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Eno Transportation Weekly

FY19 Budget Request: Highway Trust Fund Promises Kept This Year, but No Plan for the Future

February 14, 2018

The fiscal 2019 budget request from the Trump Administration scrupulously fulfills all of the promises made by the FAST Act for Highway Trust Fund financial resources for the year covered by the budget. And while the budget does not put forward any proposal to deal with the Trust Fund’s insolvency that will occur starting in 2021, it does change the way that the insolvency is presented in the budget numbers that, to us, seems better than the way this data has been presented in the past.

The good. The budget calls for obligation limitations on the Highway Trust Fund contract authority provided in the FAST Act for 2019 of $56,636.084 million – the precise amount promised in that authorization statute. This will allow the highway, transit formula, and highway and motor carrier safety programs to function as envisioned in the FAST Act during 2019.

FAST Act Budget
Authoriz. Request
Obligation Limitations on Highway Trust Fund Contract Authority
FHWA Federal-aid Highways 45,268.6 45,268.6
FMCSA Operations and Programs 284.0 284.0
FMCSA Motor Carrier Safety Grants 381.8 381.8
NHTSA Operations and Research 152.1 152.1
NHTSA Highway Traffic Safety Grants 610.2 610.2
FTA Transit Formula Grants 9,939.4 9,939.4
Total, FAST Act HTF Obligation Limitations 56,636.1 56,636.1

The bad. The Administration once again is not getting out in front of the long-term insolvency of the Trust Fund, which required a $70 billion bailout from the general fund of the Treasury in the FAST Act to support that law’s spending levels. Once that $70 billion runs out in 2021. the $40-ish billion per year in HTF excise tax receipts will not be enough to support the $57 billion per year program level.

Infrastructure advocates had first hoped that Trust Fund solvency could be addressed in last year’s tax reform bill, but the decision to use the budget reconciliation process to get tax reform through the Senate with just 51 votes (instead of 60) made “extraneous” provisions like Trust Fund solvency impossible. And it was also hoped that the Trump Administration would address Trust Fund solvency as part of its infrastructure initiative, but that proposal would add $200 billion in ten-year spending outside the Trust Fund without reference to programs funded by the Trust Fund.

Yesterday, Transportation Secretary Elaine Chao was asked about this topic at a White House press event:

Q    Thanks, Secretary Chao.  One of the other criticisms about the President’s plan is that it doesn’t include addressing the Highway Trust Fund, which only has so many years ahead of it — of funding — just a few years.  Could you address why that was not included in the President’s broader infrastructure plan?  And then, what does the administration plan to do about that very important source of funding for infrastructure projects across the country?

SECRETARY CHAO:  Well, the Highway Trust Fund does need to be addressed because, every year, more money goes out of it than receipts are received.  And this will be a huge problem in 2021.  So we, in conjunction with the Congress, have got to address this issue.  So we’re not in any disagreement about that.  And the issue is how, and we look forward to consulting with Congress on how to do that.  Because, again, the cliff begins in 2021.

Q    Madam Secretary, so there are no plan — the White House doesn’t have a proposal right now for that?

SECRETARY CHAO:  Well, we don’t want to do it unilaterally.  As mentioned, the President’s proposal consisted of principles.  And we want to discuss and work in consultation, on a bipartisan basis, with the Hill to address the infrastructure needs of our country.

The interesting. The Highway Trust Fund, with its hybrid budget structure (mandatory budget authority and discretionary outlays funded by expiring excise taxes) occupies a unique place in the budget world. The statute that governs how budget baselines are constructed and how legislation is scored (the Balanced Budget and Emergency Deficit Control Act, or BBEDCA) requires budget scorekeepers to assume things about the future of the Trust Fund that are clearly impossible in the real world.

Baselines are supposed to project federal spending and revenues under current law. Well, under current law, there will be no new budget authority for Highway Trust Fund programs after September 30, 2020 (apart from the $100 million per year highway emergency relief program, which is authorized until the Sun burns out) and there will be no Trust Fund excise taxes collected after September 30, 2022. BBEDCA directs that scorekeepers assume budget authority extended indefinitely after 2020 at the net 2020 levels, and it directs that excise taxes are assumed to be extended forever. So where the Trust Fund is concerned, BBEDCA is already more of a “current policy” baseline than a “current law” baseline.

(BBEDCA also requires scorekeepers to assume that obligations of contract authority will eventually exceed the aggregate amount of existing contract authority, since obligation limitations in appropriations bills get annual inflation increases in the baseline and contract authority does not. This is also clearly impossible in the real world – you can’t obligate budget authority that does not exist – but that’s a story for another day.)

The law requires that the scorekeepers assume that new budget authority will be put out for obligation forever, and it assumes that current tax rates will be extended forever. But since current tax rates going into the Trust Fund are not enough to support current spending levels going out of the Trust Fund, we have a problem.

Past baselines from OMB and CBO have assumed that spending will continue to take place beyond the Trust Fund’s ability to pay, incurring negative balances. But in the real world, this is impossible – once the account runs dry, you have to wait for more money to come in before writing any more checks. Instead, USDOT agencies would have to implement “cash management procedures” when the Trust Fund runs out of money (as they did in 2014) which means that state DOTs and transit agencies, which are accustomed to being reimbursed for federal-aid expenses on the same day they submit an electronic voucher, will instead have to wait for reimbursements – first days, then weeks, then months, and then (eventually) years.

This year, the White House has decided to change the baseline presentation of Highway Trust Fund insolvency – instead of assuming impossible payments and showing impossible negative Trust Fund balances, they are showing the cumulative effects of the reimbursement slowdown as reduced spending. After 2021, Trust Fund outlays would equal projected tax receipts  – every tax dollar that comes in would immediately go back out as an outlay, but the backlog of unpaid reimbursement claims would continue to grow until they totaled $122 billion at the end of the current ten-year budget scoring window.

FY22 FY23 FY24 FY25 FY26 FY27 FY28 FY22-28
-$11.9 -$15.7 -$16.8 -$18.1 -$19.1 -$20.0 -$20.8 -$122.4

OMB writes its justification on page 122 of the Analytical Perspectives volume of the budget:

Under BBEDCA baseline rules, the Budget shows outlays supported by HTF receipts inflating at the current services level. However, that presentation masks the reality that the HTF has a structural insolvency, one that all stakeholders are aware of, and the source of which is described below. The BBEDCA baseline results in a presentation that overestimates the amount of HTF spending the Government could support. Therefore, beginning in 2022, the Budget presents an adjusted baseline to account for the mismatch between baseline rules that require assuming that spending continues at current levels and the law limiting the spending from the HTF to the level of available balances in the HTF. Under current law, DOT is unable to reimburse States and grantees when the balances in the HTF, largely reflecting the level of incoming receipts, are insufficient to meet their requests. Relative to the BBEDCA baseline levels, reducing outlays from the HTF to the level of receipts in the adjusted baseline presentation results in a reduction in HTF outlays of $122.4 billion over the 2022-2028 window. This adjustment makes the level of spending that could be supported in the HTF absent reforms more apparent.

Last year, the baseline was presented in the traditional way, with the Trust Fund incurring impossible negative balances, and then OMB showed the outlay slowdown (then scored to reduce spending by $96 billion over ten years) in a way that looked like a policy proposal from which they could book deficit reduction. This was met with derision from highway stakeholders (and criticized in ETW here).

Perhaps stung by that experience, this year, OMB is adamant that the Trust Fund outlay slowdown is not Trump Administration policy, and they have a good argument. The 2021 Trust Fund insolvency was baked into the cake the moment that FAST Act was signed into law in December 2015, eleven months before Donald Trump was elected. Failure to propose a solution to an existing problem is not the same thing as creating the policy that caused the problem in the first place.

Showing a massive Trust Fund outlay slowdown once the Trust Fund runs out of money may not be a true “current law” baseline per BBEDCA but it certainly does reflect what would actually happen in the real world if current spending levels are continued and current tax rates are not raised (or if the Trust Fund is not bailed out again).

The best criticism of OMB’s new approach is the argument that if faced with significant slowdowns in reimbursement, states would take the federal government to court over the money they are owed, and they would win the lawsuits and be awarded money by the courts. This might happen, but even if it did, the money would not come from the Highway Trust Fund but instead from the permanent judgement fund (which is in Treasury’s budget, not Transportation’s).

ETW opinion: once the Highway Trust Fund is projected to run out of money, showing the resultant chaos as a spending slowdown in the baseline, instead of showing negative Trust Fund balances that cannot exist in the real world, is a better way to frame the problem.

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