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As the Highway Trust Fund Runs Low, States Come to the Rescue — Part I

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With federal transportation spending outpacing tax receipts by some $1.25 billion/month, the cash balance of the Federal Highway Trust is drawing perilously close to the point where the U.S Department of Transportation will be obliged to institute cash management strategies—such as slowing down or delaying state reimbursements — to keep the Trust Fund account solvent. Based on current spending and revenue trends, this point —a cash balance of $4 billion in the Highway Account —will be reached in late July according to the latest U.S. DOT estimate ( However, with proper cash management the remaining cash could be stretched out through September, a former DOT budget analyst told us.

Of more serious concern is what will happen at the end of the fiscal year when the existing surface transportation program is set to expire. While it is virtually certain that Congress will not allow the program to lapse, it is far from clear what form Congressional action will take.

The transportation stakeholders and Sen. Barbara Boxer (D-CA), Chairman of the Senate Environment and Public Works (EPW) Committee are pressing for a six-year reauthorization funded at current spending level of $54 billion/year adjusted for inflation. They contend a multi-year bill is essential to implement large-scale multi-year projects, and they are warning that failure to maintain current spending levels will oblige states to tighten their belts, cut back on construction projects they planned to go forward with, and forego any new capital investment.

But enacting a multi-year reauthorization at current spending levels faces long odds in this election year. At bottom, it comes down to how much money can be raised to supplement the regular Trust Fund income of $39 billion a year ($34 billion credited to the Highway account and $5 billion to the Transit account). And at this point, the answer is far from clear.
A six-year transportation measure would require roughly $330 billion to maintain current, FY 2014 spending levels (an average of $55 billion/year incl. inflation). Trust Fund revenue and interest over the same period are projected to bring in only $234 billion according to the latest (April 2014) Congressional Budget Office estimate.This would leave a staggering funding gap of $96 billion. How such a huge sum of money could be raised in this tax-averse, deficit-conscious Congress remains so far unanswered.

“The hunt has been under way for the last year and a half to find a funding mechanism to fund our infrastructure needs,” House Speaker John Boehner (R-OH) told reporters on February 27. “I wish I could report to you that we’ve found it, but we haven’t.”

Nor has the Senate been any more successful in its search for extra funds. At an April 10 press conference, Senate EPW committee leadership proclaimed “an agreement in principle” on a transportation bill and said their goal is to get the bill passed in late summer, before the Trust Fund runs out of money. But they conceded that the Finance Committee will have the last word. “They have to lead all of us in figuring out how to pay for this,” Sen. Boxer said. So far, Finance Committee’s new chairman, Ron Wyden (D-OR), has given no hint of his thinking other than suggesting that the Committee might look at private capital as one possible source of funding.

The most straightforward solution —- increasing and indexing the federal gas tax—a proposal recently resuscitated by Rep. Earl Blumenauer (D-OR) and endorsed by the U.S. Chamber of Commerce, has not been widely accepted as an option. “I’m going to be very honest with you, I don’t see support for raising the gas tax,” Sen. Boxer told the audience at a February 26 AASHTO legislative briefing.

Talk of increasing the gas tax remains anathema in Congress for a good reason: a Gallup poll in April 2013 found two-thirds of Americans opposed to a gas tax hike even if it went toward infrastructure improvements. Nor has the White House changed its negative stance on this matter Even progressives are ambivalent because of the gas tax hike’s regressive nature.

Another solution —using general funds to supplement Highway Trust Fund revenue —has been severely limited by the bipartisan budget agreement negotiated between Sen. Patty Murray (D-WA) and Rep. Paul Ryan (R-WI) in late December 2013. The agreement requires any General Fund transfers into the Highway Trust Fund to be fully offset during the year in which the transfer occurs (In MAP-21 some “pay-for’s” were spread over a period of up to ten years). General fund transfers are “not a sustainable formula for the future,” said Sen. John Thune (R-SD) the ranking Republican on the Senate Commerce Committee, reflecting a widely held view in both Houses.

A third solution— a wider use of highway tolling— has proven to be an increasingly popular tool to fund major highway and bridge projects, says IBTTA. Existing toll roads in 28 states generate more than $10 billion/year in revenue—nearly one-third of the annual federal gas tax revenues. But revenues from tolling flow into state treasuries or those of tollroad authorities and do not augment federal transportation revenue or enhance long-term solvency of the Highway Trust Fund.

A fourth approach — a proposal advocated by the White House and included in the US DOT transportation bill proposal sent to Congress on April 29— is to use transition revenue generated from corporate tax reform. However, congressional leaders in both Houses have dismissed the President’s proposal as premature. A comprehensive tax overhaul is “not something that’s going to happen this year,” said Senate Minority Leader Mitch McConnell. Nor is a one-time tax reform windfall a long-term solution to keeping the Highway Trust Fund solvent, as numerous critics have pointed out.

Which leaves most observers concluding, along with former Transportation Secretary Ray LaHood, that a stop-gap short-term extension of the current transportation program (MAP-21), funded with a modest general funds appropriation, is probably the most one can expect from this deeply divided Congress whose attention is singularly focused on the upcoming November election.

“With just a few weeks left before the summer campaign seasons,” wrote the New York Times, “it is all about the midterms.” (Lawmakers returned to Congress witha modest agenda last week.)

To be continued ….

(This article first ran in Innovations NewsBriefs)

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