Transportation, Housing and Urban Development, and Related Agencies

Budget Proposals

Transportation, Housing and Urban Development, and Related Agencies

May 20, 2019 21 min read

Blueprint for Balance FY2020 THUD

Eliminate the Transportation Department’s Essential Air Service Program

$317 Savings in Millions1

Mixed

President's Budget (FY2020) Status: Partially Included

Explanation: Reduces spending by $50 million from FY 2019 levels for the discretionary portion of EAS.

The EAS was established in 1978 as a temporary program to provide subsidies to rural airports following deregulation of the airline industry. Despite the original intention that it would be a temporary program, the EAS still provides Millions of dollars in subsidies to these airports. In fact, spending on the EAS has increased faster than inflation by orders of magnitude since 1996 despite the fact that commuters on subsidized routes could be served by other existing modes of transportation such as intercity buses.

The EAS squanders federal funds on flights that are often empty: EAS flights typically are only half full, and planes on nearly one-third of the routes are at least two-thirds empty. For example, the EAS provides $2.5 million annually to continue near-empty daily flights in and out of Lancaster, Pennsylvania, even though travelers have access to a major airport (Harrisburg) just 40 miles away. To remain on the dole, airports served by the EAS must serve no more than an average of 10 passengers per day.

The federal government should not engage in market-distorting and wasteful activities like the EAS. If certain routes are to be subsidized, they should be overseen by state or local authorities, not by the federal government.

Additional Reading

Eliminate the Appalachian Regional Commission

$162 Savings in Millions2

Discretionary

President's Budget (FY2020) Status: Rejected

Explanation: Maintains funding at FY 2019 levels.

The Appalachian Regional Commission was established in 1965 as part of President Lyndon Johnson’s Great Society agenda. The commission duplicates highway and infrastructure construction under the Department of Transportation’s highway program in addition to diverting federal funding to projects of questionable merit, such as those meant to support “development and stimulation of indigenous arts and crafts of the region.”3 The program directs federal funding to a concentrated group of 13 states where funds are further earmarked for specific projects at the community level.

If states and localities see the need for increased spending in these areas, they should be responsible for funding it themselves. This duplicative carve-out should be eliminated.

Additional Reading

Eliminate Subsidies for the Washington Metropolitan Area Transit Authority

$150 Savings in Millions4

Discretionary

President's Budget (FY2020) Status: Rejected

Explanation: Maintains funding at FY 2019 levels.

The WMATA is Washington, D.C.’s local transit authority and the only transit authority to receive direct appropriations from Congress.

Federal subsidies for the WMATA decrease incentives for the transit agency to control costs, optimize service routes, and set proper priorities for maintenance and updates. Metrorail ridership has fallen every year since 2009, including a decline of 13 percent from 2016 to 2017.

Ridership and safety issues come to the fore as Metro’s financial picture looks increasingly grim. The agency’s budget projection for 2020 shows that fares and parking fees cover only 21 percent of costs, requiring huge local and federal subsidies. This is largely due to Metro’s exorbitant costs: The rail system is the most expensive to operate per passenger mile of any of the major urban rail systems and has more employees than any other system when adjusted for ridership.

Federal subsidies for the WMATA have masked Metro’s shortcomings and allowed it to reach its current dilapidated state with few consequences. Instead of fixing its manifold issues, the WMATA’s strategy has been to demand more money from federal taxpayers, many of whom will likely never use the system. Congress should eliminate subsidies to the WMATA and allow market incentives to turn the WMATA into a more effective transit agency.

Additional Reading

Eliminate Grants to the National Rail Passenger Service Corporation (Amtrak)

$397 Savings in Millions5

Discretionary

President's Budget (FY2020) Status: Partially Included

Explanation: Reduces spending by $1 billion from FY 2019 levels.

The National Railroad Passenger Corporation, now known as Amtrak, was created by the federal government to take over bankrupt private passenger rail companies. In FY 2018, it received grants totaling more than $1.9 billion.

Amtrak is characterized by an unsustainable financial situation and management that, because it is hamstrung by unions and federal regulations, has failed to improve performance and service for customers. Amtrak’s monopoly on passenger rail service stifles competition that could lower costs for passengers. Labor costs, driven by the generous wages and benefits required by union labor agreements, constitute half of Amtrak’s operating costs. Amtrak trains are notoriously behind schedule, as evidenced by poor on-time performance rates.

Congress should eliminate Amtrak’s operating subsidies in FY 2020 and phase out its capital subsidies over five years to give Amtrak’s management time to modify business plans, work more closely with the private sector, reduce labor costs, and eliminate money-losing lines. Simultaneously, the Secretary of Transportation should generate a proposal to privatize Amtrak’s profitable routes and turn over responsibilities for state-supported routes to the states. During this phaseout, Congress should repeal Amtrak’s monopoly on passenger rail service and allow private companies to enter the market and provide passenger rail service where they see a viable commercial market.

Additional Reading

Close Down the Transportation Department’s Maritime Administration and Repeal the Maritime Jones Act

$815 Savings in Millions6

Discretionary

President's Budget (FY2020) Status: Partially Included

Explanation: Reduces spending.

MARAD was created in 1950, and its purpose is to maintain a maritime fleet that can be used during a national emergency. Decades later, it continues to oversee and implement duplicative and crony laws that benefit special interests.

MARAD and the laws it implements are steeped in protectionism and subsidies. For example, its subsidies to small shipyards are a taxpayer-funded handout to politically favored firms that may not be efficient or competitive. MARAD further provides taxpayer-backed loan guarantees for companies to hire U.S. shipbuilders under its Maritime Guaranteed Loan (Title XI) Program—another handout to politically connected entities. Finally, the maritime Jones Act, established in 1920, requires unreasonable and overly burdensome standards: Any cargo (or persons) shipped between two U.S. cities must be on a U.S.-built and U.S.-flagged vessel with at least 75 percent of its crew from the U.S.

Congress should close down the Maritime Administration and transfer its international regulatory roles to another agency. The federal government should sell the government-owned ships in the Defense Ready Reserve Fleet and transfer funding for this program to the Department of Defense. Simultaneously, Congress should repeal the maritime Jones Act and MARAD’s wasteful subsidy programs.

Additional Reading

Eliminate the Transportation Department’s Capital Investment Grants

$2.6 Savings in Billions7

Discretionary

President's Budget (FY2020) Status: Partially Included

Explanation: Reduces spending by $1.048 billion from FY 2019 levels.

Capital Investment Grants were created in 1991 as part of the Intermodal Surface Transportation Efficiency Act with the purpose of giving transit agencies grants for new transit projects. Because New Starts is a competitive grant program that funds only novel transit projects, not maintenance of existing systems, it gives localities the incentive to build costly and unnecessary transit systems that they can ill afford to operate and maintain instead of devoting their resources to the proper maintenance of existing infrastructure.

Criteria for eligible projects include “congestion relief,” “environmental benefits,” and “economic development effects” but (tellingly) no longer include “operating efficiencies.”8 In some cases, such as when a streetcar receives a Capital Investment Grant, the project will increase traffic congestion by blocking a lane and slowing down cars. These projects are perennially over budget. A review of federal studies examining 15 projects that were completed shows that the projects were over budget by nearly 30 percent on average. Worse, the costs of these expensive rail projects tend to divert funding from more practical services, such as buses needed by low-income residents.

Congress should terminate funding for Capital Investment Grants and allow the states and the private sector to manage and fund transit systems where they are truly effective.

Additional Reading

Privatize the Transportation Department’s Saint Lawrence Seaway Development Corporation

$36 Savings in Millions9

Discretionary

President's Budget (FY2020) Status: Rejected

Explanation: Reduces spending by $12 million from FY 2019 levels; no privatization.

Created through the Wiley–Dondero Act of 1954, the SLSDC is a government-owned entity charged with maintaining and operating the part of the Saint Lawrence Seaway that is within United States territory. The seaway opened in 1959. Canada, which also borders the seaway, privatized its agency equivalent in 1998, eliminating any future taxpayer funding for its maintenance and operation activities. Privatization of this kind in the U.S. would encourage productivity and competitiveness and reduce the burden on taxpayers. Congress should follow Canada’s example and privatize the SLSDC.

Additional Reading

Eliminate the National Infrastructure Investment (TIGER) Program

$900 Savings in Millions10

Discretionary

President's Budget (FY2020) Status: Rejected

Explanation: More than doubles spending compared to levels.

The National Infrastructure Investment Program provides competitive grants administered by the U.S. Department of Transportation. It began as part of the 2009 stimulus bill and was intended to be a temporary program to fund road, rail, transit, and port projects in the national interest. Eight years later, this “temporary” program has proven too tempting a spending opportunity for Congress and the Administration to give up and has remained a permanent fixture.

Through the TIGER program, Washington sends federal dollars to pay for projects that clearly fall under the purview of local government and serve no stated federal objective. Past projects include a $16 million, six-mile pedestrian mall in Fresno, California; a $14.5 million “Downtown Promenade” in Akron, Ohio; and a $27.5 million streetcar line in Detroit, Michigan. TIGER grants amount to “administrative earmarks” because federal bureaucrats (prodded by powerful Members of Congress) choose the criteria that a project must meet and in turn decide which projects will receive grants. That gives cities perverse incentives to pander to Washington, asking for federal money for projects they may not need just to keep another city or state from receiving the funds.

The TIGER grant program creates perverse incentives for localities, duplicates state and local transportation agency programs, and squanders federal resources on local projects that have little to do with interstate commerce. These projects should be funded by the local communities that benefit from them. Congress should eliminate the TIGER program.

Additional Reading

Eliminate the Transportation Department’s Airport Improvement Program and Reform Airport Funding

$3.5 Savings in Billions11

Mandatory

President's Budget (FY2020) Status: Partially Included

Explanation: Reduces spending by $1 billion from FY 2019 levels.

The AIP provides federal grants for capital improvements at public-use airports. The grants are funded primarily by federal taxes on passenger airline tickets and other aviation activities. AIP grants can be used only for certain types of “airside” capital improvements, such as runways and taxiways, and are tied to strict regulations that govern how airports can operate.

The AIP functions as a middleman, redistributing fliers’ resources from the most significant airports to those of far less importance. For example, the 60 largest airports in the U.S. serve nearly 90 percent of air travelers and have the greatest need for capital investment, yet they receive only 27 percent of AIP grants. Noncommercial airports, which serve less than 1 percent of commercial fliers and thus contribute a trivial share of revenue, receive about 30 percent of AIP grants.

Instead of continuing this redistributive scheme, Congress should eliminate the AIP, reduce passenger ticket taxes, and reform federal regulations that prohibit airports from charging market prices for their services. These reforms would eradicate the inefficient and inequitable distribution of flier resources and allow airports to fund capital improvements in a local, self-reliant, and free-market manner.

Additional Reading

Phase Out the Transportation Department’s Federal Transit Administration

$1.98 Savings in Billions12

Mandatory

President's Budget (FY2020) Status: Partially Included

Explanation: Reduces spending by $1.064 billion from FY 2019 levels.

Created in 1964, the Federal Transit Administration provides grants to state and local governments and transit authorities to operate, maintain, and improve transit systems such as buses and subways.

The federal government began to use federal gasoline taxes, which drivers pay into the Highway Trust Fund (HTF), to support transit in 1983. The transit diversion within the HTF accounts for nearly one-fifth of HTF spending. The reasons for funding transit were to offer mobility to low-income citizens in metropolitan areas, reduce greenhouse gas emissions, and relieve traffic congestion. Despite Billions of dollars in subsidies, however, transit has largely failed in all of these areas.

When it issues grants for streetcars, subways, and buses, the FTA is subsidizing purely local or regional activities. Even worse, federal transit grants give localities perverse incentives to build new transit routes while neglecting maintenance of their existing systems and other infrastructure. Transit is inherently local in nature and should therefore be funded at the local or regional level.

The federal government should phase out the Federal Transit Administration over five years by reducing federal transit funding by 20 percent per year and simultaneously reducing the FTA’s operating budget by the same proportion. Phasing out the program would give state and local governments time to evaluate the appropriate role of transit in their jurisdictions and an incentive to adopt policy changes that improve their transit systems’ cost-effectiveness and performance.

Additional Reading

Eliminate Allocations to the Housing Trust Fund and Capital Magnet Fund

$273 Savings in Millions13

Mandatory

President's Budget (FY2020) Status: Included

Allocations to the Housing Trust Fund (administered by HUD’s Assistant Secretary for Community Planning and Development) and Capital Magnet Fund (administered by the Treasury Department’s Community Development Financial Institutions Fund) ultimately benefit favored housing developments and services desired by special interests. Accountability, transparency, and efficiency also pose significant concerns. These affordable housing funds are unnecessary, enrich the politically connected at taxpayer expense, and expand the government’s harmful interference in the housing market.

Furthermore, the approval process ensures that politically connected entities are enriched at taxpayer expense. Even if funds flowed directly from the government to recipients, this would be a concern. The manner in which these programs operate compounds the problem. The federal government transmits the funds through intermediaries (including state governments) to the ultimate recipients, reducing transparency and accountability in the process. Often, those recipients are real estate developers or investment property owners.

Affordability concerns are best addressed by reforming local land use regulations, eliminating rent control, and making it easier for landlords to evict non-paying tenants. Ending contributions to these funds as well as the fees levied to support these funds would save $273 million in FY 2020.

Additional Reading

Eliminate the Home Equity Conversion Mortgage Program

$1.6 Savings in Billions14

Discretionary

President's Budget (FY2020) Status: Included

A homeowner can arrange with a lender to receive a set amount of monthly revenue over an extended period of time through a reverse mortgage based on the equity in the house. Each month, the cash flow from the lender to the homeowner, along with the interest payable, is simply added to the mortgage owed on the homes. Many retirees use this method to supplement other retirement income. This allows even retirees with minimal liquid assets to live comfortably without being forced to downsize.

In a traditional mortgage, home equity grows as the value of the home increases and principal is paid down. With a reverse mortgage, the opposite occurs: Home equity typically shrinks as interest payable and principal balance grow in excess of property appreciation. Because reverse mortgages are often issued on properties with a substantial level of equity, these loans are far less risky than standard high loan-to-value mortgages.

The Federal Housing Authority within HUD operates a Home Equity Conversion Mortgage Program (HECM) that guarantees reverse mortgages issued by private lenders. The CBO estimates savings of up to $6.9 billion over 10 years by making loans directly to borrowers rather than guaranteeing those issued by private lenders.15 A better option is to discontinue the HECM program altogether, providing neither reverse mortgage loans nor guarantees. The private sector is well equipped to service the reverse mortgage market in a way that would enable retirees to remain in their homes while drawing down on equity.

Policy Riders

Eliminate or roll back Davis–Bacon requirements and project labor agreements. The Davis–Bacon Act, enacted in 1931, effectively requires construction contractors on federal projects to use union wage and benefit scales and follow union work rules. These rules inflate the cost of federal construction by nearly 10 percent on average. Similarly, project labor agreements (PLAs) require the main contractor of government contracts to sign a collective bargaining agreement as a condition of winning a project bid. Collective bargaining agreements require using union compensation rates, following union work rules, and hiring all workers on federally contracted projects through union hiring halls. PLAs inflate construction costs by 12 percent to 18 percent on top of increased costs attributed to Davis–Bacon and discriminate against the 87 percent of workers who are not members of a union. Eliminating Davis–Bacon and prohibiting PLAs would stretch each federal construction dollar, delivering more infrastructure without the need to increase spending levels. Barring complete repeal, Congress could suspend the rule for projects funded by the appropriations bill or require the Labor Department to use superior Bureau of Labor Statistics data to estimate Davis–Bacon “prevailing wages” so that they more closely reflect market pay. Eliminating Davis–Bacon and PLAs would save more than $100 billion over the next 10 years under current spending levels.

Eliminate “Buy America” restrictions. Most federally funded infrastructure projects must comply with “Buy America” mandates, which require that certain input components must be manufactured in the United States. This protectionist mandate limits selection and price competition among input manufacturers, which often leads to higher costs for projects. Buy America requires the use of American-made steel, which in recent years has cost more than steel made in Western Europe or China—a price increase of roughly 30 percent in the case of Chinese-made steel. In addition, buses made in the U.S. were found to be twice as expensive as those made in Japan. Overall, Buy America provisions are allowed to increase the cost of an entire project by up to 25 percent before the project agency can apply for a waiver. Ending or waiving this bureaucratic and protectionist mandate would give U.S. infrastructure access to more numerous, better-quality, and less expensive components.

Require the Department of Transportation to study total federal subsidies to passenger transportation. Congress should recommission the 2004 study that detailed the federal subsidies to various modes of transportation. In 2004, the DOT’s Bureau of Transportation Statistics produced a report that assessed the federal subsidies to passenger transportation. The report detailed the amount of federal subsidies targeted to rail, transit, air, and highway travelers since 1990 and presented them using comparable metrics. Since 2004, however, the DOT has not updated the report, leaving most policymakers and the traveling public with outdated information about how federal subsidies are distributed among modes of transportation. Reproducing the study on a periodic basis would provide lawmakers and travelers with consistent data regarding the federal government’s activities in subsidizing transportation.

Request the Government Accountability Office to examine infrastructure construction costs in the United States. Data and recent reports indicate that infrastructure construction costs in the U.S. exceed those in peer countries, especially with regard to megaprojects. Congress should require the Government Accountability Office to examine and determine the reasons for these excessive construction costs. The GAO should scrutinize all possible factors, from industry practices to government regulation, to provide a clear picture of the shortcomings of current practice.

Endnotes

  1. Estimated savings of $317 million for FY 2020 are based on $175 million in discretionary savings, based on the FY 2019 appropriated level as specified in H.J.Res. 31, Consolidated Appropriations Act, 2019, Public Law 116-6, 116th Cong., February 15, 2019, https://www.congress.gov/bill/116th-congress/house-joint-resolution/31 (accessed March 12, 2019), and $142 million in mandatory savings for FY 2020, based on the CBO’s most recent January 2019 baseline spending projections. See Congressional Budget Office, “The Budget and Economic Outlook: 2019 to 2029: Budget and Economic Data: Spending Projections, by Budget Account,” January 2019, https://www.cbo.gov/about/products/budget-economic-data#9 (accessed April 1, 2019). The mandatory savings include payments to the Essential Air Service and Rural Airport Improvement Fund for FY 2020. The discretionary savings estimates are based on FY 2019 enacted levels, and Heritage experts assume that FY 2019 spending remains constant in FY 2020.
  2. Estimated savings of $162 million for FY 2020 are based on the FY 2019 appropriated level as specified in H.J.Res. 31, Consolidated Appropriations Act, 2019, and H.R. 5895, Energy and Water, Legislative Branch, and Military Construction and Veterans Affairs Appropriations Act, 2019, Public Law 115-244, 115th Cong., September 21, 2018, https://www.congress.gov/search?q=%7B%22source%22:%22legislation%22,%22search%22:%22cite:PL115-244%22%7D (accessed March 14, 2019). Savings include $155 million appropriated for the Appalachian Regional Commission, as well as half of the $8 million in grants authorized for both the ARC and the Delta Regional Authority, and $3.25 million to be transferred to the ARC from the Federal Aviation Commission. Heritage experts assume that FY 2019 spending remains constant in FY 2020.
  3. United States Code, Title 40, Subtitle IV, “Appalachian Regional Development,” https://www.arc.gov/about/USCodeTitle40SubtitleIV.asp (accessed March 14, 2019).
  4. Estimated savings of $150 million for FY 2020 are based on the FY 2019 appropriated level as specified in H.J.Res. 31, Consolidated Appropriations Act, 2019. Heritage experts assume that FY 2019 spending remains constant in FY 2020.
  5. Estimated savings of $397 million for FY 2020 are based on the CBO’s most recent January 2019 baseline spending projections. See Congressional Budget Office, “The Budget and Economic Outlook: 2019 to 2029: Budget and Economic Data: Spending Projections, by Budget Account,” January 2019. Savings include $139 million in projected operating subsidies. Operating subsidies are assumed to be 21 percent (the ratio observed under the previous accounting system that divided funding between operating subsidies and grants for capital and debt service) of the $663 million in total FY 2020 funding for the Northeast Corridor and National Network. Savings also include $258 million in reduced capital grants, representing a 20 percent reduction in the projected level of $1.29 billion.
  6. Heritage experts do not include any savings from repealing the Jones Act. Estimated savings of $815 million for FY 2020 are based on the total FY 2019 appropriated level as specified in H.J.Res. 31, Consolidated Appropriations Act, 2019. Savings exclude the $300 million designated for the Maritime Security Program, which would be transferred to the Department of Defense or Department of Homeland Security. Heritage experts assume that FY 2019 spending remains constant in FY 2020.
  7. Estimated savings of $2.553 billion for FY 2020 are based on the total FY 2019 appropriated level as specified in H.J.Res. 31, Consolidated Appropriations Act, 2019. Heritage experts assume that FY 2019 spending remains constant in FY 2020.
  8. Randal O’Toole, “‘Paint Is Cheaper Than Rails’: Why Congress Should Abolish New Starts,” Cato Institute Policy Analysis No. 727, June 19, 2013, http://www.cato.org/publications/policy-analysis/paint-cheaper-rails-why-congress-should-abolish-new-starts (accessed March 14, 2018).
  9. Estimated savings of $36 million for FY 2020 are based on the total FY 2019 appropriated level as specified in H.J.Res. 31, Consolidated Appropriations Act, 2019. Heritage experts assume that FY 2019 spending remains constant in FY 2020.
  10. Estimated savings of $900 million for FY 2020 are based on the total FY 2019 appropriated level as specified in H.J.Res. 31, Consolidated Appropriations Act, 2019. Heritage experts assume that FY 2019 spending remains constant in FY 2020.
  11. Estimated savings of $3.5 billion for FY 2020 are based on the total FY 2019 appropriated level for “Grants-In-Aid for Airports” as specified in H.J.Res. 31, Consolidated Appropriations Act, 2019. Heritage experts assume that FY 2019 spending remains constant in FY 2020. All $3.5 billion in savings represents mandatory spending.
  12. Estimated savings of $1.98 billion for FY 2020 are based on the total FY 2019 appropriated level as specified in H.J.Res. 31, Consolidated Appropriations Act, 2019. Heritage experts assume that FY 2019 spending remains constant in FY 2020. Savings represent a 20 percent reduction in the total appropriations of $9.9 billion for FY 2019 based on a five-year phaseout beginning in 2020. All $1.98 billion in savings represents mandatory spending.
  13. Estimated savings of $273 million for FY 2020 are based on the CBO’s January 2019 spending projections. See Congressional Budget Office, “The Budget and Economic Outlook: 2019 to 2029: Budget and Economic Data: Spending Projections, by Budget Account,” January 2019. All $273 million in savings represents mandatory spending.
  14. Estimated net present value savings of $1.6 billion for FY 2020 are based on incurring new liabilities into the future and previous years’ Department of Housing and Urban Development estimated shortfalls in the Home Equity Conversion Mortgage Program. HUD estimates that from 2009–2017, losses to HECM guaranteed mortgages exceeded revenues by $14.2 billion. See Pinnacle Actuarial Resources, Fiscal Year 2017 Independent Actuarial Review of the Mutual Mortgage Insurance Fund: Cash Flow Net Present Value from Home Equity Conversion Mortgage Insurance-In-Force, November 10, 2017, https://www.hud.gov/sites/dfiles/Housing/documents/ActuarialMMIFHECM2017.pdf (accessed March 14, 2019).
  15. Appendix, “Option A-9, Convert the Home Equity Conversion Mortgage Program Into a Direct Loan Program,” in Congressional Budget Office, Options for Reducing the Deficit: 2019–2028, December 2018, p. 311, https://www.cbo.gov/system/files?file=2018-12/54667-budgetoptions.pdf (accessed March 14, 2019). The CBO notes that HECM program savings are uncertain and depend on numerous variables. The CBO scores the program as generating profits in some years but does not take into account new liabilities spread out over the lifetime of the program.

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