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Palace Coup: President Ronald Reagan and the Surface Transportation Assistance Act of 1982
by Richard F. Weingroff
Joe Rhodes had a problem. As assistant to Executive Director Hank Stafseth of the American Association of State Highway Officials (AASHO), Rhodes had helped organize AASHO's annual meeting in Los Angeles, California. On the Opening General Session, Monday, November 12, 1973, the planned speakers were Mayor Tom Bradley and Secretary of Transportation Claude S. Brinegar, but Mayor Bradley had just canceled. Rhodes had an hour to fill.
Someone pointed out that Governor Ronald Reagan lived in Los Angeles and might be available to give a brief speech greeting the 1,000 AASHO participants to the city. That would fill at least part of the gap in the program. Rhodes called the Governor, who agreed to stop by. Instead of a quick greeting that would have left a large block of empty time to fill, the Governor filled the hour with a speech on highways and the environment.
Governor Reagan began:
In recent years, most of us have become a great deal more concerned about the necessity of protecting the environment, and we have been doing something about it . . . . Literally millions of dollars have been and are being spent to fight smog, eliminate water pollution, and to otherwise preserve and protect the environment against unnecessary intrusion by the activities of man.
Although any "reasonable person would say that we have been moving vigorously" on the environmental front, Governor Reagan said that "no matter how much we do, there is still a very active fringe element in the environmental movement that never seems to be satisfied." The "voices of reason are being drowned out by the prophets of calamity" who wanted to take the old expression "stop the world, I want to get off," and change it to "stop the world and put us off." He continued:
A strange sort of no-growth, no-development syndrome is proposed without regard for the consequences this might have on the lives of our people or the vitality of our economy.
Most daily traffic "is for a very necessary and practical purpose," such as commuting to jobs. "We must have the fuel and electric power to drive those vehicles, along with the rapid transit systems we are trying to develop to ease the burden on the private automobile and the roads." He suggested:
It is high time we strike a more realistic and reasonable balance between the need to protect the environment and the equally urgent need to have an efficient, functioning transportation system, including highways, with sufficient fuel to meet the needs of a modern industrial economy . . . .
A month earlier, 11 Middle East nations, all members of the Organization of Arab Petroleum Exporting Countries, proclaimed a progressively increasing monthly cut in oil exports to the United States and other nations perceived as unfriendly to Arab goals, particularly regarding the existence of Israel. Their action set off the first energy shortage the United States had faced:
Right now, America is caught between two whirlwinds forcing potentially massive disruptions in our society, the effort to protect the environment and the world wide energy shortage.
He discussed the need for nuclear power plants that were opposed by "the self-appointed guardians of the environment." Other alternatives, such as tapping oil resources in Alaska and offshore, were being fought by "the philosophy of no-growth" that was imposing "an environmental straight-jacket on our economy." He was concerned about proposals to drastically curtail automobile traffic:
There have been suggestions that a surcharge be imposed for downtown parking, for higher taxes on automobiles, for steps that would mean higher gasoline prices to limit driving, even for gasoline rationing itself.
These might be temporary solutions, but they "hit the average citizen where it hurts most, in the pocket book." The solution would not be found by forcing people out of their cars "because government makes it too expensive for the average citizen to operate his own car." The solution was more likely to come "from the engineers in the factories, not from the economists in Washington."
Governor Reagan considered highways "an essential element" in the Nation's transportation system:
He pointed out that the population had doubled since 1916 and the number of vehicles had increased 30 times, "yet highway mileage has increased less than one third. "In some areas, highways require less land area than we used for horses and wagons before the automobile was invented." The Interstate System carries 19 percent of all traffic "and yet uses up only one percent of the land area devoted to highways and roads." Although freeways were "cast as the butt of so many jokes" and portrayed as the "archvillain," they had "made a massive contribution to traffic safety," saving thousands of lives. Further, most of the funding, 93 percent, spent on roads was to improve existing facilities, not build new ones.
Governor Reagan concluded:
We need a modern system of roads and highways to carry our people to and from work, to haul the products of our industries and farms to market, to help maintain a dynamic and prosperous economy and to make travel safer for our people.
That is a legitimate and valid goal. It is something that government must recognize, just as we recognize the need for legitimate and realistic steps to protect and preserve the environment. [Reagan, Governor Ronald, "The Voices of Reason," American Highway and Transportation Monthly, March 1974, p. 5]
Secretary Brinegar, by contrast, urged the road builders to recognize that four big problems—urban congestion, pollution, safety, and the weeks-old energy crisis—had created a turning point for America's dependence on cars and highways. These problems demanded a "rethinking of direction and a shift of emphasis." Abandoning highways was not practical, but the country must shift focus to the broader goal of "transportation." Reflecting the new emphasis, AASHO's executive committee voted to rename the organization the American Association of State Highway and Transportation Officials (AASHTO). [Hebert, Ray, "U.S. Dependence on Autos Must Change, Highway Officials Warned," The Los Angeles Times, November 13, 1973]
Nevertheless, Governor Reagan's speech, coming at a time when AASHO was in the forefront of the "two whirlwinds," got the annual meeting off to an excellent start. And solved Joe Rhodes' problem.
A New Team
Governor Reagan served two terms from January 3, 1967, to January 7, 1975. Because of California's constitutional term limit, he could not seek reelection. In 1968, he had sought the Republican nomination for President as the favorite of his party's conservatives, who were still smarting from President Lyndon B. Johnson's landslide defeat of Senator Barry M. Goldwater of Arizona in 1964. Although Governor Reagan won slightly more votes in the primaries than the frontrunner, former Vice President Richard M. Nixon, Nixon went into the convention with more delegates. He secured the nomination and won the election, defeating Vice President Hubert H. Humphrey and third party candidate Governor George C. Wallace, Jr., of Alabama.
President Nixon resigned on August 9, 1974, in the wake of charges referred to collectively as Watergate. His Vice President, Gerald R. Ford, became President for the remainder of Nixon's second term. In 1976, President Ford ran for a full term in the White House. To win, he would have to overcome several obstacles, not the least of which was his pardon of President Nixon on September 8, 1974. Many people remained angry that a trial of the former President had been averted.
Other problems included lukewarm support within the Republican Party, especially among the more conservative elements. Ford had been Minority Leader in the U.S. House of Representatives (1965-1973) when he was tapped for the Vice Presidency after the resignation of Vice President Spiro Agnew on October 10, 1973. Because Ford had never run for national office, he had not built support within the party around the country. Conservative leaders saw the likeable Ford as too moderate, and they despised his Vice President, former New York Governor Nelson A. Rockefeller, who was considered a liberal. Conservatives also criticized the President's foreign policy, including his work on an agreement that would turn the Panama Canal over to Panama.
In addition, his image had suffered because of a late night comedy show that went on the air in October 1975, "NBC's Saturday Night" (soon renamed "Saturday Night Live"). The popular and influential comedy show featured comedian Chevy Chase's recurring, devastating portrayal of a bumbling, stumbling President Ford—a portrayal that became for many a true portrait of the President. The image was reinforced during the second presidential debate, on October 6, when President Ford stated that "there is no Soviet domination of Eastern Europe and there never will be under a Ford administration" and asserted that he did not believe the Polish, Romanians, or Yugoslavians considered themselves "dominated by the Soviet Union." By sticking to these inaccurate statements before retracting them a week later, the President compounded the blunder.
Frustrated by the moderate leadership of Presidents Eisenhower and Ford, as well Nixon's approval of liberal legislation, conservatives urged former Governor Reagan to take on President Ford in the Republican primaries. His decision to do so led to a bitter primary fight that was too close to call when the Republican Party held its nominating convention. Trying to demonstrate his appeal to northern moderates, Reagan chose as his running mate the liberal Senator Richard Schweiker of Pennsylvania. The choice outraged conservatives while not gaining support from moderates. Ford won the nomination with Senator Bob Dole of Kansas as the Vice Presidential nominee.
Governor Jimmy Carter of Georgia would win the election in November with over 50 percent of the popular vote. Historian James MacGregor Burns discussed Carter's appeal:
By inauguration day Carter had acquired a lustrous media image. After years of drift and deadlock in government, a leader of proved competence—competence at running a business and a state, a submarine and a tractor, and those tough primary campaigns, a demand, clearheaded man—seemed to have stepped forward. Even his appearance—his bluff, open face creased by a wide smile, his hair style that looked both stylish and rustic, his quick, buoyant ways—set him off from the gray, sedate men in high office. [Burns, James MacGregor, The Crosswinds of Freedom: From Roosevelt to Reagan – America in the Last Half Century, Vintage Books, 1990, p. 521]
Four years later, going into the 1980 presidential election, President Carter's image was almost reversed. He faced crises on multiple fronts. In early 1979 a revolution in Iran replaced the U.S.-backed Shah of Iran with Ayatollah Ruhollah Khomeini, who transformed the country into an Islamic Republic. With the Iranian oil industry in transition, other countries increased production, but panic in the United States drove up the price of gasoline dramatically and brought on a second energy crisis.
As confidence in the President sank, he went to Camp David, the presidential retreat in Maryland, for 10 days to consider his presidency. After receiving advice from over 130 people invited to Camp David, he emerged on July 15, 1979, to address the Nation. "It is a crisis of confidence," he explained:
It is a crisis that strikes at the very heart and soul and spirit of our national will. We can see this crisis in the growing doubt about the meaning of our own lives and in the loss of a unity of purpose for our nation . . . .
Regarding America's energy problem, he proposed to commit $10 billion to mass transportation over the next 10 years and asked people "to take no unnecessary trips, to use carpools or public transportation whenever you can, to park your car one extra day per week, to obey the speed limit, and to set your thermostats to save fuel." (On January 2, 1974, President Nixon had signed the Emergency Highway Energy Conservation Act, prohibiting approval of Federal-aid highway projects in any State having a maximum speed limit over 55 mph on any highway.) He also directed Secretary of Transportation Brock Adams to develop proposals for reducing oil consumption through conservation measures as well as increased transit use. Further, he embraced a synthetic fuels plan.
Although initial reaction to the speech was favorable, it soon became known as the "malaise" speech, a word he had not used but that reflected a widespread view of his downbeat message and presidency. A few days later, in a move intended to show decisive action to revitalize his presidency, Carter fired five Cabinet Secretaries, including Adams. Instead of restoring confidence in the Carter Administration, the move reinforced the public perception of disarray and uncertainty.
Whatever confidence the American people still had in Carter would be further undermined on November 4, 1979, when Iranian students took over the American embassy in Tehran and held 52 U.S. diplomats hostage. The crisis would last 444 days, with President Carter's efforts to secure release of the hostages failing until long after the election. (The hostages were released on Inauguration Day, January 20, 1981.) In addition, Carter was undermined by steep inflation, high interest rates, and his ineffective response to the Soviet Union's 1978 intervention in Afghanistan.
His Republican opponent, former Governor Reagan, exuded confidence and offered an optimistic view of what would happen to the Nation if he became President. Governor Reagan, with primary campaign rival George H. W. Bush as the Vice Presidential candidate, defeated President Carter by a landslide. Reagan won the popular vote by almost 10 percentage points (43.9 million to 35.4 million) and received 489 electoral college votes (representing 44 States) to 49 for Carter. In addition, the Republicans took control of the Senate.
Carter's unpopularity was a significant factor in his defeat, but credit also must be given to the new President, as Burns pointed out:
In fact, Reagan won the election by persuasive appeals to the right-wing vote and to disaffected independents, full exploitation of the remarkable direct-mail and fund-raising apparatus of the Republican national party, and his skillful coalition building between GOP regulars and movement conservatives, as reflected in the choice of George Bush for running mate. [Crosswinds, p. 638]
The incoming President established transition task forces to evaluate government agencies. Former Secretary Brinegar, an oil company executive who had been Secretary of Transportation under Presidents Nixon and Ford (1973-1975), headed the 16-member transportation task force. It included Andrew L. Lewis, Jr., who would serve as Secretary of Transportation under President Reagan; former Nebraska Governor and Federal Highway Administrator Norbert T. Tiemann (1973-1977); Frank C. Herringer, a former Urban Mass Transportation Administrator (1973-1975); and John W. Snow, who had served in several capacities in the Office of the Secretary of Transportation (1972-1975) and would go on to head the railroad giant CSX before serving as Secretary of the Treasury under President George W. Bush (2003-2006).
The task force, which released its report on December 27, 1980, recognized the importance of the Interstate System, but recommended that construction be brought to an end. Less than 4 percent of the mileage remained to be built (1,547 miles of 42,500 miles), with much of it facing substantial environmental and cost obstacles. One unidentified committee member told reporters, "There needs to be a process to bring all this to a close, and that would probably cause a lot of these things not to be built." The Federal Government should ensure the System is maintained.
The report spelled out principles to guide the incoming Secretary of Transportation. Transportation should be provided by the private sector as much as possible, with the Federal Government involved only when a clear need is evident that cannot be provided otherwise. Federal transportation programs should be based on user fees so outlays can be recovered from the beneficiaries of the expenditures. The task force endorsed the Highway Trust Fund, initiated in 1956, to support the highway system and recommended increasing the gas tax by 4 cents a gallon to ensure its solvency. Each class of beneficiaries should pay into the fund based on their use of the network. The Federal-aid highway program should be simplified by consolidating more than 20 funding categories.
The task force also concluded that the Federal Government had exhausted its ability to increase automobile safety at reasonable social cost. The report expressed reservations about airbags and other "passive" restraints as well as automobile recalls. The task force also was skeptical of the nationally mandated 55 mph speed limit enacted in January 1974 amidst the initial energy crisis, but did not call for eliminating the restriction.
Major revisions in Federal mass transit programs were needed according to the task force. New rail starts should be discouraged while Federal operating subsidies should be eliminated. Modest support for upgrading established rail systems should continue, but the bus purchase program should be continued. Formula Federal-aid transit funds should be distributed based on transit ridership.
Better Roads magazine described the task force's report as "containing recommendations generally considered ‘reassuring' to the money-plagued highway industry." If the recommendations were followed, "the highway departments, at all levels, should find the allocation reductions and budget balancing threats of the Carter program no longer a continuing worry." ["Reagan Task Force Report Called Reassuring to Highway Departments," Better Roads, February 1981, p. 8; "Reagan Team Urges New Highway Policy," The New York Times, December 28, 1980]
The Burden of Stagflation
When former Governor Reagan took office as President of the United States on January 20, 1981, the Nation faced one of the worst recessions since the 1930's. It was the inevitable result of a change in direction by the Federal Reserve Board under Chairman Paul Volcker. He was trying to get the country out of the grip of "stagflation," a term coined in the 1960's to describe a period of stagnation and inflation characterized by slow growth and high unemployment. After being appointed by President Carter in 1979, Volcker began reining in the money supply that had been growing too quickly and was fueling inflation.
The immediate impact included high unemployment and declines in stock prices, but as financial historian John Steele Gordon states, "Benefits were not long in coming." He said:
Inflation began to break. Inflation had raged at 13.5 percent in 1980. The next year it was at 10 percent. In 1982 it was 6.2 percent, the lowest since the early 1970s. In 1983 it was 4.1 percent. It averaged less than that for the rest of the decade. [Gordon, John Steele, An Empire of Wealth: The Epic History of American Economic Power, Harper Collins Publishers, 2004, p. 396]
As a result, the stagflation that had been undermining the Nation's economy since the 1960's would finally be out of the way by 1983. However, the first 2 years of the Reagan Administration were clouded by the economic downturn that was the consequence of Volcker's bitter cure.
To address these problems, the President embraced "supply-side economics," as described to him in a January 1980 meeting, early in his presidential campaign. Several younger conservatives–Representative Jack Kemp (R-NY), economist Arthur Laffer, and journalist and commentator Jude Wanniski—explained that putting money in taxpayers' pockets by tax cuts would jumpstart the economy and lift it to new heights while increasing Federal revenues, as demonstrated via a graph known as the "Laffer Curve."
According to David Stockman, the President's first Director of the Office of Management and Budget, when Kemp, Laffer, and Wanniski explained their theories to Reagan, they "set off a symphony in his ears. He knew instantly that it was true and would never doubt it a moment thereafter." [Stockman, David A., The Triumph of Politics: The Inside Story of the Reagan Revolution, Avon, January 1987, p. 10]
Supply-side economics fit perfectly with the President's agenda, which embodied conservative movement ideas that had taken shape in the 1950's and been filtered through the polarizing era of President Nixon's years in office (1969-1974). The new President said he would cut taxes and regulations, balance the budget, dismantle the New Deal/Great Society bureaucracy and shift power to the States, reduce expenditures for domestic programs while increasing defense spending, empower the private sector, and save billions by cutting waste, fraud, and mismanagement.
One of Reagan's Republican rivals for the nomination, George H. W. Bush, had referred to the supply-side theory as "voodoo economics." He was now the Vice President. Stockman's former mentor, Representative John B. Anderson (R-Il.), running as a moderate independent candidate for President, claimed that the only way to cut taxes, raise defense, and balance the budget was with "smoke and mirrors." Anderson ran third in the general election with 6.6 percent of the popular vote and zero electoral votes. [Triumph, p. 55]
After the election, the President-elect's team combed through the budget for Fiscal Year (FY) 1982 to identify savings. The President-elect wanted to propose $40 billion in cuts shortly after taking office, but he limited the percentage of the budget that Stockman could review. Stockman met with the President-elect the first of January 1981 to discuss budget cuts beyond the President-elect's mantra of "waste, fraud, and mismanagement." In an interview with Washington Post reporter William Greider, Stockman said he described the "dire shape" of the Federal budget. Greider reported:
"Do you have any idea what $40 billion means?" he asked. "It means I've got to cut the highway program. It means I've got to cut milk-price supports. And Social Security student benefits. And education and student loans. And manpower training and housing. It means I've got to shut down the synfuels program and a lot of other programs. The idea is to show the magnitude of the budget deficit and some suggestion of the political problems.
Forty-eight percent of the budget was for Social Security, pension checks, welfare checks for the dependent, and others–the President put the "social safety net" off limits. Another 25 percent was for the Pentagon; the President had pledged to increase the defense budget. Ten percent went to interest payments on the national debt—payments that had to be made. Stockman would have to find $40 billion in cuts from the remaining 17 percent. During the campaign, the President had assured the public that eliminating "waste, fraud, and mismanagement" would be sufficient to balance the budget, but Stockman knew that would not be the case. [Greider, William, "The Education of David Stockman," The Atlantic, December 1981]
Stockman, the Cabinet Secretaries, and their staffs had worked to find the desired cuts until February 18, 1981, when the President addressed a joint session of Congress to discuss his economic recovery plan. Speaking at about 9 p.m. in the House Chamber, the President laid out the problem facing the country:
To counter this economic situation, the President proposed a comprehensive four-point program "aimed at reducing the growth in government spending and taxing, reforming and eliminating regulations which are unnecessary and unproductive or counterproductive, and encouraging a consistent monetary policy aimed at maintaining the value of the currency." Lou Cannon, who covered Governor and President Reagan as a reporter and biographer, summarized the four-point proposal:
President Reagan told Congress that the full plan, if enacted, would create 13 million jobs, "nearly 3 million more than we would have without these measures," and help the country gain control of inflation.
Based on the urgent review directed by Stockman, the President proposed to reduce Federal spending by $41.4 billion in FY 1982. For example, he would terminate the Economic Development Administration, convert some programs to block grants to reduce wasteful administrative overhead and give State and local officials greater flexibility, and refocus, reduce, or reorganize such programs as Food Stamps, school breakfasts and lunches, Trade Adjustment Assistance, Medicaid, the space program, the Postal Service, and others. He also planned to target waste and fraud. He said:
Politically, the plan is not that radical. We're just repealing about 10 or 12 years of accretion in terms of government's share of national income, marginal tax rates and loosely conceived programs that have cropped up all over.
The President submitted his plan to Congress the same day in a 281-page message titled America's New Beginning: A Program for Economic Recovery. Although economists, editorialists, columnists, and others debated the plan in the press, polls indicated the public generally liked what they heard.
While the White House worked with the House and Senate to craft legislation implementing tax cuts and budget reductions, Stockman launched a second more detailed round of budget discussions in March. The goal this time was $13 billion in FY 1984 cuts and $62 billion over 5 years. He quickly "discovered the glory days of the Cutting Room were over." He found that, "Resistance began to crop up everywhere, both within the Cabinet and on the Hill." In his memoir of the Reagan Revolution, Stockman said:
In its totality, it amounted to a counter-revolution—a broad range of political signals that the free market and anti-welfare state premises of the Reagan Revolution were not going to take root . . . . But almost before we had gotten started on these new cuts, political reality blew a large hole in the side of the cuts we'd already sent to Capitol Hill—and I barely knew it happened.
His struggles over the Federal-aid highway and transit programs were illustrative:
One of my basic fiscal principles was that the federal government had no business repairing or building local city streets, country roads, bridges, or mass transit systems. They served the local populace and benefited only local economies; the local taxpayers should therefore pay for them. Money that came from Washington on a skyhook had an invitation to indulge in waste and excess written all over it. It was the pork barrel at its grandest and most wasteful.
He considered transit operating subsidies "a special abomination" that had the effect of raising "the already monopoly level wages of local transit workers—or to reduce arbitrarily the transit fares paid by rich and poor alike." Transit capital grants, he said, encouraged "the construction of new subway systems all over the country, when there was no hope that these economic white elephants could ever pay for even their operating costs, let alone the billions it cost to build them." City officials and chambers of commerce "were tripping over each other to get in line at Uncle Sam's money kitchen."
When Stockman laid out his plans to scrap local highway and transit subsidies, Secretary Lewis "turned completely white." Stockman summarized the Secretary's view:
The idea of preemption had been suggested many times before—the Federal Government would yield gas tax revenue to States that increased their gas tax by an equivalent amount to gain full control of the money, without the strings that came with Federal dollars. The problem with preemption was that many Governors and State legislatures were opposed to raising taxes, whatever the reason.
When the gas tax idea was leaked to the press, the White House made clear that, "No one was authorized to talk about tax increases on Ronald Reagan's watch, no matter what kind of tax, no matter how justified it was."
The dispute with Lewis was a harbinger of things to come for Stockman. "It was a dramatic case of everything staying the same, but it would be one of many." [Triumph, p. 148-150, emphasis in original]
On March 17, 1981, Secretary Lewis submitted a proposal to Congress for extending the Federal-aid highway program, then authorized only through FY 1982, through FY 1986. The proposal reflected the conservative goals Stockman had expressed and that Reagan espoused about restoring the proper balance between the Federal and State governments. It placed a high priority on activities of national interest, such as completing and preserving the Interstate System, while eliminating programs of primarily State or local interest.
To accelerate Interstate completion, construction funds would be limited to building highways to a minimum level of acceptable service (20-year pavement design, full control of access, not less than four lanes in rural areas and urban areas under 400,000 population, and up to six in larger urban areas). The 3R program ("resurfacing, restoring, and rehabilitating"), initiated by the Federal-Aid Highway Act of 1976, would be expanded to 4R, with the fourth R being "reconstruction." States could use I-4R funds for the excluded items or continue to use the funds only for projects covered by the 3R program.
The proposal also recommended retaining the Federal-aid primary system and the Highway Bridge Replacement and Rehabilitation Program, both deemed high national priorities. However, funds were eliminated for the Federal-aid secondary and urban systems as well as other categorical or special interest programs, including economic growth center development highways, the Great River Road, bicycle transportation and pedestrian walkways, and several safety programs.
Secretary Lewis, in transmitting the proposal to Congress, explained the philosophy behind it:
Completion of the Interstate System and the preservation of this system is the highest Federal priority. The Primary system is also of national significance and will continue to receive high levels of Federal funding. State and local governments should have the principal responsibility for highways systems which are not of national significance.
He added that the proposal would produce budget savings of approximately $11.2 billion through 1986, compared with the Carter Administration's proposal. (The Reagan proposal did not include a transit element.)
The new Federal Highway Administrator, Ray A. Barnhart, emphasized these points in a communication to employees. Barnhart, a former Texas Highway Commissioner (1979 until taking his Federal position) who had been Co-chairman of Texas for Reagan in the 1976 president primary, said that the election had created "a new sense of purpose and hope in Washington and throughout the nation." It gave President Reagan a mandate that "caring citizens will no longer tolerate the expansion of powers of the Federal government and the accompanying diminishment of personal freedoms." To restore the economy, the President had sent Congress a "comprehensive legislative program" that included an across-the-board series of budget and tax cuts, plus regulatory reform. Special interests would "put up a staunch fight to resist this departure from business-as-usual government and thereby cripple our last best change to get out of the mess we're in."
The proposal for reauthorizing the Federal-aid highway program was based on an analysis of "the extent and necessity of Federal involvement in all of the highway programs." After summarizing the details of the proposal, he concluded:
The budget we have recommended to Congress is one I'm proud to advocate. It is one which, in the total picture, will well serve our country and our highway constituency. It is consistent with the November mandate to reorder our priorities and restore the balance of power between the various levels of government. [Barnhart, Ray A., "Where We Are Going: How We Will Get There," FHWA News, May 1981, p. 1, 3]
As with similar proposals from Presidents Nixon, Ford, and Carter, President Reagan's proposal was contrary to the interests affected by any highway bill. The highway interests could find little to support after working for decades to build a Federal funding role. A constituency for less or no funding did not materialize.
Although the proposal would not receive serious consideration, Congress was developing new multi-year surface transportation legislation. With the House in Democratic hands and the Senate controlled by pro-Administration Republicans, the measure faced challenges that did not usually affect Federal-aid legislation. Moreover, the newly Republican Senate was moving slowly on many issues, making the fate of the proposal harder to predict.
The rumor about the gas tax increase floated by Secretary Lewis, though not part of the Administration's proposal, resonated within the highway community.
Leading the Nation Out of the Economic Swamp
The economy entered a severe recession in July 1981, largely as a result of the Federal Reserve Board's attempt to wring inflation out of the system. Unemployment rose, banks and savings and loan institutions experienced hardships and failures, and questions were raised about the direction the country was headed.
Through the summer, the White House and Congress had conducted tedious negotiations on the shape of the legislation implementing the President's February proposals on tax and budget cuts. The work had been completed in June when a Conference Committee of the House and Senate put the finishing touches on the companion bills. The legislation cleared Congress in June, and was ready for the President's signature on August 13. With the downturn fresh in everyone's mind, the President would sign the Economic Recovery Tax Act of 1981 and the Omnibus Budget Reconciliation Act of 1981 at his ranch in the Santa Ynez Mountains of California.
Rancho del Cielo ("Sky" or "Heaven's Ranch) would have been a scenic spot for a signing ceremony if fog had not rolled in on the morning of August 13. After joking that the weather had been perfect until the reporters showed up, the President made brief comments about the bills he was about to approve:
After signing the bills into law, the President then asked if the reporters had any questions about the legislation:
Most of the remaining questions were on other topics, but one reporter observed that the Governors were concerned that without Federal help on the "safety net" programs, the States would not be able to take up the slack on other programs being cut. The President was disappointed that he had not been able "to get all that we wanted in the line of real block grants and autonomy for local and State governments." The proposed block grants were intended to give the States the flexibility to use the funds as they saw fit, especially with the Federal red tape eliminated. He would continue to work with Congress and the States "to give them the autonomy they can have to make these programs work."
In response to a question about projected deficits being larger than expected, the President said he expected additional budget cuts in coming years, plus the stimulus of the tax cuts, "to balance the budget in '84."
By this time, Stockman had become disillusioned by the Reagan Revolution. He had seen the supply-side theory and Laffer Curve and the President's confidence in them, but also how Cabinet officials and Members of Congress, as well as their staff, acted to protect their turf. He saw the two bills as a reflection of the dominance of practical politics over theory:
As he pointed out, the bills had been put together so hastily in the end that the new omnibus law included a provision that was simply the telephone number of a House staff aide who helped put that page together. [Triumph, p. 246-247]
With the economy continuing to deteriorate and pressure mounting for additional presidential action, Stockman emphasized in budget meetings that the deficit projections were worsening. He became frustrated that he could not shake the President's faith in the Laffer Curve, with its prediction of increased revenue thanks to the stimulus of tax cuts. The President also put his faith in additional cuts, such as reducing the bureaucracy. "The federal government's lathered in fat when it comes to employment. We should tell all the agencies to the rear march." [Triumph, p. 298]
On September 24, 1981, the President addressed the Nation on his plan to respond to the downturn that had begun in July. He began:
Shortly after taking office, I came before you to map out a four-part plan for national economy recovery: tax cuts to stimulate more growth and more jobs, spending cuts to put an end to continuing deficits and high inflation, regulatory relief to lift the heavy burden of government rules and paperwork, and, finally, a steady, consistent, monetary policy.
Considerable progress had been made, but the Nation was "just starting down a road that I believe will lead us out of the economic swamp we've been in for so long." What was important was "to hold a firm, steady course." Noting that in August he had signed a budget bill that cut $35 billion from the 1982 budget and slowed the growth of spending by $130 billion over the next 3 years, he said, "we must move on to a second round of budget savings to keep us on the road to a balanced budget." He proposed that Congress reduce the 1982 appropriation for most government agencies by 12 percent. No one, he said, would be "exempt from belt-tightening."
He proposed to shrink the size of the non-defense payroll by 75,000 employees, dismantle the Departments of Energy and Education, reduce Federal loan guarantees, move forward with a new package of entitlement and welfare reform measures, and urge Congress to eliminate abuses and obsolete incentives in the tax code. (Regarding the Department of Energy, he said, "we don't need an Energy Department to solve our basic energy problem. As long as we let the forces of the marketplace work without undue interference, the ingenuity of consumers, business, producers, and inventors will do that for us.")
He also discussed the value of user fees:
He asked the public to join "in this crusade to save our economy" by letting Congress know that "you will support them in making the hard decisions to further reduce the cost and size of government." He concluded:
We're launching a nationwide effort to encourage our citizens to join with us in finding where need exists, and then to organize volunteer programs to meet that need. We've already set the wheels of such volunteer effort in motion. As Tom Paine said 200 years ago, "We have it within our power to begin the world over again." What are we waiting for?
Biographer Richard Reeves said of the President who was known as the Great Communicator: "Words did fail Reagan this time." It was, Reeves said, a "speech of small things" and "wrong or misleading or missing statistics." He quoted editorials in The New York Times ("Tinkering") and The Baltimore Sun ("Reagan in Retreat"). Wall Street "wanted actions not words on reducing the deficit"; the Dow Jones Industrial Avenue dropped 11 points the next day to 824, "just about 200 points below where it was shortly after Reagan took office." [Reeves, Richard, President Reagan: The Triumph of Imagination, Simon and Schuster Paperbacks, 2006, p. 92-93]
Stockman characterized the reaction in similar tones:
In the days after the President's September Offensive speech, the political and economic facts of life pounded away at what remained of the Reagan Revolution. Congress and the White House became stalemated. "With his speech last night," wrote David Broder [of The Washington Post], "President Reagan came down from the stratosphere of last spring's euphoric first round of budget cutting and into the trench warfare most of his predecessors have faced when they challenged deeply embedded Congressional attitudes and interest-group pressures."
Stockman quoted Senator Mark O. Hatfield (R-Or.), Chairman of the Committee on Appropriations, as saying, "Compared to last summer, there are no rubber stamps in this Congress." The goal had been to reduce the 1984 deficit by $75 billion, but now "the deficit estimate had increased by an order of magnitude—to $150 billion."
Stockman briefed the President and senior staff "on this radical transformation," projecting "nearly $400 billion in red ink for 1982 to 1984." Officials from the Administration and Congress met with the President to express their views on the budget, but with out changing his mind. [Triumph, p. 360-361, 369] Historian James MacGregor Burns summarized the President's reaction to the attempts by Stockman and his staff to explain the need to increase revenue:
Time and again emergency budget meetings in the Oval Office were trivialized as the President retreated into anecdotage about timeserving bureaucrats or wasteful projects. Stockman noted that when Pete Domenici, a Republican Senator [from New Mexico] friendly to the White House, confronted Reagan with the need to raise taxes [on November 6, 1981], the President jotted down notes during the presentation but only in order to rebut it. . . . . "I'm just not going to accept this. This is just more of the same talk we've heard for forty years." [Crosswinds, p. 640, Triumph, p. 380-381]
A Chance to Rethink Priorities
The proposed 12-percent budget cut, coming as Congress was trying to complete action on the multi-year Federal-aid highway reauthorization package, created uncertainty about the size of the highway and transit programs. Moreover, the House and Senate were moving in different directions.
On September 24, before the President's address, the House had approved a 1-year reauthorization intended to give Congress time to decide in 1982 on a multi-year bill. The House adopted the Administration's proposals regarding the Interstate System, including I-4R funding. Chairman Glenn Anderson (D-Ca.) of the House Transportation Subcommittee said the committee would undertake a thorough study of transportation needs prior to developing multi-year legislation in 1982.
The Senate, however, was developing a multi-year bill to fund the program through FY 1990, largely along standard lines, but including the Interstate completion changes and expanded Interstate 4R program. ["Budget Cuts Slow Highway Legislation; More State Initiative in New 3R Rules," Better Roads, November 1981, p. 6] The Senate passed its bill in November.
With little time left to resolve differences between the two bills before adjournment on December 16, 1981, Congress decided to postpone consideration of a multi-year reauthorization. Another reason for the decision was that FHWA had been able to apportion 1982 non-Interstate funds at the start of the fiscal year (October 1, 1981), but not Interstate construction funds in the absence of legislation adopting the 1981 Interstate Cost Estimate (or ICE—compiled from State data, the ICE was used to establish apportionment factors based on Interstate completion needs per State compared with overall needs).
With nearly 20 States running out of Interstate construction funds, Congress passed the Federal-Aid Highway Act of 1981. President Reagan approved it on December 29, 1981, without ceremony or statement. It approved the 1981 ICE and authorized apportionment of FY 1983 Interstate construction funds. (Interstate construction funds were apportioned one year in advance of the fiscal year for which they were authorized.)
In addition, the 5-page law adopted the Administration's proposals for Interstate System. It redefined "completion" to focus Interstate construction funds on getting the remaining mileage open. The legislation added the fourth R to Interstate 3R and made Interstate 4R funds available by formula, with each State transportation department deciding which projects to develop within Interstate 4R funding limits. The 1981 Act also increased the Federal share of Interstate 4R projects from 75 percent to 90 percent, the same percentage applied to Interstate construction projects.
By adopting the Administration proposal, Congress took the potentially controversial Interstate 4R concept off the table in 1982, eliminating an issue that could have delayed action on the multi-year bill. T. Randolph Russell, Public Affairs Director for the American Road and Transportation Builders Association, pointed out:
The Interstate 4R program has great appeal and almost universal support . . . . Although the concept has had general support for several years, strong differences of opinion have emerged as the precise statutory provisions were developed.
One area of dispute, he said, had been over which categories of work would be shifted to Interstate 4R. Another involved the matching ratio. "The House bill provided 90-10 matching, while the Senate, firmly committed to the principle that the states have a responsibility to maintain their Federal-aid roads, felt that 70-30 matching was generous enough." Disagreements also arose over the apportionment formula for Interstate 4R funds. The formula in the 1981 Act (apportionment based 55 percent on Interstate lane miles and 45 percent on vehicles miles of traffic) was for 1 year only, with debate likely to continue as each member of the House and Senate calculated how changes in the formula would benefit or harm his or her State. [Russell, T. Randolph, "Congressional Bipartisan Cooperation Feature of Federal-Aid Highway Act," Better Roads, February 1982, p. 37]
Summarizing the bill, FHWA News said in the February 1982 issue, "The combined features of the Interstate 4R Program will provide for an effective transition into the post-Interstate construction era." The bill was a compromise that gave all parties a chance to rethink their positions. President Reagan would take advantage of the opportunity.
Untangling the Jungle of Grants-in-Aid
In his first State of the Union Address (delivered early in his second year in office, January 26, 1982), the President promised:
I will seek no tax increases this year, and I have no intention of retreating from our basic program of tax relief. I promise to bring the American people—to bring their tax rates down and to keep them down, to provide them incentives to rebuild our economy, to save, to invest in America's future. I will stand by my word.
For the highway community, this statement seemed to end the possibility, however slim, of an increase in the gas tax.
President Reagan also discussed "the jungle of grants-in-aid" and favorably quoted an unnamed Democratic Governor who "put it recently: The National Government should be worrying about ‘arms control, not potholes.'" He said:
Our citizens feel they've lost control of even the most basic decisions made about the essential services of government, such as schools, welfare, roads, and even garbage collection. And they're right. A maze of interlocking jurisdictions and levels of government confronts average citizens in trying to solve even the simplest of problems. They don't know where to turn for answers, who to hold accountable, who to praise, who to blame, who to vote for or against. The main reason for this is the overpowering growth of Federal grants-in-aid programs during the past few decades.
He proposed to solve the problem in "a single, bold stroke" by returning "some $47 billion in Federal programs to State and local government, together with the means to finance them" over a 10-year period. Excise taxes would go into a grass roots trust fund "that will belong in fair shares to the 50 States." He described how the States would use the fund:
William Nickel, eastern editor of Better Roads magazine, described how the New Federalism proposal would affect the highway program:
As defined, the administration's federalism program is essentially a revised federal/state partnership under which the states acquire more initiative and authority, and a corresponding increase in responsibility including the financial burden of the programs turned back.
More than 40 categorical and block grant programs would be turned back, including non-Interstate highways, airports, and local mass transit:
To soften the financial impact on the states, a $28 billion annual federalism trust fund will provide nearly dollar-for-dollar financing through FY 1987. In FY 1988, federal grant programs will begin to terminate, and trust fund payments and excise taxes will decline by 25% each year.
The fund would be financed "from existing federal alcohol, tobacco, telephone, motor fuel (2 cents only), and part of the oil windfall taxes." The transportation portion of the $28-billion fund was $6.4 billion earmarked for local transportation. [Nickel, William, "Prospects for Increased Road Revenues Dimmed by Reagan Program, No Tax Increase," Better Roads, March 1982, p. 9]
In a 1990 article about presidential proposals to restructure the Federal-aid highway program in the era of Nixon, Ford, Carter, and Reagan, Elizabeth Parker, a Senior Policy Analyst in the U.S. Department of Transportation (DOT), wrote about the reaction to the highway portion of the proposal:
While the Administration was promoting New Federalism, the "crumbling infrastructure" crisis that had begun in the wake of the 1970's oil shocks continued to receive media attention. With gas tax revenue and high inflation in the construction industry, many States has been unable to keep up with maintenance needs on aging highways and bridges. Some headlines illustrate how the media was covering the growing concern:
The Newsweek cover story included a sampling of the nation's worst infrastructure problems, spanning highways, city streets, bridges, transit, railroads, water and sewage systems, dams, and public buildings. For highways, the article stated that the Interstate System would need $33 billion worth of repairs in the next decade, but the Highway Trust Fund "has been sorely depleted with the advent of smaller, more fuel efficient cars" that reduced the amount of gas consumed and gas tax paid. Conditions were even worse, the article added, "on the larger network of primary and secondary roads." As for city streets, "the record-cold winter of 1982 left a plague of [potholes]—1 million, by some counts, in Chicago alone." Deficient bridges totaled 45 percent of the total, with needed repairs estimated to cost $47.6 billion. The article quoted Secretary Lewis as saying, "We're living on our laurels of the 1950s and 1960s," and concluded:
In past decades public works made America a nation of highways, of automobiles, of vital cities and water systems that are the envy of the world. Today's hard choices will determine the shape of America in the decades to come. ["The Decaying of America," Newsweek, August 2, 1982, p. 12]
Inflation was part of the problem, as transportation historian Mark H. Rose pointed out:
During the period 1973-1981, the costs of highway construction and maintenance had more than doubled, consuming part of the nation's highway budget; and the additional expenses made necessary by environmental requirements such as noise walls further reduced the ability of engineers to construct new roads. But in the face of rapid price increases through 1980 for such basic items as housing and gasoline, political leaders in many states refused to increase gasoline and other highway-related taxes . . . . [Rose, Mark H., Interstate Express Highway Politics: 1939-1989 (Revised edition), The University of Tennessee Press, 1979, p. 113]
As reflected in Stockman's account of early budget fights, Secretary Lewis had concluded early on that an increase in the 4-cents a gallon gas tax, which had not been increased since 1961, was needed to restore highways and bridges. President Reagan, who was promoting tax and budget cuts, rejected the pleas by Secretary Lewis in fall 1981 and early 1982, but did authorize Lewis to reach out to transportation interests and Congress to explore support for an increase. Lewis and Barnhart took advantage of this clearance to do just that.
One opportunity to make the case for the increase came on January 12, 1982, when President Reagan visited the DOT headquarters at 400 Seventh Street, SW., to meet with members of the Department's Senior Executive Service. He told them, "The theme of our administration is a new beginning, a national renewal that will make America great again; and for that, we need a spirit of renewal and excellence in all of government." In just his first year in office, he said, "We've cut waste, eliminated redtape, and provided better services to the American taxpayers."
He also told the executives that, "good tax policy is one in which, as much as possible, the tax that funds a service is levied on those who benefit from the service." He thanked the executives for their "leadership in developing the transportation user-fee concept [which] will more equitably distribute the cost of transportation among those who actually benefit."
While in the building, the President met with Secretary Lewis, his top assistants, and the heads of the agencies within DOT, including Administrator Barnhart. During the meeting, Barnhart made the case for a user tax increase to address the deteriorating condition of the Nation's highways and bridges.
As permitted by the President and Secretary, Barnhart had been making a similar case before groups involved in highway development, always emphasizing that thus far, the gas tax increase was a DOT proposal not cleared by the White House. He summarized the argument in his "Comments" column in the May 1982 issue of FHWA News. Although a formal proposal for "a possible 4-cents increase" in the gas tax had not gone forward, "serious discussion along these lines has been taking place at various levels behind the scenes" within the Administration and members of Congress. The Nation, he said, was at a critical stage "where increased expenditures are going to be necessary to prevent further deterioration of one of our Nation's most vital economic and structural assets." The cost of postponement will cause the cost of later repairs to escalate. Moreover, inflation had quadrupled since the last increase in the gas tax, approved on a temporary basis in 1959 and made permanent in 1961:
Since 1959, the price of a postage stamp has risen from 4 cents to 20 cents; the average daily newspaper from 5 cents to 25 cents; and the purchasing power of the 4-cents Federal gasoline tax has dropped to the equivalent value of 1 cent.
He explained that the current proposal was a $5-billion a year increase in revenues, "with $1 billion being earmarked for mass transit." (The 4-cent increase he referred to would be the highway portion.) He knew that some people might think the diversion to transit inappropriate, but said, "I believe the time has come for us to recognize that highways and transit are inseparable—the two modes are interdependent and complementary."
Further, Barnhart said, the proposal was consistent, "philosophically and practically," with President Reagan's economic recovery program. He said, "the Reagan economic program has attempted to reduce demands on the general fund, insisting that wherever possible, users should pay for the support and services they receive from the Federal Government." The Highway Trust Fund met the test—"we are being consistent with the overall goal of revitalizing the private sector of our economy and not adding one penny to the Federal deficit." [Barnhart, Ray A., "Comments from the Administrator," FHWA News, May 1982, p. 2]
The argument for the tax increase would be based in part on a report that Secretary Lewis submitted to Congress on May 13, 1982. This was the latest in a series of Highway Cost Allocation Studies the FHWA had conducted since the first one had been requested by Section 210 of the Federal-Aid Highway Act of 1956. The report included "an allocation of costs among the various highway vehicle classes and an assessment of the current Federal user charges along with recommendations on how to make them more equitable." Based on the current system of user fees (which would generate about $7.2 billion in 1985) heavy combination trucks would pay substantially less than their share of the cost of rehabilitation and reconstruction, while automobiles would pay their fair share.
As a result, the report recommended that user charges should be graduated more according to truck weight. This recommendation would become a controversial part of the Administration's proposal. ["Cost Allocation Report Goes to the Congress," FHWA News, July 1982, p. 3]
The report kept alive hopes for the nickel-a-gallon tax increase, but Congress was awaiting a signal from the White House. The Journal of Commerce reported on May 14 that Republicans on the House Ways and Means Committee, which must initiate tax changes, "are expected to determine the fate of Secretary of Transportation Drew Lewis' proposal for an increase in gasoline and diesel fuel taxes." The issue was complicated because the proposal included an increase in taxes on truckers and diversion of a penny to mass transit:
It is understood that a majority of Ways and Means Republicans must support or show interest in the plan if there is any hope for it to be proposed by the White House.
The article was written before release of the Highway Cost Allocation Study, but indicated that DOT officials confirmed that the Secretary had been holding the report "because it could create problems for the tax hike." Truckers had mixed feelings, according to the article, since the current bill would have given them some relief from State weight restrictions they had sought for years. At the same time, they had traditionally opposed diversion of highway user tax revenue to transit but would reserve judgment until further details came out.
Chairman James J. Howard (D-NJ.) of the House Committee on Public Works and Transportation, "made it perfectly clear to reporters that it is time for a decision to be made and that the White House should support the plan." The article continued:
Expectations were that President Reagan would make a decision soon. The article concluded:
President Reagan made his decision on May 18. Secretary Lewis presented the proposal to the Cabinet Council on Economic Affairs. According to news reports, he received support from most Cabinet members, but not the President's economic team: Treasury Secretary Donald T. Regan, Economic Advisor Murray Weidenbaum, and Budget Director Stockman. They were concerned that introducing the proposal would confuse negotiations with Congress over the pending FY 1983 budget.
Fred Barnes of The Baltimore Sun reported some of the discussion:
Secretary of the Interior James G. Watt suggested postponing the issue under after the November congressional election "if only to keep it from being overly politicized," according to Barnes.
The President rejected the tax increase for now, but left open the possibility he might support it at some later date. Secretary Lewis was confident:
Despite the Secretary's optimism, interest groups were disappointed. Edward V. Kiley of the American Trucking Associations (ATA) said, "It looks like Drew Lewis had the rug pulled from under him for the third time," while Jack R. Gilstrap of the American Public Transit Association said, "It's a dark day for the users of mass transit." [Barnes, Fred, "Reagan Lays Aside 5 Cent Gasoline Tax Boost for Consideration as Part of 1984 Budget," The Baltimore Sun, May 19, 1982; Cawthorne, David M. "White House Delays Hike in Truck Tax," The Journal of Commerce, May 19, 1982; Holsendolph, Ernest, "Tax on Transport Killed in Cabinet," The New York Times, May 19, 1982]
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