Highway fund’s shortfall deepened by plunge in gas tax revenue

Highway Trust Fund was already on it's way to another Treasury bailout, and a hoped-for fix now may be out of reach this year

A sharp decline in gas tax revenue could delay highway projects. (David McNew/Getty Images file photo)
A sharp decline in gas tax revenue could delay highway projects. (David McNew/Getty Images file photo)
Posted April 14, 2020 at 4:07pm

While Congress has focused much of its coronavirus relief legislation on helping struggling airlines, state highway officials are worried about another crisis on the horizon: plummeting gas tax revenues as most Americans stay at home.

The federal government largely pays for its roads, bridges and transit through the Highway Trust Fund, supported by federal gas and diesel tax revenue. In January, the Congressional Budget Office projected that the fund, which already relies on regular infusions from general Treasury accounts to stay afloat, would run out of money in 2021. But the coronavirus — and the stay-at-home orders keeping people off the roads — may speed that timeline, say analysts.

“This will absolutely accelerate the insolvency of both the highway and mass transit accounts,” said Adie Tomer, head of the Metropolitan Infrastructure Initiative at the moderate Brookings Institution. He predicts the federal government will have to once again bail out the trust fund. “It’s going to be dramatic…and that infusion is going to need to come sooner rather than later.”

And state and local governments, which rely on a combination of state gas taxes and revenue streams such as sales taxes to pay for their road projects, are also feeling the impact of the pandemic. 

“We know that states in general are going to have fiscal problems," said Douglas Holtz-Eakin, president of the conservative American Action Forum and the chief economist for the Council of Economic Advisers under President George W. Bush. “There’s no way around this.”

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Among the first state and local transportation agencies to acutely feel the impact of the pandemic were transit systems, which receive dollars from the highway trust fund as well. They were hit hard by a steep decline in ridership and received $25 billion in the last coronavirus spending bill (PL 116-136), largely to triage the immediate impact of the pandemic on ridership. 

The concerns about transportation systems spurred the National Governors Association on April 11 to request $500 billion in aid from Congress. 

And they aren’t the only one asking for help: So worried is the American Association of State Highway Transportation Officials that they wrote congressional leadership on April 6 to request $50 billion in any forthcoming coronavirus-related spending bills to make up for what they anticipate will be a precipitous drop in revenue.

The reductions in travel, said Jim Tymon, executive director of AASHTO, “is really going to take cash out of the hands of state DOTs.” The pandemic, analysts say, compound funding problems that have existed for years.

“The trust fund was broken already — there wasn’t enough revenue going in for all the spending,” said Kyle Pomerleau, a resident fellow at the American Enterprise Institute. “Now, there’s going to be an even further decline in revenue driven by a huge reduction in economic activity.”

Congress was already due to extend the law (PL 114-94) authorizing the fund at the end of September. The pandemic has injected additional uncertainty and urgency into how and when they act. 

Ticking clock

Tomer said the practicalities of passing major legislation — the House and the Senate are tentatively scheduled to come back to town May 4 — as well as competing priorities may make it easier just to inject money into the trust fund and extend the current law. 

“All the signs are pointing toward an extension and an infusion of money,” he said.

But that uncertainty does little for states, which frequently use their gas taxes for general revenue. 

In the short term, the problem hardly looks as dire as it does for airports, and some states have actually continued or even sped up already-funded projects. 

Virginia has deemed its highway construction “essential,” and in Florida, Gov. Ron DeSantis ordered the state DOT to accelerate some $2.1 billion in transportation projects.

But other states have felt the impact pretty quickly. Pennsylvania in early April announced it would furlough some 9,000 state workers, including some 5,700 PennDOT employees.

As the crisis stretches on, “what you’re going to see start to happen is state DOTs start to triage and throw things overboard,” said Kevin DeGood, director of infrastructure policy for the left-leaning Center for American Progress.

Many states, he said, will revisit their long-term plans “as they realize how big the hole is.” 

They’re holding off canceling or delaying projects because they're waiting to see if Washington will help. “And the longer there’s no direct aid to states from Washington, the more you’ll see those announcements roll out.”

Data on the scope of the crisis is still coming into focus.

The Treasury Department has not yet put out its April report on gas tax receipts. But its March report — which covered the final two weeks of February and the first two weeks of March, just before the country went into a near-total lockdown — found that gas and diesel payments were down 11 percent from last year, according to Marc Scribner, a senior fellow at the conservative Competitive Enterprise Institute.

Scribner said he believes that drop could be more than 40 percent over last year in the April report.

Tymon said states are using traffic volume statistics to calculate what the crisis will cost. He said the group is anticipating a 30 percent reduction over the next 18 months to revenue at the state level alone. The $50 billion request, he said, “is about stopping the bleeding.” 

“This is real,” said Tomer. “And it’s coming quick.”