May 5, 2015

State of the Highway Trust Fund

  1. On May 31, authorization for funding the Highway Trust Fund expires.
  2. Prior to last year’s transportation bill, Congress kept the HTF solvent primarily with general fund money; the Bipartisan Budget Act of 2013 stipulates that any transfer to the HTF must now be offset.  
  3. While authorization expires at the end of this month, DOT has said that funds will be available through late July or early August. 

Congress will need to reauthorize the Highway Trust Fund by May 31 to continue paying for infrastructure projects around the country. While questions remain on how much money to put into the fund and how to raise that money, those questions are less urgent. The Department of Transportation has said that it will be able to provide funding through late July or early August.

Recent History of Funding Our Nation’s Highways

 The Highway and Transportation Funding Act of 2014 authorized approximately $10.8 billion to extend highway, highway safety, motor carrier safety, transit, and other programs through the fund. The costs were offset in various ways, including pension smoothing ($6.4 billion), customs user fees ($3.5 billion), and a transfer from the Leaking Underground Storage Tank  account ($1 billion).

The HTF is comprised of two accounts: the highway account, which funds programs administered by the Federal Highway Administration, the Federal Motor Car Safety Administration, and the National Highway Safety Traffic Administration; and the mass transit account, which funds programs through the Federal Transit Administration.

In 2005, Congress passed a plan to spend down surpluses in the fund’s highway account by spending more than the revenues coming into the fund. That spending down of the account balances, combined with questionable economic assumptions, eliminated any cushion in the trust fund. Lower revenues due to decreased gasoline consumption during the recession and the slow Obama recovery further reduced the fund. As a result, Congress has had to transfer billions of dollars from the Treasury – including $26.5 billion in fiscal years 2011 through 2013 – to keep the fund solvent.

The Bipartisan Budget Act of 2013 ended the practice of simply transferring money to cover shortfalls in the HTF. Any transfer to the fund now must be offset. Filling the funding gap in the trust fund through the end of this year is estimated to cost approximately $10 billion. The administration has proposed a six-year, $478 billion transportation bill, which it wants to fund with tax hikes, including mandatory repatriation.

The Need to Keep Transportation Projects Funded

If transportation funding is not reauthorized, federally backed transportation projects could face funding challenges once the HTF runs out of money this summer. When a shortfall occurs, the trust fund will stop making payments and the Transportation Department will have to start what it calls “cash management.” Timelines for transportation projects could be changed, though they would not necessarily be cancelled.    

Financing for the Highway Trust Fund is broken and in need of reform. The fund should not be replenished through higher deficits or the increased taxes proposed by the Obama administration. In the short term, Congress must find a bipartisan solution to fund approved projects and provide some certainty to the transportation sector.

Issue Tag: Taxes