State transportation officials craft congressional priorities, with an eye toward stabilizing highway funds

The expiration of the bipartisan infrastructure law may be three years away, but it’s not too early for state transportation advocates to begin considering congressional priorities for the next surface transportation funding bill.

“We want to be ready,” said Joung Lee, deputy director and chief policy officer of the American Association of State Highway and Transportation Officials, speaking Wednesday during the association’s annual conference in Indianapolis.

“Our goal is to have recommendations ready by October 2025, which gives us one year before the [Infrastructure Investment and Jobs Act] expires on Sept. 30, 2026.”

The IIJA featured five years of advance highway appropriations, which has protected states to some degree from the “chaos” of the annual appropriations process, Lee said. That’s a luxury that will run out with the next reauthorization bill.

One priority the group hopes to nail as soon as this summer is resolving the complex and increasingly problematic issue of the distribution of highway funds late in the federal fiscal year. The Federal Highway Administration’s so-called August redistribution has become larger over the past few years — totaling $7.9 billion in fiscal 2023, or 15% of all state highway formula funds — due in part to the increased number of non-formula programs in the IIJA.

The redistribution occurs when non-formula highway funds authorized in the annual appropriation bill are not fully tapped, and to avoid losing the dollars, the FHWA redistributes the money among states. In addition to forcing states to scramble to obligate the money within as tight a window as 30 days, the move can decrease the amount of formula funding at the start of the fiscal year, according to AASHTO. The wait-and-hurry-up arrangement also disrupts the implementation of the IIJA.

“We’ve been agnostic on what the fix is, but we recognize we can’t leave these obligations on the table if we’re going to ask Congress to continue the momentum of IIJA,” Lee said Tuesday during a presentation to state officials.

“All of you are very concerned that this keeps happening and we’re on pace to see an even bigger redistribution amount [in fiscal 2024] if nothing changes,” Lee said. “We’re continuing to work on the Hill and we’d like to ask for your help in talking to your [congressional] members in explaining this admittedly very complicated issue.”

Deputy Transportation Secretary Polly Trottenberg acknowledged the problem Wednesday during remarks to state officials.

“We all recognize … that legacy budget rules don’t necessarily fit the moment,” Trottenberg said, adding that AASHTO and others are “talking to our friends on the Hill” about the issue. “We don’t want to have this annual summer scramble every year; it’s not the best way to do business.”

FHWA leaders are also aware of the problem, FHWA CFO Brian Bezio told state officials Tuesday.

Next year is “going to look very similar to what we got last year,” Bezio said, adding the fiscal 2024 reallocation could total more than $7.9 billion.

“The leaders are aware of it and aware it will be another challenging year,” he said. “To fix this is going to require legislative action.”

The 2022 redistribution totaled $6.2 billion. That compares to $1.9 billion in fiscal 2015.

The Transportation Infrastructure Finance and Innovation, or TIFIA, and the Infrastructure for Rebuilding America, or INFRA, programs are the two biggest contributors to the unobligated figures in recent years, Bezio said, but non-formula programs in the IIJA are increasingly part of the problem.

A longer-term Congressional priority includes a fix to the struggling Highway Trust Fund, Lee said. The Highway Trust Fund, which supports more than 90% of formula funds sent to states, faces insolvency by 2027, according to the Congressional Budget Office. The fund’s main revenue, the federal gas and diesel tax, has not been raised in 30 years and has failed to keep up with the HTF’s programs since 2008.

AASHTO proposals to boost the fund include user fees like raising the federal fuel tax; a per-barrel oil fee; a freight fee; and a type of road-usage charge.

Smoothing out the discretionary grant process — accelerating the timeline between when grants are awarded and when grant agreements are signed and the money is obligated — is another goal.

For the next surface transportation bill, states are hoping to see fewer discretionary grants and more formula funding, which is more predictable and has less strings attached.

Finally, state transportation officials are worried that the Biden administration’s strict Buy America requirements could escalate project costs, Lee said.

The group is hoping to push for a slower rollout of the provision, which requires all infrastructure projects that use federal funds to use construction products and materials produced in the U.S., as well as increase the number of waivers for certain products, he said.