Just the Facts
Just the Facts: Highway Trust Fund
By No Labels
October 25, 2015 | Blog
In 1956, Dwight Eisenhower signed into law the Federal Aid Highway Act as another step in the long line of legislation aimed at building federally funded infrastructure connecting every city and town in the United States. This act established the Highway Trust Fund, a system for financing the maintenance of our roadways that is quickly becoming insolvent, largely due to congressional dysfunction.
Our system of financing infrastructure is widely misunderstood despite the apparent nature of the problem: While most people encounter the successes and failures of road maintenance on a daily basis, few know how our government’s actions affect every vehicle on the road, from minivans commanded by soccer moms on the way to practice, to trucks carrying produce across the country. Particularly now that changes in funding and implementation of the highway trust fund are being addressed in Congress, it is vital we understand the processes that fill potholes and keep bridges from crumbling.
What is the Highway Trust Fund?
In 1956, the Federal Aid Highway Act was enacted to finance construction and maintenance of the Interstate Highway System. This act created the Highway Trust Fund to serve as the source from which money was pulled for different projects. While initially this fund was strictly for the highways, over the years it has been expanded to include accounts for public transit and leaking underground storage tanks. This transportation fund is funded by a fuel tax of 18.4 cents per gallon that in the past few decades has been supplemented by transfers from other governmental departments.
What’s the problem?
The fund is running out of money.
In Fiscal Year 2015 spending from this fund is expected to reach $52 billion. This includes $44 billion from the Highway Account, which funds infrastructure, and $8 billion from the Mass Transit Account, which supports public transit. Unfortunately, combined revenue is calculated to be only $39 billion, leaving a deficit of $13 billion. Projections by the Congressional Budget Office predict a $180 billion deficit over the next decade, if things continue in the same direction.
Why isn’t Congress doing anything about this?
There is a need for a new comprehensive highway plan, but Congress has not yet been able to get one passed. In the place of long-term legislation, Congress has passing short-term “patches,” to extend the previous legislation for a few months. There have been 32 such extensions in the past six years. The system of repeated two-month postponements is extremely inefficient and leaves infrastructure projects hanging in the balance due to uncertainty.
The cost of inaction is steep: Long-term projects are difficult to undertake on short-term budgeting, and without changes the fund is expected to fall short by $169 billion over the next ten years. Experts agree that we have a large amount of infrastructure due for repair, and the safety risks (not to mention job loss) that comes with reducing or postponing funding is considerable. There is essentially unanimous agreement between Republicans and Democrats that a new bill is crucial both for upkeep and modernization of our infrastructure.
So why hasn’t a bill been passed?
The difficult question surrounds the funding of such legislation. Most everyone believes we need to spend on infrastructure, but as the current Highway Trust Fund is insufficient, we need to find a way to raise more money. There are a few ideas on the table, but partisan divides prevent agreement on any one.
Here are some of the most prominent plans:
Raising the gas tax
First, the gas tax could be increased. This tax has not been increased since 1993 and is not indexed for inflation. As a result, the current tax rate does not being in enough revenue to finance highway projects. However, many Republicans oppose raising taxes on principle, and others find such a tax regressive: unnoticeable for the wealthy and impactful for the poor. There are a few permutations of this concept, such as taxing oil producers or taxing miles traveled instead of gas use.
Reducing what the Highway Fund is responsible for funding, focusing on highways and allowing states to determine funding for specialized projects, would also slow the depletion of the fund. The two funds that were added in the late 1900’s, funding public transit and underground storage tanks, could be removed from the Highway Trust Fund and provided alternative funding. However, this wouldn’t fully solve anything. Removing, say, public transit from the fund only creates another issue of how to separately fund it. Considering that Congress cannot decide how to keep one fund solvent, creating a separate one for transit seems to only divide the problem.
Another solution – with considerable bipartisan support – is capturing some of the lost tax revenue from the offshore accounts used by corporations to avoid the 35% corporate tax rate. Offering a one-time tax rate on all money pulled out of these offshore accounts and returned to the U.S. could incentivize cash flooding home, and the revenue could subsidize our highway fund. While the exact amount depends on the tax rate and how much money would return to the U.S., past similar actions have raised $170 billion over 10 years. This is short-term and would bring in revenue, but could cost future revenue as corporations change their behavior in anticipation of future holidays.
More of the same
There is also the option of continuing the practice of “patching” the roads as we go by taking funds from other parts of the Federal Budget. It is this final solution that Congress is trying to avoid, but the roadblocks against increasing taxation or decreasing spending have made this difficult.
Of course, a mix of these plans is possible, but politically complex.
So where are we now?
In July, Congress passed a three-month extension of the Highway Trust Fund, continuing the pattern of short-term patch-ups that has become the norm over the last decade. By kicking the can down the road, the hope was that Congress would have more time to build consensus around a comprehensive long-term approach. But with an October 29 deadline fast-approaching, it is looking increasingly likely that Congress will instead have to fall back on another short-term extension. The House and Senate have separately passed bipartisan six-year highway funding bills, but there is little evidence to indicate that the two chambers will be able to reconcile differences before the deadline.
This divisive issue splits Congress along party lines, jeopardizing the backbone of our country. Either they figure out how to finance our highway system’s efficiency and safety, or gridlock will prevent citizens from getting the infrastructure they need.