Ryan pick, federal and state budgets and tolling

August 13, 2012
By Peter Samuel

2012-08-12: As chairman of the House Budget Committee Paul Ryan proposed that federal outlays on transportation go from $95b 2011 to $80b this year then go down to $71b in 2013 and $68b in 2014, stabilizing about that amount the rest of the decade. Obligations would drop faster because present outlays are about 30% beyond the revenues (from the gas tax,) and have only been sustained by billions of dollars of fraudulent congressional gimmicks of the kind that would get corporate CEOs, bankers and brokers put in jail.

Ryan seems unusually serious about pushing fiscal reform. And he makes a case well. He knows his stuff.

His report on the present budget called "Path to Prosperity" said on the big issues:

"Throughout history, Americans have selflessly tackled the difficult challenges before the republic, whether civil war, economic depression, or military threats from abroad.

"From the beginning, our nation has been marked by hardship, yet defined by great courage and achievement in monumental efforts.

"Each generation has been tested, and each generation has found strength in America's highest principles and called forth its deepest virtues to make certain that the next generation inherited a stronger, more prosperous and free America.

"Crushing burden of debt"

"Today, the nation's crushing burden of debt jeopardizes this legacy.

"This generation must not be the first generation to fail - to break the link that binds our past, our present and our future.

"America is drawing perilously close to a tipping point that has the potential to curtail free enterprise, transform its government, and weaken its national identity in ways that may not be reversible.

"In this we face two dangers: long-term economic decline as the number of makers diminishes and the number of takers grows and, worse, gradual moral-political decline as dependency and passivity weaken the nation's character and as the power to make decisions is stripped from individuals and their elected representatives and given to non-elected bureaucracies.

Also:

"America's unsustainable budget path is no longer a problem that is far off in the future. The lenders who buy much of the federal government's debt have noticed the disconnect between the government's perilous fiscal situation and the low rates of interest it is paying on the bonds that constitute the government's debts. Some have even decided to purge their portfolios of U.S. debt, and others are advising their clients to do the same.

"Through its interventions into the economy, the Federal Reserve has recently become the largest buyer of government debt in the country...

"Congress must show the market that it has a credible plan for getting the national debt under control, in order to ease concerns over the government's credit- worthiness and stave off an interest-rate spike." end quotes

On federal transportation funding Ryan's report:

"This year, in their inaugural report, GAO identified dozens of examples of waste and over $100 billion in savings. This budget draws inspiration from the GAO's ( the US Government General Accounting Office) recommendations in many areas, one of which is the Highway Trust Fund.

"Over the past decade, highway spending has mostly exceeded the gas-tax revenues that finance the fund, because gas-tax levels leveled off while spending grew. Spending, meanwhile, has increasingly been diverted to non-highway projects, such as bike trails and museums, and politicized through earmarks such as the Bridge to Nowhere...

"To make up for funding shortfalls, the (highway) trust fund has required three large transfusions of taxpayer dollars from general revenues, totaling $35 billion since 2008.Without reform, another infusion will be necessary in 2013.This budget anticipates that Congress can keep the Highway Trust Fund solvent without additional general fund transfers or increases in the gasoline tax by consolidating dozens of separate highway programs that GAO has identified as duplicative.This will help focus every dollar on pursuing a targeted and cohesive national transportation policy." p32

"While no federal department is free of inefficiency, the Department of Transportation offered a number of areas where spending could be cut back responsibly.

"Since 2008, funding for the Department of Transportation has grown by 24 percent - and that doesn't count the stimulus spike, which nearly doubled transportation spending in one year.The mechanisms of federal highway and transit spending have become distorted, leading to imprudent, irresponsible, and often downright wasteful spending. Further, however worthy some highway projects might be, their capacity as job creators has been vastly oversold, as demonstrated by the extravagant but unfulfilled promises that accompanied the 2009 stimulus bill, particularly with regard to high-speed rail.

"In the wake of these failures, and with the federal government's fiscal challenges making long-term subsidization infeasible, high-speed rail and other new intercity rail projects should be pursued only if they can be established as self-supporting commercial services.The threat of large, endless subsidies is precisely the reason governors across the country are rejecting federally-funded high-speed rail projects.This budget eliminates these projects, which have failed numerous and clear cost-benefit analyses." end quotes

Timing

States must plan for quickly diminishing federal grants for roads under a Romney-Ryan administration, it's clear. At least if the Republicans also gain control of the US Congress.

If it's another Obama term and the Democrats are in charge of the Congress, then it will be business as usual for a while.

They subscribe to Keynesian pump-priming/kick-start notions of government spending as 'stimulus' to the economy and as 'job making.'  So for a while, at least, there will be a continuation of current federal spending levels based on growing deficits and debt.

How long that would last is anyone's guess since a continuation of present deficit financing will head us inexorably to a national financial crisis of which Paul Ryan warned - as people demand a higher rate of return to lend to the US Government, and the people seek other stores of value, and the dollar declines perhaps precipitately and as inflation sets in.

Of course a third alternative is that after November 4 we muddle along with divided government - with different philosophies and different time horizons in the different branches of government.

A continuation of no serious national leadership.

State budgets in deep trouble too

Many state governments are in even worse fiscal shape than the US Government according to a report by a task force on state budgets led by Richard Ravitch and Paul Volcker.

Medicaid, Medicare and pensions are the fastest growing items of expenditure in most states though in some interest on debt is growing faster.  Health care costs are growing as a result of government policy - now "Obamacare" - but also because of demographics, an aging population.

Government pensions are heavily underfunded - in part to defer the pain of higher taxes and charges, but also because returns on investment have been so low for several years now, largely because of the Fed's low interest policy. It tends to influence the rates of return on most classes of capital.

On infrastructure they write:

"America's aging infrastructure faces growing capital needs, most of which are funded by state and local governments. However, these critical needs suffer from low budgetary priority. Like education spending, essential infrastructure spending is now crowded out by more immediate spending pressures, pushing essential investments off to the future and increasing the risks to public health and safety and economic growth.

"Both state borrowing to finance long-term capital assets like infrastructure and temporary state borrowing to adjust to cash flows within a fiscal year are appropriate reasons to borrow (so long as they have a revenue stream to support the borrowing.)

"Borrowing to finance current spending is not an appropriate reason. Yet, confronted with fiscal distress, states have borrowed to finance budget deficits and even have, in effect, borrowed from pension trusts to make current payments to these trusts. Extensive misuse of state borrowing could diminish state credit ratings, increase interest costs, and further limit their ability to borrow for much-needed capital projects."

Their conclusion is that "existing trajectory of state spending, taxation, and administrative practices cannot be sustained. The basic problem is not cyclical. It is structural." end quotes

Under all these circumstances a larger role for tollroads makes sense -  as self-financing services and independent of government budgets. But there could be some wild times along the way.

Ryan:

http://budget.house.gov/fy2012budget/

Ravitch & Volcker:

http://www.statebudgetcrisis.org

TOLLROADSnews 2012-08-13


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