A Government Shutdown… So Now What?

As of midnight last night, the federal government went into a partial shutdown. What does that mean for transportation?

The U.S. Department of Transportation will only experience a partial shutdown.

Many of the programs that fund bicycling and road projects are administered by the Federal Highway Administration (FHWA) and will not be closed. Because much of surface transportation is paid for out of the Highway Trust Fund (the gas tax plus a few other taxes), staff who work on them will continue to work and funding will flow to those projects.  However much of the Federal Transit Administration, and those who work for the Office of the Secretary directly are paid out of general government funding, and those workers will be furloughed.

Officially, this will slow down work on performance measures, TIGER projects and multimodal projects.  However, while the FHWA will be operational, I still suspect we’ll see a slow down on some projects. Whenever we see uncertainty in funding we see states become a bit more conservative — and bicycling and walking projects often are delayed first.

The real question is, ‘How will this be resolved?’

Congress failed to pass a continued resolution –- a bill to temporarily continue funding the government at current levels.  While much of the talk has been on the Affordable Care Act, there are some real financial issues to consider that will have important consequences for transportation.

The reason Congress was working on a continued resolution is because they failed to pass a budget for fiscal year 2014.  At issue is the level of funding for the government as a whole.  In 2013, the sequester went into effect and served as an agreement to cut 5 percent below 2012 funding levels.  Starting in 2014, the sequester agreement requires even further cuts to 7 percent below 2012 funding levels.  The budget question at hand now is whether to keep the budget levels at the current sequester levels, go to the next level of cuts, or remove the across the board cuts already in effect.

What does sequester mean for transportation?

For Highway Trust Fund Programs the cuts are limited. The sequester doesn’t affect the gas tax and other taxes that make up the HTF.

However the HTF taxes (gas tax plus a few others) only raise enough to pay roughly 2/3 of the transportation programs they cover.  In 2012 Congress had to transfer general funds into the Highway Trust Fund in order to make up the difference. The way Congress chose to handle the sequester cuts on these transferred funds is to take the cut at the end of the fiscal year and not spread it out through the year (for instance, if the budget was $120 a year or $10 a month, and we had to take a $6 dollar cut over the year we could either cut spending to $9.50 a month, or spend $10 a month and then run out of funding for the last two weeks of the year. Congress chose the latter.)

This cut alone will mean the HTF will go into deficit spending earlier than expected.  If Congress chooses to the next level of sequester cuts, it’ll run out even sooner.

All of this means that the expiration of transportation funding on Sept. 30, 2014, becomes a bigger concern. There won’t be much funding in the HTF to allow an extension at current funding levels, and it will be even harder to transfer funds from the general budget to transportation. 

Stay tuned…