Capitol Comments

‘Great Recession’ Still Wrecking State Budgets

2009-11-04T16:00:00-05:00

By Sujit CanagaRetna, CSG Fiscal Analyst

While states have weathered recessions before, the Great Recession, which began in December 2007, will likely wreck state budgets through the rest of the 2010 fiscal year and into the 2011 fiscal year. That likely will lead to permanent changes in state government finances and services.

The intensity of the fallout continues to deplete state coffers as revenue intakes sputter and expenses escalate. Tax collections for the second quarter of 2009 were down 16.6 percent from the same period in 2008; for the 2009 fiscal year, state tax collections plummeted by an average 9.2 percent, adjusted for inflation.

More alarming is that just three months into the current fiscal year, new budget gaps opened in 18 states, with more states expected to join the list. Cumulative budget shortfalls for the 2010 and 2011 fiscal years are forecast at a staggering $350 billion. Even though there are green shoots of growth emerging on the national economic horizon, state revenues notoriously lag the national recovery, so states are looking at a grim immediate future.

Given that this recession is the worst financial crisis to afflict the nation since the Great Depression, states have not faced revenue shortfalls of this magnitude. So not only has this Great Recession affected states more deeply, it will continue to do so for a longer period of time.

That will likely result in some fundamental changes in state government. The scope and scale of services state and local governments previously provided to citizens will be vastly reduced. States will just not have the revenues to sustain programs.

In preparing their budgets for the 2010 fiscal year, the gaping budget holes resulted in 41 states reducing services, including restrictions on eligibility of low-income children and families for health insurance or reduction in access to health care services in 27 states. In addition, at least 24 states slashed medical, rehabilitative, home care or other services needed by low-income elderly or people with disabilities, or raised the cost of these services. Twenty-five states either cut or proposed cuts in K-12 and early education; 34 states cut funding to public colleges and universities; and 42 states shrank the size or work time of state government employees.

In Arizona, for instance, the Department of Public Safety warned the agency could be reduced to 1997 staffing levels, officers could be forced into dangerous situations without backup and Arizonans could be forced to wait more than an hour for officers to respond to some emergency calls because of budget cuts.

In Kentucky, House Speaker Greg Stumbo said lawmakers may consider dipping into local school districts’ contingency funds to help balance the 2010-12 state budget. In Oklahoma, cuts to the state’s Office of Child Abuse Prevention are expected to eliminate services for about 180 families, while cuts by the Commission for Human Services will mean fewer funds will flow down to the Tulsa Area Agency on Aging, which will reduce its home-delivered meals by 50 percent. In Delaware, budget shortfalls are expected to severely constrain the ability of the state to provide employment assistance to those graduating from the Autism Delaware program.

Overall, the Great Recession and steep drop-off in state revenues will force state policymakers to try to shift voters’ expectations about what services and programs government can provide.

Despite the dour fiscal outlook, several states are pursuing aggressive strategies to rejuvenate their economies. One approach gathering momentum is a serious review of how states expect to finance the plethora of state government services and programs during and after the Great Recession.

California, Colorado, Kentucky, Nevada and West Virginia formed commissions or blue-ribbon panels to address such topics as the expansion of the state sales tax to cover services. A majority of states apply their sales tax to less than one-third of 168 potentially taxable services, even though the U.S. economy has moved away from the manufacturing sector to one dominated by the service sector. States are also looking at applying sales taxes more universally on Internet purchases, a category that has grown exponentially in recent years. Some states are relying more heavily on gaming revenue.

States have also resorted to borrowing extensively in recent years, taking full advantage of cheap and plentiful credit. For instance, a July 2009 Moody’s report documents that state net tax-supported debt in 2008 vaulted to nearly $417 billion, an increase of 4.8 percent from the prior year and a substantial increase from the approximately $75 billion recorded in 1988 and approximately $180 billion recorded in 1998. Of course, during the final quarter of 2008 and first quarter of 2009, state governments—like practically every other public and private entity—had trouble borrowing, but the severe credit freeze has thawed recently.

Unfortunately, there are no easy, permanent fixes in the short-term. States must develop a systematic and long-term investment strategy in education, pre-K through university and post-graduate research, to be truly successful in this brutally competitive, globalized, 21st century economy. This requires the vision and long-term commitment of policymakers at every level—the same thing that made the Research Triangle Park in North Carolina and the Silicon Valley in California successful.

GOP Picks up Two Governor’s Seats

2009-11-04T10:05:11-05:00

By Heather Perkins, CSG Membership Data Manager

Republicans won the two governor’s races on Tuesday’s ballot, both in states won by Democrat Barack Obama in last year’s presidential race.

Former Virginia Attorney General Bob McDonnell defeated Democratic state Sen. Creigh Deeds by double digits—59 percent to 41 percent—to reclaim the Virginia governor’s office for Republicans.

In New Jersey, incumbent Democrat Jon Corzine lost the governor’s office to Republican Chris Christie 49 percent to 45 percent. Christie is a former U.S. attorney for the District of New Jersey. Christie’s running mate, Monmouth County Sheriff Kim Guadagno, will now become New Jersey’s first lieutenant governor.

The losses shrink the Democrats’ advantage in governor’s offices to 26 to 24.

It was a clean sweep for Republicans in Virginia, where the GOP won all three executive races on the ballot.

In addition to McDonnell’s gubernatorial victory, GOP Lt. Gov. Bill Bolling easily won re-election over former Secretary of Finance Jody Wagner, 56 percent to 44 percent; and Republican state Sen. Ken Cuccinelli defeated Delegate Steve Shannon for attorney general 58 percent to 42 percent.

Republicans strengthened their hold on the House of Delegates by picking up a number of seats. In at least six races, Democratic incumbents lost to Republican challengers. That number could increase to seven depending on the outcome of the 21st district race, which is too close to call. The Virginia State Board of Elections currently has Republican challenger Ron Villanueva ahead of the Democratic incumbent Bobby Mathieson by 16 votes—a close vote that will likely result in a recount.

Democrats in Virginia’s legislature picked up only two seats previously held by Republicans. One incumbent, Delegate Phil Hamilton was defeated by Democratic challenger Robin Abbott. The other GOP seat was a district in which the incumbent was not running for re-election.

Before the election, the Virginia House party breakdown was 53 Republican, 43 Democrats, two incumbents and two vacancies. Election results have shifted the numbers to 58 Republican, 39 Democrats, two incumbents and one undecided race.

In the New Jersey General Assembly, Democrats maintained their control with no real surprises. No incumbents were defeated in this year’s races. The Republicans picked up one previously held Democratic seat—the 4th Assembly district with no incumbent on the ballot. Democrats held a 48 to 32 advantage over Republicans before the election. That shifted to a 47 to 33 advantage after the vote.
Voters in several other states cast ballots on initiatives Tuesday.

In Maine, voters by a 57 percent to 47 percent margin threw out a same-sex marriage law passed by the legislature in May. Votes were still being counted in Washington, but supporters of gay rights were optimistic that a measure to expand the state’s domestic-partnership law would pass, according to The Seattle Times.

Maine voters also soundly rejected a proposal to limit the growth of taxes and government spending by state and local governments. The proposal, which lost by a 60 percent to 40 percent margin, was modeled after Colorado’s controversial Taxpayer Bill of Rights and would have limited the growth of government spending to the rate of inflation plus the growth rate of population, according to the Initiative and Referendum Institute.

A similar proposal was also rejected by Washington voters. The proposal, which lost by a 55 percent to 45 percent tally, would have limited the growth of state and local government spending to the rate of inflation plus population growth and required voter approval for tax increases, according to the Initiative and Referendum Institute.

Voters in Ohio handily approved a constitutional amendment to allow casinos in the state’s four largest cities—Cincinnati, Cleveland, Columbus and Toledo. Supporters had promoted the casino approval to job growth. It was the fifth try for the gambling initiative in the last two decades, according to Cincinnati.com.

Southern Office Makes Friends in China

2009-10-15T09:41:07-04:00

By Sujit CanagaRetna

From the Great Wall of China to meeting with Chinese officials to riding the world’s first commercially operating magnetic levitation train, a delegation of presiding officers from The Council of State Governments Southern Legislative Conference traveled to China at the invitation of the Chinese government.

Members of the delegation were Tennessee Senate Majority Leader Mark S. Norris, the SLC chair-elect, Alabama Speaker Seth Hammett, Arkansas Speaker Robbie Wills, Missouri Speaker Ron Richard, Louisiana Speaker Jim Tucker, Virginia Senate Pro Tempore Charles J. Colgan and Arkansas House Majority Leader Steve Harrelson. Colleen Cousineau, SLC executive director, and Sujit CanagaRetna, SLC senior fiscal analyst, staffed the delegation.

Here’s a travel log of the group’s trip:

Day 1:

The SLC delegation attended a breakfast briefing hosted by Mr. Tung Chee Hwa, the founding chairman of the China-United States Exchange Foundation. Tung served as the first chief executive of Hong Kong (1997 to 2005) in the aftermath of the transfer of the island from Britain to China in 1997. Tung is a senior statesman in the Chinese political establishment with extensive experience interacting with political figures at the highest level in both China and the U.S. over four decades. According to Tung, “the China-United States relationship is the single most important bilateral relationship in the 21st century.” The discussion covered a wide array of topics from international trade to intellectual property and from political reforms to investment.
The SLC delegation then met with Mr. He Yafei, China’s Vice Minister at the Ministry of Foreign Affairs. “China supports a more balanced trade relationship with the United States; China seeks more high-tech exports (for civilian purposes) from the United States; and SLC economic development officials need to focus more on educating Chinese investors on specific rules and regulations in the states,” Yafei said.
Madame Li Xiaolin, vice president of the Chinese People’s Association for Friendship with Foreign Countries, hosted the SLC delegation to a luncheon banquet. During remarks made at this event, Li reiterated the importance of the China-U.S. relationship and acknowledged how honored she was to host the premier delegation of SLC presiding officers in China.
The SLC delegation visited the Great Wall of China, one of the ancient wonders of the world.

Day 2:

The SLC delegation was among the invited guests to the celebration of the 60th anniversary of the founding of the People’s Republic of China, an impressive spectacle that was not open to the general public. The delegation gathered several hours before the parade began at Tiananmen Square to witness the vast display of Chinese military power, including 52 weapons systems, 151 warplane flyovers, 12 intercontinental-range missiles, and a new missile, the Dongfeng 21-C, along with thousands of marching troops. The military display was followed by a long procession of floats, each highlighting a Chinese province’s characteristics or one of China’s accomplishments (space program, high-speed rail, etc.).
In the evening, the SLC delegation returned to Tiananmen Square to witness a carefully calibrated and very colorful cultural celebration followed by a stunning fireworks display, all centered on celebrating China’s progress in the past 60 years.

Day 3:

The delegation flew to Shanghai and was taken on a guided tour highlighting the city’s extraordinary progress in terms of infrastructure. The tour also included a riverboat cruise focusing on efforts by the city to expand its waterfront capacity both in terms of its commercial and tourist potential.

Day 4:

The SLC delegation met with Dr. Yang Jiemian, president of the Shanghai Institute for International Studies, and senior officials at the Institute. The Institute, founded in 1960, has a national and international reputation as a think tank and the discussions between the SLC delegation and Institute officials covered a broad range of topics of bilateral interest.
The SLC delegation then toured the Expo 2010 headquarters and received a briefing on the preparations for this historic event next year. While the Expo 2010 will be held in Shanghai, China, in the grand tradition of international fairs and expositions, the theme of the exposition will be Better City-Better Life. Officials informed us that the event will reinforce Shanghai’s new status as a major economic and cultural center and generate the largest number of visitors in the history of world’s fairs in terms of gross numbers.
Individual SLC presiding officers held meetings with officials from their economic development agencies and American companies from their home states operating in China.

Day 5:

The SLC delegation rode the Maglev train from the Longyang Road station in Pudong to Pudong/Shanghai International Airport, a distance of 30 kilometers, or 18.6 miles. Several presiding officers on the SLC delegation commented that the ride on the Shanghai Maglev Train ranked very high among the highlights of the trip. The world’s first commercial high-speed maglev line opened to the public on Jan. 1, 2004. While the train can reach a maximum normal operation speed of 431 kilometers per hour (268 miles per hour), during the SLC delegation’s ride, the train reached a speed of 301 kilometers per hour, or 187 miles per hour.

States Borrowing to Avoid Spending Cuts

2009-10-05T07:55:20-04:00

State governments have avoided some painful spending cuts by borrowing at some of the lowest interest rates in years, according to USA Today.

The newspaper reported last week that even some of the most cash-strapped states are taking advantage of the increased flow of credit at low interest rates. USA Today reports California borrowed $8.8 billion last week at interest rates of 1.25 percent to 1.5 percent for debt due by June 30. That's about one-third the interest rate it paid a year ago.

Short-term interest rates for governments hit a record low of 0.56 percent recentlyfor debt due in 13 months or less, according toThe Bond Buyer, a newspaper that tracks public finance. Rates on 20-year bonds fell to 3.79 percent, the lowest level since 1967, according to USA Today.

Michigan Prison Closing, Fate for Detainees Uncertain

2009-09-30T15:30:00-04:00

By Mikel Chavers

For Standish, a small town in northern Michigan that’s home to a maximum security prison the state is preparing to close Oct. 31, the economic effect of the closure will be felt pretty hard—unless the facility is picked by the federal government to house Guantanamo Bay detainees.

But the small town’s fate hangs in the balance and just one month away from closure and job loss, the town still waits on word from the federal government.

The prison is the small town’s largest employer.

Michigan’s unemployment rate is already at 15 percent and closing prisons is a hard pill to swallow. “That creates even greater pressures for us,” said John Cordell, spokesman for the Michigan Department of Corrections.

Cordell predicts the small town of Standish could lose 300 or more good-paying jobs when the state closes the prison at the end of this month.

“It is a significant economic hardship,” he said.

Standish may get some relief—if the federal government decides to transfer Guantanamo Bay detainees to the maximum security facility. The Obama administration is considering the Michigan facility or a facility in Kansas for the detainees, according to the Associated Press.

But Michigan Gov. Jennifer Granholm’s office said there’s still no word on the move and it’s unclear whether the Standish facility will be picked to house terrorism suspects from Guantanamo Bay in Cuba, the AP reports.

Megan Brown, a spokeswoman for Granholm, told The Bay City Times the Standish prison is still under consideration to hold the detainees amidst rumors that the feds were no longer considering the Standish facility. “We have been talking continuously with the White House and they have let us know that no decisions have been made,” Brown told the newspaper.

“There is nothing at this point that we’ve been notified of,” Cordell said about the possibility of the Standish facility housing the detainees.

Michigan, a state that’s been shrinking its prison population for years, has closed 15 state prison facilities throughout the decade—probably the most of any state, according to Cordell.

“We were able to absorb most of the staff that would have been put out on the street” as a result of the prison closures, Cordell said, simply by shuffling staff. But this year the state will close eight prisons and, with looming budget cuts, the department of corrections could see up to 1,000 layoffs, Cordell said. Officials hope layoffs will be closer to half that amount, he said.

Including the Standish Maximum Correctional Facility, Michigan will close eight prison facilities this year; five of them are prison camps. The cuts will help the department of corrections meet a $120 million savings goal for the 2009-2010 fiscal year corrections budget and comes during tough budget times—the state is facing a $1.4 billion deficit next fiscal year, according to a Michigan Department of Corrections press release.

Read more about states closing prisons in the October State News.

New Jersey Takes Detention Alternatives Statewide

2009-09-30T12:10:16-04:00

By Mary Branham

Something was going on in New Jersey; that much was clear.

“We had seen a decade of increasing detention populations during a time period when juvenile arrests were declining and that didn’t make sense to us,” said Jennifer LeBaron, manager of research and evaluation for New Jersey’s Juvenile Justice Commission.

And there were problems with the state of detention. In Camden County, for instance, a detention facility built for 37 juveniles hit a high population mark of 131, averaging a daily population of 95. So Camden County, along with four other counties, became part of New Jersey’s initial participation with the Juvenile Detention Alternatives Initiative, or JDAI, a program through the Annie E. Casey Foundation.

LeBaron, who serves as New Jersey’s JDAI coordinator, said the use of detention should correspond with the level of juvenile delinquency in a jurisdiction. That wasn’t happening in her state.

“We did have some clear indicators that it was a good time for detention reform,” she said.

New Jersey previously had been awarded grant funding to implement the detention reform project. A task force studied the use of detention in the state and developed recommendations.

“The sticking point was turning those recommendations into action,” LeBaron said.

At about the same time, the Annie E. Casey Foundation announced it was looking for state-level interest in JDAI. Until that time, JDAI had been a locally operated initiative—counties joined the initiative. New Jersey answered that call and is the only state replication site.

The program has changed the state of juvenile detention in New Jersey. Detention in those first five participating counties has dropped by more than 40 percent, according to LeBaron, and Camden County in particular has lowered its average daily juvenile detention population to 50 kids.

“On any given day, in those first five sites, there are 278 fewer kids in detention,” LeBaron said. “We’ve had a major impact on the number of kids held in secure lockup on any given data. The additional benefits are because it’s a data driven effort, we’re confident that the kids who are in detention are in fact the kids who need to be there.”

Like many jurisdictions around the country, LeBaron said New Jersey relied on detention for things like rule violations. Detention alternatives provide other tools to address noncompliance, she said.

Because of the program’s success in those initial counties, New Jersey sought to go statewide. The five counties that joined the initiative in 2006 have seen similar results, LeBaron said. Now, 12 of the 21 counties in the state participate in JDAI.

Even with the success, LeBaron said the state decided to take it slowly to ensure that each locality wants to participate and is successful.

“It’s really important in a locality that the key actors there come to the conclusion that they want to do this in order to make it successful,” she said. “There has to be strong leaders at the local level.”

That’s been one of the things that has helped the program succeed. The state also built an administrative infrastructure in LeBaron’s department and hired additional staff—called detention specialists—to work with local jurisdictions.

Legislators and executive branch staff saw the success and worked to get $4 million in the state budget to fund those positions and roll the program out to more counties.

Local jurisdictions are saving money because it’s cheaper to run the alternative programs than to run detention centers. But LeBaron said it’s important for the local jurisdictions to reinvest that money into the alternative programs.

“The goal is to ensure that the dollars follow at least some portion of saved dollars follow the kids into the community,” she said.

Read more about JDAI programs in different states at State News.

Leaders from Southern States Travel to China

2009-09-30T08:29:29-04:00

By Sujit CanagaRetna

A delegation of presiding officers from The Council of State Governments Southern Legislative Conference is on its way to China at the invitation of the Chinese government.

Members of the delegation are Tennessee Senate Majority Leader Mark S. Norris, the SLC chair-elect, Alabama Speaker Seth Hammett, Arkansas Speaker Robbie Wills, Missouri Speaker Ron Richard, Louisiana Speaker Jim Tucker, Virginia Senate Pro Tempore Charles J. Colgan and Arkansas House Majority Leader Steve Harrelson. Colleen Cousineau, the SLC executive director, and Sujit CanagaRetna, SLC senior fiscal analyst, are staffing the delegation.

While in China, the delegation will visit Beijing and Shaghai.

The delegation will also attend the 60th anniversary celebrations of the Chinese revolution in Beijing; discussions with a number of high-level Chinese government officials on trade and related issues; a briefing at the U.S. Embassy in Beijing; and touring the Maglev train system in Shanghai, an important element in the high-speed rail discussions surfacing in the U.S.

Stay tuned to Capitol Comments, the CSG blog, for more on the group’s travels.

Toll Fellows Alumni Eye Higher Office

2009-07-31T09:49:43-04:00

Two alumni of the Henry Toll Fellowship program have their eye on higher office.

The Toll Fellows program, a program of The Council of State Governments, is the premier leadership development program for state government officials.

Sean Parnell, a 1998 Toll Fellow, recently took over as governor of Alaska. Parnell, formerly lieutenant governor, ascended to the office with the resignation of Gov. Sarah Palin, which took effect on Sunday. Read more about Parnell at Time.com.

Minnesota state Sen. Tarryl Clark, a 2007 Toll Fellow, has entered the primary for her state’s Sixth Congressional District, according to MinnPost.com. Clark is a lawyer from St. Cloud and assistant minority leader in the state Senate.

One-Quarter of Decade’s Gubernatorial Successions to Happen in 2009

2009-07-09T12:36:45-04:00

Twenty-five percent of the decade’s gubernatorial successions are to happen this year alone, according to the National Lieutenant Governors Association, an affiliate of The Council of State Governments.

“Of the gubernatorial successions to occur this decade, one-quarter are slated to happen in the first seven months of this year alone,” said Julia Hurst, NLGA executive director.

The pending gubernatorial successions of the lieutenant governors of Alaska and Utah—once they become official—means there will be five NLGA members who succeed to governor so far this year, Hurst said.

“The ever increasing impact of the office of lieutenant governor on the leadership of the nation in the states is renewing interest in the office of lieutenant governor,” said Hurst.

Here are some more facts about the office of lieutenant governor, according to NLGA:

As of early July, 18 gubernatorial successions have occurred since 2000, and three have occurred this year. If the lieutenant governors of Alaska and Utah do succeed as expected, those successions will bring the totals to 20 gubernatorial successions since 2000, and five this year.
Ten current governors first served as lieutenant governor or first in line of succession. These include the governors of Nebraska, Arizona, New York, North Carolina, Connecticut, Illinois, Kentucky, Texas, Virginia and Kansas. If the two pending successions occur, that number will increase to 12 sitting governors who were former lieutenant governors.
As of this November when New Jersey elects its first lieutenant governor, 45 states will have a lieutenant governor. Forty-three of those are elected statewide (Tennessee and West Virginia are not). In Arizona, Oregon and Wyoming, the secretary of state is first in succession, and in Maine and New Hampshire, the senate president is first in succession.
Including New Jersey in 2009, 25 states elect the governor and lieutenant governor as a team on the general election ticket, while 18 are elected separately. That team election, however, does not necessarily mirror the president/vice president team ticket process. A governor and lieutenant governor candidate may come through the primary elections or be nominated separately, paired at the general election. Full details on method of election are posted at www.nlga.us, click “site map,” click “team election data.”
Ten current governors are of the opposite party of the official first in line of succession: in Alabama, California, Louisiana, Missouri, Montana (governor selected an opposite party running mate), Pennsylvania (see next fact), Rhode Island, Tennessee (a senate president with the title lieutenant governor), Virginia and Wyoming (a secretary of state).
Given the large number of successions, other anomalies exist in the office of lieutenant governor. In Illinois, the office of lieutenant governor is vacant and will remain so until the end of the vacated term, though the legislature re-assigned the staff and duties of the lieutenant governor via legislation this term. Until July 8, in New York and Pennsylvania, the senate president was simultaneously holding the titles or duties of senator, senate sresident and lieutenant governor. In Pennsylvania, the lieutenant governor died, and in New York, the situation occurred as a result of succession. For the past several weeks, a New York Senate leadership disagreement left the question of who holds the lieutenant governor and succession role in question. The governor on July 8 appointed a lieutenant governor, a move which may be challenged in court.
Officials are also currently seated in the traditional role of first in line of succession but may not be able to succeed to office as of this date. Examples include the Arizona secretary of state. Since he was appointed, not elected, the constitutional requirement that a successor be elected would actually pass the role of succession to another official during this window. Likewise, Alaska gubernatorial succession is specific but appears unique. Should succession take place as expected, the new lieutenant governor—should he also subsequently succeed—would only hold office until a special election to fill both spots was held. In other words, after the pending succession were to occur, should an additional gubernatorial vacancy occur, the appointed lieutenant governor would serve as governor only until an election were hold to fill both positions.

For more information, contact: NLGA Director Julia Hurst at (859) 283-1400.

Focus is on Highway Trust Fund

2009-07-01T13:59:16-04:00

By Sean Slone, CSG Transportation Policy Analyst

Several state leaders learned last week reauthorization of the federal highway program may be delayed, and some Senate and administration officials are focused instead on shoring up the federal Highway Trust Fund.

The Council of State Governments hosted a legislative “fly-in” June 23-24 that gave participants an opportunity to meet with staff from the key committees that will debate the next federal authorization for transportation programs.

The next reauthorization for transportation programs

While the House may pass the bill, the Senate is unlikely to do so. Senate Leaders support Transportation Secretary Ray LaHood’s call for a temporary extension that would keep transportation funding at current levels for 18 months to allow time to debate how to pay for new transportation spending and how to substantially restructure federal transportation programs.

But last week, 43 House Democrats sent a letter to President Barack Obama saying they are “profoundly disappointed” with LaHood’s 18-month plan.

Leaders of the Senate Environment and Public Works Committee, one of four key Senate committees with jurisdiction over the authorization in that body, said they will support the administration’s 18-month plan—and that move would mean the current transportation authorization, known by the acronym SAFETEA-LU, would not be reauthorized by its Sept. 30 expiration.

So even if the Oberstar bill makes it all the way through the House, its chances of passage in the Senate are slim, based on the interest from Senate leaders in the 18-month extension and other legislative priorities such as health care reform.

Revenues from the federal gas tax, which has been the traditional source of highway funding for many years, have been declining due to increased fuel efficiency, people cutting back on driving, increased use of public transportation, inflation and other factors. Two federal commissions concluded that only the gas tax can provide needed revenue to fund infrastructure improvements in the short term. Yet the administration said it will not support an increase in the gas tax as long as the recession continues.

Administration officials believe an 18-month delay would buy them time in hopes that the recession will be over by the end of 2010.

David Matsuda, deputy assistant secretary for policy at the U.S. Department of Transportation, told CSG’s fly-in participants the administration would like to view the 18-month plan as not just an extension of the existing program but as the first stage of a new authorization bill.

Matsuda told participants that although program consolidations will likely have to wait for the full-fledged authorization bill, the administration would like to see some reforms as part of the extension. Administration priorities, he said, are:
• A focus on livability and giving people more transportation choices.
• More authority for Metropolitan Planning Organizations to oversee transportation spending on a regional basis.
• Reform of how transportation projects are evaluated and selected including cost/benefit analyses and asset management.

Shoring up the Highway Trust Fund

Matsuda said the administration is very much on the same page as Oberstar in terms of the level of changes it would like to see to federal transportation programs in the next authorization. But he indicated the focus must be on shoring up the Highway Trust Fund and waiting out the recession.

“Once we can get past the crisis, we can have a better dialogue,” Matsuda said. “We don’t want to be proposing any new taxes now in the midst of an economic recovery.”

The Highway Trust Fund faces a $7 billion shortfall in this fiscal year because of declining gas tax revenues. Senate leaders, like administration officials, think the focus should be on shoring up that fund.

An 18-month extension in the current transportation plan could mean an additional $10 billion or more would be needed next year to make up the shortfall in gas tax revenues and to meet commitments to ongoing transportation projects around the country. Congress last year had to use $8 billion in General Fund dollars to bail out the trust fund.

Senate Environment and Public Works Committee staff told CSG’s fly-in participants that their top priority is making sure the Highway Trust Fund remains solvent as Congressional leaders try to nail down financial certainty for the future. They said they have a better shot at getting real reform in 18 months if they have the money behind it and warned that a half measure is worse than no measure at all.

But Rep. Peter DeFazio, the chairman of the House Highways and Transit Subcommittee, was quoted in The Washington Post as saying the 18-month plan would still cost tens of thousands of jobs because contractors need dollar commitments beyond 18 months to proceed with multi-year road projects. Such job losses could wipe out any gains made by the American Recovery and Reinvestment Act’s “shovel-ready” projects, some believe.

Participants in the fly-in were CSG Vice Chairman and Connecticut Deputy House Speaker Bob Godfrey, CSG Transportation Policy Task Force Chairman and Tennessee Senate Majority Leader Mark Norris, CSG-WEST Trade and Transportation Committee Chair and Montana Sen. Jim Keane, CSG Transportation Policy Task Force member and Minnesota Rep. Alice Hausman and Georgia Rep. Vance Smith, who was preparing to take office as that state’s Transportation Commissioner.

Staff of the House Transportation and Infrastructure, Senate Environment and Public Works, and Senate Finance committees briefed the state officials during the two-day session.