Uncertainty results in an unpaved road

By Steve Brawner
© 2014 by Steve Brawner Communications, Inc.

The last gravel stretch of highway in Arkansas, part of Highway 220 in Crawford County, will not be paved for a while, providing the latest example of how uncertainty about the federal government affects so much of everything these days.

Highway Department officials decided not to move forward with that project, along with two others, at its next bid letting Jan. 27 because they can’t count on the feds. The process works like this: The state builds highways, bills the federal government, and then is reimbursed for part of the cost. Federal funding pays for about 70 percent of highway construction in Arkansas.

Highways traditionally have been funded mostly from state and federal motor fuels taxes, which have the advantage of being a user fee. Unlike so much of the government, the person benefitting from the government service at least indirectly pays for it. In Arkansas, the combined taxes are 40.2 cents per gallon of gasoline and 47.2 cents for diesel. At the end of each fill up, drivers can calculate how much they paid the government for their highways without needing an accountant and without fear of the IRS.

But the federal portion of the motor fuels tax (18.4 cents per gallon of gasoline and 24.4 cents for diesel) hasn’t been raised since 1993. Since then, highways have become more expensive to build and maintain, while cars have become more fuel-efficient, which means drivers are buying less fuel and paying less in fuel taxes.

As a result, the federal Highway Trust Fund, which pays for highways, almost dropped to zero in 2014. At the last minute, Congress, as it so often does, patched it with a quick fix funded largely by gimmicks that borrowed from the future and will only provide enough money until the middle of 2015. After that, money will come in and out, but it won’t cover everything, and there will be nothing in the bank. That situation makes it hard for highway departments to plan projects that cost millions of dollars and require years of work.

The quickest solution is to raise the gas tax, but that’s unlikely to happen because voters don’t want to pay more at the pump. So in recent years, money has been shifted to highways from the rest of the federal budget, adding to the national debt. Congress is looking for other solutions, some of which are responsible and some that are, ahem, more creative. Will it decide to do anything, and if so, what will that be? No one knows.

If this were simply about one stretch of gravel road in Crawford County, it wouldn’t be a big deal. Unfortunately, uncertainty about Congress and the federal government pervades the economy – which, it should be pointed out, is doing well right now. Maybe we’re all getting used to it, but these fiscal cliffs and government shutdowns still take a toll.

In December, Congress did pass a $1.1 trillion bill that will fund a big part of the government through the rest of the fiscal year, so there shouldn’t be too big of a crisis for a while. But Congress also kept some of the waters muddied by extending 55 tax deductions retroactive to the beginning of 2014 but not for 2015. The purpose of a deduction is to encourage behavior, but for that to happen effectively, people have to know what the rules will be moving forward. Beneficiaries of those deductions might assume Congress again will extend them retroactively, but they don’t know that with certainty, and that affects how they will plan and invest.

The big national argument is always about the size of the government, and rightfully so. But the truth is that people are resourceful, and if they know the rules, the economy can thrive even when the government is bigger than it should be. Like a tree growing on a rocky mountain, job creators of all sizes will take root and grow in less than ideal conditions.

But that tree only grows because the rules are clear – keep digging to find the nutrients, and reach toward the sun. This can be done even in inhospitable rocky terrain.

It’s much harder to do it in shifting sands.

Leave a Reply

Your email address will not be published. Required fields are marked *