Government
3:35 pm
Wed July 2, 2014

Federal Highway Trust Fund Insolvency Threatens $185 Million in Kentucky Projects

Congressional inaction threatening the solvency of the Federal Highway Trust Fund may cost Kentucky $185 million for projects, drastically changing how the state pays for road construction, Gov. Steve Beshear said Wednesday.

"Simply put, if you drive on Kentucky's highways, or if your business depends upon our roads to move your workers, your goods, your supplies or your customers, you will see a negative impact," Beshear said. 

Beshear and U.S. Transportation Secretary Anthony Foxx, who was visiting the state, criticized Congress for  inaction that will reduce the amount the highway trust fund reimburses states for roadwork by 28 percent, affecting upwards of 700,000 jobs nationwide.

Of the $185 million in jeopardy, $150 million will affect the widening of I-65 between Bowling Green and Elizabethtown, a Kentucky Transportation Cabinet spokesman said. The remaining $35 million is slated for "pavement rehabilitation" projects across the state.

Neither Beshear nor KYTC Secretary Mike Hancock offered a figure of how many road contracting jobs in Kentucky could be affected if Congress doesn't shore up the fund.

The trust fund's issues would not affect the under-construction Ohio River Bridges Project, they said.

Hancock said Kentucky has about $500 million in trust fund assets, but that figure has about $1.5 billion against it in the form of project commitments.

Foxx sent a letter to transportation departments in all 50 states warning them of the changes to the program. He told reporters on Wednesday that his solution is "the fairest" option.

States are entitled to a percentage of the trust fund's dollars based on a federal formula, Foxx said. The same percentages will be used starting in August—when the affects of the insolvency will reach states—and states will get "whatever is left in the highway trust fund."

"Kentucky will be paid not as bills are sent to us, but every two-weeks as money from the gas tax becomes available," Foxx said.

Foxx said the uncertainty over this "I.O.U." system will cause a large decrease in the amount of projects that states will be able to plan for.

"This is the opposite of what we should be doing as a country," he said.

The Federal Highway Trust Fund was established in 1956 to help pay for the burgeoning federal interstate highway system, and has historically been paid for by gasoline taxes.

States pay for the upfront costs of construction and are then reimbursed by the fund once the project is complete, according to the U.S. transportation department. The current rate for the gasoline tax is about 18.3 cents, but it hasn't been raised in 20 years. During that time, the fund has paid out more for projects than it has taken in.

The fund is currently around $4 billion, down from $8.1 billion as of May 30, according to data released by the U.S. transportation department. Kentucky receives about $650 million from the trust fund annually, but the number will drop considerably if a solution isn't found.

The funding crisis attracted the ire of President Obama, who on Tuesday proposed a four-year, $302 billion plan to generate revenue by closing certain tax loopholes. Obama blamed the impasse on House Republicans.

Numerous proposals have been entertained by Congress to fix the problem. They include:

  • Reducing Saturday mail deliveries by the U.S. Postal Service
  • Closing tax loopholes that allow corporations to hold profits in overseas accounts
  • Raising the gas tax

Still, it's too early to tell if any plan will gain enough traction by the Aug. 1 deadline. 

Beshear said the uncertainty surrounding the process would prevent the state from planning its future infrastructure. The state will try to use state funds to "mitigate" the damage, he said. But it's a stop-gap measure that won't last forever.

"If we have to start operating day-to-day, so to speak, by living off of what's coming in from the [diminished] Federal Highway Trust Fund, then we will have to suspend all new federal construction until the problem is resolved," Beshear said.

"Unless, of course, Congress acts. And that's the solution."

The American Society of Civil Engineers gave Kentucky an overall "C" grade in its 2013 "Report Card for America's Infrastructure." That report gave the state "D" grades for its roads and bridges, and found that 34 percent of nearly 79,000 miles of public roads were either in poor or mediocre condition, and about 23 percent of its bridges are "functionally obsolete."