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Can Ryan help with long-term transportation deal? 11/4/2015

11/4/2015, In Business Blog – There has certainly been a flurry of activity in Washington, D.C. Despite a great deal of controversy, Congress reached a bipartisan deal to avoid a government shutdown and the House of Representatives elected its youngest speaker since 1869 — and the first one from Wisconsin.

Paul Ryan will have the herculean task of presiding over a raucous Republican majority while trying to unify, reform, and govern. It is certainly an exciting time for Wisconsin and I join all of the other well-wishers from the Badger State who hope Speaker Ryan will use his intellect, personality, and energy to forge a new era for Congress and the nation.

Many politicos are saying that getting the fiscal deal done prior to Ryan taking over as speaker will give him a relatively clean slate to start, or at least some room to breathe. The deal suspends the nation’s debt limit through March 2017 and increases federal spending for domestic and defense programs by more than $80 billion over the next two years.

Former House Speaker John Boehner explained it like this: “I didn’t want him to walk into a dirty barn of you know what. I’ve done my best to try to clean it up.”

When it comes to reaching a deal on surface transportation, however, there is still some stuff on the barn floor. Congress recently passed and the president signed a three-week extension of the program. It will run through Nov. 20. Three weeks is not a lot of breathing room.

Consensus on real solutions for many big-ticket issues has been elusive in Washington, D.C. and transportation is no exception. Up until about a decade ago, Congress had a history of coming together on six-year authorizations that were funded entirely out of the Highway Trust Fund (HTF). Failing to adjust the main revenue source for the HTF — the federal gas tax — since 1993, however, meant that beginning around 2007 the balance in the fund could no longer support those planned expenditures.

Generally, the user-based revenue is about $10 billion a year short of the roughly $50 billion a year Congress continues to spend on highways and transit. So, at the federal level, we have had an eight-year run of general fund infusions and short-term extensions. With each general fund infusion, under current budget rules, Congress must find what they call “pay-fors” — a combination of non-transportation spending cuts and revenue increases.

These “pay-fors” tend to be a bit sketchy at best.

So, in three weeks from now Congress will either push the decision on reauthorizing surface transportation off a couple more weeks or it will act. The odds right now look like when Congress does, in fact, act in weeks or months it will be on a six-year authorization of which about three years is actually funded. When I say actually funded that’s with “pay-fors,” not ongoing revenue.

Here is what I meant before when I said these “pay-fors” are sketchy: Under the Senate proposal, nearly half of the “pay-fors” come from reducing the amount of interest the Federal Reserve pays to banks on funds they deposit with the Fed over a 10-year period. That is 10 years of reduced interest to pay for three years of transportation policy. The second biggest source is to sell 101 million barrels of oil from the Strategic Petroleum Reserve — at an average price of $89 per barrel, to again fund three years of transportation policy. Just as a point of reference, the current selling price is around $45 a barrel but, you know … details. There is also that pesky word “strategic” in the Strategic Petroleum Reserve that seems to belie selling off the reserves for this purpose.

If things continue as usual you will likely see some version of this pass Congress, get signed into law by the president, and heralded as long-term transportation policy.

However, if in the longer term Speaker Ryan is able to change the course Congress has been on, then perhaps we will be talking about a different scenario in the future. Perhaps Congress will get its arms around passing a truly long-term transportation program that is paid for with real money and doesn’t smell like the stuff on that barn floor.

It certainly will not be easy. Nor will tackling entitlement reform and other seemingly intractable issues. But Paul Ryan is a unique talent and he brings a Wisconsin/Midwest common sense that just might get Washington off the dime. We can only hope.