What's In Store for the Broken Highway Trust Fund?

Lawmakers’ disagreement over how to fund the nation’s highway and transit systems has left federal transportation accounts living hand to mouth.

The scenario has repeated itself half a dozen times since 2008: Spending on surface transportation programs outpaces gas tax revenue feeding the Highway Trust Fund that reimburses states for projects. Trust fund balances approach zero. Then Congress tops it up with General Fund money to keep things going.

The House and Senate are on the verge of doing it again. The House voted Wednesday to extend highway and transit programs to Dec. 18. The current authorization expires at the end of July.

But each time Congress provides another short-term authorization with a short-term funding patch, the hole in the Highway Trust Fund gets deeper.

The Congressional Budget Office projected in March that by 2025, if program funding levels stay the same, the Highway Trust Fund would face a shortfall of more than $160 billion.

The funding gap has turned what used to be a popular measure among Republicans and Democrats — a surface transportation reauthorization stretching five to six years that mends potholes and builds bridges across the country — into a dreaded tax debate for which some sessions of Congress simply haven’t had the stamina. The last authorization bill stretching longer than a year passed in 2012.

By the end of this summer, the Highway Trust Fund will again be approaching a financial pinch.

On Tuesday, Transportation Secretary Anthony Foxx said that unless Congress acts, the Highway Trust Fund balance is running so low his agency will be unable to incur new obligations and will have to delay reimbursements to states for surface transportation projects by Aug. 1. The fund is projected to dip below a $4 billion balance and trigger cash management procedures at that time.

“Careening from self-inflicted crisis to self-inflicted crisis undermines our system. We need Congress to break the cycle of short term extensions; we need a long-term bill with significant growth,” Foxx said in a statement.

Congress has yet to find a way to pay for a long-term bill, however. While Senate authorizing committees are working on a six-year surface transportation bill, they haven’t identified the revenue to pay for such a measure.

In the House, leadership has already given up on a long-term plan before the current one expires. The short-term extension through Dec. 18 is meant to give lawmakers time to come up with a longer plan.

But unlike a short-term extension that passed in May, which didn’t need additional funding, the House measure passed Wednesday includes $8 billion to keep programs afloat for the length of the extension.

Hodgepodge of Pay-Fors

House Ways and Means Chairman Paul D. Ryan, R-Wis., would pay for a short-term extension of highway programs with about $5 billion in provisions to “improve tax compliance” and about $3 billion of measures deemed as spending cuts because they would prevent the Transportation Security Administration from spending some fees that it collects.

In a joint statement with Transportation and Infrastructure Chairman Bill Shuster, R-Pa., Ryan said Monday the extension would give Congress time to work out a longer-term highway bill.

The offsets required under budget rules include tax compliance measures such as increased lender disclosure on outstanding mortgages and tighter requirements for reporting the original value of property in calculating capital gains and estate taxes.

Doug Andres, a spokesman for Ways and Means Republicans, said $3.16 billion in TSA offsets — the largest single source of funding in the extension — doesn’t increase fees for passengers. “It’s just the accounting that they’re using,” he said.

The House bill also includes a bipartisan $90 million proposal to cut excise fuel taxes on liquefied natural gas and liquid petroleum gas from 24.3 cents and 18.3 cents per gallon, respectively, to about 14.1 cents and 13.2 cents per gallon, by basing the taxes on diesel energy-equivalent and gasoline energy- equivalent calculations.

The fuel tax proposal is part of a bipartisan push to expand the role of liquefied natural gas in the nation’s energy supply. The provision aims to “equalize” the tax rates for the liquefied gas fuels compared to gasoline on an energy production basis, according to Ways and Means staff.

Rep. Earl Blumenauer, D-Ore., who has pushed to increase taxes on gasoline and diesel fuel to fund a long-term highway bill, said he wasn’t surprised by the inclusion of the tax-cutting provision in an extension bill. He called the re-introduction of a short-term extension “embarrassing.”

“At the end of the day it’s unnecessary. We have solutions that will get the job done. This just perpetuates the legislative games,” Blumenauer said.

Big Bills Coming

Two numbers measure the depth of the funding shortfall ahead for federal highway and transit programs if Congress doesn’t inject significant money into the Highway Trust Fund.

The fund receives about $37 billion to $38 billion a year in revenue from motor fuels taxes. And the fund is already obligated to spend about $75 billion because of accumulated commitments to cities and states in recent years, according to a Department of Transportation estimate in March.

Viewed another way, existing obligations would eat up about two years of Highway Trust Fund revenue. In reality, the obligations are spread out over more than two years.

Congress’ decision on highway reauthorization is largely about how it will reconcile those numbers. Lawmakers have two broad choices: Cut the size of the program to match what’s coming in or increase the amount of money in the fund to keep things going. Doing nothing effectively leaves the fund unable to meet its obligations, at least in the short term.

The Highway Trust Fund can’t run a negative balance and has no authority to borrow additional funds. At the same time, the federal government is required by law to make timely reimbursement to cities and states from the fund or pay interest.

Congress began using the General Fund to top up the Highway Trust Fund in 2008, when the weak economy depressed fuel use and the gas tax revenue flowing to the fund. Lawmakers have transferred more than $65 billion to keep the fund afloat since then.

When the fund lurched toward insolvency in 2008, the Federal Highway Administration couldn’t do business as usual. The Government Accountability Office said that as fund accounts sank, the highway administration slowed payments to states from twice daily to weekly. The delayed payments added about $100,000 in interest owed to states, the GAO found.

The GAO also said it had never considered what would happen if the fund became insolvent, that is, become unable to meet its obligations.

The Department of Transportation said an insolvent fund would leave the agency liable not only for its commitments, but also for the interest owed on unpaid amounts.

State transportation officials said the consequences of non-payment would be foreseeable and disruptive.

California Department of Transportation spokesman Mark Dinger told CQ that the state first pays the bills for big projects and then goes to the federal government for reimbursement. “It could be a big problem. But historically, you know, they’ve usually done something about it,” he said.