Mike & Co. —
Below, a closer look at some of the many distinctive features of the Highway Trust Fund reauthorization that is likely to be voted on in the House today and the Senate next week, focusing on the offset provisions. Also note the coda on the Zadroga saga.
Section by Section Summary: http://transportation.house.gov/uploadedfiles/joint_explanatory_statement.pdf
CBO Score: https://www.cbo.gov/sites/default/files/114th-congress-2015-2016/costestimate/hr22_1.pdf
The House will vote later today on a $253 billion, five-year reauthorization of the Highway Trust Fund, which expires tomorrow. The bill provides $205 billion in highway spending and $48 billion in transit projects over the next five years and is the first long-term highway bill in ten years. The bill also reopens the shuttered Export-Import Bank until 2019.
The Senate is expected to follow suit quickly. Said the White House: “We would actually view this legislation as a step in the right direction, but only a first step because we believe that there are more infrastructure projects that are worthy of funding that would create jobs in the short-term and lay a long-term foundation for our ongoing economic strength over the long-term.” Obama proposed a six-year, $478 billion highway bill earlier this year.
The Fixing America’s Surface Transportation Act, or the FAST Act formally reauthorizes the collection of the unindexed 18.4 cents per gallon gas tax that is used to pay for transportation projects and includes $70 billion in pay-fors to close a $16 billion deficit in annual transportation funding that has developed as U.S. cars have become more fuel-efficient.
The federal government typically spends about $50 billion per year on transportation projects; the gas tax only brings in $34 billion annually. Spending from the Fund has outpaced dwindling gas tax receipts for several years, resulting in the average annual shortfall of about $16 billion. Congress has been struggling for years to come up with ways to pay for a long-term transportation funding extension without raising taxes
In a surprise, the Fed gets dinged for a chunk of the rest of the check this time. The two biggest offsets: 1) capping the Fed’s surplus account at $10 billion and sweep the rest to Treasury, and; 2) reducing the dividend rate for capital that banks with more than $10 billion of assets in the Federal Reserve system.
Several conferees said they begrudgingly swallowed many of the pay-fors, including a plan to dig into the Federal Reserve’s pockets and a separate idea to funnel revenue from a customs fee levied on airline and cruise passengers to the Fund. House Ways and Means Chair Kevin Brady said he opposed using revenue from the customs fees but ultimately signed off the conference report.
The offsets also include changes to passport rules for applicants delinquent on taxes. Other mechanisms include contracting out some tax collection services to private companies — over the objection of unions that represent federal IRS workers. These and the other major offsets are detailed below.
- FRB Dividend– effective January 1, the dividend paid to big banks will drop from 6 percent to the latest high yield on 10-year Treasurys (currently around 2.15 percent, higher than the originally proposed 1.5 percent ), but no higher than 6 . That is, banks would retain the lesser percent of the 6 percent and the 10-year Treasury rate. Banks with assets under $10 billion would be exempted from the rate cut; the $10 billion cutoff would be indexed to inflation.
Fed Chair Janet Yellen opposed the provision but not vociferously and the House in its own bill had replaced the provision with a permanent liquidation of a surplus fund the Fed keeps as a cushion against losses.
The conferees did agree to shield banks with less than $10 billion in assets from the dividend reduction. Banks above the asset threshold would likely receive a smaller dividend linked to the yield of a 10-year Treasury note.
Originally adopted in the Senate as a cut in the dividend to 1.5 percent this summer but removed by the House, it is back in this modified version in the final deal. But the Treasury yield is rarely below 2 percent and could rise when the Fed raises interest rates so losses to banks will be marginal compared to the 6 to 1.5 percent cut first floated in July.
- . Rainy Day Fund– A trim off a reserve fund held by the Fed capping the Fed’s surplus account at $10 billion and transferring the rest to the Treasury to finance the Fund. Conferees agreed to let the central bank keep up to $10 billion in its surplus fund and send the rest to the Treasury. That fund today is around $29 billion. The Fed has argued that the budget maneuver threatens its independence. Congress has tapped the Fund in the past but not to this extent.
- . SPR Sales– Sale of 66 million barrels of crude oil from the Strategic Petroleum Reserve and tax compliance measures. Sales of 16 million in FY23, 25 mil in FY24, and 25 mil. in FY25.
- GSE Fees– Extension of GSE guarantee fees from October 1, 2021 to October 1, 2025.
- Automatic Extension– Repeal of the 3½ month automatic extension for filing returns of employee benefit plans, Form 5500.
- Debt Collection– Authorization for the IRS to hire private debt collectors and to revoke passports of those with more than $50,000 of seriously delinquent debt. Efforts to use private collection agencies to collect federal taxes were scuttled twice in the past 20 years — both times revenue fell.
- Indexation– Inflation adjustment of certain customs fees.
With this latest bill, Congress once again looks the other way on the issue, meaning lawmakers will be back to square one on the funding shortfall in just a few years.
The conference expanded a suite of regulatory changes that went beyond some that the House passed in its draft of the highway bill. The changes target a range of issues from a key CFPB rule to legal barriers getting in the way of derivatives reporting.
It would extend legal protections to lenders on mortgages with ballooning payments made in rural or underserved areas even if the lender does not predominately operate there. This would expand the amount of loans that would be considered “qualified mortgages” and thus meet the CFPB’s ability-to-repay requirements that went into effect last year. The bill would also force the CFPB to accept petition requests to designate certain areas as rural or underserved that the bureau hasn’t designated already — one of the community banking sector’s top priorities.
By the way, there is a coda on the Zadroga bill here. Sen. Boxer, confirming that the Zadroga provisions for 9/11first responders were ultimately not included called it “really a big disappointment that that didn’t get added at the end. I think we should have done it, but you know what? It’s a negotiation. I didn’t get everything I wanted.”
All but three Democratic conferees signed the report. Sen. Schumer didn’t because the Zadroga bill was left out. Sens. Sherrod Brown and Ron Wyden didn’t agree to the deal either for unrelated reasons.
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