Airports, transportation grants to see more money in Biden's 2025 budget

President Joe Biden Monday proposed a fiscal 2025 budget that features a new capital program for airports, broadens the uses of capital transit dollars and chips away at a growing problem for states over the timing of the flow of highway funds.

The Internal Revenue Service would see a funding infusion for enforcement, an issue important to the municipal market. As foretold in his State of the Union speech last week, Biden would revamp the tax policy to increase income taxes on the wealthy, impose a first-of-its-kind tax on unrealized capital gains, and increase corporate taxes, among other changes.

The House Appropriations Committee will launch a series of hearings on the 2025 proposals next week even as Congress faces a March 22 shutdown deadline for roughly two-thirds of the federal government.

Biden's $7.3 trillion budget sticks to caps agreed to last year in the Fiscal Responsibility Act. In addition to six years of spending caps, the FRA features a 1% automatic sequester mechanism for the first two years. The 1% automatic sequester — which would clip subsidies for direct-pay bonds like Build America Bonds — would kick in by April 30 if a continuing resolution remains in place.

Office of Management and Budget

The Department of Transportation spending blueprint totals $146 billion, including $82 billion from the Highway Trust Fund, $37 billion in advance appropriations from the Infrastructure Investment and Jobs Act, and $26 billion from the general fund.

Overall, the transportation budget is a "placeholder budget" in light of the FRA caps and advance appropriations from the IIJA, said Jeff Davis, senior fellow at Eno Center for Transportation, during a webinar Tuesday. The administration has still not proposed reauthorization of the IIJA after its funding expires in 2026, Davis noted.

Highways would see $71.5 billion, or a little less than half of the budget. Transit and rail would get $37.5 billion and aviation would see $27.4 billion.

On the aviation side, Biden has asked for $8 billion in appropriations for a new Federal Aviation Administration capital program to modernize and upgrade facilities, Davis said, adding that it's not clear why the White House didn't push for the money to be included in the five-year FAA draft bill that Congress hammered out last summer. "It's an exciting program but the time to bring this up was before Congress was done writing the five year FAA bill," Davis said.

The spending plan tackles the growing problem facing states from the so-called August redistribution, when non-formula highway funds are not fully tapped, and to avoid losing the dollars, the Federal Highway Administration redistributes the money among states in August. That gives states only a few weeks to obligate the money — estimated at $8.5 billion this year — and eats into the amount of formula funding at the start of the following fiscal year, according to the American Association of State Transportation and Highway Officials, which sent a letter to Congress in February urging them to fix the problem.

Biden's budget proposes a separate obligation limitation that would not expire or be redistributed, Davis said. "Eventually the balances of previous allocated contract authority would spend down and this would stop the August redistribution from growing and allow it to shrink back down," he said.

For the second year in a row, Biden proposed allowing large urban mass transit agencies to tap capital dollars to support operating budgets — a proposal that went nowhere in the last Congress. This year, for the first time transit agencies would be allowed to use capital dollars on bicycle and scooter projects, Davis noted.

Transit projects previously recommended for funding but without grant agreements yet in place that would receive funding through FTA's Capital Grants Program include Chicago's Red Line extension and the New York-New Jersey Hudson Tunnel-Gateway program. New projects that are recommended for the first time include: the Inglewood Transit Connector Project in California; the Miami-Dade County Northeast Corridor Rapid Transit Project; and the Blue Line Rapid Transit Project in Indianapolis.

New York's Metropolitan Transportation Authority's Second Avenue Subway Phase 2 extension is one of a handful of major transit projects that already has a grant agreement in place that Biden recommended get more money.

The proposal would also shift $800 million from the underutilized Transportation Infrastructure Finance and Innovation Act loan program to two popular grant programs called Mega and Raise.

In an opening shot at the budget on Tuesday, Republicans on the Senate Budget Committee peppered Office of Management and Budget director Shalanda Young with criticism about how the plan would add to the national debt and lead to deficits that climb near $2 trillion in some years.

"We're over $34 trillion in debt and still counting," said Sen. Charles Grassley, R-Iowa. "According to the Congressional Budget Office, interest on the debt will total $870 billion this year, exceeding what we expect to spend on national defense, the number one responsibility of the federal government."

Young maintained that a more relevant measure of interest costs is as a percentage of GDP, which she said remains at a manageable level.

"We agree on the need to manage the fiscal house," Young said in response to questioning from Sen. Mike Braun, R-Ind. "The more complex story is looking at this is a percentage of GDP."