CONGRESSWOMAN ELISE STEFANIK
On Friday, June 29, 2012, the House is scheduled to consider the Conference Report accompanying H.R. 4348. The bill was introduced by Rep. John Mica (R-FL) on April 16, 2012, and was referred to the Committee on Transportation and Infrastructure as well as the Committees on Ways and Means, Natural Resources, Science, Space, and Technology, and Energy and Commerce. On April 18, 2012, the bill was approved in the House by a vote of 293-127.
The Conference Report accompanying H.R. 4348 would reauthorize federal surface transportation programs and extend the authority to appropriate funds from the Highway Trust Fund (HTF) for federal highway and surface transportation programs for two years, through September 30, 2014. The Conference Report would also extend current excise taxes used to provide funding for the HTF. The Conference Report would set the obligation limit for Federal-aid highway and highway safety construction programs at $39.69 billion for FY 2013 and $40.25 billion for FY 2014. The legislation would also authorize a total of $10.5 billion for Federal Transit Administration programs in FY 2013 and $10.7 billion in FY 2014. The Conference Report would include offsets to cover shortfalls between transportation spending levels and HTF tax revenue. Under current law, surface transportation spending authority is set to expire on June 30, 2012.
The bill would reform a number of transportation spending programs by consolidating or eliminating certain duplicative highway programs, requiring faster project approval, and by streamlining environmental review of the impacts of projects. In addition, the bill would prevent interest rates on new federally subsidized Stafford Loans made to undergraduate students from increasing from 3.4 percent to 6.8 percent for one year, through July 1, 2013. The bill would also reauthorize and amend the National Flood Insurance Program (NFIP) for five years, through September 30, 2017. The bill also includes language contained in the RESTORE Act, which would establish the Gulf Coast Restoration Trust Fund and dedicate 80 percent of penalties paid by the responsible parties in connection with the Deepwater Horizon oil spill to the restoration of the Gulf Coast ecosystem and economy.
Since federal highway funding in the legislation would exceed expected revenue from the highway trust fund and maintaining lower student loan rates would reduce revenue, the bill includes provisions to offset the deficit impact of the legislation. The Conference Report would alter the manner by which employer pension plan liabilities are calculated and would increase fixed premiums paid by employers into the Pension Benefit Guarantee Corporation. These provisions would result in $19.9 billion in deficit reduction which would be used, in part, to offset transportation funding. The bill would transfer $18.8 billion from the general fund to the HTF—$6.2 trillion in FY 2013, $10.4 billion in FY 2014, and $2.2 billion for the Mass Transit Account—and fully offset these transfers with funds derived from pension reform, flood insurance reauthorization, roll-your-own tobacco provisions, and transfers from the Leaking Underground Storage Tank Trust Fund. These provisions would also be used to offset the costs associated with the extension of the current Stafford Loan rate subsidy. A summary of the bill’s offset provisions is below.
Surface Transportation Reauthorization
The Conference Report to H.R. 4348 would extend the authority to collect taxes and appropriate funds from the Highway Trust Fund (HTF) for federal highway and surface transportation programs through September 30, 2014 (the entirety of FY 2012). Current authority to appropriate funds from the HTF under the Safe, Accountable, Flexible, Efficient Transportation Equity Act: a Legacy for Users (SAFETEA-LU) was most recently extended in March 2012 by H.R. 4281, and is set to expire on June 30, 2012. The Conference Report would set obligation limits for spending from the HTF at $39.69 billion for FY 2013 and $40.25 billion for FY 2014. In addition, the Conference Report would authorize a total of $10.5 billion for Federal Transit Administration programs in FY 2013 and $10.7 billion in FY 2014.
Federal-Aid Highway Programs Authorizations: The Conference Report would authorize surface transportation programs for two years, through September 30, 2014. The bill would authorize funding for Federal-Aid Highway programs at $37.4 billion for FY 2013 and $37.7 billion for FY 2014. In addition, the bill would authorize $1.7 billion in funding for the Transportation Infrastructure Finance and Innovation Program through FY 2014 and $380 million for territorial highway programs through FY 2014.
Highway Trust Fund Obligation Limitations: The Conference Report would set the obligation limit for highway program spending from the HTF at $39.69 billion for FY 2013 and $40.25 billion for FY 2014.
Highway Trust Fund Excise Taxes: The Conference Report would extend current excise taxes used to provide funding for the HTF through September 30, 2016. The Conference Report would follow the traditional practice on highway bill reauthorizations of extending the HTF excise taxes for a longer period than the reauthorization of the general HTF expenditure authority and of the highway programs. This longer extension of the trust fund taxes is intended to facilitate administration of the taxes even in the event of a future lapse in the authority of the underlying HTF expenditure authority and highway programs. The Conference Report would extend these excise taxes at their current rates as follows:
Extension of Highway Safety Programs: The Conference Report would provide spending authority for highway safety programs carried out by the National Highway Traffic Safety Administration through September 30, 2014, including the following:
H.R. 4348 would also authorize $215 million in FY 2013, $218 million in FY 2014 for Motor Carrier Safety Grants, $251 million in FY 2013, and $259 million in FY 2014 for Administrative Expenses of the Federal Motor Carrier Safety Administration.
Federal Transit Administration: The Conference Report would authorize a total of $10.5 billion for Federal Transit Administration programs in FY 2013 and $10.7 billion in FY 2014.
Federal Highway Project Approval Reforms and Streamlining: The Conference Report would make a number of reforms to the federal highway program’s project approval process in an effort to accelerate the implementation and completion of federal highway projects. The bill would create enforceable deadlines for project approval under the National Environmental Policy Act (NEPA) review process and would exempt small scale projects from NEPA reviews. Specifically, the Conference Report would implement the following provisions:
Program Reform & ConsolidationThe Conference Report would consolidate and eliminate a number of Transpiration programs in an effort to better focus limited gas tax revenues on critical needs. According to the Transportation Committee, since the creation of the Highway Trust Fund and the core highway and bridge programs, numerous additional federal programs have been created, diluting the focus of the Trust Fund. Currently there are well over 100 programs. In the last four years, $35 billion in General Fund transfers have been necessary to maintain Highway Trust Fund solvency. Specifically, the bill would do the following:
Funding Transfers: The Conference Report would transfer funds from the General Fund of the Treasury to the Highway Trust Fund in order to fill shortfalls between highway program expenditures and Highway Trust Fund tax revenues. This transfer would be fully offset by other provisions in the Conference Report. Specifically, the Conference Report transfers from the General Fund to the Highway Account of the HTF a total of $6.2 billion for fiscal year 2013 and $10.4 billion for fiscal year 2014, and from the General Fund to the Mass Transit Account of the HTF $2.2 billion for fiscal year 2014. In accordance with the budgetary scorekeeping conventions applicable to inter-fund transfers, the Joint Committee on Taxation (JCT) estimates that this provision would have no revenue effect over 2012-2022. In addition, the Conference Report would transfer $2.4 billion from the Leaking Underground Storage Tank (LUST) Trust Fund to the Highway Account of the HTF (generally following the Senate provision). However, the Conference Report transfers these funds to the Highway Account, rather than to the HTF as a whole as prescribed under the Senate provision.
Offsets and Provision Relating to Pension Funding
Pension Funding Relief (“Smoothing”): The Conference Report would change the interest rate used to calculate liabilities of defined benefit plans (“Smoothing”) to provide employers relief from unusually low interest rates. Specifically, the bill would change how pension plan liabilities are calculated, basing on the single employer defined benefit pension plan liabilities on a 25-year average of the applicable interest rates as opposed to using using either spot interest rates or by taking into account the interest rates on corporate bonds over the prior two years. Under current law, pension plans measure their liabilities by applying a discount, or interest rate that is prescribed by law. The lower the discount rate, the more employers will have to contribute to fund their plans. Because interest rates have been low the past several years (due in part to extraordinary action by the Federal Reserve), the value of plan liabilities is very high, even when using two-year average interest rates. As a result, many employers have asked Congress to provide pension funding relief because of very large projected increases in required contributions over the next several years. The Conference Report would vary more than ten percent from the average interest rates over the prior twenty-five years in 2012. The reduction in pension contributions results in employers having more taxable income, which increases tax receipts as compared to the budget baseline. The provision would also result in increased Pension Benefit Guaranty Corporation (PBGC) premiums because plans would be less funded and, therefore, pay higher variable rate premiums. The Conference Report also includes a reform, which was not contained in the Senate provision, requiring underfunded plans to disclose to participants a comparison of the plan’s funding percentage, funding shortfall, and required contributions under both current law and under the conference report. JCT estimates that the pension funding relief provisions would reduce the deficit by a total of $9.394 billion over 2012-2022 (including $8.817 billion from increased revenues and $650 million from reduced PBGC outlays).
PBGC Premiums and Other PBGC Reforms: The Conference Report would increase the fixed premiums paid by single-employer PBGC pension plans from 35 per participant (indexed for inflation) to $42 for 2013, and $49 for 2014 (re-indexed for inflation). In addition, under current law single-employer plans also pay a variable rate premium equal to $9 per $1000 of underfunding. Multi-employer plans pay a premium equal to $9 per participant, which is indexed for inflation. The Conference Report would set the variable rate premium to inflation starting in 2013, and increase the rate by $4 in 2015 and an additional $5 in 2016, and then re-indexed for inflation. The variable rate premium would also be capped at $400 per participant starting in 2013 (indexed for inflation). The multiple employer fixed rate premium would be increased to $12 starting in 2013 and then re-indexed for inflation. These reforms, which were not included in the Senate amendment to H.R. 4348, are designed to shore up PBGC’s financing in order to reduce the risk of a taxpayer-funded bailout.
The Conference Report would also make several reforms to PBGC’s governance structure, including setting certain new rules for PBGC’s General Counsel and Inspector-General, establishing a new office of Risk Management Officer, and requiring PBGC to hire the National Academy of Public Administration to study PBGC’s governance structure. Additionally, the Conference Report would create a new PBGC Participant and Plan Sponsor Advocate and would require annual peer review of PBGC’s insurance modeling systems. According to JCT estimates, these provisions which increase PBGC premium payments (when also including the interactive effects between the PBGC premiums and the pension funding relief provided under the prevision section of the conference report) would reduce the deficit by a total of $10.575 billion over 2012-2022.
Termination of PBGC Unsecured Line of Credit from the U.S. Treasury: Under current law, PBGC is authorized to borrow, on an unsecured basis, up to $100 million from the U.S. Treasury. Current law does not provide any means by which Treasury could recover any such loans provided to PBGC pursuant to this line of credit if PBGC were to go bankrupt.The Conference Report would immediately terminate this line of credit. This reform, which was not included in the Senate’s amendment to H.R. 4348, is designed to eliminate this avenue for a potential taxpayer-funded bailout of PBGC. According to JCT, this provision would have no revenue effect over 2012-2022.
Extension for Transfers of Excess Pension Assets to Retiree Health Accounts:The Conference Report would extend provisions of current law (set to expire in 2013) which allow employers to use “excess” pension plan assets to pay for retiree health benefits. Under current law, assets can only be transferred to the extent the pension plan is 125-percent funded (120-percent funded for collectively bargained and qualified future transfers). This provision of law was originally added to the tax code in 1990—on the grounds that if plans are very well funded, employers should be able to transfer extra plan assets, on a voluntary basis, to pay for other retiree benefits—and has been extended several times since. This provision is scheduled to expire on December 31, 2013. The Conference Report would extend this provision through 2021 and also allow the “excess” assets to be used for funding retiree life insurance (generally following the Senate provision). JCT estimates that this provision would increase revenues by $354 million over 2012-2022.
Roll-Your-Own Cigarette Machines:The Conference Report would change the definition of “tobacco manufacturer” to include businesses operating “roll your own” (RYO) cigarette machines. Under a law enacted in 2009, there is wide disparity among the excise tax rates on cigarettes ($50.33 / thousand cigarettes), “roll your own” (RYO) cigarette tobacco ($24.78 / pound), and pipe tobacco ($2.83 / pound). As a result, some companies that manufacture RYO tobacco have slightly modified their product such that it can be sold as pipe tobacco, which is subject to a lower tax rate. Also as a result of the disparity in tax rates, some businesses have begun selling machines to tobacco shops and other adult-only establishments that allow consumers to avoid the larger excise taxes by rolling their own cigarettes using the “new” pipe tobacco. Under the Conference Report, store owners would be liable for federal excise taxes on the tobacco products manufactured and would be required to pay $50.33 per thousand cigarettes. However, the Conference Report includes a clarification, which was not contained in the Senate amendment to H.R. 4348, exempting small machines sold for personal use at home. JCT estimates that this provision would increase revenues by $94 million over 2012-2022.
Interest Rate Reduction
The Conference Report would prevent the interest rates on new subsidized Stafford loans from increasing to 6.8 percent on July 1, 2012. Instead, interest rates for new subsidized Stafford loan borrowers will be maintained at the lower interest rate of 3.4 percent through June 30, 2013. In addition, the Conference Report would cap the length of time students may take out a subsidized Stafford loan to 150 percent of the published program length. Under current law, interest does not accrue on a subsidized Stafford loan while the student is enrolled in school. As a result of the new cap at 150 percent of program length, students pursuing a four-year degree will only be able to receive a subsidized Stafford loan for six years, at which point interest will start to accrue on that loan. Students who exceed the cap will still be able to take out an unsubsidized Stafford loan, which accrues interest while a student is in school. CBO estimates this policy will save $1.2 billion from the estimated $5.9 billion cost of extending the current interest rates.
National Flood Insurance Program
The Conference Report would reauthorize the National Flood Insurance Program (NFIP) through September 30, 2017, and amend the National Flood Insurance Act of 1968.
The bill would provide the Federal Emergency Management Agency (FEMA) with the authority to continue selling and renewing policies through fiscal year 2017, otherwise scheduled to expire on July 31, 2012. As the Congressional Budget Office (CBO) notes, the program is assumed to continue in the CBO baseline, consistent with the rules governing baseline projections for mandatory programs. Thus, extending the NFIP would have no effect on direct spending relative to the baseline.
The bill would make insurance coverage available for multifamily properties, defined as residential properties of five or more residences.
The bill would also reform the premium rate structure to exclude certain properties from receiving subsidized premiums, including: residential properties that are not the primary residence of the individual, severe repetitive loss properties, any property that has incurred flood-related damage in which the cumulative amounts of payments under this title equaled or exceeded the fair market value of such property, and any business property. This section would also prevent the extension of subsidized premiums to new policies or policies lapsed at the time of enactment of the Act.
Additionally, the bill would authorize the NFIP to increase premiums to accurately reflect the current risk of flood (the actuarial cost of the insurance) to a covered property by 20 percent per year over a five-year period.
The bill would also increase the minimum-policy deductible for structural coverage at $2,000 for subsidized properties and $1,250 for nonsubsidized properties. Under current law, FEMA has the discretion to set a minimum deductible.
The bill would also establish a Reserve Fund to be available for meeting the expected future obligations of the flood insurance program, to include the payment of claims and repayments of any amounts outstanding.
The bill would also require the FEMA Administrator to submit to Congress a report setting forth options for repaying within 10 years all amounts previously borrowed from the Treasury but not yet repaid.
Additionally, the bill would establish a Technical Mapping Advisory Council (TMAC) to develop and recommend new mapping standards for Flood Insurance Rate Maps (FIRMs).
The bill would also direct FEMA and the Government Accountability Office (GAO) to conduct a number of studies and issue reports on topics such as offering coverage for living expenses or business interruptions.
The HTF was established in 1956 for the purpose of funding the construction of an interstate highway system. The account is administered by the Federal Highway Administration, within the Department of Transportation, and distributes gasoline tax revenues annually to states for highway projects. The vast majority of total receipts for the HTF come from the federal highway users excise tax (the remainder comes from truck-related taxes such as truck and trailer sales, truck tires and heavy-vehicle use taxes). Currently the 18.4-cent federal gasoline tax is distributed with one-tenth of one cent going to the Leaking Underground Storage Tank Trust Fund and the rest to the Highway Trust Fund’s two accounts: 2.85 cents per gallon to fund the mass transit account and 15.44 cents per gallon to fund the highway account. The current highway program, the Safe, Accountable, Flexible, Efficient Transportation Equity Act—A Legacy for Users (SAFETEA-LU), expired at the end of FY 2009 and has since been authorized by a series of short-term extensions. The most recent extension (H.R. 4239) was approved in March 2012 and is set to expire on June 30, 2012.
A CBO cost estimate of Conference Report accompanying H.R. 4348 was not available as of press time.