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Obama administration warns states face cuts in highway aid by August if Congress doesn't act

President Barack Obama waves after his remarks about transportation and the economy, Tuesday, July 1, 2014, at Georgetown Waterfront Park in Washington. The president said 700,000 jobs could be at risk next year if Congress doesn't quickly agree on how to pay for highway and transit programs. (AP Photo/Charles Dharapak)

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President Barack Obama waves after his remarks about transportation and the economy, Tuesday, July 1, 2014, at Georgetown Waterfront Park in Washington. The president said 700,000 jobs could be at risk next year if Congress doesn't quickly agree on how to pay for highway and transit programs. (AP Photo/Charles Dharapak)

WASHINGTON - As the summer driving season swings into full gear, states can expect a large pothole in their construction budgets if Congress doesn't reach an agreement quickly on how to pay for federal highway and transit programs, President Barack Obama and his top officials are warning.

States will begin to feel the pain of cutbacks in federal aid as soon as the first week in August if lawmakers don't act, Transportation Secretary Anthony Foxx said in a letter to states. That's because the balance in the federal Highway Trust Fund is dropping and will soon go below $4 billion, the cushion federal officials say is needed for incoming fuel tax revenue to cover outgoing payments to states.

The cuts will vary from state to state but will average about 28 per cent, transportation officials said. By the end of August, the trust fund's balance is forecast to fall to zero and the cuts could deepen.

A second deadline is coming Sept. 30 when the government's authority to spend money on transportation programs expires.

As many as 700,000 jobs could be at risk over the next year, Obama told a crowd of about 500 gathered Tuesday beneath the Key Bridge, which spans the Potomac River and joins the District of Columbia and Virginia.

Revenue from federal gas and diesel taxes continues to flow into the trust fund, but the total is expected to be about $8 billion short of the transportation aid the government has allocated to states this year. Over the next six years, a gap of about $100 billion is forecast if transportation spending is maintained at current levels.

At the same time, transportation experts and industries that depend on the nation's highways to get their products to market are calling for greater spending on transportation to shore up aging roads, bridges and tunnels and to accommodate population growth.

"Right now there are more than 100,000 active projects across the country where workers are paving roads and rebuilding bridges and modernizing our transit systems," Obama said. "And soon states may have to choose which projects to continue and which ones to put the brakes on because they're running out of money."

Already some states are cutting back on construction projects because of the uncertainty of federal funding, Foxx told reporters earlier. "I think people will see it in the traffic. I think people will see it in the condition of our roads," he said.

The reason for the shortfall is that revenue from the federal 18.4-cent-a-gallon gasoline and 24.4-cent-a-gallon diesel tax hasn't kept pace with transportation needs. The taxes haven't been increased in more than 20 years, while construction and other costs have continued to go up.

The most obvious solution is to raise fuel taxes, which is what several blue-ribbon commissions have recommended and business groups like the U.S. Chamber of Commerce and the American Trucking Associations have urged. But neither political party nor the White House wants to get out front on a proposal to raise taxes in an election year. Foxx didn't rule out Obama's signing legislation that raises the gas tax, but he indicated the administration doesn't believe there is enough support in Congress to pass a gas tax increase.

"We have said if Congress acts on something, we'll keep an open mind," Foxx said.

Instead, Obama is pushing a plan to close tax loopholes and use the revenue to pay for increased transportation spending for the next four years.

"We have a proposal we think is politically acceptable," Foxx said.

Nearly a dozen proposals to address the problem have been floated in Congress, including several to raise the gas tax, but none have gained traction. House Ways and Means Committee Chairman Dave Camp, R-Mich., offered a similar proposal to Obama's plan in April. But many Republicans say they'd rather offset increases in transportation spending with cuts in other government programs rather than higher taxes. And many lawmakers say they want to adhere to the trust fund's "user pays" principle by raising money from people who most use the roads, if not through a gas tax then some other means.

Saying his plan would "support millions of jobs" by making "companies that are shipping their profits overseas" pay their fair share of taxes, Obama blamed the impasse on the GOP.

"It's not crazy, it's not socialism. It's not the imperial presidency," he said. "But so far, House Republicans have refused to act on this idea. I haven't heard a good reason why they haven't acted — it's not like they've been busy with other stuff. No, seriously. I mean, they're not doing anything. Why don't they do this?"

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Associated Press writer Nedra Pickler contributed to this report.

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Follow Joan Lowy on Twitter at http://www.twitter.com/AP_Joan_Lowy

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