Final Highway Trust Fund Tax Receipts Were Robust in FY 2020 – Suspiciously So

Final Highway Trust Fund Tax Receipts Were Robust in FY 2020 – Suspiciously So

October 23, 2020  | Jeff Davis

The books have closed on federal fiscal year 2020, which ended on September 30, and despite coronavirus and its effects on travel and the economy, the finances of the federal Highway Trust Fund held up well. So well, in fact, that a large correction may be coming that would have to be booked against the fiscal 2021 tax receipts. In addition, spending from the Trust Fund on mass transit dropped 5.5 percent in 2020, attributable to coronavirus and federal relief programs.

Taxes. Net tax receipts credited to the Trust Fund during 2020 totaled $42.7 billion, an amount that was only $918 million less than the comparable amount credited in 2019 – a drop of only 2.1 percent. Gross gasoline tax receipts were down 2.7 percent, gross diesel fuel receipts were down 1.7 percent, and the total receipts from the three trucking excise taxes were down 3.2 percent. Trust Fund spending, meanwhile, rose 3.7 percent over last year, so as a result, the cash operating deficit of the Trust Fund increased from $11.6 billion in 2019 to $15.2 billion in 2020.

Highway Trust Fund – FY 2020 Versus FY 2019

Tax Receipts FY 2020 FY 2019 Difference
Gasoline and Related Fuels $25,727,028,507 $26,450,616,196 -$723,587,689 -2.7%
Diesel and Other Fuels $11,058,174,932 $11,246,500,921 -$188,325,989 -1.7%
Retail Tax on Trucks $4,951,352,620 $5,329,674,245 -$378,321,625 -7.1%
Highway-Type Tire Tax $507,044,369 $534,571,760 -$27,527,391 -5.1%
Heavy Vehicle Use Tax $1,462,862,252 $1,285,164,153 $177,698,099 +13.8%
(Kerosene Transfers to AATF) -$611,450,901 -$832,628,838 $221,177,937 -26.6%
(Transfer to Land & Water TF) -$1,000,000 -$1,000,000 $0 0.0%
(Transfer to Sport Fish TF) -$437,500,000 -$438,754,000 $1,254,000 -0.3%
Subtotal, Net Tax Receipts $42,656,511,779 $43,574,144,437 -$917,632,658 -2.1%
Other Income
Interest Income $195,991,946 $849,426,189 -$653,434,243 -76.9%
Safety Fines & Penalties $107,464,010 $97,614,321 $9,849,688 +10.1%
Total, Net Income $42,959,967,735 $44,521,184,948 -$1,561,217,213 -3.5%
Spending
Outlays $58,198,973,127 $56,122,706,068 $2,076,267,059 +3.7%
NET OPERATING DEFICIT -$15,239,005,392 -$11,601,521,120 -$3,637,484,272 +31.4%

Given the massive drop in travel in April 2020 due to coronavirus, and the slow rebound since then, it is very surprising that total gasoline tax receipts were only down 2.7 percent over 2019. It is particularly surprising given that, per the Energy Department, total production of finished motor gasoline by refiners and blenders in the U.S. during the 52-week period that roughly corresponds to fiscal 2020 dropped by 10.9 percent versus the previous 52-week period. This is much more in line with what we think the final vehicle miles-traveled (VMT) drop will be in FY 2020 versus FY 2019.

How can production of gasoline drop by 11 percent but the per-gallon taxes paid at the refinery or tank farm only drop by about 3 percent? Some of that may be attributable to exports, or filling up storage capacity within the distribution system, but it is more likely that much of that discrepancy is due to paperwork delays at the Treasury Department. Oil companies pay estimated excise taxes on the gallons of fuel they produce twice per month, but they then file quarterly tax returns that tell Treasury the actual amount of fuel taxed (point of taxation is removal from the refinery or terminal, depending on common ownership).

So, four times a year, the monthly Treasury tax reports for the Trust Fund contain adjustments to correct the estimated tax payments for the actual tax returns (one for the last quarter of the prior fiscal year, then three for the first three quarters of the ongoing fiscal year). Because of the pandemic (and the backlog of unopened hard copy tax returns sitting in their mail room), Treasury is two quarters behind on making these adjustments. Here are when the four monthly adjustments for fiscal 2019 showed up in Treasury’s FY 2019 monthly reports, versus the 2020 reports:

Adjustments?
FY 2019 FY 2020
October no no
November no no
December no no
January no no
February no no
March no no
April yes no
May yes yes
June no yes
July no no
August yes no
September yes no

As a result, fiscal 2021 could have up to six quarterly adjustments to fuel tax receipts (not the usual four), and the first two of those could be sharply negative, to reconcile the 10.9 percent drop in 2020 gasoline production with the much lower drop in estimated gasoline taxes paid by oil companies on a biweekly basis. (Fortunately, the Trust Fund ended 2020 with a $17.7 billion cash balance and then was scheduled to receive a $13.6 billion bailout in the first few days of fiscal 2021, so it should be able to handle those downwards adjustments.)

Spending. While overall Trust Fund outlays were 3.7 percent ($2.1 billion) higher in fiscal 2020 than in 2019, there was a sharp divergence this year between highway spending and transit spending. Outlays from the Highway Account were up by $2.7 billion (+5.8%) over 2019, as states continued to exercise the spending authority given them by the FAST Act at a heady pace. But outlays from the Mass Transit Account dropped by $581 million in 2020 – a 5.5 percent reduction.

Per the Monthly Treasury Statements, the drop happened in the second half of the year, which makes it related to coronavirus. Outlays from the Mass Transit Account were down 14 percent in the second half of fiscal 2020, versus the second half of fiscal 2019.

FY 2019 FY 2020 Change
1st Half 4,345 4,636 +291 +6.7%
2nd Half 6,167 5,296 -871 -14.1%
FY Total 10,512 9,932 -581 -5.5%

Some of this drop is probably due to transit agencies slowing their capital spending plans so as to transfer their own capital dollars to cover operating expenses. But some of it is probably also due to the dreaded “substitution effect” from the $25 billion in one-time aid to transit agencies provided by the CARES Act of March 2020, at least $10.2 billion of which was outlaid during fiscal 2020 (we don’t have the September outlay numbers for CARES yet).

Substitution means that recipients of federal grants postpone the use of multi-year federal grants that carry a matching share (usually 20 percent, as in Mass Transit Account programs) and instead use one-time stimulus money that carries a higher federal share (in the case of the CARES Act, 100 percent). In effect, the one-time federal stimulus money from general revenues temporarily “crowds out” the use of the ongoing matching-share money from the Trust Fund. The Congressional Budget Office has documented the substitution effect on highway funding, and that literature review says that “mass transit seems the mode of transportation most likely to experience fiscal substitution similar to that for highways.”

Tables. Here are a table showing the final FY 2020 cash flow of the Trust Fund, and a second table showing cash flow totals for each of the last ten fiscal years (2011-2020).

Highway Trust Fund Cash Flow for Fiscal Year 2020

Preliminary and unaudited. Tax breakdown from Treasury HTF Monthly Report for Oct. 2020; other information from FHWA Table FE-1.
Highway Account Mass Transit Account Total HTF
Beginning-of-FY20 Balance $24,651,555,437 $8,254,357,776 $32,905,913,213
Tax Receipts
Gasoline and Related Fuels $21,706,300,623 $4,020,727,884 $25,727,028,507
Diesel and Other Fuels $9,759,880,352 $1,298,294,580 $11,058,174,932
Retail Tax on Trucks $4,951,352,620 $0 $4,951,352,620
Highway-Type Tire Tax $507,044,369 $0 $507,044,369
Heavy Vehicle Use Tax $1,462,862,252 $0 $1,462,862,252
(Kerosene Transfers to AATF) -$539,482,325 -$71,968,576 -$611,450,901
(Transfer to Land & Water TF) -$841,000 -$159,000 -$1,000,000
(Transfer to Sport Fish TF) -$388,659,000 -$48,841,000 -$437,500,000
Net Tax Receipts $37,458,457,891 $5,198,053,888 $42,656,511,779
Interest, Fines and Penalties
Interest Income $144,624,558 $51,367,388 $195,991,946
Safety Fines & Penalties $107,464,010 $0 $107,464,010
Subtotal, Interest/Safety $252,088,568 $51,367,388 $303,455,956
Transfers Between HTF Accounts
HTF-HA to HTF-MTA Transfers -$1,614,526,769 $1,614,526,769 $0
HTF-MTA to HTF-HA Transfers $58,443,763 -$58,443,763 $0
Subtotal, Internal Transfers -$1,556,083,006 $1,556,083,006 $0
Outlays -$48,265,139,877 -$9,933,833,250 -$58,198,973,127
End-of-FY20 Balance $12,540,879,013 $5,126,028,808 $17,666,907,821
Additional Deposits to be Added
Oct. 1, per P.L. 116-159 +$10,400,000,000 +$3,200,000,000 +$13,600,000,000
Presumed Start-of-FY21 Balance $22,940,879,013 $8,326,028,808 $31,266,907,821

The Last 10 Years of Highway Trust Fund Cash Flow

This is real user revenues only – the table below excludes bailout transfers from outside the HTF and excludes interest payments.
Millions of dollars.
10-Year Growth
FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 Mil. $$ Pct.
Highway Account
Net Tax Revenues 31,960.7 35,142.9 31,800.3 34,066.1 35,740.3 36,062.4 35,698.5 37,265.1 38,266.7 37,458.5 +5,497.8 +17.2%
Safety Penalties 38.1 93.4 15.5 18.6 24.2 119.5 35.0 27.0 97.6 107.5
Net Flex to Transit -1,106.0 -1,083.1 -746.6 -1,107.9 -1,217.5 -1,091.6 -1,122.9 -1,633.7 -1,331.4 -1,556.1
Subtotal, Real Deposits 30,892.7 34,153.2 31,069.1 32,976.9 34,546.9 35,090.3 34,610.7 35,658.5 37,032.9 36,009.8 +5,117.1 +16.6%
Outlays 37,324.7 41,149.8 42,917.2 43,791.1 42,951.5 44,787.4 44,977.3 45,132.3 45,607.4 48,265.1 +10,940.5 +29.3%
Annual Real Deficit, HA -6,431.9 -6,996.6 -11,848.1 -10,814.3 -8,404.6 -9,697.0 -10,366.6 -9,473.9 -8,574.5 -12,255.3
Real Deficit as % of Deposits. -21% -20% -38% -33% -24% -28% -30% -27% -23% -34%
Mass Transit Account
Net Tax Revenues 4,922.4 5,003.4 4,647.5 4,964.5 5,048.5 5,161.7 5,285.7 5,321.8 5,307.4 5,198.1 +275.7 +5.6%
Net Flex from Highways 1,106.0 1,083.1 746.6 1,107.9 1,217.5 1,091.6 1,122.9 1,633.7 1,331.4 1,556.1
Subtotal, Real Deposits 6,028.4 6,086.5 5,394.2 6,072.4 6,266.0 6,253.3 6,408.5 6,955.5 6,638.9 6,754.1 +725.8 +12.0%
Outlays 7,207.2 8,210.0 8,098.2 9,136.3 8,868.0 9,472.2 9,442.4 10,106.7 10,515.3 9,933.8 +2,726.6 +37.8%
Annual Real Deficit, MTA -1,178.8 -2,123.4 -2,704.0 -3,063.9 -2,601.9 -3,218.9 -3,033.9 -3,151.2 -3,876.4 -3,179.7
Real Deficit as % of Deposits. -20% -35% -50% -50% -42% -51% -47% -45% -58% -47%
HTF Unified Real Deficit -7,610.8 -9,120.1 -14,552.1 -13,878.2 -11,006.6 -12,915.9 -13,400.5 -12,625.1 -12,450.9 -15,435.0
Real Deficit as % of Deposits. -21% -23% -40% -36% -27% -31% -33% -30% -29% -36%
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