Highway Trust Fund Going Broke
June 18, 2014
In early August, the Highway Trust Fund is expected, by law, to stop making payments to states to avoid a negative balance. In the past, Congress kept the HTF solvent primarily with general fund money – transferring $54 billion since 2008. But the Bipartisan Budget Act of 2013 stipulated that any transfer to the HTF now must be offset. Congress is currently working through options to keep the HTF solvent.
FY 2014 Estimates for End-of-Month Cash Balances
Highway Account of the Highway Trust Fund
(as of 5/30/2014)
Highway Trust Fund’s Uneasy History
Congress created the Highway Trust Fund in 1956 to fund surface transportation projects. Recently, these include most of the transportation programs in the Moving Ahead for Progress in the 21st Century Act (MAP-21), which became law in 2012. 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.
Federal motor fuel taxes – set at 18.4 cents per gallon on gasoline and 24.4 cents per gallon diesel fuel – and related truck excise taxes are the major sources of income for the fund.
The Safe, Accountable, Flexible, Efficient Transportation Equity Act – A Legacy for Users (SAFETEA-LU) was designed in 2005 to spend down surpluses in the fund’s highway account by spending more than the revenues coming into the fund. However, that spending down of the account balances, combined with questionable economic assumptions, eliminated any cushion in the trust fund. Lower revenues because of decreased gasoline consumption during the recession and slow economic recovery further reduced the trust fund. As a result, the HTF’s income decreased and Congress has transferred billions of dollars from the Treasury – including $26.5 billion from fiscal years 2011 to 2013 – to keep the HTF solvent.
Running on Empty
Without a fix, federally backed transportation projects could face funding challenges once the fund runs out of money this summer. When a shortfall occurs, the trust fund will stop payments to keep a positive balance. Since funds would still be coming into the Treasury, projects that were slated to begin would be delayed until revenues were sufficient to pay costs. Timelines for the projects could be changed, though they would not necessarily be cancelled.
Filling the funding gap in the trust fund for six months is estimated to cost approximately $10 billion. Majority Leader Reid and some Republicans have proposed funding this expenditure with a corporate repatriation tax holiday – a proposal that would allow corporations to pay a lower rate on earnings that are currently overseas. Such a repatriation holiday was done in 2004. The Joint Committee on Taxation has said that re-enacting the holiday would raise $6.5 billion in fiscal year 2015 and $13.1 billion in 2016, but over 10 years it would reduce revenue by $95.8 billion.
Senate Finance Committee members are meeting today to discuss pay-fors and the length of the extension. Additionally, Senators Chris Murphy and Bob Corker are proposing their plan for changes to the HTF today.
The offset option under consideration in the House is ending the U.S. Postal Service’s Saturday mail delivery. This is estimated to raise $10.7 billion over 10 years.
The Highway Trust Fund financing is broken, and need of long-term reform. But it cannot be funded through higher deficits or increased taxes as the Obama Administration has suggested. In the short term, a bipartisan solution must be found to fund approved transportation projects.
