Yesterday Congress adjourned without taking any action on energy policy. While not surprising, it’s really a shame for a lot of reasons. Some reasons we hear a lot about. Some we don’t.
For example, when the price of gasoline was only $1.25 a gallon, federal and state governments had no problems raising gas taxes. But now that fuel prices are up, revenue shortfalls caused by decreased gasoline demand, combined with poor energy policy, is contributing to a severe shortfall in highway funds. An L.A. Times report from July 21 gives an overview of the problem.
The President’s and Congress’ budget offices agree that the Federal Highway Account is projected to have a negative balance as early as 2009 or as late as 2011, respectively.
This particular government-related problem, among many we’re seeing in a downturned economy, will impact our ability to build transportation infrastructure in California in the next several years and perhaps beyond. That means building fewer roads, highways and interchanges.
About half of the road and highway projects in my area are funded by local sources, most notably a locally approved sales tax. Our ‘recovered’ state and federal gas taxes pay for most of the other half. But what these dollars pay for decreases every year as rising material and labor costs combine with costs added by onerous and inflexible state and federal environmental and other regulations.
Add to these factors the state’s past practice of borrowing from transportation funds or delaying state projects to balance its budget and you’re starting to see the full picture. While the voters approved two measures to prevent raids on transportation dollars, in a fiscal emergency (of which we are currently embroiled in the self-inflicted variety), these funds are at risk. Diverting these dollars would have a “domino effect” on regionally significant projects, including seven currently programmed San Bernardino County interchanges. Fortunately, both parties on Thursday signaled that no raid on transportation funds is on the table.
On the federal side, some want to get the feds’ contribution to transportation up to par. Among the recent findings of the National Surface Transportation Policy and Revenue Study (“1909”) Commission: “The annual (national) investment shortfall to improve the condition and performance of all modes of surface transportation – highway, bridge, public transit, freight rail, and intercity passenger rail – ranges between $140-$250 billion. … Address this investment shortfall by providing the traditional federal share of 40% of total transportation capital funding.”
One way to do that would be to more than triple the federal gas tax from 18.4 cents a gallon to over 60 cents. Another way (and a more popular way, polling indicates) would be to hold the line on those taxes and address the supply side of oil economics, including more domestic production, which would reduce prices and encourage more fuel consumption, creating more economic activity and a resulting increase in tax revenues.
Events of the past two weeks show that market forces are at work and legislative leaders need to take note. From mid-June to mid-July, oil prices rose to record levels – around $147 a barrel. On July 14, President Bush signed an executive order to lift the ban on some offshore drilling along U.S. coastlines. The next day, oil began a record descent, from $147 to a current $123 a barrel. Oil has fallen more in price (and at a faster rate) than at any time oil has been traded on the open market. President Bush made it clear that the “ball is in Congress’ court now” (a Congressional ban on drilling is still in effect). But so far, Congress has made it clear that it is adamantly opposed to any offshore drilling, saying we would not see results for five, ten or even twenty years.
I don’t know what indicators they’re looking to for results, but this record drop in oil prices might just be one. Even actions that don’t produce immediate tangible changes in U.S. oil supply – like lifting the executive ban on offshore drilling – resulted in a record $24 price decrease in a barrel of oil over only a ten day period. Gas prices are also declining as a result.
California Congressman Jerry Lewis (R-Redlands), frustrated by the majority party’s obstructionism, said Thursday: “The mere message that Congress was actually debating energy policy — in meaningful, bipartisan debate — would send a signal to the markets and to foreign suppliers of oil that the United States is serious about addressing its energy future. That powerful message would send oil prices down overnight. …In fact, the House Appropriations Committee has not moved any bills through full committee since June 25th because of a pending energy production amendment supported by a bipartisan majority of Committee members but opposed by the majority leadership.”
Senator Patty Murray (D-WA), chair of the Senate transportation appropriations subcommittee, instead of agreeing to debate alternatives, is staying fixed on the far-left line against drilling despite public support for it. She and most of her party colleagues are clinging to the notion that the oil companies can drill on land they currently lease that so far hasn’t been used. One problem with this non-solution is the fact that much of that land does not contain oil.
Oil and gas have pulled back in price and will, for a short time, increase tax revenue because people will be willing to buy more. However, this will not last if there are not some meaningful policy changes in the very near future.
The American economy can’t be expected to correct its course in a strategically or even an environmentally acceptable way if the main commodities needed for its lifeline are artificially constrained so that politicians can score short-term political points in an election year and then lack the courage to effect needed change even when the election is over.