LEXIS-NEXIS® Congressional Universe-Document

LEXIS-NEXIS® Congressional

February 11, 1999, Thursday

SECTION: CAPITOL HILL HEARING TESTIMONY

LENGTH: 3482 words

HEADLINE: TESTIMONY February 11, 1999 T. PETER RUANE CHAIRMAN ALLIANCE FOR TRUTH IN TRANSPORTATION BUDGETING HOUSE TRANSPORTATION AND INFRASTRUCTURE AVIATION FINANCIAL NEEDS OF AIR TRANSPORT SYSTEM

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Alliance for Truth In Transportation Budgeting Working Together for Airports, Bridges, Highways, Transit and Waterways Alliance for Truth In Transportation Budgeting Chairman T. Peter Ruane Written Testimony To Subcommittee on Aviation House Transportation & Infrastructure Committee February 11, 1999 2167 Rayburn House Office Building Dr. T. Peter Ruane President and CEO American Road & Transportation Builders Association Washington, D.C. Dr. T. Peter Ruane is the president and chief executive officer of the American Road and Transportation Builders Association (ARTBA), a ninety-six year old national federation of public and private transportation construction interest with over 4,000 members based in Washington,D.C. He has over 30 years of diversified experience in the economic development, transportation and construction fields. Prior to joining ARTBA in October 1988, he served for nine years as President/CEO of the National Moving and Storage Association (NMSA) and its affiliate organizations. Dr. Ruane has also served as the deputy director of the Office of Economic Adjustment (OEA), Office of the Secretary of Defense and the President's Economic Adjustment Committee. He has worked on complex economic development projects stemming from base closures or growth impacts in more than 30 states over the period 1970 to 1980. While in federal service, Dr, Ruane was a recipient of the top two management awards available to a young federal executive. Dr. Ruane is a graduate of Loyola College of Baltimore, Maryland, and holds a master's degree from the Pennsylvania State University and a doctorate from the George Washington University in Washington, D.C. He is a decorated Vietnam veteran, having served within distinction as an officer with the U.S. Marine Corps. Dr. Ruane has also served as chairman of the Small Business Legislative Council (SBLC), a permanent coalition of over 100 trade organizations representing the entire spectrum of U.S. business. He has held numerous volunteer and elective positions including president of his parish school board (St. Mary's of Annapolis). He currently serves as a director of SBLC and the International Road Federation and serves on several key U.S. Chamber of Commerce policy committees. He also chairs the 100-members Truth in Transportation Budgeting Alliance that is advocating to have the four Federal Transportation Trust funds taken off budget and co-chairs the ARTBA initiated transportation Construction Coalition, a two-dozen market oriented construction trade association group working on industry surface transportation reauthorization issues. He and his wife Pat reside in Davidsonville, Maryland and are the parents of four children. Alliance for Truth in Transportation Budgeting Testimony in Support of H.R. 111 Before the Subcommittee on Aviation of the Committee on Transportation and Infrastructure February 11, 1999 Chairman Duncan, Mr. Lipinski and other members of the subcommittee, I am Peter Ruane, President and CEO of the American Road and transportation Builders Association (ARTBA). I am very pleased to be here on behalf of the Alliance for Truth in Transportation Budgeting to testify in support of H.R. 111, the Truth in Budgeting Act. The Alliance for Truth in Transportation Budgeting consists of over 100 organizations representing transportation, travel and tourism, agriculture, labor unions and general business interests. A list of Alliance members is attached to this statement and I ask that it be included in the official hearing record. The sole mission of the alliance is to remove the transportation trust funds from the unified federal budget. Last year, in the Transportation Equity Act for the 21st Century (TEA-21), Congress ended the practice of dipping into the Highway Trust Fund for revenues to cover other parts of the budget or to mask the size the federal deficit. Before TEA-21, the budget process made no recognition of the fact that the federal transportation investment programs are user financed through dedicated trust funds-the Highway Trust Fund for highway and mass transit programs, the Airport and Airways Trust Fund for aviation programs, the Inland Waterways Trust Fund for river transportation, and the Harbor Maintenance Trust Fund for harbors and ports. Revenues into the trust funds consist exclusively of excise taxes paid by users and the trust funds are supposed to be dedicated specifically for transportation investment. But the rules of the budget process had forced these programs to compete with all other domestic priorities, such as education and health care, for the limited amount of spending authority under the domestic discretionary budget cap, thus giving Congress an incentive to hold down transportation investment in order lo divert trust fund user fee revenues to other programs. During the 104th and 105th Congresses, the Alliance for Truth in Transportation Budgeting Act, which Chairman Shuster and the other members of this Committee initiated to take the transportation trust funds completely out of the federal budget and free up the funds for transportation investment. This legislation was passed by an overwhelming 284-143 bipartisan margin during the 104th Congress by the House of Representatives and was reintroduced with over 240 House members as cosponsors in the 105th Congress. Our efforts in support of truth in transportation budgeting bore fruit in TEA-21. While TEA-21 does not technically take the Highway Trust Fund off budget, this landmark legislation includes a number of unique provisions that effectively remove funding for the federal highway and mass transit programs from the maelstrom of the annual budget battle and virtually guarantee that all of the user fee revenues into the Highway Trust Fund will be spent for their intended purpose. These innovative provisions include (1) separate budget categories for "highways" and "mass transit" that prevent these funds being transferred to other programs; (2) obligation limitations for highways and mass transit that can't be reduced without triggering a point of order on the House floor; (3) a direct link between Highway Account revenues and the annual obligation limitation for highways; and (4) a formula that automatically increases the obligation limitation for highways whenever revenues into the Highway Account come in higher than expected. Mass transit spending does not have the same automatic link to Transit Account revenues, but the ob limit for mass transit uses almost all of the anticipated revenues into the Mass Transit Account plus some general revenues. The best news today is that the aggregate investment levels and guaranteed spending provisions of TEA-21 have survived a full budget cycle largely unscathed. Not only did Congress respect the guaranteed obligation limitation last year during the budget and appropriations process for FY 1999, the Administration has generally followed TEA-21 in developing the President's budget for FY 2000: - The obligation limitations for highways and mass transit in the President's budget conform to the levels specified in TEA-21, although the budget recommends spending some of the funds differently than TEA-21 would require; - The President's budget honors the TEA-21 provision tying the obligation limitation for highways to the level of revenues in the Highway Account of the Highway Trust Fund (HTF); and - The Administration's budget does not try to divert money from the Highway Trust Fund to use for general fund purposes, as it has in the past. These are all welcome developments and confirm the importance of the victories won last year in TEA-21. Now it is time to turn our attention to the other transportation trust funds. H.R. 111 would remove the Airport and Airways Trust Fund, the Inland Waterways Trust Fund, and the Harbor Maintenance Trust Fund from the unified federal budget, and we vigorously support that effort. Let me begin with the Airport and Airways Trust Fund, which finances all or part of the four federal aviation programs. Three programs are financed entirely out of aviation trust fund revenues--the Airport Improvement Program (AIP), the facilities and equipment program, and aviation research. The fourth program, Federal Aviation Administration operations, is financed partially from the Trust Fund and partially from general funds. During the 1990s, spending for the federal aviation programs was virtually frozen at just about $9.0 billion per year. Chart 1 shows how the funding was allocated among programs. In the six years covered by the chart, the share of aviation programs going to FAA operations increased significantly, from $4.5 billion to $5.3 billion, while the share going to the other programs declined. Chart 2 shows how funding for aviation has been split between the aviation trust fund and general funds. Most of the support for the aviation programs comes from user fee excise tax revenues deposited into the aviation trust fund. But historically, the aviation budget has also received a significant amount of support from the Treasury general fund--reflecting the military use of the air Traffic control system and the mobility benefits to rural and undeserved areas above and beyond the direct benefits to users that are paid for by user fee excise taxes. For FY 2OOO, the President's budget proposes $10.13 billion of budget authority for the Federal Aviation Administration (FAA) programs, growing to $12.4 billion by FY 2004. Even after adjusting for inflation, aviation spending would rise almost 10 percent between FY 1999 and FY 2004, as shown in Chart 3. Virtually all of the proposed increase in aviation funding, however, would be used for FAA operations and the facilities and equipment program. Unfortunately, airport capital improvements would not fare as well. Chart 4 shows how airport investment has been financed during the past few years. Other than the AIP, there are three sources of airport investment funds. These include airport bonds, some of which are sold in anticipation of future federal airport improvement fund grants, a small amount of money from state and local governments; and very recently, revenues from Passenger Facilities Charges (PFC), which some airports levy to finance construction needs. This chart illustrates two problems. First, the AIP is a declining source of funding for airport construction. Second, all of the current sources of airport funding come nowhere near providing the amounts needed, according to a recent study by the U.S. General Accounting Office (GAO). The GAO reports there is approximately a $3 billion annual capital investment shortfall for airport needs. For FY 2000, the President's budget proposed $350 million less for the Airport Improvement Program than the $1.95 billion authorized for FY 1999. After inflation, the real purchasing power of this program would be almost 27 percent less in FY 2004 than in FY 1999, as shown in Chart 5. This would reduce funding for the AIP to the smallest share of the FAA budget in memory (see Chart 6). Some of the proposed reduction in the AIP would be offset in the President's FAA reauthorization proposal by an in the Passenger Facilities Charge (PFC). This charge is levied at some airports to finance investment needs. The current cap on the PFC is $3 per trip segment. The President's budget would raise that to $5 per trip segment. While increased PFC revenues could ameliorate the reduced AIP funding, the largest airports with numerous passengers benefit most substantially from PFCs, while smaller airports rely heavily on the AIP. ARTBA and a number of other organizations have recommended that funding for the AIP be a minimum of $2 billion per year and we believe that would be more appropriate than the amount in the President's budget. The Administration also proposes major changes in how the aviation program would be financed. Currently about 70 percent of the costs of the aviation program are covered by excise taxes deposited into the Airport and Airways Trust Fund and about 30 percent by general revenues. The President's budget would fund the program entirely out of the Trust Fund, imposing $1.5 billion of new user lees to replace the current general fund contribution. Details on these proposed new user lees are included in the Administration's FAA reauthorization legislation. In addition, the aviation trust fund would be placed in a separate budget category, as was done with the highways and mass transit programs under TEA-21, and a firewall would be established around aviation revenues. Furthermore, the annual budget authority would be directly tied to revenues into the Trust Fund, similarly to the highway program. This would be an alternative to taking the Airport and Airway Trust Fund off budget the ultimate purpose of H.R. 111--but we welcome continued recognition by the Administration that the current budget procedures do not work for the federal transportation programs. One issue of concern in the President's proposal is that the general fund contribution to the FAA budget would be eliminated. Mr. Chairman, I expect this committee will thoroughly explore the appropriateness of a general fund contribution to the federal aviation program. The Alliance does not take a position on this, but it is important to understand that without a general fund contribution, aviation trust fund revenues would be inadequate to finance even the current budget of the FAA. The budgetary change proposed by the Administration could effectively result in an underfunded status quo budget for aviation programs. Without some budget mechanism to assure investment of all revenues into the Airport and Airways Trust Fund, the unspent balance in the trust fund will continue to skyrocket as shown in Chart 7. The need for additional investment in the nation's airports is amply illustrated by Charts 8 and 9. Chart 8 shows that the number ot airline passengers will grow 50 percent by the year 2007, while Chart 9 provides a projection of the number of airport runways that will need rehabilitation by 2007 under current investment policies. A cut in federal airport funding, as the Administration proposes, will simply make that number even larger. The National Civil Aviation Review Commission, created by the Federal Aviation Reauthorization Act of 1996, has made a similar argument. In their final report to Congress, the Commission found that under-Investment in airport construction, caused by recent cuts in appropriations for the Airport Improvement Program, will "certainly lead to further congestion in the aviation system." The number of airports characterized by the FAA as "severely congested" will climb from 25 currently to 29 by the year 2005. The Commission concluded: FAA's budget treatment must change.The Commission recommends that the FAA's funding and financing system receive a federal budget treatment ensuring that revenues from aviation users and spending on aviation services are directly linked and shielded from discretionary budget caps. This will ensure that FAA expenditures will be driven by aviation demand. Another important, and often-overlooked, element of this issue is the effect of aviation investment on the nation's economy. ARTBA will soon publish a comprehensive new empirical analysis of the economic importance of our nation's transportation infrastructure. The results are based on fresh data from the U.S. Department of Commerce, Bureau of Economic Analysis, the U.S. Bureau of Transportation Statistics, the U.S. Bureau of the Census, U.S. Department A Transportation, Federal Highway Administration and the U.S. Government Budget for 1998. The analysis was prepared by ARTBA's Vice President for Economics and Research, Dr. William R. Buechner. Dr. Buechner previously spent twenty-two years as a senior economist for the Joint Economic Committee. Our study found the following. -Every $1 billion investment in airport construction generates $2.017 billion of output and revenues to firms throughout the economy. This is a return of over 100 percent! The revenues generated by airport infrastructure investment by sector of the economy are: - Construction-$937.9 million - Manufacturing-$551.3 million - Services-$233.2 million - Trade-$105.5 million - Transportation, Communication & Utilities-$83.0 million - Finance-$62.1 million - Mining--$23.1 million - Agriculture-$11.9 million - Other--$9.3 million -Every $1 billion investment in airport construction supports up to 40,000 jobs. This includes all the jobs in the construction, design, and management industries that are directly related to airport construction, all of the jobs generated by the necessary purchases of material and supplies and construction equipment, and the jobs induced throughout the economy by the resulting increase in economic activity and earnings. In addition to infrastructure is also a wise investment that will pay dividends for generations to come. Transportation infrastructure is the nation's most durable and longest-lived productive asset, according to recent data from the U.S. Department of Commerce on tangible assets of the United States. Highway, streets, airports and other transportation infrastructure depreciate or wear out at an annual rate of less than 1.5 percent per year, slower than any other type of asset used by the American economy. As a result, the average transportation infrastructure facility will last more than 67 years before having to be completely torn up and replaced. No other productive asset lasts as long. Industrial buildings, for example, depreciated at the rate of 3.1 percent per year, for an expected life of 32 years, only half the life of a typical airport facility. Electric generating plants and transmission lines depreciate 2.15 percent per year, for an expected life of 46.5 years. Industrial machinery depreciates about I percent per year, for a productive life 45.2 years, and autos have an economic life of just over 3 years. Only residential struclures- homes and apartment buildings-last as long as airports and other transportation facilities. This means that a dollar invested in our nation's airport infrastructure will pay of productive asset once again, demonstrating the significant "bang for the buck" of transportation investment. The other transportation trust funds face similar issues but on a somewhat smaller scale. The Inland Waterways Trust Fund, which is administered by the Corps of Engineers and finances half of the construction and rehabilitation costs of specified inland waterway projects, will see its balance increase from $300 million at the end of FY 1997 to $449 million by the end of FY 2000 under the President's budget. Revenues into the Trust Fund for FY 2000 will be $128 million, including $105 million of user fee revenues and $23 million of interest, while new obligations would be held to just $55 million under the President's budget. The Harbor Maintenance Trust Fund, which finances 100 percent of Corps of Engineers harbor operation and maintenance costs, had a balance of $1.1 billion at the end of FY 1997. Under the President's budget, this would rise to $1.85 billion by the end of FY 2000.The President's budget also proposes a new user fee on commercial vessel operators to replace the harbor maintenance tax and it would transfer the balance in the Harbor Maintenance Trust Fund into a new Harbor Services Fund, which would be responsible for harbor and channel projects. The Alliance does not take a position on this proposal although individual members may. In summary, Mr. Chairman, the Alliance for truth in Transportation Budgeting vigorously supports H.R.111, the Truth in Budgeting Act. Under current policies, user fee excise tax receipts into the trust funds are being diverted to general fund purposes while the nation's transportation investment needs are going unmet. We support taking the trust funds off budget, so that trust fund revenue can be freed up for their intended purpose to improve the nation's transportation infrastructure. There is also an issue of tax fairness. The transportation excise taxes are levied on transportation users by the federal government, and the traveling public expects the revenues to be used for transportation improvements. Transportation taxes should be used only, for transportation investment, not for general fund purposes. TEA-21 made an important step toward restoring integrity to the user-fee concept of the transportation trust funds by walling off the highway and mass transit programs from the rest of the budget. H.R. 111 will move us even closer to this goal. Again, I appreciate the opportunity to testify on behalf of the Alliance for Truth in Transportation Budgeting, and I will be happy to answer any questions.

LOAD-DATE: February 19, 1999