Debt Deal Could Mean More Painful Cuts for Transportation

The House and Senate are getting close to voting on a deal, reached over the weekend, to raise the debt ceiling and cut spending.

President Obama tells reporters about the debt deal. Note VP Joe Biden slumped in the corner, jacketless. The man must be exhausted. Photo: AP

There’s nothing in the legislative text that says anything specifically about transportation or the Highway Trust Fund, but it’s clear that the cuts mandated in the agreement will affect all sectors. This comes after several rounds of budget cutting this spring. Although some key programs, like high-speed rail, were high-profile victims at that time, solid investments like TIGER and other livability initiatives survived. Some of the cuts were really phantom savings, cutting contract authority that was never going to be used anyway. There are no more easy cuts left to be made in transportation.

The weekend’s debt deal trades a $900 billion raise in the debt ceiling (accomplished in two stages) for $917 billion over the next decade in discretionary spending cuts – reducing domestic discretionary spending to the lowest levels since Eisenhower was president – and including $350 billion in defense cuts – the first defense cuts since the 1990s. Later this year, the debt ceiling will be raised by another $1.2 trillion to $1.5 trillion, depending on the deficit reduction recommended by a special new bi-partisan, bi-cameral committee and agreed to by Congress. Alternately, if Congress passes a balanced-budget amendment (the preference of many Republicans), that would satisfy the conditions for raising the debt ceiling.

In the absence of such an amendment, if committee members can’t come to an agreement, or Congress fails to pass their recommendations, across-the-board cuts will automatically be implemented, cutting equally from defense and non-defense spending. Medicare, social security, and some other social safety net programs would be exempted.

After seeing discretionary spending cut time after time with no sacrifices demanded of the defense sector, it’s remarkable that social programs, not defense, were the ones shielded from the painful cuts. Meanwhile, by spreading cuts around to a greater number of agencies, including massive spenders like the Pentagon, each affected agency is affected less.

Still, infrastructure spending is vulnerable. The White House fact sheet on the debt deal, in the section about the automatic cuts triggered by a failure to act on the committee’s recommendations, says:

If the fiscal committee took no action, the deal would automatically add nearly $500 billion in defense cuts on top of cuts already made, and, at the same time, it would cut critical programs like infrastructure or education. That outcome would be unacceptable to many Republicans and Democrats alike – creating pressure for a bipartisan agreement without requiring the threat of a default with unthinkable consequences for our economy.

Under the normal spending cuts regime (not the nuclear option of the automatic, across-the-board cuts) the Department of Transportation is grouped with all other discretionary spending for cuts. The Highway Trust Fund is not discretionary, since it has its own funding source. Streetsblog has asked Senate staffers if any of this will make it harder for the Finance and EPW Committees to justify spending $12 billion more than trust fund receipts, as spelled out in the Senate transportation bill – even if that $12 billion comes from another budget item and doesn’t add to the deficit. No response yet.

Another Senate staffer says that while there are not cuts specific to transportation, the cuts will be “pretty devastating to every discretionary program.”

In addition to spending cuts and the possibility of tax reform in the committee recommendations, the expiration in early 2013 of the Bush tax cuts on the rich also ensures some deficit reduction. If more savings aren’t found, the president says he will veto an extension of those tax cuts. The White House estimates that would generate nearly $1 trillion; other estimates have put the added revenue closer to $700 billion over ten years.

In his sales pitch to House Republicans [PDF], Speaker John Boehner is trumpeting his victory in keeping tax increases at bay – and indeed, for now, President Obama’s proposals to close loopholes on the oil industry and corporate jets are not in the bill. But the 12-member fiscal committee is tasked with finding deficit reductions in both cuts and revenues – teeing up another Congressional brawl over taxes later this year.