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?
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 delayed—
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 tax—
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