the details, if and when another pandemic related package is hammered out.

Over the years, CIRT has advocated for critical infrastructure spending levels (the driving element in any initiative), not just at the federal level and not just from public sector sources.  The CIRT Board adopted a “Strategic-Vision for Infrastructure in the United States” (hereinafter “Vision for Infrastructure”) in November 2017 that specifically called for, as one of five objectives:  

“FUNDING PRIORITY” Organize and expand capital funding and finance methods in a manner that matches the magnitude of the infrastructure investment gap.

Strategy 1a – Authorize expanded alternative financing models including user/mileage fees, infrastructure banks, and/or infrastructure bonds in conjunction with mechanisms to incentivize private equity investment;

Strategy 1b – Support capital budgeting and necessary funding levels (gas taxes, and other levies etc.) to enhance/expand current infrastructure funds, such as the Highway Trust Fund;

Strategy 1c – Undertake a one-time repatriation of U.S. company profits held overseas at a lower, competitive tax rate to seed an infrastructure investment fund;

Strategy 1d – Expand funding and eligibility for current federal government credit assistance programs by increasing the TIFIA authorization to $1B/year immediately, and $2B/year within 5 years. Raise the caps on Private Activity Bonds (PABs) and expand the range of project assets (government buildings, water systems) that are eligible for PABs. Raise the authorization of WIFIA to the full authorization amount of $50M/year and extend the program authorization timeline through 2030;

Strategy 1e – Combine current Congressional infrastructure legislative jurisdictions into a single committee responsible for prioritizing all infrastructure spending needs (across sectors) in line with clearly stated federal policy objectives;

Strategy 1f – Review and/or sunset funding mechanisms which are no longer working for modern infrastructure [such as: HUTF, SRF, annual budgeting, and OMB scoring for infrastructure].

For details on all the Objectives read CIRT's “Strategic-Vision for Infrastructure in the U.S.”

Congress approved the “Coronavirus Aid, Relief, and Economic Security Act” (CARES Act) to provide financial assistance to individuals and businesses on March 27, 2020.  At over $2 trillion, the Act is the largest package ever passed with a mirage of provisions and complex elements that will impact individual employees and firms, some within the design and construction community.  Eligibility requirements are key to many of the provisions and may take some time to be better understood, but as of now, here are some key features:

(1) Elements: CARES Act’s economic stimulus package includes more than $500 billion of federal funding across three basic categories: (i) grants and direct lending dedicated to specific nonfinancial industries, such as the airline and national security sectors; (ii) a significant expansion of eligibility and other aspects of lending programs administered by the Small Business Administration, and (iii) funding for several lending programs administered by the Federal Reserve. [NOTE: Financings under these programs place a number of requirements on the businesses that receive federal aid].

(2) Direct Lending & Grants: The Treasury Secretary has broad discretion to make loans and loan guarantees to air carriers and to businesses critical to maintaining national security. The loans are only available to eligible businesses that have incurred or expect to incur covered losses that jeopardize the business, and all recipients must be organized and conduct a majority of their operations in the U.S.  [Presumably virtually no A/E/C firms will likely fall within this category].

(3) Federal Reserve Lending Programs:  The Act provides additional support to the Fed’s lending programs if such programs: restrict stock buybacks, dividends and capital contributions, limit executive compensation, and prohibit loan forgiveness. (However, these requirements may be waived by the Treasury Secretary of the Treasury).  Moreover, the program targets U.S.-eligible businesses with between 500 and 10,000 employees, subject to: prohibitions on outsourcing and offshoring jobs for the term of the loan plus two years. The Federal Reserve may also establish a Main Street Business Lending Program or facility that supports lending to small and mid-sized businesses on such terms and conditions that are consistent with its authority under the Federal Reserve Act.  [Depending on circumstances, this program could include A/E/C firms if they meet the criteria and are willing to accept the prohibitions and other dictates mandated].

(4) Small Business Paycheck Protection Programs: CARES Act expands the ability to obtain loans under Section 7(a) of the Small Business Act through a new $349 billion Paycheck Protection Program. Under the program, small businesses, other business concerns, etc. that have fewer than 500 employees; self-employed; sole proprietors; independent contractors; and businesses in the accommodation and food services sector with fewer than 500 employees per location, are eligible for small business loans to cover payroll; health care costs; mortgage interest payments, rent and utility payments; and interest on pre-existing debt obligations.  [Many A/E/C firms can meet this size standard, albeit, not many of CIRT’s members would fit this requirement].

(5) Capital Markets:  Although the Act provides significant financial assistance through loans, ultimately many businesses are expected to require accesses to the capital markets. At least $450 billion is being made available by the Federal Reserve to provide liquidity to the financial system — including: facility to purchase certain new issuances by eligible issuers, potentially enabling these issuers to successfully market securities offerings that may otherwise be too costly or lack adequate investor interest in current market conditions. NOTE: the act does not limit purchases to debt obligations.  [Presumably, the A/E/C community may be able to access this liquidity for their or client needs].

(6) Real Estate Elements: The vast majority of the provisions are designed to economically support individuals, businesses and hard-hit industries in an effort to enhance their ability to remain solvent and cover operational expenses, including rent and debt service.  This is delivered through various means such as: in the form of emergency cash infusions, financing availability, loan forgiveness/forbearance, tax benefits, and supplemental awards designed to help owners, landlords, operators, borrowers and tenants survive. (See, the Act for a more detailed set of sub-provisions that relate to this element).  NOTE: Notwithstanding the Act’s assistance, contracts likely will need to be restructured and renegotiated; thus requiring property owners and lenders collaborate.  [Presumably the A/E/C community could be on either side of this equation].

(7) Tax Elements:  Certain deduction limitations imposed by the Tax Cuts and Jobs Act (TCJA); regarding: (i) Corporate taxpayers may carryback Net Operating Losses (NOLs) arising in 2018-2020 for up to five years (under the TCJA, no carrybacks were allowed); (ii) for 2020 and years prior, corporations and pass-throughs may fully offset their income using NOLs (the TCJA imposed an 80% cap); (iii) For 2019-2020, taxpayers may generally deduct interest up to the sum of 50% of adjusted taxable income plus business interest income (instead of the 30% limit under the TCJA); and (iv) Taxpayers may also elect to use their 2019 adjusted taxable income for determining their 2020 interest deduction.  [These tax changes will affect any eligible A/E/C firms].

(8) Payroll Tax Credit/Deferral of Payroll Taxes: The Act provides a refundable payroll tax credit to eligible employers for 50% of “qualified wages” paid to employees; and also permits all employers and self-employed individuals to defer payment of the employer portion of payroll taxes owed on wages paid. An employer is eligible for the payroll tax credit if, during any calendar quarter of 2020, it has operations fully or partially suspended due to a governmental order related to COVID-19, or it has a decline in gross receipts of more than 50% compared to the same quarter of the prior year.  For employers with more than 100 full-time employees, “qualified wages” only covers wages paid to those employees not providing services due to a COVID-19 impact as described above; and will be limited to the first $10,000 of compensation paid to an employee. This credit is not available to employers who receive a Paycheck Protection Program loan. [Appears applicable to any A/E/C firm meeting the eligibility requirements].

(9) Unemployment Insurance Benefits and Loans to Employers: The Act expands eligibility for unemployment insurance for workers who are displaced due to COVID-19 in a number of ways: (i) It creates the Pandemic Unemployment Assistance program, which provides up to 39 weeks of combined federal and state unemployment assistance between January 27, 2020, and December 31, 2020, to individuals, including independent contractors, who are otherwise not eligible for, or have exhausted, other state or federal benefits; (ii) One of the most controversial elements of the new Federal Pandemic Unemployment Compensation provides an additional weekly $600 federally funded payment for up to four months to individuals already collecting state unemployment insurance payments; (iii) Further it provides federal funding to states to cover the cost of the first week of unemployment benefits for states that choose to waive the typical one-week waiting period; and (iv) In addition, certain federal funds are made available to states to fully fund work share programs, under which employees receive partial unemployment benefits if work hours are reduced but not eliminated by their employer.  NOTE: See above for support to employers covering payroll.  [Unfortunately the disincentive of unemployment wages possibly higher than to work, will apply to the A/E/C firms and their employees].

The precise procedures for employees to seek unemployment insurance benefits will depend greatly on individual state processes and requirements.  Given the controversial $600 federal expansion SUPPLEMENTS or is added to the state unemployment insurance levels, it won’t necessarily exceed typical prevailing wages in all areas and in all instances.

Late Wednesday night (March 25^th) the U.S. Senate passed 96-0 an unprecedented relief/spending package of over $2 trillion in response to the COVID-19 pandemic and its collateral damage to the U.S. economy and employees/businesses.  [See, earlier CIRT story covering the major elements of the legislation].

Unfortunately included in the package, among other problematic elements, is one that may impact CIRT member firms with respect to potential affects on workforce and wage levels.  A provision in the bill provides that: unemployed remittances may actually come out higher on an hourly basis than the some employees’ standard hourly rates. The danger: it will create pressure or a dynamic whereby this higher rate should become the “permanent” pay level for all the individuals affected by the temporary unemployment rate.

A group of Senate Republicans tried late last Wednesday night to amend the provision so unemployment only matched or made whole employees, not have them make more unemployed than if working.  Their amendment was doomed to failure when it was required to muster a 60-vote cloture hurdle (meaning to move it to a final vote). This essentially ensured the minority in the Senate was in control of the amendment’s fate (which they promptly killed).

BACKGROUND

(1) The “wrinkle” related to the Unemployment Insurance came to light during a 92-minute phone call with the Senators describing the provisions in the bill on Wednesday morning (meaning it was slipped in during the final negotiations) and appears not have been in earlier versions.

(2) The White House/Treasury Secretary, Steve Mnuchin, were not in favor of the disincentive of the “one size fits all” approach, which means the same amount of dollars were to be applied across the country even if some areas/sectors standard pay rates are below the unemployment remittance. The Secretary didn’t have the time to put in place a more specific granular mechanism so his bargaining position was weak. [As an aide noted: "Each state has a different UI program, so the drafters opted for a temporary across-the-board UI boost of $600, which can deliver needed aid in a timely manner rather than burning time to create a different administrative regime for each state."]  Certain elements in the negotiation took full advantage of this, to ram through an ideological position that minimum wages should be much higher.  (In other word, they want the pressure to mount to create a potential outcome that forces permanent higher wages across the board – see, Senator Sanders’ comments opposing the amendment).

(3) As noted, a last minute effort was mounted by a half-dozen Republican Senators to amend the language – but, it failed on a 48-48 vote (it needed 60-votes for the amendment to be considered).  The amendment would have capped unemployment benefits at 100 percent of an individual's salary before they were laid off.

BOTTOM LINE:
This is what happens when the Congress goes into crisis emergency mode . . . certain elements will take advantage of the heated circumstances and get through things they wouldn’t have a chance in normal order or legislative business. In essence none of the normal safeguards of a deliberative legislative system were in play.  Unfortunately, with the bill now headed to the HOUSE, it could be a potential minefield for more unrelated spending, policy changes, etc. tucked into must pass legislation.  [Speaker Pelosi has NOT yet committed to a straight up or down vote on the Senate version – at the time of this Update].

The only silver lining: the provision is only in place for four months.  Hopefully, people won’t be able to exploit it into a claim their permanent wages should be at these elevated levels (calculated to be $23.15 per hour, based on a 40-hour work week).  It does beg the question, if a CIRT firm is back up and running and seeking to put people back on the job, and they refuse so as to take the Unemployment payments instead (for the four months), does the firm have any obligation or incentive to hire them back later? 

Early today, Wednesday , March 25^th , the White House came to an initial agreement with the U.S. Senate on a nearly $2 trillion emergency bill that aims to counter some of the economic toll of the coronavirus pandemic. [NOTE: Notwithstanding, the total stimulus/support package from the government will total some $6 trillion, composed of: $4 trillion in liquidity from the Federal Reserve and $2 trillion in new money from the legislative act].  The provisions that will likely be in the final package must pass both a Republican-controlled Senate and the Democratic-controlled House of Representatives before going to President Donald Trump for his signature (at best in a couple of days). 

SUMMARY of KEY ELEMENTS: (Final numbers may not be precise)

– About $500 billion in direct payments to people, in two waves of checks of up to $1,200 for an individual earning up to $75,000 a year. Additional payments for families with children could push the total to $3,000 for a family of four, according to Treasury Secretary Steven Mnuchin, who has played a key role in the negotiations.

– Up to $500 billion in “liquidity assistance” for distressed industries [How this applies, if at all, to the design/construction community is not entirely clear].  The amount allocates up to $61 billion for passenger and cargo airlines and contractors, including $32 billion in grants and $29 billion in loans. [REPORTED: Senior administration officials said there was agreement the $500 billion fund should have an inspector general as well as an oversight board.  Also, the Treasury secretary would have to provide testimony to the board on transactions, and there would be restrictions on things like stock buybacks and chief executive pay at companies that received help].

– Some $350-$365 billion in loans to small businesses, to keep meeting payrolls of their employees. [Presumably, this would apply to the design/construction community meeting the small business size standard].

– Up to $130 billion for hospitals. [The number has floated between $75 billion and $130 billion].

– Some $250 billion for expanding unemployment insurance. [Presumably, this would cover design/construction employees meeting the criteria].

– Over $10 billion for drug development, and $4 billion for masks, gloves, gowns and ventilators.

– Possibly up to $150 billion for state and local governments.

– As much as $45.8 billion for federal agencies.

However, the WH–Senate agreement on key provisions does not guarantee House approval or even interest in passing the package.  As has been widely reported, House Speaker Nancy Pelosi (D-CA) unveiled her own lengthy $2.5 trillion proposal on Monday (March 24), after she stalled an earlier attempt (on Sunday night) at getting bi-partisan agreement around the Senate version now coming into focus. The Pelosi package includes billions for what can be charitably described as not essential or fundamentally critical to address the potential / real impacts of the COVID-19 pandemic and the collateral damage being done to the U.S. economy.

During his State of the Union (SOTU) address, President Trump spoke of bipartisan support for infrastructure legislation in 2020.  He specifically highlighted Senator John Barrasso’s bill, “America’s Transportation Infrastructure Act“ (S.2302) currently awaiting Senate floor action.
BACKGROUND:

Highway programs would be authorized to receive $287 billion from fiscal 2021 through 2025 under S. 2302.  The measure includes provisions to address climate change and infrastructure resiliency to weather events and natural disasters. It would also modify regulatory oversight of projects. The legislation will form part of a larger measure to reauthorize surface transportation programs that expire after fiscal 2020. The Senate Environment and Public Works Committee approved it 21-0 on July 30.

The measure, called the “America’s Transportation Infrastructure Act,” doesn’t include policy changes to address the solvency of the Highway Trust Fund (HTF), which funds most major highway programs. [The Congressional Budget Office’s projects the fund will be insolvent after fiscal 2021]. However, the Senate Finance Committee would be responsible for proposing changes to the motor fuels tax, which is the fund’s main source of revenue and was last increased in 1993. The measure would express the sense of the Senate that the HTF’s solvency should be achieved through user fees.

Senate leaders haven’t announced “floor” plans to consider a surface transportation measure, which would also include transit provisions from the Banking, Housing, and Urban Affairs Committee, and safety and other provisions from the Commerce, Science, and Transportation Committee. None of the other committees with jurisdiction have acted on their provisions.

Funding

The bill’s federal-aid highway authorization would be $47.9 billion in fiscal 2021, increasing to $52 billion by fiscal 2025. That authorization funds state apportionments for federal highway construction and maintenance, as well as Surface Transportation Block Grants and other programs. The fiscal 2021 amount would be a 10% increase from the $43.4 billion authorized for fiscal 2020 under the last surface transportation authorization, known as the FAST Act (Public Law 114-94).  The funding would be provided as “contract authority” a unique budgeting method that allows the Federal Highway Administration to commit funds for a project before they have been appropriated. The measure also would set obligation ceilings on federal-aid highway programs, totaling $283.6 billion over the five-year period, limiting the amount of contract authority that can be obligated in a single fiscal year. The measure would repeal a $7.57 billion rescission in contract authority scheduled for July 1, 2020, under the FAST Act. The committee also approved a separate bill (S. 1992) to repeal the rescission.

Alternative Road User Fee: The bill would authorize $15 million annually from fiscal 2021 through 2025 for grants to states for pilot projects to test road usage fees and other alternative revenue mechanisms. Pilots could include a vehicle miles traveled tax, which would generate revenue from drivers of hybrid and electric vehicles, in addition to traditional vehicles. It would replace a similar program in the FAST Act that authorized as much as $20 million annually in grants for alternative funding demonstration projects. [The measure would also authorize $10 million annually for the Transportation Department to research a nationwide alternative roadway funding mechanism].

In addition, the measure would authorize other major highway programs and a number of new ones, including:
Bridge Investment: The measure would authorize $600 million from the general fund and $600 million from the HTF in fiscal 2021 for grants for bridge repair and replacement. The authorizations would increase to $700 million from both funds by fiscal 2025. Grants could be used for bridges in poor condition or that don’t meet current needs or standards.

Safety Programs: The measure would authorize $500 million from the HTF for each of fiscal 2021 through 2025 for formula safety incentive grants. The program would fund highway projects that would improve the safety of pedestrians and cyclists. It would also authorize $100 million annually from the HTF from fiscal 2021 through 2025 for a fatality reduction performance program. State and local governments would be eligible for grants if they’ve made significant progress in reducing serious injuries and fatalities, or have low rates of road fatalities and serious injuries. Grants would range from $5 million to $30 million and could be used for highway maintenance and improvements.

Pilot Programs: The measure would also authorize funding for several pilot programs, including for wildlife crossings, disaster relief mobilization, and community connectivity.

Climate Change and Alternative Vehicles: The bill includes a climate change subtitle for the first time in highway legislation; establishing several new climate-related grant programs, including:

Resiliency: The bill would authorize $786 million from the HTF for formula grants and $200 million for competitive grants in each of fiscal 2021 through 2025 as part of a Promoting Resilient Operations for Transformative, Efficient, and Cost-Saving Transportation (PROTECT) program. The program would fund improvements to make infrastructure more resilient to storms and natural disasters. [The measure would also allow the federal government to pay for 100% of general highway and bridge projects that add protective features to mitigate flooding and natural disasters].

Carbon Reduction: The measure would authorize $600 million annually from the HTF for each of fiscal 2021 through 2025 for a formula carbon reduction incentive program. Funds could be used for initiatives to reduce road-related carbon emissions, including pedestrian and bike infrastructure, energy-efficient street and traffic lights, and a carbon-reduction strategy. [It would also authorize $100 million annually from the HTF in fiscal 2021 through 2025 for a carbon reduction performance program. Grants would be available to state and local governments that have significantly reduced their transportation emissions, or that have lower emissions than most jurisdictions with similar characteristics. Grants would range from $5 million to $30 million and could be used for highway maintenance].

Charging and Refueling: The measure would authorize $100 million from the HTF in fiscal 2021 for charging and fueling grants. The authorization would increase to $300 million for fiscal 2024 and 2025. State, local, and tribal entities could use the grants to contract with companies to install alternative vehicle charging infrastructure.

Carbon Capture: The bill would establish competitive financial awards for work on direct air capture of carbon dioxide. It would authorize $35 million for the awards and related emissions work. The measure would also authorize $50 million for research projects on technologies that transform industrial carbon dioxide emissions into products of commercial value.

Diesel Emissions: The Diesel Emissions Reduction Program would be reauthorized through fiscal 2024. The program, which is administered by the Environmental Protection Agency, provides funding for grants and rebates to upgrade older diesel engines.

Regulatory Processes:

The bill would codify elements of the administration’s “one federal decision” policy that requires agencies to coordinate reviews and authorization decisions for major infrastructure projects. It also sets a goal for completing environmental reviews within two years. Under the bill, the lead agency would develop an environmental review schedule with the project sponsor that would be consistent with an agency average of not more than two years for major projects. It would specify conditions under which the schedule could be modified. All authorization decisions for construction of a major project would have to be completed within 90 days of the issuance of a record of decision for the project, although the lead agency could extend the deadline in some cases.

The Transportation Department would have to establish a performance accountability system to track each major project. The department would also have to provide other relevant agencies with a list of categorical exclusions under the National Environmental Policy Act that are applicable to highway projects and that would accelerate project delivery if available to those agencies. The agencies would initiate rulemakings to adopt them.

Other Provisions:

The bill would also

• Extend eligibility for Transportation Infrastructure Finance and Innovation Act (TIFIA) loans to airport projects and economic development projects related to rail stations, among other program changes. The measure would authorize $300 million annually for the program.
• Make several changes to the Infrastructure for Rebuilding America grant program, including directing at least 15% of funds, instead of 10%, toward smaller projects, and establishing set-asides for projects with a higher nonfederal match or that would address certain critical freight needs.
• Require the Transportation Department to provide notice and opportunity for comment before waiving Buy America requirements.
• Direct public entities in public-private partnerships that cost $100 million or more to review the private entity’s compliance with the terms of their agreement within three years of when the project opens to traffic.
• Authorize the Transportation Department to use alternative contracting methods — such as bundling or design-build contracting — on behalf of federal land management agencies and tribal governments.
• Authorize $180 million annually through fiscal 2025 for the Appalachian Regional Commission, which funds economic development projects.
• Establish a Balance Exchanges for Infrastructure Program, through which Appalachian states could return leftover funds intended for the Appalachian Development Highway System and receive an increase in contract authority in exchange.
• Reauthorize the State Infrastructure Bank Program through fiscal 2025.

Cost Estimate:

The projected shortfall in the Highway Trust Fund’s highway account would increase to a cumulative $80 billion at the end of fiscal 2025, according to a Nov. 12th CBO cost estimate. At currently authorized levels, the account will have a $53 billion shortfall by that date, the budget office estimated in May.

The measure would increase discretionary spending by $273.9 billion from fiscal 2020 through 2029, subject to appropriation. Of that amount, $266.9 billion would be for the federal-aid highway program obligation limit. Estimated discretionary outlays on other programs would increase by $7 billion over a decade, subject to appropriation, the budget office wrote. [Relative to its baseline projections, CBO said the bill would increase mandatory contract authority by $178.4 billion from fiscal 2020 through 2029. CBO’s baseline assumes contract authority would continue at the level authorized for fiscal 2020, taking into consideration the $7.57 billion rescission the bill would cancel]. Additionally, the balance exchange program would increase mandatory spending by $815 million, which would be spent from previously provided contract authority.

Only the provision reauthorizing the State Infrastructure Bank program would affect revenue. It would increase states’ use of tax-exempt bonds and therefore decrease federal revenue by $168 million through fiscal 2029,  according to CBO and the analysis from the Joint Committee on Taxation.

Reason Foundation’s Baruch Feigenbaum, who was a speaker at the CIRT’s spring conference last year, provided an detailed analysis of House Democrat and Republican proposals to replace the FAST Act law, which will expire on September 30^th.

[NOTE: The Senate Environment and Public Works (EPW) Committee agreed on the highway portion of a proposed bill (see, related CIRT story). But there has been limited work on the transit, freight and funding components by the relevant Senate committees. The House has taken a different tack. Instead of writing a bill, the Democratic majority recently released a set of principles and ideas titled the Moving Forward Framework.  Due, in part, to differences over environmental and funding policy, the Republican minority released a separate set of principles].

Feigenbaum points out, that the next surface transportation reauthorization bill needs to answer one major question. What is the role of the federal surface transportation program? The federal program and gas tax were created in 1956 to fund the Interstate highway system. The 1991 Intermodal Surface Transportation Equity Act (ISTEA) declared the era of Interstate construction over, but it never clarified a vision for ongoing surface transportation funding.  Most free-market experts agree that the federal role is to promote Interstate commerce, which is one of the few mentions of transportation in the Constitution. That could include a major highway network, aviation, freight rail and passenger rail where it makes sense. And funding should follow the users-pay/users-benefit approach.

ANALYSIS:
Under the “principles” framework, there are major problems with the Democratic approach and smaller problems with the Republican approach.

Funding: Both want sustainable sources. The Democratic proposal suggests increasing the gas tax while the Republican principles propose replacing the gas tax with a federal mileage-based user fee (MBUF). The Democratic proposal would spend $760 billion over five years (although it includes water, waste-site remediation, and telecommunications). The Republican principles are limited to surface transportation at $285 billion over five years. The Democratic proposal is not friendly to tolling, seeking to restrict where tolling and congestion pricing can be implemented. But it does increase the private activity bond (PAB) cap to $21 billion, a much-needed increase for public-private partnership (P3) projects. The Republican principles are silent on tolling and financing.

Policy Aspects: Parts of the Democratic proposal read like a wish-list for environmentalists and public employee unions. The environmental components include things like “set a path for zero-carbon pollution from the transportation sector, ensure a green transportation system, and help combat climate change by creating jobs in green energy.” The “strong-union” proposals strengthen Davis-Bacon protections and other “worker” protections and ensure that U.S. products are used in construction by increasing Buy-America protections. [Unfortunately, this would drive up construction costs, reducing the number of projects]. The Democratic proposal would also expand and empower local agencies. It allows local agencies that cannot currently receive federal funds to be direct beneficiaries.
The Republican principles allow some flexibility, but less direct funding for local governments. They also refocus attention on core national highway programs.

Non-Surface Transportation Programs: The Democratic proposal would expand the number of federal programs while the Republican proposal keeps programs the same or consolidates them. For example, the Democratic proposal expands non-roadway transportation funding and scope. It would spend $105 billion on transit, mostly on new rail transit capacity. It also reforms bus policy and funds mobility-on-demand projects. It would spend $10 billion on safety, particularly enforcement. And it calls for $55 billion for railroad improvements, particularly Amtrak in the Northeast Corridor. The Republican proposal focuses on streamlining project delivery, something that has been a priority of both the Obama and Trump administrations, along with addressing rural community needs.

Impacts: The Democratic approach would likely increase the cost of infrastructure significantly. The more projects cost, the less infrastructure we can build and maintain. Some of the end-goals should be viewed differently. For example, enacting mileage-based user fees and congestion pricing would ultimately reduce greenhouse gas emissions more effectively than subsidizing jobs in green energy. Likewise, reducing project costs would do more to increase employment than mandating Buy America provisions. The Democratic approach expands federal funding to more local projects and allows small cities to become direct funding recipients. But most smaller cities don’t need direct federal funding. In rural areas, the state DOT typically administers funding and in metro regions the MPO administers funding. If that approach is not working well, we need to reform it. Creating a whole new level of bureaucracy is not necessary. The Democratic approach also increases funding for heavy and light-rail projects. Local rail projects are by definition “local” and should not receive federal funding. Passenger rail operated by an entity with a sound business plan could be interstate in mission. But Amtrak is not that entity.

The Republican approach focuses on investment in rural parts of the country, ignoring suburban and urban needs. Both a rural Interstate in Forsyth, GA, and a suburban Interstate in Sandy Springs, GA, have major needs, for example. Congress should not be the entity to prioritize one geographic region over another. But, the Republican proposals are short on some needed details.

These Congressional proposals are a long way from becoming law. [For a more detailed analysis and discussion; see, Reason Foundation: Surface Transportation Newsletter #196].