Monday update. Great news: the proposal does NOT threaten current or future MAP-21 funding. We were able to track down a non-furloughed Congressional staffer who is familiar with the issue. Here’s the deal, to summarize a somewhat complicated issue. Basically, Congress can adjust/expand the pension smoothing pay-for so that it pays for removing the tax on medical devices, while still meeting the funding obligation for MAP-21. So the proposal does not replace, nor reduce, the funding for MAP-21. It also should not make it harder to enact a transportation bill next October 1, when MAP-21 expires.
A bipartisan proposal to help resolve the current budget impasse may threaten funding and renewal of MAP-21, the federal surface transportation act. The proposal involves taking over a provision that helps pay for MAP-21, according to a report in Congressional Quarterly (note: story may be paywalled). Here’s the deal.
[Saturday update: Republican Senator Susan Collins is now supporting the idea outlined below. She's calling on the House and Senate to pass a continuing resolution with an amendment to repeal the medical device tax. Read about it in The Hill.]
About 18 Representatives are proposing to repeal the medical device tax, a provision within the ACA (“Obamacare”) legislation. Repealing the tax has been one of the Republican demands in the current budget debate. Nearly all Democrats have resisted making any changes to the legislation.
MAP-21 could be impacted by the mechanism to replace the revenue lost by repealing the tax.
The device tax funds part of the health care bill. So repealing it requires finding another source of funding. One option proposed by the bipartisan group is use a somewhat complicated, obscure pension provision that enabled MAP-21 to achieve fiscal balance and political approval.
At this point there aren’t enough details about the proposal for us to be sure of the impact on MAP-21 and the Highway Trust Fund (HTF). We tracked down an expert in federal transportation finance for clarification. With the caveat that few details about the proposal exist, here is the take:
“What isn’t clear is, are they proposing to use pension provision could be used again, somehow, in a way that doesn’t mess with the HTF? Or are they proposing to take away this existing HTF fix for a budget deal?
I believe 10-years’ worth of savings from the pension provision were redirected to support the 2-year funding patch in MAP-21. So I would say there isn’t much room for this exact tool to be used again. But then, perhaps there are some other pension-related offsets that only Congress knows.
Currently, we have $12.6 billion in General Fund transfers to HTF scheduled as part of MAP-21 for FY 2014, subject to sequester. Part of the pay-for was this pension provision, and this is essentially locked-in and ready to go. Now, USDOT can make the General Fund-to-HTF transfer as they see fit anytime during FY 2014, and in any increment(s) as they see fit. But I highly doubt the transfer will be made before or without the CR. If this were to be the case of redirecting existing HTF transfers–which is wholly unclear at this point– it would be a very, very bad news for HTF solvency.”
We previously wrote about this provision, explaining how a federal transportation bill can be funded at about $52 billion annually, when transportation taxes generate significantly less: MAP-21 Annotated – Funding Sources. See below for our excerpt that describes the provision.
Here is how CQ described it: “That provision saves money by stabilizing contributions to single-employer pension plans in response to current low interest rates, according to an aide familiar with the discussions. The aide said it does not affect a company’s obligation to pay its promised benefits, but instead ensures that employers aren’t overfunding the plans because of the lower interest rates.”
If this offset is “taken,” depending on how it is implemented it may become even harder to fund and fiscally “balance” the next surface transportation bill.
A Republican member of the group commented that the offset is attractive and should be “well-received” because it “has been previously accepted” [note: for MAP-21]. A Democratic member of the group noted that “finding a pay-for is ‘one of the toughest things that you have to do around here, so we’re not adding to the budget deficit’ and that the group is willing to work with leadership from both parties on the best way forward.”
On the other hand, most Republicans will not be eager to support a provision that essentially continues to fully fund the health care act. Democrats may be reluctant to accept any change to the health care, fearing it might open the door to other changes.
We’re curious what transportation leaders in Congress (such as Senator Boxer and Representative Shuster), and transportation, labor and business groups think about the proposal. All of them want the shutdown to end, but also want a well-funded transportation bill next year. Would they support the proposal to resolve the budget impasse, if it does impact the HTF and would make their MAP-21 renewal work that much harder?
Here is a description of the provision we believe the bipartisan group is targeting. It comes from the Senate Finance Committee’s explanation of how MAP-21 is funded, from our original story MAP-21 Annotated – Funding Sources:
PBGC Premiums. Under current law, employers that sponsor plans are required to pay insurance premiums to the Pension Benefit Guaranty Corporation (PBGC). Employers pay a fixed-rate premium equal to $35 per participant per year (indexed for inflation) and a variable rate premium equal to $9 per $1,000 in underfunding (not indexed for inflation). There is no limit on the variable rate premium. Multiemployer plans must pay premiums equal to $9 per participant, indexed for inflation. The proposal would (1) adjust the variable premium for inflation beginning in 2013, (2) set a maximum variable premium of $400 beginning in 2013, (3) increase the variable premium by $4 in 2014 and by an additional $5 in 2015, (3) increase the fixed rate premium by $6 in 2013 and by an additional $7 in 2014, and (4) increase the multiemployer premiums by $2 beginning in 2013. This provision is estimated to save $10.575 billion (including interactions with the interest rate stabilization provision) over ten years.