A Trust Fund That Sprang a Leak

The roots of today’s transportation funding dilemma date to the 1990s, when the economy was roaring, deficits were shrinking and gas tax revenue was reliably increasing every year, thanks in part to two gas tax increases during that decade.

The Highway Trust Fund was flush with cash, prompting lawmakers to increase spending in the 1991 and 1998 highway reauthorization bills. By fiscal 2001, however, spending had overtaken revenue and the fund’s balance started to shrink.

In 2005, a six-year highway bill maintained high levels of spending but did nothing to boost revenue, depleting the fund’s balance even further. Between 2000 and 2007, the federal government burned through $14.4 billion from the trust fund’s balance. Eventually, the Bush administration had to ask Congress for an emergency bailout of $7 billion in 2008, the first of many.

Lawmakers “assumed that as gas tax revenues fell and as the Highway Trust Fund began moving towards the situation it faced in 2008, Congress would enact a gas tax increase, and of course it didn’t,” says Emil Frankel, a top Department of Transportation official in the George W. Bush administration.

The most recent highway bill, enacted in 2012, covered only two years and, for the first time in recent history, called for reducing the amount of money allocated to states for transportation projects. That legislation has been extended but its authorization runs out at the end of May.

To complicate matters, it’s becoming increasingly clear that no amount of economic recovery will save the Highway Trust Fund. Since its inception in 1956, the fund has relied largely on gas tax revenue. In the past, that was a reliable way to raise steadily increasing amounts of money.

Not anymore. The rise of hybrid vehicles and the Obama administration’s boost in fuel efficiency standards are holding back gasoline consumption, even though Americans are starting to drive more miles as the recovery takes hold.

In the coming years, gas tax revenues to the trust fund and spending will diverge, for the first time in the fund’s history. The Congressional Budget Office forecasts revenues will stall at around $40 billion a year for the next decade, while spending rises to $60 billion annually by 2025.

That means that lawmakers are either going to have to increase the gas tax for the first time since 1993 or come up with an entirely new way of paying for projects.

“The funding base has gotten out of sync with the funding demand,” says Donald Kettl, a public policy professor at the University of Maryland.

Transportation Secretary Anthony Foxx made that point repeatedly during a February visit to Congress.

“We should look at the system as we have it today and look at the funding challenges we have as an opportunity to think differently about not only how we fund it but what those funds actually get put toward,” he said.

WHERE THE MONEY GOES

Q: How much does government spend on roads, bridges and tunnels?

Federal, state and local governments spent $165 billion on highway infrastructure in fiscal 2014. That’s more than the $65 billion spent for mass transit, $38 billion for water transportation and infrastructure, $36 billion for aviation, and $3 billion for rail.

The highway money included $92 billion in capital expenditure and $73 billion for operations and maintenance.

Q: What portion of that is from the federal government?

A March report from the Congressional Budget Office says the federal government contributed $46 billion, or 28 percent of the 2014 spending on highways. State and local governments provided the rest. Virtually all the federal money, nearly $44 billion, was for capital expenditure with less than $3 billion going for operation and maintenance.

In effect, the federal government provided almost half the capital expenditure money in fiscal 2014 but less than 4 percent of the operations and maintenance budget

Q: How big is the Highway Trust Fund’s shortfall?

The revenue shortfall in fiscal 2016 is expected to be about $13 billion. The fund’s revenue is expected to be about $40 billion a year for the next decade. Congress allocates $5 billion of that for the transit account of the Highway Trust Fund, leaving about $35 billion in the highway account. Those amounts would effectively become caps on federal highway spending if Congress doesn’t find an alternative.

Q: What does all that money pay for?

The nation has more than 4.08 million miles of roadways and more than 604,000 bridges. The National Highway System accounts for 4 percent of miles but almost 44 percent of the total miles traveled.

This piece originally appeared as part of the cover story of the April 20 CQ Weekly.

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