On Thursday, both chambers of Congress approved a long-awaited long-term transportation bill, the five-year, $305 billion Fixing America’s Surface Transportation (FAST) Act. The FAST Act arrives after years of “stop and go” haggling in Congress over transportation funding, which continued despite a dire need to repair the nation’s crumbling infrastructure and increase capacity for commuters facing growing congestion. The bill authorizes $205 billion for highways and $48 billion for transit over the next five years.
The biggest obstacle to achieving consensus on transportation legislation has been funding. The primary federal revenue source for highways and transit has been the federal gas tax, but at 18.4 cents per gallon since 1993, the tax has kept up with neither inflation nor changing technologies. Though the federal government has typically been spending about $50 billion per year on transportation projects, and has had to fill deficits (as the gas tax only brings in $34 billion annually), lawmakers have resisted increasing the amount that drivers pay. FAST Act reauthorizes the collection of the gas tax, but at the existing 18.4 cent rate. Despite bipartisan support for the bill, it encountered opposition from some members of both parties because the funding gap will now be bridged using sources with no connection to transportation: savings from contracting out IRS services and tapping into Federal Reserve Bank dividends.
Despite the adoption of a long-term federal transportation bill, we still expect state and local governments to tap into the municipal bond market to fund their share of transportation improvements. Municipal issuers will continue to issue toll road and airport bonds, and will pledge tax and highway revenues in addition to leveraging federal dollars. Many of those transportation-related bond issues provide opportunities for muni investors because of growing enterprise revenues and increased support from federal and state transportation programs.
Sources: The Hill, SNWAM Research