On August 31, 2011 President Obama urged Congress to extend the Surface Transportation Bill saying that if Congress failed to do so “over 4,000 workers will be immediately furloughed without pay”.
To understand why the claimed loss of jobs is questionable one has to examine how those jobs are funded.
According to the Congressional Budget Office, funding for transportation construction projects mostly comes from the Highway Trust Fund which is funded by the gasoline tax included in the expiring Surface Transportation law.
Annual spending from the Highway Trust Fund is largely controlled by limitations on the amount of contract authority that can be obligated in a particular year, and such obligation limitations are customarily set in annual appropriation acts, not the Surface Transportation law.
The only thing immediately reduced by failure to extend the law is the gasoline tax that funds the Highway Trust Fund.
Most contracts for transportation construction are not awarded by the federal government and the federal government is therefore not a party to the contracts and not in a position to cancel the contracts and furlough the workers.
The funds for transportation construction projects are given by the federal Transportation Department to the states. In Palm Beach County the funds for construction are given to the county Engineering and Public Works Department. That department solicits bids and awards contracts for the construction. Those contracts are not awarded until the funds are transferred to the county.
Therefore, while a lack of funds in the Highway Trust Fund can impact the implementation of future construction projects, it has no impact on ongoing projects for which funds have already been received. Workers presently employed on projects previously awarded are not impacted by Congress’ action on the gasoline tax.
A petulant President may be able to convince the county to terminate a contract using threats of some adverse action, but that termination would not be because the Congress failed to pass a bill. And a contractor faced with such a cancellation is entitled to receive termination costs for all of the expenses incurred up to the date of the cancellation including equipment and overhead costs that often add up to close to the original contract cost.
According to the Congressional Budget Office, there are still some funds, maybe $10 billion, in the Highway Trust fund so money can continue to go to the states for construction jobs for some time. And workers can continue to be added to new construction projects.
And if money for transportation construction is provided by the stimulus funds already appropriated, maybe we can let the gasoline tax expire and find a way to get along with a lower price at the gas pump.