Reconnecting America Releases Analysis Of Obama Budget Proposal

Analysis of the President's FY 2012 Budget
The Administration's FY2012 budget request to Congress focuses on advancing economic growth and job creation through investments in education and job-training; incentivizing innovation and investment in research and development; rebuilding crumbling infrastructure; and reducing America's fiscal deficits through bipartisan cooperation. The budget request totals $3.73 trillion with significant funding for transportation-related investments, and budget cuts and reductions to programs in several depart­ments.

The request, if implemented, could have a profound impact on the goal of creating equitable, economically sustainable communities. It proposes reductions to popular Housing and Urban Development (HUD) programs, but continues to support the Sustainable Communities Initiatives. The budget also makes substantial investments in the Federal Transit Administration (FTA) and other transportation programs—and backs those investments with smart, possibly transformative, policy and programmatic changes.  The theme of “doing more with less” is clear throughout the request, even for programs slated to receive additional funding.

Top Line Themes

» Increased use of competitive grant programs, some modeled after the Department of Education's “Race to the Top” program. These programs seek to reward innovative programmatic changes at the state level, particularly those that contribute to national goals.

» Increased use of private capital to build public infrastructure. Programs that use federal funds to attract private-sector participation see a significant increase in resources and application. These new financing programs should provide a significant boost to local communities that are raising local revenues for transportation and wish to accelerate construction.
Significant Policy Shifts

» The President proposes to rename the Highway Trust Fund as the Transportation Trust Fund, officially recognizing that our transportation network is multimodal. The proposal calls for depositing sufficient revenues into the Transportation Trust Fund to cover all surface transportation programs, ending the practice of funding rail and transit programs with general funds. However, no revenue source is identified to support the proposed funding levels.

» Transportation programs are converted to mandatory, not discretionary, spending, limiting Congress' ability to reduce program levels during the annual appropriations process. Mandatory spending is subject to Congressional PAYGO rules, which require increased spending to be paid for, preventing Congress from authorizing more spending than the Trust Fund can support.

» The Federal Highway Administration (FHWA) budget includes funding to promote livability, with $4.1 billion in 2012 and $28 billion over six years in new grants; FHWA will also offer a competitive grant program to encourage better coordination between state and local transportation plans.

» New “Transportation Leadership Awards” will provide $32 billion over six years in a competitive grant program for exemplary states that pursue a bold reform agenda.

» A new National Infrastructure Bank would invest in projects of demonstrable merit, determined through analytical measures of performance.

» FTA funding more than doubles to $22.2 billion in FY 2012, and the Federal Railroad Administration sees an additional $8 billion for intercity and high-speed rail in FY 2012.

Equity Implications
The President's budget reduces funding to perennially popular programs serving traditionally disadvantaged communities. However, the reforms sought in reauthorization of the surface transportation bill could provide protections that are more durable and important over the long-term. The proposed Infrastructure Bank may jump-start investment in low-income communities and provide increased employment and housing opportunities—with the proper incentive structure.
In an era of increased private sector participation, clear and sustained policy direction is needed to signal that equity and livability will be profitable over the long-term. Local communities and states need to know that federal investment will be partially contingent on sound equity analysis and sustained investment. The President's proposal shows great promise in providing clear policy directives. The development of new incentives and competitive grant programs, along with increased funding, will sustain the equity agenda—if the proper metrics are used.

The forthcoming release of the six-year transportation reauthorization bill, which provides the metrics that will help direct funding, will show what level of commitment there is to achieving equity through better housing and transportation investments.

Departmental Analysis

Department of Transportation
The President's Budget includes the outlines of a proposal for a six-year, $556 billion surface transpor­tation reauthorization bill. The proposal includes $119 billion for transit programs over six years, more than doubling the commitment to transit in the prior reauthorization. The Budget also provides $53 bil­lion over six years to fund the development of intercity and high-speed passenger rail and, notably, in­tegrates the federal high-speed rail program and Amtrak's stand-alone subsidies into an integrated national strategy for intercity rail. Furthermore, the Administration proposes to reclassify all surface transportation outlays as mandatory spending and move transit and intercity/high-speed rail programs into the Transportation Trust Fund (formerly known as the Highway Trust Fund).
The six-year plan also includes $30 billion to establish a National Infrastructure Bank (NIB) that will pro­vide loans and grants to support transportation programs and projects of regional or national signifi­cance.

The Transportation Infrastructure Finance and Innovation Act (TIFIA) program was created in 1998, in an effort to attract private sector investment to infrastructure development. TIFIA is proposed to move from FHWA and integrated into the NIB. TIFIA will more than triple in size and could leverage up to $13.5 billion in funding for transportation infrastructure construction.

The Administration also proposes to bring back Build America Bonds (Department of Treasury), which are interest-subsidized bond programs meant to make debt cheaper for local communities, while at­tracting private capital through a taxable bond that provides higher interest than municipal bonds. The interest subsidy is proposed to drop to 28% from the higher subsidy of 35% in the American Recovery and Reinvestment Act.

The Administration's proposal consolidates 55 duplicative, often-earmarked highway programs into five streamlined ones, and adopts a “fix-it-first” approach for highway and transit grants, requiring states and localities to report on the condition of existing infrastructure and on performance measures.

The six-year plan also includes a Livable Communities Program within the Federal Highway Administra­tion, which would provide formula- and grant-based funding for plans and projects that improve the quality-of-life and increase transportation choices in rural and urban areas.  This program is funded at $4.1 billion in FY2012. 

With regard to transit, the six-year plan consolidates the “Rail Modernization” program and the “Bus and Bus Facilities” program into a single “Bus and Rail State of Good Repair” program which will be distrib­uted on a formula basis. Transit programs serving the elderly and disabled and providing job access services are consolidated as well. The proposal also would allow urbanized areas with population greater than 200,000 to use a portion of formula funds for operations during times of high unemploy­ment.

Looking only at FY2012, the total budget for DOT is $128 billion – a $53 billion increase over 2010 lev­els. In FY 2012 only, the Administration's Budget includes a first-year funding boost of $50 billion, de­signed to jump-start investment and stimulate job growth. This first-year boost is distributed among various programs; for example, $1 billion in additional funding is designated for the New Starts pro­gram, which funds transit capital projects, bringing the total funding for New Starts to $2.4 billion in FY 2012. There is also $2 billion in the first-year boost for a single round of competitive funding awards under the TIGER program (which has been renamed “National Infrastructure Investments”), as well as additional funding for TIFIA.

Housing and Urban Development
The U.S. Department of Housing and Urban Development requested a $48 billion budget, which fo­cuses on buttressing core programs. Funding for several popular programs was reduced, including re­sources for the Community Development Block Grant (CDBG), HOME Investment Partnerships, and new construction components of the Supportive Housing Programs for the Elderly (202) and Disabled (811) programs. The budget reduces funding for the CDBG by 7.5 percent or $300 million, and reduces the HOME program by $175 million.

The budget continues to provide support for the Sustainable Communities Initiative by including $150 million for communities to develop comprehensive housing and transportation plans for sustainable de­velopment. This builds on the funding received by more than 100 grant recipients through the HUD/DOT/EPA Inter-Agency partnership late last year. The funds will be administered through the Of­fice of Sustainable Housing and Communities (OSHC) and includes $40 million for the Challenge Plan­ning Grants for local community planning. OSHC also plans to secure funding to commission a database that would track energy efficiency in HUD assisted housing.

The Choice Neighborhoods program, which replaces the HOPE VI program, rehabilitates and trans­forms distressed high-poverty neighborhoods and received continued support with a requested $250 million funding level. The Choice Neighborhoods program is closely linked with the Department of Edu­cation's Promise Neighborhoods Initiative, which requested $150 million to support comprehensive education reform for youth in high-need communities.

In collaboration with the Department of Treasury, two reforms are proposed to the Low Income Housing Tax Credit (LIHTC) to give more flexibility to create and preserve affordable housing. The first reform would give more flexibility to the LIHTC by replacing the cap on household income at 60 percent of area median income (AMI) with the option that properties can serve households with incomes no greater than 60 percent of AMI and no individual household above 80 percent AMI, creating opportunities for more mixed-income housing. The second reform would allow for a basis boost which would give feder­ally assisted housing a 30 percent increase in eligible basis for bond-financed projects to preserve, re­capitalize and rehab existing affordable housing.

The budget request also calls for a new $200 million demonstration project, meant to attract private-sector funds to reduce the backlog of capital repair needs in public housing, while providing tenants with more neighborhood choices.

\The cuts at HUD continue the overall theme of the FY 2012 budget request—more private-sector in­vestment, consolidation, and doing more with less.

Conclusion
The President's FY2012 budget request makes a bold statement about the importance of investing in transportation infrastructure, reducing inefficiencies, and incentivizing innovation.  Congress will spend the next several weeks holding hearings on the President's budget in a number of committees, before developing the FY2012 appropriations bills later in the spring. The President's vision for America's future is clear.  It is now up to Congress to decide whether that vision will become reality.