U.S. highway bill talks skid into critical month

WASHINGTON (Reuters) - With a deadline approaching for a massive U.S. spending bill for roads, bridges and rail projects, Senate and House negotiators have not yet addressed the 1,700-mile-long elephant in the room - whether to fast-track the Keystone oil pipeline as part of the plan.

After four weeks of discussions, Senate negotiators delivered a proposal to their House counterparts on Tuesday on core transportation issues, still hoping to meet a June 30 deadline to forge a new transportation bill.

"We have presented an offer to our House counterparts, and it's an offer that reflects their wishes," Democratic Senator Barbara Boxer told reporters.

But the plan, which addresses House concerns about a two-year, $106 billion transportation bill passed by the Senate, sidestepped the House proposal to include in the package approval for TransCanada's $7 billion Canada-to-Texas pipeline. President Barack Obama is opposed to any move to fast-track the pipeline until new environmental reviews are completed.

"We haven't taken that up yet," said Boxer, who is leading the talks.

Giving few details about what the proposal contained, Boxer and Republican Senator James Inhofe said they are optimistic the document would advance talks.

Inhofe said talks with House Republicans were "amiable" and downplayed reports of an impasse.

"The (House Republicans) I've talked to are very receptive. Everybody wants a bill. I do too," Inhofe told reporters.

"MICROCOSM" OF SPENDING FIGHT

A stop-gap law authorizing highway spending expires on June 30. That means the panel needs to find a compromise soon to give the full House and Senate enough time to pass the deal and get it to Obama for his signature.

It is more likely that Congress will pass another short-term measure to keep funding at current levels than agree to the two-year plan, Guggenheim Partners' senior policy analyst Chris Krueger said in a note to clients.

"The Highway Bill has become a microcosm of the broader spending fight in Congress, much to the detriment of a bill that was once the pinnacle of bipartisanship," Krueger said.

A new extension could expire July 31, although that probably would not give lawmakers enough time to find a deal, he said, noting an extension to September 30 is more likely.

Congress must agree to highway spending soon, because the government currently spends more on highways than it raises in gasoline taxes collected for the Highway Trust Fund.

The fund will run out of money sometime in the fiscal year beginning October 1, the government has projected.

HIGHWAY GROUPS CONCERNED

Lawmakers from both parties pointed to the rising U.S. unemployment rate as evidence of the need to reach a deal.

Unemployment in the construction agency is at 14.2 percent, well above overall unemployment at 8.3 percent, a coalition of construction and contracting trade groups and state highway officials told lawmakers in a letter.

"We are deeply concerned about reports that suggest that progress is not being made in conference negotiations that will lead to completion of work by June 30," the coalition said.

Republicans said the report gives leverage for their Keystone demands, because constructing the pipeline would create thousands of jobs at no cost to taxpayers. Environmental groups have argued job creation claims for the project are overstated.

Obama put the pipeline on hold earlier this year, citing the need to complete additional environmental reviews, and the White House has said Obama would veto a bill that sought to overturn his decision.

Senate Majority Leader Harry Reid told reporters he has heard that House Republican Leader Eric Cantor wants the bill to fail, adding pressure on the economy ahead of the November elections, a scenario that could boost votes for Republicans.

"You have heard as I've heard, that there's a battle going on between Cantor and (House Speaker John) Boehner as to whether or not there should be a bill," Reid said.

"That's bullshit," said Michael Steel, a spokesman for Boehner. "House Republicans are united in our desire to get a sensible, reform-minded transportation bill done, including job-creating energy initiatives like Keystone."

Laena Fallon, spokeswoman for Cantor, called Reid's claims "ridiculous and patently false," noting Cantor has said he hopes the conference will reach a deal by the end of June, and said the House will work to ensure highway programs are not shut down for lack of funding.

(Additional reporting by David Lawder and Tom Ferraro, Editing by Leslie Gevirtz)