By David Lawder and Roberta Rampton
WASHINGTON (Reuters) - U.S. congressional leaders failed on Tuesday to break a deadlock on a long-stalled transportation funding measure, and Republicans may now have to detach from the bill approval of the controversial Keystone XL oil pipeline and find another vehicle for that project.
Removal of the pipeline provision would help clear the way for a short-term extension of current transportation funding before a June 30 deadline.
House of Representatives Speaker John Boehner and Senate Majority Leader Harry Reid could not resolve differences in a late afternoon meeting over the road, bridge and rail bill that could create or save millions of jobs and give a lift to the struggling U.S. economy.
"Hope springs eternal," Boehner, the top Republican in Congress, quipped as he left his office in the Capitol.
Failure to reach a deal in Congress could trigger layoffs of nearly 3 million U.S. construction workers and increase unemployment less than six months before the November elections.
Aides for House and Senate negotiators from both parties said hopes for a long-term funding bill were dimming and that a six-month extension was likely, with less than two weeks to go before the deadline.
But Republican House Transportation Committee Chairman John Mica said Boehner and Reid instructed negotiators "to redouble our efforts" and the Democratic-led Senate had offered a new proposal. He declined to comment on any discussions of a temporary extension, which would be the 11th since the most recent transportation bill expired in 2009.
"We're going to take it hour by hour, see if we can get the job done," Mica said.
One major outstanding issue has been Republicans' insistence on including approval for TransCanada Corp's Keystone XL oil pipeline project - a provision opposed by President Barack Obama and most Democrats.
The House lawmaker who authored that plan, Nebraska Republican Lee Terry, now believes it is unlikely the Keystone provision will be part of a short-term, stopgap funding extension.
"He doesn't see it happening at this point," a Terry aide told Reuters, noting Terry continued to work with Boehner to see what other legislative vehicles could be used to advance approval for the Canada-to-Texas pipeline.
A Senate Democratic aide said the Keystone provision might have another chance to move if lawmakers complete a highway bill this summer or autumn.
"Even if it's a six-month bill, the possibility would exist to do Keystone in the lame-duck (session), if not sooner," the aide said.
REPUBLICANS SEEK STREAMLINED ENVIRONMENTAL REVIEWS
The Republican-led House failed to pass its own, more ambitious highway bill, which sought $260 billion over five years and proposed controversial funding changes for mass-transit projects. Fiscally conservative Tea Party-backed House Republicans have objected to the measure's price tag.
In negotiations with the Senate on core transportation provisions, House Republicans have insisted on streamlining environmental reviews of road projects in order to speed up their construction. They also want to drop provisions that allow for gasoline taxes to help pay for ancillary transportation "enhancements" such as flower beds and other streetscape improvements.
Earlier this month, Boehner floated the idea of a six-month extension of current funding, which would remove the threat of a halt in road and rail construction until after the November 6 elections.
Democrats have balked at that idea, saying it would deplete the Highway Trust Fund because falling gasoline tax collections were insufficient to fund current projects.
They say U.S. states also would delay the start of new longer-term projects - and the hiring of hundreds of thousands of workers - due to the lack of funding certainty.
(Additional reporting by Roberta Rampton; Editing by Fred Barbash and Peter Cooney)