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Monday, November 21, 2011

Department of Transportation Budget FY2012


David Randall Peterman
Analyst in Transportation Policy

The President’s Department of Transportation (DOT) budget request for FY2012 totaled $123.9 billion. It was divided into two parts: a “base” request of $78.6 billion, and a one-time “up-front boost,” related to the President’s proposal for surface transportation reauthorization beginning in FY2012, of $50 billion.

The base request was $1.7 billion (2%) more than the FY2010 enacted DOT budget of $76.9 billion. The total request is $53 billion over the FY2010 enacted level. See Table 2 for detailed figures on the request and Congressional action.

One might ask how this increase was possible in light of the President’s stated intention to freeze overall federal discretionary spending in FY2012 (and after) at the FY2010 level. It is possible because most DOT funding is not discretionary funding; it comes from the Highway Trust Fund, and is therefore categorized as mandatory funding. Thus, virtually all of the proposed increase counted as an increase in mandatory rather than discretionary funding. Furthermore, the FY2012 DOT budget request proposed to shift funding for some accounts from the general fund to the highway trust fund (which would be renamed the “transportation trust tund”). This had the effect of reducing the total discretionary funding requested for DOT in FY2012 compared to the amount provided in FY2011, all else being equal.

The FY2012 budget request was complex because it did two different things at once: it requested funding for DOT programs for FY2012, and it restructured the major surface transportation program accounts and funding structure. The latter changes reflected elements of the Administration’s proposal for reauthorizing surface transportation programs for the next six years. The changes included adding intercity rail and new transit construction programs to the programs financed from the trust fund, and increasing the flow of revenues to the fund, although the source of the additional revenues was not specified.

Congress had not passed an FY2012 DOT appropriations bill by the time the 2012 fiscal year began. DOT funding is currently being provided by a continuing resolution (P.L. 112-36, the second one passed for FY2012), which will expire on November 19, 2011.

Congressional action on FY2012 DOT appropriations was delayed due to several factors. First, the FY2011 appropriations act for DOT and other federal agencies was not finalized until April 15, 2011.1 Second, the House-passed budget for FY2012 and subsequent 302(b) allocation of discretionary funding for the Department of Transportation, Department of Housing and Urban Development, and Related Agencies appropriations bill called for cuts to highway funding, among other accounts, that were so steep that some doubted they could pass; perhaps for this reason, action on the bill in the House was postponed. The Senate did not pass a Budget Act for FY2012. Soon after completion of FY2011 appropriations, congressional attention was taken up by protracted negotiations over raising the federal debt limit. These negotiations included discussion of the overall FY2012 appropriations level. Action on raising the debt ceiling. as well as setting an overall FY2012 appropriations level, was not concluded until August 2, 2011, with enactment of the Budget Control Act of 2011.2

The Senate Committee on Appropriations reported out an FY2012 appropriations bill for the Department of Transportation (and HUD and related agencies), S. 1596, on September 21, 2011. This bill has been combined with two other appropriations bills (Agriculture and Commerce- Justice-Science) in a “minibus” (as opposed to “omnibus”) appropriations bill, H.R. 2112. That bill was approved by the Senate on November 1, 2011.

The House Committee on Appropriations Subcommittee on Transportation, Housing and Urban Development, and Related Agencies approved a draft bill by voice vote on September 8, 2011.3 The unnumbered draft bill has not been taken up by the full committee. Press reports indicate that the House and Senate are conferencing on the minibus bill.



Date of Report: November 10, 2011
Number of Pages: 11
Order Number: R41650
Price: $29.95

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Monday, November 14, 2011

TARP Assistance for the U.S. Motor Vehicle Industry: Unwinding the Government Stake in GMAC


Baird Webel
Specialist in Financial Economics

Gary Shorter
Specialist in Financial Economics

Bill Canis
Specialist in Industrial Organization and Business


Ally Financial, formerly known as General Motors Acceptance Corporation or GMAC, provides auto financing, insurance, online banking, and mortgage and commercial financing. For most of its history, it was a subsidiary of General Motors Corporation and it still provides significant financing both for GM vehicles and for GM dealers. Like some of the automakers, it faced serious financial difficulties due to a downturn in the market for automobiles during the 2008- 2009 financial crisis and recession, while also suffering from large losses in the mortgage markets. With over 90% of all U.S. passenger vehicles financed or leased, GMAC’s ability to lend, or inability to lend, was particularly important to GM’s retail sales and dealer-financing capabilities.

The Bush and Obama Administrations used the Troubled Asset Relief Program (TARP) to fund assistance for the U.S. auto industry, concluding that the failure of one or two large U.S. automakers would cause additional layoffs at a time of already high unemployment, prompt difficulties and failures in other parts of the economy, and disrupt other markets. The decision to aid the auto industry was not without controversy, with questions raised as to the legal basis for the assistance and the manner in which it was carried out. The nearly $80 billion in TARP assistance for the auto industry included $17.2 billion for GMAC.

The government’s aid to GMAC was accomplished primarily through U.S. Treasury purchases of the company’s preferred shares. Many of these preferred shares were later converted into common equity, resulting in the federal government acquiring a 73.8% ownership stake. This conversion from preferred to common equity significantly changed the outlook for the future government recoupment of TARP assistance. Whether the government will recoup all or most of these funds now depends largely on the future market value of the government’s ownership stake. If the government’s common equity ends up being worth less than the assistance provided, the company has no responsibility going forward to compensate the government for the difference. Conversely, if the common equity ends up being worth more than the assistance, the gain from this difference accrues to the U.S. Treasury (and is used to pay down the national debt as specified in the TARP statute). In addition to TARP assistance, during the financial crisis in 2008, GMAC converted from an industrial loan company into a bank holding company, an expedited conversion that was permitted by the Federal Reserve (Fed) due to prevailing emergency conditions in the financial markets. This change increased access to government assistance, including Fed lending facilities and Federal Deposit Insurance Corporation (FDIC) guarantees, while also increasing regulatory oversight of the company.

In March 2011, Ally Financial (GMAC having changed its name in 2010) filed with the Securities and Exchange Commission (SEC) for an initial public offering (IPO) of shares, which it expected to launch in the second quarter of 2011. The IPO, however, has yet to occur because of stock market volatility. Assuming it eventually occurs, this IPO would be a major step in unwinding the government involvement in GMAC/Ally Financial and could provide an important market signal as to the market value of the government holdings in the company. At this point, the government has not indicated how much of its 73.8% equity in Ally Financial might be sold in a future IPO, nor what price will be sought for the shares.

Although the TARP authority to purchase new assets expired in the 111th Congress, the 112th Congress has continued to oversee the program with hearings in both the House and the Senate. This report will be updated following future legislative action or market events.



Date of Report: November 4, 2011
Number of Pages: 17
Order Number: R41846
Price: $29.95

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