Greater Greater Washington

Why is the Highway Trust Fund going broke (and what can be done about it)?

You may have been hearing some doomsday reports in the media about the impending bankruptcy of the Highway Trust Fund. The US Department of Transportation has a ticker where you can watch the balance drop. What is happening, and why?


Photo by Joe Shlabotnik on Flickr.

What is the Highway Trust Fund?

The Highway Trust Fund (HTF) is basically a bank account that was established by Congress in 1956 to pay for the Interstate Highway System. The HTF is funded through revenues from the federal gas and diesel taxes, and an assortment of other taxes on things like truck tires. The idea was that these taxes are essentially road user fees, and thus should be set aside for transportation.

In 1982 we started the long and painful slog away from the "user fee" concept with the creation of the Mass Transit Account, which funds transit capital projects.

How important funding from the HTF is for transportation infrastructure varies a lot from state to state. In our region, federal funding comprises 86% of transportation capital investment in Virginia, and it's also really important for WMATA, according to the Bipartisan Policy Center.

How much money is in the HTF right now?

The HTF is divided into two main accounts, the Highway Account and the Mass Transit Account. The former has $8.1 billion in it right now and the latter has $2.8 billion.

That sounds like lots of money. Why the wailing and gnashing of teeth?

True, the current balance in the HTF is roughly 80% of what it was last October. That seems far from empty. But we really are about to blow through those billions.

Most programs financed by the HTF are operated on a reimbursement basis. That means that money to pay for projects doesn't go out the door until the project is complete and has been inspected. It's not unusual for states to basically be handing over big piles of receipts at the end of the fiscal year to get paid back. Thus, most of the projected drop has yet to occur.

Also, the summer construction season is just now kicking into high gear. People are freaking out because bids for work are going out the door while a letter from Transportation Secretary Foxx warns that reimbursements may well be delayeda cash flow crisis for states.

Why is this happening if it's possible to predict it in advance?

The HTF is in crisis because it's traditional revenues are no longer sufficient to cover the spending levels Congress authorized for transportation programs. To cope, Congress has been periodically bailing out the trust fund for the last few years using infusions of money from the General Fund (the pot all our income taxes go into).

So this is an artificial crisis? We're creating it by spending more than we have?

Some folks certainly see it that way. Others note our crumbling bridges and burgeoning demand for transit capital projects. Also the current transportation spending authorization, passed in 2012, did not increase spending.

If our transportation spending is reasonable, why can't we find the money to pay for it?

We last raised the gas and diesel taxes in 1993. The CBO estimated last year that if these taxes had been indexed to inflation, the 18.4¢-per-gallon tax on gas would be 29¢ today. Basically, the HTF has lost 38% of its purchasing power to inflation alone.

When people bring up raising the gas tax, smarty-pants folks correctly point out that cars have become more fuel efficient, and even in these more efficient cars people are driving less, so the gas tax is becoming conceptually inefficient or obsolete. Ideologues point out that we spend HTF money on things that encourage people to drive less, and thus pay less into the fund, like transit infrastructure, sidewalks, and bicycle facilities. However, more intellectually pure solutions like road pricing or a tax on vehicle miles traveled are not ready for prime time. So, let's stop changing the subject.

The CBO estimates that raising the two motor fuel taxes by 10¢ would solve the problem without eliminating funding for any current transportation programs. In other words, other issues are marginal compared to the effectiveness of simply adjusting motor fuel taxes for inflation.

A bipartisan proposal to do just that is finally making the rounds after years of General Fund bailouts. However, such a proposal is both a referendum on our economic recovery since 2008 and our sense that we need a federal transportation program. That means it's got a long row to hoe with the Obama administration and tea party conservatives.

What will happen if the HTF empties out while we are waiting for Congress to act?

USDOT will stop writing checks. Stop work orders will go out on projects. Contractors will get laid off. The lights are going to go off in some people's houses.

Because this pain will be very visible, and affect every state, it's likely that Congress will provide a general fund bailout at a minimum for this summer. Just a couple of months ahead on the calendar, however, the current transportation spending authorization will expire at the end of September, another impending crisis that requires Congressional action.

Many professionals in the transportation sector are weary of the constant lurching from one short-term authorization to another, and the de facto endless funding cut that is inflation. However, I'm not convinced that we transportation professionals have fully confronted why many in Congress, or even the general public, might be reluctant to fund our work.

It's not just time to raise the gas taxit's time to increase transparency in transportation planning, truly listen to the public's priorities about transportation, and earn the trust required to justify dedicated revenues. I'll talk more about that in an upcoming post.

Support us: Monthly   Yearly   One time
Greatest supporter—$250/year
Greater supporter—$100/year
Great supporter—$50/year
Or pick your own amount: $/year
Greatest supporter—$250
Greater supporter—$100
Great supporter—$50
Supporter—$20
Or pick your own amount: $
Want to contribute by mail or another way? Instructions are here.
Contributions to Greater Greater Washington are not tax deductible.

Tracy Hadden Loh is a resident of Mount Rainier, MD and an infrastructure enthusiast. She holds a Ph.D. in city and regional planning from the University of North Carolina at Chapel Hill. By day, she is the director of research at the Rails-to-Trails Conservancy. By night, she is an activist, a military wife, and a committed karaoke team member. 

Comments

Add a comment »

The Tea Party people have proposed doing away with the Federal gas tax and the federal highway trust fund and turning taxing and transportation over to the states (which would be a disaster for DC transit).

The main GOP is also trying to abolish Saturday mail delivery and turn that subsidy into needed highway funds
(little chance of that succeeding as other than a stall).

One GOP rep, Fleming of LA, has proposed defunding bike lanes and parks to cut the deficit.

http://blogs.rollcall.com/218/gop-white-house-tout-opposing-highway-proposals/?pos=adpb

How much will be worked out before the GOP with it's Tea Party people asserting themselves probably takes over both houses of Congress Jan. 1 ? After that compromises are going to be much harder.

by Tom Coumaris on Jun 27, 2014 1:35 pm • linkreport

Great article! We need to pay our way, and if we're going to build a large highway infrastructure, we'd better keep it up, unless our economy takes a big hit. Taking a hard look at the numbers might focus our politician's minds on how seriously our transportation decisions affect our the economy. Bulking up our rail networks would go a long way in reducing these long-term costs, both in maintenance for dollar invested and related costs from development patterns and environmental concerns. I look forward to the next installment.

by Thayer-D on Jun 27, 2014 1:44 pm • linkreport

Story on the TEA bill to "devolve" federal gas tax from 18 to 3 cents:

http://thehill.com/policy/transportation/190402-bill-would-eliminate-federal-transportation

by Tom Coumaris on Jun 27, 2014 1:44 pm • linkreport

The democrats really screwed up in 2008-2009 when they COULD have done something as they had the votes, but decided to push things off, like always

by JJJJ on Jun 27, 2014 1:57 pm • linkreport

There is very little federal interest in continuing to build an interstate highway system.

(There is a federal interest in bulding mass transit and reducing our oil usage).

We should be killing the federal gas tax and moving that responsibilty for repairing and maintaining the federal highways onto the states. And yes, cities will lose in that, but more sunbelt cities like Houston or LA.

But back in the real world, we could use a higher federal gax tax. But the idea of indexing it to inflation is bad. We didn't have GPS in 1993, let alone cell phones. Building and repairing highways should be more efficient than 20 years ago.

But yes, raise the gas tax so it gets to $5/gallon.

by charlie on Jun 27, 2014 2:16 pm • linkreport

We have to raise the gas tax, and switch to alternative energy sources as fast as possible. Our planetary leaders have pledged to limit the rise in temperature to 3.6F by 2100, but that goal is well in question. The children of today will see a radically different world thanks to our selfishness, ignorance, and lack of real activism on this issue.

But the gas tax won't be raised, and we will be woefully short in developing alternative energy. Ideas about taxing mileage will go nowhere. Tolls may succeed here and there, but it won't be enough.

by kob on Jun 27, 2014 2:39 pm • linkreport

I don't buy the linked article ("What to Call the Gas Tax") claiming that the gas tax is not a user fee. Would a VMT tax also not be a user fee?

His arguments seem to rest on:

But pretty much everyone in this country, except for a tiny percentage of people living in cities like New York, have to drive—to jobs, schools and grocery stores. We can’t choose not to buy gas any more than we can choose not to buy food.

There are many ways to impact how much gas you buy. Live closer to work and shopping. Bike, walk, use public transportation or buy an electric car. The idea that everyone has to use the same amount of gas is nonsense.

Plus, once we pay the gas tax, we have no choice about where the money goes. When I fill up my car with gas, I can’t choose that the tax money goes to repair the potholes on my street instead of the brand new interchange on the other side of the state.

Yeah, and when you pay a user fee to enter Shenandoah National Park, there's no guarantee that money isn't being used at Yosemite. It's still a user fee.

“Gasoline taxes aren’t ‘user fees’ in any meaningful sense of the term,” according to the report, Do Roads Pay For Themselves?, by the U.S. Public Interest Research Groups. “Highways ‘pay for themselves’ less today than ever.

National Parks don't pay for themselves either, yet the author specifically cites park fees as an example of a user fee.

by Falls Church on Jun 27, 2014 3:11 pm • linkreport

I think you have a couple of factual inaccuracies in a generally accurate article. First, I don't think states have to wait until projects are finished to file for project reimbursements. It is an on-going process of drawdowns as highway and transit projects proceed. States could not afford to layout all of the money for major infrastructure projects and wait until they were completed for reimbursement.

Second, the HTF will not go broke at the end of July. Gas tax revenues will continue to flow into the fund however US DOT will only be able to reimburse states and transit agencies for about 70% of their expenditures. It is still a very big deal but it is not like there is no money in the checking account.

by steve strauss on Jun 27, 2014 4:44 pm • linkreport

Or put another way, there was one FAQ you failed to answer that could go at the end: But money is still coming into the fund and DOT can keep paying most bills, so how will things really play out? Can DOT decide who gets paid first?

by JimT on Jun 27, 2014 8:08 pm • linkreport

When you believe that "tax cuts increase revenues", all future liabilities become monstrous debt.

by Frank IBC on Jun 27, 2014 10:00 pm • linkreport

@ Tom Coumaris:

The main GOP is also trying to abolish Saturday mail delivery

I'm not sure this is accurate. The proposal for ending Saturday mail delivery came from USPS; Congress successfully blocked it.

and turn that subsidy into needed highway funds

What subsidy do you mean? USPS has not received Federal tax funding since 1982. Any savings would be theirs to keep.

by WestEgg on Jun 28, 2014 11:41 am • linkreport

Has anyone seriously looked at the controlling the cost side of road construction/repair? Road contractors have a public reputation in some areas of colluding to limit competition--is this a valid concern? Have prices per mile to build/maintain roads fallen with automation and new methods? With most rights of way already bought and paid for, one would hope that repair costs should be falling like prices for computer memory.

by shunpike mike on Jun 29, 2014 10:37 am • linkreport

The proposal for ending Saturday mail delivery came from USPS

True, but Boehner I believe proposed this as a way to pay for propping up the HTF.

The gas tax is technically not a user fee for roads. It is a user fee for gasoline. That's a nice proxy for a gas tax, with the added benefit of taxing polluters most, but clearly people can use the road (cyclists, electric car owners, etc...) without paying the fee. And others pay the fee (ATV drivers) without necessarily using the road. And still other drivers use a lot more gas per mile of road (Hummer drivers) than others do (Prius drivers). I don't have a problem with any of that, but it does mean it's not a user fee. VMT would be, but until electric car use goes above 5-10% I don't see a need to make the switch.

by David C on Jun 30, 2014 12:09 am • linkreport

...proxy for a road tax...

by David C on Jun 30, 2014 12:09 am • linkreport

It should also be pointed out that, in addition to most Republicans, the current administration is also opposed to raising the gas tax.

http://thehill.com/policy/transportation/210269-white-house-opposes-gas-tax-hike

I think it is just taken as such a (false) "article of faith" that we can't raise the gas tax, that most DC policymakers are reflexively opposed to it. Then, when all the other solutions seem just as painful and exceedingly ineffective, people like Blumenauer, Murphy, and Corker just face up to the reality.

by John on Jun 30, 2014 9:17 am • linkreport

I agree that a gas tax is a (reasonable) proxy for a road user fee and not a true user fee itself. But, the author of the What To Call the Gas Tax article had a different set of arguments which were totally bogus. He was arguing that since purchasing gas is a necessity and not optional, it's not a user fee. Or, that since we can't choose exactly how the gas tax is spent, it's not a user fee.

by Falls Church on Jun 30, 2014 10:44 am • linkreport

We should acknowledge that 'General Fund bailout' is deficit spending. Is it reasonable to have the nation enter long-term debt for what are ofter local or subregional transportation projects? Such projects have useful lives that are shorter than the debt service.

by John on Jul 3, 2014 9:17 am • linkreport

Is it reasonable to have the nation enter long-term debt for what are ofter local or subregional transportation projects?

If the project is worth doing, then yes. There's a reason we have a federal government and a federal transportation policy and that's that a coordinated transportation system is good for the country as a whole. It even has defense implications. As for long-term debt, right now the federal government is basically borrowing money for free, so who better to do the borrowing. We should limit our debt, but deficit spending is actually a smart thing to do on average. I don't know the number, but we should probably average a low amount of deficit spending every year - like 1% of GDP.

Of course, we could always raise taxes back to the late 90's level when we had a surplus.

by David C on Jul 3, 2014 9:46 am • linkreport

Also consider the increased usage of Hybrids, and the fact that vehicle MPG has increased. Not as much gasoline and diesel is being used and the taxes collected as a percentage of miles driven over these same roads has dropped. How do you tax a Prius, or any Hybrid, for road usage, when they use little or no gas? There must be a better system of paying for maintenance. Maybe the imbedded GPS monitors that have been discussed could be implemented in a way to "bill" users for miles driven, rather than pump taxes, with deductions for work related miles etc.. TImes are a changing.

by Mr. Max on Jul 4, 2014 2:26 pm • linkreport

Add a Comment

Name: (will be displayed on the comments page)

Email: (must be your real address, but will be kept private)

URL: (optional, will be displayed)

Your comment:

By submitting a comment, you agree to abide by our comment policy.
Notify me of followup comments via email. (You can also subscribe without commenting.)
Save my name and email address on this computer so I don't have to enter it next time, and so I don't have to answer the anti-spam map challenge question in the future.

or