September is a time of turning, of changes. In the northern hemisphere it marks the end of summer, in the southern, the beginning of spring.
This year, September marks the sunset of MAP-21, the appropriations bill that puts money into the Highway Trust Fund (HTF). The HTF helps fund state infrastructure projects for roads, bridges, and mass transit. The WSJ estimates it does this to the tune of about $1B per week (yes, week).
If the HTF runs dry, construction projects it funds will come to a halt. They'll need to be mothballed until they can be funded. Restarting them will be expensive. If that's allowed to happen, DOT estimates the immediate impact as about 700,000 construction jobs lost .
And the HTF is slated to run dry. Not in September, but starting next month. Here's the projection.
Both houses of Congress are in recess the entire month of August so unless the HTF gets funded in July, September could be dramatic.
This problem is much bigger than merely extending existing funding for the HTF. The program itself, dating back to 1956, is unsustainable in its present form -- as these CBO projections make clear. There are at least two problems here (which you can read about in detail in the CBO report). First is that its primary funding mechanism since 1993 is gas tax and cars are more fuel efficient now. Second is that while the funding for HTF is controlled, the demands on it are somewhat open. It's relatively easy for states to overdraw the amount of federal funds actually available. The whole program is getting deeper and deeper into the red and needs a serious overhaul. That's not likely to happen in the short time before it goes bankrupt, so Congress will do what it's been doing far too long with this program...kick the can a little further down the road.
Although a serious overhaul discussion is not likely this year, the differences between House and Senate on even interim funding are large enough that an easy solution is not likely. This is an election year. If the debate spills over into September, an unfunded HTF combined with partisan posturing and brinkmanship in DC could be enough to rattle markets. Even close public scrutiny of what Congress has been sweeping under the rug all this time could (and should!) be unsettling.
It hasn't gotten much press, but Moody's has already started downgrading the bonds that HTF funds. Their downgrades are not based just on the expiring appropriations but on the inherent shortfall in the system.
The HTF problem isn't the only fiscal undercurrent that may soon rise to the surface. Another is an impending shortfall in Social Security's Disability fund, which is expected to run out of money in 2016. Testimony on this has been ongoing in the House Ways and Means Committee. Again, there are no easy solutions and the clock is ticking. This one may not rise as quickly to public prominence. Then again, it is an election year....
Last of note but still potentially significant for the market is the final winding down of bond purchasing under QE. If the current rate of -10B$/month continues, the taper will be just about tapered out come fall. The actual impacts of tapering have been minimal, but the end of this program has symbolic significance to many.
All in all, I expect September to be an interesting month.