* No pet projects allowed in transportation bills
* Funding calculations would include past earmarks
By John Crawley
WASHINGTON, March 1 (Reuters) - Pet projects known as earmarks are no longer stuffed into legislation considered by U.S. lawmakers, but their legacy endures in a transportation spending proposal grinding its way through the Senate.
A bill in the Republican-controlled House scraps historic earmarks outright, but the Senate's plan gives a built-in advantage to states with top priority road projects funded through previous earmarks.
Virtually all states won those earmarks in 2005, but bigger beneficiaries include California and Oklahoma.
They are represented by Democrat Barbara Boxer and Republican James Inhofe, who as top members of the Senate Public Works Committee helped push through the law that included extra money for their states from those earmarks.
Again leading the committee, they are anchoring the current bill on the Senate floor.
The funding approach has some members and watchdog groups crying foul. They argue the bill circumvents the intent of a two-year earmark moratorium approved in 2011 after a public outcry over pork-barrel spending.
"While earmarks are on their way out of this program, their legacy is not yet over," said Erich Zimmermann, a policy analyst with Taxpayers for Common Sense, a watchdog group that analyzed earmark data.
Proponents of the bipartisan Senate bill reject the notion that they are violating the earmark moratorium. They say their funding allows states to keep highway spending current in a tough economy until Congress can consider a long-term solution.
"Anyone who says there are earmarks in this bill is wrong," Boxer said. "There are no earmarks. This is a reform bill."
The debate centers on how Congress should divide up gasoline tax receipts and other federal revenues that go back to the states for transportation projects. All states are eager for government money because of increasing budget pressures and infrastructure needs.
The Republican-controlled House relies on traditional gas tax formulas and a controversial proposal to expand oil and gas drilling to raise new revenue. Action has been delayed, however, as leaders weigh substantial revisions in the face of stiff opposition.
The Senate would average gas tax receipts and other funding sources from 2005-09 and close certain tax loopholes to maintain the $40 billion outlay for states each year.
As part of the baseline calculation, states would receive some credit from nearly $7 billion in projects funded through the highest-priority earmarks over the same five-year period as extras.
California would realize money because of the Bakersfield Beltway System, a project that was originally funded through a $140 million earmark pushed by former House Ways and Means Committee Chairman Bill Thomas.
Local officials were so grateful they named the major highway program after Thomas, a Republican who retired in 2007.
Thomas could not be reached for comment on the Senate bill
California would also get funding help because of the Alameda Corridor East project, a job to reset rail grade crossings east of Los Angeles to prevent traffic congestion. The project was earmarked in 2005 for five years.
Inhofe's state would get a measure of credit for $330 million in previously earmarked projects. About a third of that money was dedicated to realignment of I-40 in Oklahoma City.
Alaska, Illinois and Washington state got hefty amounts as well. Washington's senior senator, Patty Murray, held a powerful position on the appropriations transportation subcommittee in 2005. Murray, whose state received $225 million in top-line earmarks, now chairs the panel.
Alaska, which got $257 million, was represented by Don Young, then chairman of the Transportation Committee, and Ted Stevens, the late Senate Appropriations Committee chairman.
A spokesman for Young, Luke Miller, said Young would support the Senate proposal to include a percentage of past earmark amounts. Murray's office declined to respond.
Supporters of the Senate bill say states would have flexibility on how to spend their transportation money and can use it for construction that previously received earmarks or for other projects.
In the past, transportation bills have been festooned with earmarks for local and state road projects, mass transit programs and other special interest needs.
Some of them - like the $200 million "Bridge to Nowhere" tacked on to the 2005 bill by then-Senate titan Stevens of Alaska, became symbols of congressional excess.
The 2005 measure included more than 5,000 other earmarks that were authorized when the economy was stronger and transportation funding resources more robust. Proponents argued the earmarks were simply a way to level funding for states with pressing transportation needs.
"Earmarks used to be the lubricants to get legislation passed," former Sen. Byron Dorgan, a North Dakota Democrat and former Senate powerhouse, said in an interview.
But earmarks have been politically toxic since 2011, when the two-year moratorium passed. Some members want to make the prohibition permanent. Earmarks also have been a hot-button issue in the presidential contest.
With gas tax collections down sharply in recent years due to economic weakness and more fuel efficient vehicles on U.S. roads, states are scratching more than ever for money.
Moreover, some members whose states did not fare well with earmarks in prior bills are criticizing the Senate approach.
Sen. Dan Coats, an Indiana Republican, has proposed an amendment that would "give equitable treatment to all states," spokesman Matt Lahr said. The tax revenue generated by the state would be equivalent to what they get back under his proposal.
The latest in a series of temporary laws authorizing gas tax collections and funding highway programs expires March 31. Wrangling in both chambers mean a likely extension, Transportation Secretary Ray LaHood said. (Reporting By John Crawley; Editing by Marilyn W. Thompson)