Is It Time To End The Highway Trust Fund Fiction?

By :: July 10th, 2014

Congress is in the midst of another Perils of Pauline political showdown: This time the drama is over how to finance the highway trust fund, which will be unable to pay its bills in a couple of weeks. House Republicans have cooked up one set of gimmicks to keep the money flowing for a few months. The Senate Finance Committee may be nearing agreement on another. But all this begs the question: If Congress won’t treat the highway trust fund seriously, why keep it?

In theory, such a fund could make sense. Congress would adopt an earmarked tax on motor fuels that allows it to build and repair roads and mass transit relatively free from political interference. It could build up surpluses for lean years. It would have a guaranteed source of revenue and, because taxpayers link the tax with a valuable—and popular-- public program they’d be more likely to back the levy. That was the idea.

It isn’t working very well.

For a while, the trust fund functioned pretty much as advertised. Taxes on gasoline, diesel fuel, and on trucks and trailers provided more than enough money.

Congress distributed the funds to states according to long-standing formula. And periodically, lawmakers would write a new highway bill that authorized spending over five or six years. One oddity: Congress also had to appropriate funds every year that set a limit on contract authority for projects (and created opportunities for infamous earmarks like Alaska’s bridge to nowhere).

Alas, for the past 13 years those designated revenues have fallen short of spending. By this fiscal year, the account was down to its last $2 billion, and spending was expected to exceed revenue by about $15 billion. Pretty easy to tell where this story is headed.

Part of the problem: Since 1993, gas taxes have been fixed at 18.4 cents per gallon but never indexed for inflation. Plus, more fuel-efficient cars reduced fuel consumption per miles driven.

In a sensible world, Congress would have responded to this by slowing spending for roads and transit to reflect the stagnant revenues, asking states to come up with a larger share of highway dollars, or increasing the taxes to fund the projects Congress wanted to build.

But Congress does not live in that world. It responded to the shortfall by draining the fund’s remaining balance and transferring money from the general fund into the trust fund--$6 billion in 2013 and $12 billion in 2014. If projects are not cut, the Congressional Budget Office estimates that in 2024 alone the fund will spend $18 billion more than it brings in. The cumulative shortfall over the next decade will top $160 billion.

By 2024, CBO figures, general funds would account for about one-third of the trust fund revenues.

Worse, Congress proposes to pay for a short-term fix with a motley collection of budget gimmicks such as pension smoothing and cats-and-dogs revenues from sources that have nothing whatever to do with transportation.

With what seems to be an emerging pattern of ongoing funding crises and endless short-term extensions of non-gas tax revenue sources, and with no reserves, it is increasingly hard to understand what a trust fund brings to the table.

I understand the highway trust fund is a useful inside-the-Beltway accounting fiction. But in reality it is little more than another tool that aides and abets Washington’s ongoing fiscal shell game. To real people, it makes budgets more opaque and less understandable and frays the concept of a gas tax as a user fee. This makes people even more cynical about government, which is not a good thing.

At some point, you’ve got to ask: If Congress is not going to take the highway trust fund seriously, why maintain the fiction?

 

 

8Comments

  1. Ralph H  ::  4:25 pm on July 10th, 2014:

    Congress messed up years ago in not indexing the tax to inflation. That way nobody could be “blamed” for raising taxes. Probably too late now as a catch up would be a de-facto hike. Still, the highway maintenance function is essential to move people, goods and services around and a fuel tax is a logical funding mechanism.

  2. Michael Bindner  ::  4:27 pm on July 10th, 2014:

    Ending the fund simply means that taxes go into general revenues and all spending is appropriated – possbily not not automatically following the established formula.

    The other option is eliminate the tax altogether and let the states make it up, not just the current tax amount but forcing them to fund all projets. Therein lies the problem. Some states will gladly raise taxes enough – or establish toll roads – to have cadillac highways while other states will fall into disrepair out of a commitment to austerity, low taxes and, in reality, bad roads. Thate would have a red state – blue state separation as dramatic as any. Suggesting this might actually be an effective tool in the debate – as it is the southern states that are recipients rathter than donors. Let’s see if they can take the hint.

    Of course, if we had a more worker held economy, I would say privatize all roads and let them be built and maintained by local consortia of road builders, employee-owned companies and energy companies – however we are no there yet.

  3. Michael Bindner  ::  4:30 pm on July 10th, 2014:

    The other option, of course, is shifting to a carbon tax and letting it partially fill the trust fund.

  4. jim jaffe  ::  10:36 am on July 11th, 2014:

    unclear whether laughter or tears is the most appropriate response for the pension smoothing scam. interesting but unsurprising that this conversation takes place totally independent of the debate about the adequacy of pension funding. one can only wonder whether we’ll be seeing stories two year hence about transferring some of the temporary highway trust fund surplus to keep PBGC afloat. the tax community continues to get high marks for creativity, less for crediility

  5. Now is the perfect time to raise gas taxes – News  ::  1:23 am on November 14th, 2014:

    […] been going on for years. As a result, the Highway Trust Fund is, not to put too fine a point on it, broke.  In August, CBO estimated that between now and 2024 outlays will exceed revenues by $157 […]

  6. Why now would be a very good time to raise the gas tax – The Washington Post  ::  12:22 pm on December 3rd, 2014:

    […] the Highway Trust Fund, which depends on these federal gas tax revenues, has seen its revenues fail to match its level of spending for 13 years straight. Not only has the gas tax been fixed for two decades, but vehicles also have […]

  7. @^$&^@& @^%&Y! Jackasses!!!! US Lunatics — Including Repubs Want To Raise Gas Taxes Now That We Finally Have Near Reasonable Gasoline Prices | suyts space  ::  6:43 pm on January 5th, 2015:

    […] been going on for years. As a result, the Highway Trust Fund is, not to put too fine a point on it, broke.  In August, CBO estimated that between now and 2024 outlays will exceed revenues by $157 […]

  8. The 4 smarter things Congress could be doing than voting on Keystone again – The Washington Post  ::  9:41 am on January 7th, 2015:

    […] Take Advantage of Low Gas Prices to Fix our Aging Highway Infrastructure. Nationally averaged gasoline prices are on a record plunge right now, having fallen for over 100 days straight and over $ 1.00 per gallon of regular gas. That means that people are paying shockingly less than they're used to for gas, which in turn creates a rare opening for raising the current 18 cent national gasoline tax — which has not been raised in two decades, but which is vital to restoring the ailing Highway Trust Fund. […]