Trust or Bust: Fixing the Highway Trust Fund

Update: After publication we wrote a series of blogs providing options for offsets or to bring spending and revenue in line. As well in May 2015 we published a plan to deal with the Highway Trust Fund shortfall permanently.

Options to Offset a General Revenue Transfer

Options For New Sources of Highway Revenues

Options to Reduce Highway Spending

Options To Increase Current Sources of Highway Revenues

CRFB's Plan:The Road to Sustainable Highway Spending

Congress is facing two upcoming deadlines regarding surface transportation programs. At the end of September, the current authorization for highway programs expires and must be renewed. More immediately this summer, the Highway Trust Fund (HTF) will have insufficient funds to continue operating. Failing to replenish this trust fund will cause serious disruption and bring many transportation projects to a stand-still. On the other hand, allowing the HTF to continue to spend beyond dedicated revenue could worsen an already dismal federal debt situation. Fortunately, there are responsible ways forward.

Highway spending has exceeded gas tax and other dedicated revenues regularly over the past decade, and this shortfall will only grow over time. Dedicated revenues currently fund less than three-quarters of total HTF spending, a concern that lawmakers have addressed in recent years by transferring $54 billion of mostly general tax revenue into the HTF (only $15 billion was paid for and partially with a gimmick). In FY2015 alone, highway spending could exceed revenues by nearly $15 billion, and over the next decade that gap will approach $170 billion.

There is broad bipartisan support for funding highways and other transportation infrastructure, which can both help to create jobs in the near-term and enhance long-term economic growth by fostering commerce, communication, tourism, and trade. Unfortunately, policymakers have so far been unable to agree on how to pay for desired levels of highway spending. In the coming months, Congress and the President must identify and agree to a fiscally responsible solution to close the HTF shortfall.

The best approach to address the shortfall would be a long-term highway bill that aligns dedicated revenues with transportation spending. Transferring funds from general revenue into the HTF would be an acceptable alternative if and only if those funds were fully offset with real spending cuts and/or tax increases elsewhere in the budget. Under no circumstance should lawmakers rely on a deficit-financed (or gimmick-financed) general revenue transfer to fund the HTF.

In addition to addressing the funding shortfall facing our highways, policymakers should use the highway bill to ensure better prioritization of funding projects and, importantly, to reform the budgetary treatment of highway spending. The HTF has a unique treatment in the budget, making it immune to the normal forms of budget discipline that ensure policymakers account for the full costs of legislation they pass.

See the full paper below, or download it here.

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Update: We've corrected the paper for a typo since publication. The original paper cited that a VMT of 18.5 cents per mile would provide enough revenue to replace all transportation taxes and fully fund the HTF. The correct figure is 1.85.

Update 6/30/14: We previously reported the necessary cushion for smooth reimbursements to the states at $6 billion, but a more recent letter from CBO indicates the figure is $5 billion.