The Highway Trust Fund is Almost Bankrupt. Can We Fix it?
You’ve probably been hearing stories in the news lately about something called the Highway Trust Fund. It’s a pool of money, most of which comes from federal gas taxes, that the government uses to support state and federal highway projects - and it’s expected to go bankrupt by the end of August unless Congress takes action to replenish it.
If that happens, the fund will be forced to hold off on issuing reimbursements to states, even for summertime road works projects already in progress. Average cuts to state funding would start at 28 percent in the first week of August, and would deepen by the end of the month, putting up to 700,000 jobs at risk.
The situation is serious, and this isn’t the first time a Highway Trust Fund budget crisis has required an emergency fix. What exactly is the problem with transportation funding, and why is it so hard to find a solution?
Gas Taxes Can’t Keep Up with Spending
Gas taxes have been the major source of revenue for the Highway Trust Fund since it was created in 1956. But the fact is, gas taxes aren’t keeping up with what the Highway Trust Fund has been authorized to spend. Here’s why:
- The gas tax hasn’t been increased since 1993, when it was raised to 18.4 cents per gallon for gasoline and 24.4 cents per gallon for diesel.
- Because the gas tax is not tied to inflation, the tax amount has less purchasing power now than it did in 1993.
- Unlike sales taxes, the gas tax is set as a fixed amount rather than as a percentage of the gas purchase. So, despite higher gas prices, the amount we pay in gas taxes remains the same.
- Drivers are buying fewer gallons of gas, and paying less in gas taxes. Major improvements in fuel efficiency and the decrease in vehicle miles traveled have both contributed to this. At the same time, road improvement projects are still needed to combat wear, aging, and congestion.
The total gas tax revenue collected for this year is expected to be about $8 billion below what was expected, and the gap is projected to worsen in coming years if the situation does not change.
To handle the shortfalls that have come up in recent years, the federal government has repeatedly transferred billions of dollars from the General Fund into the Highway Trust Fund. Transfers took place in 2008, 2009, 2010, and 2013 for a total of $53 billion.
We don’t yet know what Congress will do to support the Highway Trust Fund this year, but it’s clear that this issue isn’t going away. So, what are our options for a solution?
A Temporary Fix
Right now, Congress seems to be focusing on a short-term solution that would allow more time to come up with a multi-year transportation plan without adding to the federal government’s debt.
One plan, proposed by members of the House this week, would provide $10 billion for the Highway Trust Fund, which would last until May 15, 2015. Some money would be redirected from the Leaking Underground Storage Tank Trust Fund, while most would come from a financial maneuver known as pension smoothing.
A plan to eliminate Saturday mail delivery and use the savings to support the fund was proposed in June, but has already been scrapped.
A New Multi-Year Transportation Plan
Historically, Congress has authorized the Highway Trust Fund to receive and spend money by passing transportation acts spanning multiple years, intended to provide enough certainty to plan and complete large projects. However, this is sometimes harder than it sounds.
Since the mid-2000s, several deadlines have been missed. The last plan, known as SAFETEA-LU, was enacted in 2005 and intended to expire in 2009. However, Congress passed short-term extensions of the act nine times before a new plan was finalized. The current plan, MAP-21, took effect in 2012 and expires this October.
President Obama proposed a new four-year transportation plan back in April, titled the Grow America Act, which would actually increase transportation spending by $20 billion per year. To pay for the increase and make up for the current shortfall, it would incorporate a different source of revenue - an extra $150 billion generated by reforming corporate tax laws. However, it’s not clear whether tax reform itself will pass.
Raising the Gas Tax
Since gas taxes are the current source of funding for the Highway Trust Fund, and they haven’t been increased in two decades, raising the gas tax is one obvious solution.
Two senators proposed a plan last month to raise the gas tax by 12 cents over the next two years and index it to inflation to avoid future shortfalls. While transportation advocates such as AAA support the increase, lawmakers are hesitant to support a tax increase during an election year.
A New Source of Funding
Experts and politicians are also considering some alternatives to the gas tax, which could help make up for falling gas tax revenues and also charge drivers more fairly for their use of roads. Here are a few:
- Tax vehicle-miles-traveled. Taxing based on odometer readings would be easy, but just as with the gas tax, there would be no way to tell whether the miles were traveled on state and federal roads, or local roads that don’t receive federal funding. Tracking travel using GPS technology is another possibility, but could be expensive, and raises privacy concerns.
- Toll roads. The Wall Street Journal reports that 61 percent of Americans would prefer tolls to an increased gas tax or a tax on miles driven. However, federal restrictions on implementing tolls on existing highway lanes currently prevent a shift to this model.
- Tax vehicles. States already assess a fee for vehicle registrations, and the federal government could do the same. However, this tax would likely be unpopular, and could limit the registration fees that states could reasonably charge.
Looking for More Information?
We were surprised at all the information out there on highway funding! Here are the most helpful resources we found:
- Just can’t get enough information about the Highway Trust Fund? “A Primer on Federal Surface Transportation Reauthorization and the Highway Trust Fund” by the Center for Climate and Energy Solutions is a mouthful, but it’s also a great background on the current highway funding situation.
- “Do Roads Pay for Themselves?,” a report by the U.S. Public Interest Research Group, says it’s a myth that the highway system pays for itself through user fees, but argues that it shouldn’t be the most important decision-making factor. Instead, we should compare all the costs and benefits involved across modes of transportation, to help us make decisions that provide the greatest possible net benefits to society.