A quick note: This analysis is based upon best available data at the time it was written. As of this posting (6:20pm), the final conference report had not yet been field. Which means, of course, that they still have time to correct all the worst parts of the bill. But we're not holding our breath. But don't skewer us if changes appear in the final version that are different than what is written here.

Congress today released a 26-month reauthorization of the nation's transportation program. The bill spends billions more than will be collected by the Highway Trust Fund (HTF) through gasoline taxes and user fees. To our knowledge, this is the first time Congress will reauthorize the program using funds other than those derived from HTF's gasoline and diesel taxes and other user fees.

The fuel taxes are not indexed for inflation and haven't been increased since 1993, so their buying power has steadily eroded. In addition, vehicles today are more fuel efficient and the number of miles driven has flattened, both of which results in less gas tax revenue. Since 2008, Congress has three times dipped into the nation's general tax revenue and made transfers to the HTF totaling $34.5 billion.

The shortfall in gas tax revenue persists. As a result, there is a gap between the amount of money flowing into the HTF and how much Congress wants to spend. As a result, in this reauthorization Congress had to: 1) transfer money into the HTF at a level sufficient enough to cover the spending contained in the bill; and 2) offset that spending with spending cuts or revenue increases in another part of the budget. Here's how they did it.

To keep the Highway Trust Fund afloat:

1. Congress relies on an $18.8 billion transfer from the Treasury, continuing a recent trend of general fund transfers to pay for transportation improvements. This is a sad precedent, reversing nearly 50 years of users paying for the nation's transportation program.
2. In addition, Congress transfers $2.4 billion from the Leaking Underground Storage (LUST) Trust Fund into the HTF.

To pay for this massive general fund transfer:

1. Changes to mandated pension contribution limits – so called “pension smoothing” – is a risky and potentially foolish way to increase federal revenue. Private corporations would be allowed to reduce their pension contributions by spreading pension liabilities over a longer period of time. Since pension contributions are tax deductible, the revenue increase will result from companies putting less into these tax deductible expenses and paying tax on that money to the Treasury. While the Treasury gains in the short term, pension smoothing creates greater taxpayer risk in the long-term.
2. The longer term risk results from potential increased risk for the Pension Benefit Guaranty Corporation (PBGC), which pays pension benefits to individuals when companies go belly up and cannot continue to pay on their own. Which is ironic, since the second offset Congress would use to fund the transportation bill is with PBGC premium hikes. These premium increases would generate more than $11 billion for the PBGC over the next 10 years. The PBGC is supposed to be funded entirely through premiums paid by the insured companies, but the PBGC is currently $26 billion in debt. Some analysts worry that a federal bailout may be required. Raising premiums is obviously in order, and probably at a higher level than this bill calls for. But using that as a justification for an increase in transportation spending is ludicrous. It's like sending $100 to a credit card with a $10,000 balance, and turning around and buying a TV on another credit card.

10 Years of Revenues for 2 Years of Spending:

To make matters even worse, the bill requires 10 years of revenues to pay off the 26 months of spending the bill contains! As the chart to the right indicates, Congress will transfer all of the money it plans to spend into the HTF during the life of the bill, but when the bill expires only 38% of the additional revenue will have been collected. The remaining revenue is projected to be collected over the next seven years. And if revenue projections fall short? Tough luck! The money's already been spent.

More to come as we continue to comb through this bill.