“If Congress fails to fund it [the Highway Trust Fund], it runs out of money. That could put nearly 700,000 jobs at risk.”
— President Obama, remarks at the Turner-Fairbank Highway Research Center, McLean, Va., July 15, 2014
This is fairly standard language from the president and other administration officials about the Highway Trust Fund, and a number of readers have asked how the 700,000 figure is calculated. It’s taken a few days, but here are some answers.
The Highway Trust Fund, which is mostly funded by taxes on gasoline and diesel, provides about $46 billion a year to states to help support highways, rail and public transportation. But revenue has fallen short in recent years — in part because of better fuel efficiency and less driving and also because the gas tax has not kept pace with inflation. Since 2008, Congress has had to periodically make up the difference with transfers from general revenue.
The trust fund also is not permitted to run a deficit, so for complicated reasons, at least $4 billion must be kept in the highway account or else payments to states must be delayed. (There is also a mass transportation portion that needs a minimum of $1 billion.) On top of that, the fund must be reauthorized by Oct. 1, but there is broad support for the program even in a divided Congress. The House of Representatives on Tuesday passed an extension of the fund until May, as has the Senate Finance Committee, though of course the details of the funding still need to be settled.
The Congressional Budget Office has estimated that $15 billion will be needed in fiscal 2015 to keep the trust fund solvent. Administration officials say that even before the end of the fiscal year Sept. 30, payments to states may need to be slowed or curtailed as the trust fund gets close to the $4 billion mark.
Earlier this year, the Center for American Progress, a left-leaning think tank, took the CBO estimate and calculated that a failure to provide that additional funding would result in as many 185,000 layoffs. Not all of these are construction jobs; the figure contains jobs “indirectly” created from the funding (such as suppliers to highway construction) and “induced” jobs, which are jobs created as construction workers and others spend their earnings.
That’s a lot of jobs, but it’s far fewer than 700,000.
So why is the administration’s number so much higher? That’s because the White House is assuming that the entire trust fund would not be authorized at all — even though just about no one in Congress supports that position. Note that the president phrased it in a highly tentative way – “could put nearly 700,000 jobs at risk.”
The administration’s phrasing has also led reporters to mischaracterize what this number means. For instance, Obama on Tuesday spoke of Congress failing “to fund it” — not failing to reauthorize it. Thus much of the reporting has suggested that 700,000 jobs were at stake over the funding issue.
White House officials note that they have used a relatively conservative figure — 13,000 jobs (technically job-years) per $1 billion of spending — to calculate the 700,000 number. This stems from a 2011 Council of Economic Advisers calculation, which was a reduction of a previous estimate. Other estimates provided by the White House suggest 25,000 jobs per $1 billion, 29,000 jobs per $1 billion, 36,000 jobs per $1 billion and even 44,000 jobs per $1 billion — which certainly shows how uncertain the craft of economics can be.
Some readers might object to counting indirect and induced jobs as part of the calculation, but this “multiplier effect” is fairly standard in terms of assessing economic impact. The White House was not able to provide a breakdown in its estimate, but a report produced for the American Public Transportation Association suggested that the impact from transportation investment works out to about 1/3 direct jobs, 1/3 indirect jobs and 1/3 induced jobs. (See page 28.)
In other words, a failure to add $15 billion to the Highway Trust Fund in fiscal 2015 could mean the loss of 65,000 construction jobs — before even counting the indirect effects of such job losses. That’s not a trivial amount.
“The fact is that the Highway Trust Fund will expire in September, and up to 700,000 jobs would be at risk if Republicans in Congress block a solution to extend this important bill,” the White House said in a statement. “We’ve been calling on Congress to find a solution that avoids this scenario and we’re encouraged to see that they are moving toward a bill to do that. But we will keep pushing to do more to fix our crumbling roads and bridges and create jobs, help American businesses, and grow our economy.”
The Pinocchio Test
We acknowledge that the administration has been using this figure for a number of months, when the congressional outlook was less clear, and that the president on Tuesday did note the “good news” that there are bipartisan bills proceeding through both chambers. But there’s increasingly an “expired” stamp on this 700,000 number.
While the White House is using a relatively conservative estimate for the impact of transportation funding, it gilds the lily by continuing to cite a job-loss figure that assumes the Highway Trust Fund is not going to be reauthorized. With both houses of Congress aiming for at least a short-term fix, the chances of that happening are fairly slim indeed.
Obama would be on more solid ground if he said the Highway Trust Fund supported as many as 700,000 jobs a year, as a way of illustrating its overall economic impact. But, in terms of the pending funding gap, this is a misleading figure to use.
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