Now, with the term “double-dip” printed on the pages of The New York Times, a downgraded U.S. debt and a Congress that cannot even keep the Federal Aviation Administration (FAA) running (halting work on hundreds of airport construction projects), the outlook for equipment distributors can, at best, be described as uncertain.

Within this environment, the toughest reauthorization in the history of the federal highway program is about to get tougher. Anti-tax activists are targeting the gas tax and bills letting states “opt out” of the federal highway program are gaining support on Capitol Hill. Infrastructure investment is threatened like never before. Now more than ever, we need industry leaders to weigh in with lawmakers and restore reason to the debate.

Tax-Collecting Authority Expires at End of September
Enacted in 2005, SAFETEA-LU (the last long-term congressional authorization of the nation’s surface transportation programs) authorized expenditures and the collection of the gas tax and other Highway Trust Fund (HTF) user fees. But whereas the law’s spending authorization expired on September 30, 2009, most of the user fee collection authority in SAFETEA-LU expires September 30, 2011.

Since September 2009, money for highway projects has flowed through a series of short-term authorization extensions, the most recent of which expires at the end of September. The next extension fight will be different because in order to keep the federal highway program functioning, Congress will have to extend both the spending authorization and taxes. In past years, this would have been non-controversial, but as the debt ceiling debate and FAA shutdown have proven, this isn’t anything like past years.

Rand Paul: ‘Let’s Eliminate the Gas Tax’
In recent days, anti-tax lawmakers suggested that they might force a fight over the gas tax when Congress returns from its August recess. Sen. Rand Paul (R-KY) said, “Let’s eliminate the gas tax. That would lower the price of gasoline and that would be a stimulus to the economy.”

Talk of gas tax repeal or suspension is nothing new. What’s different is that in past years, getting rid of the tax would have required highway program opponents to pass repeal bills in both houses of Congress; this year, the burden of action is on highway supporters and most of the gas tax will lapse if Congress doesn’t act.

Letting States ‘Opt Out’ of the Highway Program?
Given the federal government’s other budgetary challenges, it’s hard to imagine that Congress would let the gas tax expire. But even if the repeal threat is exaggerated, antipathy towards the highway program seems to be growing. Legislation introduced in the House and Senate (H.R. 1585, S. 1466) would allow states to opt out of federal surface transportation programs and spend gas tax revenues collected within their borders on transportation projects without federal mandates or restrictions. As of August 11, the Senate bill had 14 co-sponsors; the House bill had 24.

‘The Worst Kind of Pandering’
Letting the gas tax expire and devolving the highway program to the states are terrible ideas representing the worst of political pandering. The simple fact is that our interstate highways are the circulatory system of the economy. We should be investing much more in infrastructure, not less.

Eliminating fuel taxes would cost billions of revenue dollars, bring construction projects around the country to a halt, and put tens of thousands of Americans out of work. Given the federal highway program’s $2.5 billion annual equipment market impact, Associated Equipment Distributors (AED) members would be devastated. Congestion, which costs the economy $115 billion per year in wasted time and fuel, would worsen, further undermining our competitiveness. And there’s no guarantee tax savings would be passed to drivers or that states would increase their user fees to make up for funding shortfalls.

Letting states opt out of the highway program is just as ridiculous. AED is certainly skeptical of the federal government’s role in many areas, but transportation is not one of them. Only the federal government can coordinate the construction of a national network of roads. And the donor-donee state issue that’s driving the “opt out” bills doesn’t carry weight either. Yes, some states send more taxes to Washington, D.C. than they get back. But, those states also benefit enormously from the highways that allow free movement across their borders.

A Wild September
September’s going to be a chaotic month in Washington. Recall that even before the gas tax repeal and turn back issues emerged, we were facing the prospect of a 35% cut in highway spending when the most recent SAFETEA-LU extension expires because HTF revenue streams are inadequate to support current investment levels.

Of course, the best way to address these issues would be for Congress to pass a new multi-year authorization bill. Earlier this month, Senate Majority Leader Harry Reid (D-NV) said he hoped to bring a highway bill to the floor shortly after Congress returns from its August recess. But given where things stand in the process, it’s inconceivable that a new authorization will be done by the end of September.

Even if the Senate were to complete a highway bill, its proposal remains miles apart from that floated by the House (no bills have been made public). Senate Environment & Public Works Committee Chair Barbara Boxer (D-CA) has suggested a two-year $109 billion bill. That’s essentially current funding ($41 billion per year) plus an inflation adjustment. The problem is that’s about $12 billion more than the HTF is expected to receive in user fee (gas tax) revenues. That leaves the Senate Finance Committee with the difficult task of making up the difference in the middle of the worst budget environment in memory.

Meanwhile, House Transportation & Infrastructure Committee Chairman John Mica (R-FL) would authorize highway and transit programs for six years (through FY 2017), but reduce annual funding to a level consistent with the money deposited into the HTF, meaning a 30% cut. The total value of the package would be $230 billion.

Given the federal role in equipment markets, the House proposal would deliver a severe blow to equipment markets. AED analyzed the state-by-state impact of reducing annual highway expenditures by 30% using data from the Federal Highway Administration and a report by Professor Stephen Fuller of George Mason University. Fuller’s 2008 study, commissioned by AED, found that each dollar in government highway spending creates an average of 6.4 cents in equipment market opportunity (EMO) (i.e., sales, lease, rent and product support). Fuller also found that each dollar spent on equipment generates $3.19 in direct and indirect economic activity. Fuller was not involved in the current analysis. (See The Biggest Losers exhibit below.)

AED estimates that slashing highway investment to $27 billion in 2012 could result in $902.8 million in lost revenue for equipment distributors next year and $5.416 billion in lost EMO over the next six years. The lost EMO alone would cost the U.S. economy $2.88 billion per year in reduced economic activity ($17.28 billion over six years). The Federal Highway Administration has already reported that letting highway funding drop would cost 490,627 jobs in 2012. Absent a highway deal, the construction equipment industry could be facing the worst of both worlds: a $27 billion annual funding program and no long-term certainty.

And there are bigger issues that will affect the federal investment. Next month, the bipartisan “super committee” will begin work on the deficit reduction plan mandated by the debt ceiling deal. LIFO and other industry tax and spending priorities, including infrastructure investment, are sure to be in the mix. And Congress hasn’t finished a single appropriations bill for FY 2012 and the continuing resolution (CR) negotiated during the budget showdown this spring also expires at the end of September. That means we’re looking at another government shutdown showdown.

Uncertainty Demands Action
In the face of this uncertainty, one thing is clear: the construction industry cannot sit on the sidelines. Employers and employees must let lawmakers know that inaction is not an option. It is up to us to hold our elected officials responsible and ensure they make the necessary investments in American infrastructure. Want to get engaged? Go to www.AEDaction.org.

Christian A. Klein is vice president of government affairs and Washington counsel for Associated Equipment Distributors, the association representing independent, authorized distributors of construction, mining, forestry and agricultural equipment. He can be reached at [email protected]. Follow AED’s Government Affairs Office on Twitter: @aedgovaffairs.