Ports-to-Plains Alliance created by Jack Schenenforf, Federal Consultant

1. Update on Federal Transportation
Legislation in the 112th Congress
The Federal surface transportation programs (highway, highway safety, and transit) are scheduled to
expire on September 30, 2011. Both the U.S. Senate and the U.S. House of Representatives are
working on multi-year reauthorization bills. These bills will not, however, be finished by the time the
programs expire. Therefore, it is necessary for Congress to extend the current programs for a period of
time so that work can continue on the major reauthorization legislation.
On September 13th, the House of Representatives approved H.R. 2887 to extend the surface
transportation programs until March 31, 2012. The bill also extends Federal aviation programs until
January 31, 2012. The bill has been sent to the Senate for its approval. This process is expected to go
relatively smoothly, although it is always hard to predict what will happen in the Senate. It is hoped that
the President will be able to sign the bill before the aviation programs expire on September 16th.
In addition to H.R. 2887, Congress must also take up a continuing resolution for FY 2012 since only a
few appropriations bills will have been passed by October 1st when the new fiscal year starts. The
Transportation Appropriations Bill is one of the bills that will most likely not be finished by October 1st,
so transportation will be covered by the FY 2012 continuing resolution.
There are significant financing and funding issues facing the Federal highway program. To fully
understand the current situation, it might prove useful to first review the way the highway program is
financed, including recent changes made by Congress. This is followed by a discussion of H.R. 2887
and the Continuing Resolution for FY 2012.
Highway Financing
Background
Most Federal programs operate using appropriated budget authority, which requires a two-step process
to implement. The first step is the congressional passage of authorizations for the program. This step,
in itself, does not permit the program to begin, but only sets an upper limit on program funding. The
second step in the process is the congressional passage of appropriations for the program. In an
appropriations act, the Congress makes available the amount that can actually be used for the
program. It is at this point that the program can proceed. In other words, "budget authority"–the
approval to distribute, spend, loan, or obligate funds–has been granted through the appropriations act
at the level of the appropriations, which may be equal to or lower than the originally authorized level of
funding.
Limon Office Lubbock Office
P.O. Box 9 5401 N MLK Blvd., Unit 395
Limon, CO 80828 Lubbock, TX 79403
P: 303.586.1787 P: 806.775.2338
F: 719.775.9073 Fax: 806.775.3981
www.portstoplains.com

2. Update On Federal Highway Legislation In The 112th Congress
September 14, 2011
Page 2
Contract Authority and the Federal-Aid Highway Programs
The Federal highway programs, however, do not require this two-step process. Through what is termed
"contract authority" (a special type of budget authority), authorized amounts become available for
obligation according to the provisions of the authorization act without further legislative action. The use
of contract authority, first legislated for the highway program in the Federal-Aid Highway Act of 1921,
gives the States advance notice of the size of the Federal-aid program at the time an authorization act
is enacted and eliminates much of the uncertainty contained in the authorization-appropriation
sequence.
Obligation Limitations
Again, because of contract authority, there is a smooth and stable flow of Federal-aid to the States. But
some in Congress in the mid-1970s felt that this very benefit was a disadvantage to overall Federal
budgeting. A major function of the appropriations and budget processes is to assess the current need
for, and effect of, Federal dollars on the economy. The appropriations process has been the traditional
way to control Federal expenditures annually. But the highway program, with multiple-year
authorizations and multiple-year availability of funds, appeared to be exempt from this annual review.
This led Congress to place a limit, or ceiling, on the total obligations that could be incurred for the
Federal highway programs during a year. By controlling obligations annually, the program could be
made more responsive to budget policy. As a result, obligation limitations have been included in the
annual transportation appropriations bills in recent decades.
Before moving on, it is important to note that the obligation limitation represents the operative program
level in any given year. Let’s look at an example to see why. Let’s say that a state has $300 million in
unobligated contract authority at the start of a fiscal year. Let’s also say that it receives an additional
$950 billion in new contract authority on the first day of the new fiscal year. That means that the state
has $300 million plus $950 million, or a total of $1,250 million, to spend in that year—at least in theory.
The actual amount it can spend, i.e., obligate, is dependent on the obligation limitation Congress enacts
through the appropriations process. If the state receives a limitation of $925 million, for example, then it
can only obligate $925 million in that year even though it has $1,250 million available to obligate.
Obligation limitations are important!
Budget Firewalls and Guaranteed Funding
During the 1980s and 1990s, balances in the Highway Trust Fund ballooned to unacceptably high
levels as a result of obligation limitations that were set at artificially low levels just to mask the size of
the Federal deficit. Recognizing the special status of programs funded from self-financed trust funds,
Congress rectified this abuse in the Transportation Equity Act for the 21st Century (TEA-21). TEA-21
created firewalls between highway spending, transit spending, and other domestic discretionary
spending. These firewalls take the form of separate spending caps for the protected programs that
prevent the programs from being reduced in order to increase spending for other discretionary
programs.
Limon Office Lubbock Office
P.O. Box 9 5401 N MLK Blvd., Unit 395
Limon, CO 80828 Lubbock, TX 79403
P: 303.586.1787 P: 806.775.2338
F: 719.775.9073 Fax: 806.775.3981
www.portstoplains.com

3. Update On Federal Highway Legislation In The 112th Congress
September 14, 2011
Page 3
In addition to the firewalls, TEA-21 provided a second level of protection. It guaranteed a certain level
of highway funding by establishing a point of order in the Rules of the House of Representatives. The
House Rules were amended to specify that it is out of order to consider a bill, joint resolution,
amendment, or conference report that contained an obligation limitation that would result in funding at a
lower level than the guaranteed amount.
The 112th Congress
The 112th Congress, in particular the House of Representatives, has made drastic changes in the way
the Federal highway programs are funded. First, it repealed the funding guarantees in the House Rules.
Second, in the recent Budget Control Act of 2011, it repealed the transportation firewalls. These two
actions eliminated all of the budgetary protections contained in TEA-21.
FY 2012 Funding
In analyzing highway funding for FY 2012, it is important to remember that there are no more firewalls
or guarantees. Congress can set the FY 2012 funding levels--both contract authority and the obligation
limitation--at whatever levels it chooses.
H.R. 2887, The Extension Bill
H.R. 2887 extends the highway, highway safety, and transit programs for 6 months, until March 31st. It
has been described as extending the existing programs at “current levels.” As we shall see, this is not
entirely accurate, at least in the usual meaning of that term.
Highways
The highway program was funded at about $43.0 billion in FY 2011. When the Congressional Budget
Office (CBO) prepared its “current level” baseline in March for the FY 2012 budget, it included $43.0
billion in contract authority for highways.
H.R. 2887, however, extends the highway program at a level of $39.9 billion in contract authority, about
7 percent below the FY 2011 level of $43.0 billion. Therefore, states will receive about seven percent
less in contract authority than they received in FY 2011. Of course, since this extension is for only 6
months, they will receive 1/2 of that reduced annual amount on October 1st, or soon thereafter,
assuming the bill is enacted in a timely manner. The amount of contract they receive for the second
half of the fiscal year will depend on future legislation--either the multi-year reauthorization bill or
additional extensions.
Just to be clear, here is how a state should calculate what they will receive in contract authority under
the highway program at the start of FY 2012. First, they should determine what they received in FY
2011. Second, they should reduce that number by 7 percent to reflect the overall cut in the program.
And third, they should take that reduced amount and divide it by 2 to reflect that the fact that the
program is being extend for only 6 months. That is the approximate amount they will receive in contract
authority for the various highway programs.
Limon Office Lubbock Office
P.O. Box 9 5401 N MLK Blvd., Unit 395
Limon, CO 80828 Lubbock, TX 79403
P: 303.586.1787 P: 806.775.2338
F: 719.775.9073 Fax: 806.775.3981
www.portstoplains.com

4. Update On Federal Highway Legislation In The 112th Congress
September 14, 2011
Page 4
One might ask why $39.9 billion is being described as the “current level” for FY 2012 when the real
funding level in FY 2011 was $43.0 billion. This is a good question. Unfortunately, the answer is
complicated and requires exploring some of the more arcane aspects of Federal budgeting.
In drafting H.R. 2887, Congress would normally have used the CBO’s March baseline level of $43.0
billion as the “current level” for highways. But the recently enacted Budget Control Act of 2011 directed
CBO to prepare a new August baseline that took into account, among other things, the final FY 2011
Continuing Resolution (CR). The final FY 2011 CR contained a one-time $3.1 billion rescission of old,
unobligated highway contract authority. In developing its revised August baseline, CBO assumed--
incorrectly, in my view--that this one-time rescission would continue in perpetuity. Consequently, it
reduced the baseline for highways by $3.1 billion for FY 2012 and the years beyond. In budgeting
parlance, this new reduced level would now become the “current level,” notwithstanding the fact that
the real level of new contract authority in FY 2011 was $3.1 billion higher.
Two other points are worth noting regarding highway funding in the extension.
First, it is worth looking how the $39.9 billion level compares to the highway funding levels being
considered by the House and Senate in their reauthorization proposals. In their two-year
reauthorization proposal, Senators Boxer and Inhofe have proposed annual funding of about $43.0
billion, the FY 2011 level, adjusted for inflation. In his six-year reauthorization proposal, Chairman Mica
has proposed significant reductions--on the order of 30 percent or more below the FY 2011 level of
$43.0 billion--in annual highway funding. The $39.9 billion level in the extension is slightly below the
Senate multi-year proposal and significantly higher than the House proposal.
Second, it should be noted that, unlike previous extension bills, this extension bill does not contain a
guaranteed obligation limitation for the highway program. Instead, the bill defers to the appropriations
committee to set the obligation limitation for FY 2012 in the FY 2012 appropriations bill. This is quite a
departure from past practice and is discussed in more detail below.
Highway Safety and Public Transportation Programs
With respect to highway safety and public transportation, there is no reduction in the extension bill from
FY 2011 contract authority levels. Therefore, in those programs, states and localities should receive
about what it received in contract authority in FY 2011. Again, since this extension is for only 6 months,
they will receive about 1/2 of the FY 2011 amounts on October 1st, or shortly thereafter.
Other Policy Changes
H.R. 2887 is a “clean” extension in that it does not contain other policy changes to the surface
transportation programs.
FY 2012 Continuing Resolution
The obligation limitation, i.e., the amount of contract authority that the states can obligate in FY 2012,
will be set in this year's appropriations legislation. This represents the "operational level of spending"
for FY 2012.
Limon Office Lubbock Office
P.O. Box 9 5401 N MLK Blvd., Unit 395
Limon, CO 80828 Lubbock, TX 79403
P: 303.586.1787 P: 806.775.2338
F: 719.775.9073 Fax: 806.775.3981
www.portstoplains.com

5. Update On Federal Highway Legislation In The 112th Congress
September 14, 2011
Page 5
The obligation limitation for highways was $41.1 billion in FY 2011. CBO’s March and August baselines
both assume an obligation limitation of $41.6 billion ($41.1 billion adjusted for inflation).
The Senate is most likely to take an approach similar to what Senators Boxer and Inhofe are
advocating for their two-year reauthorization bill--a continuation of current levels, which means about
$41.6 billion. However, it should be noted that the Senate might reduce the obligation limitation by 7
percent to reflect the 7 percent cut in contract authority in the extension bill.
The House, on the other hand, appeared to be ready to take an approach similar to what Chairman
Mica is advocating for his six-year reauthorization bill--a significant reduction in funding (about 30
percent). If the House takes this position, then the obligation limitation would be significantly reduced to
about $27 billion in FY 2012. In fact, the House Transportation Appropriations Subcommittee approved
a bill a week or so ago setting the FY 2012 obligation limitation at $27 billion. If this approach prevails,
then states would receive about 30 percent less than they received in FY 2011. This would result in a
more than 30 percent reduction in real highway spending.
It should be noted, however, that given the recent action on the extension bill in the House, there may
be some hope that the House will not make major cuts in the obligation limitation in FY 2012. The
House extended the contract authority for the program at roughly current levels and did not impose the
significant reductions from Chairman Mica's reauthorization proposal for FY 2012. It may be a sign that
the House Leadership is leery of cutting jobs-creating programs at a time of high unemployment. If this
assessment is correct, then one would expect to see the obligation limitation of $27 billion in the
subcommittee's bill increased to a level much closer to the current FY 2011 level.
Since the FY 2012 continuing resolution needs to be in place by the end of September, this issue will
be resolved, one way or the other, in the next couple of weeks. A lot is at stake. There is a big
difference between $41 billion and $27 billion.

Limon Office Lubbock Office
P.O. Box 9 5401 N MLK Blvd., Unit 395
Limon, CO 80828 Lubbock, TX 79403
P: 303.586.1787 P: 806.775.2338
F: 719.775.9073 Fax: 806.775.3981
www.portstoplains.com