The Highway Trust Fund: What is it Good For? A response to surface transportation devolutionists

The Highway Trust Fund: What is it Good For? A response to surface transportation devolutionists

February 19, 2015  | Carter Templeton

BY MARLA WESTERVELT
Policy Analyst

Falling gasoline prices have Americans talking – prices that were hovering around $3.50 per gallon have now plummeted to about $2.00. What many people don’t realize is that one of the reasons gas is so cheap is that gas taxes are incredibly low. The federal tax on gasoline is only 18.4 cents per gallon, and states on average add less than thirty cents per gallon on top of that. Not only are these taxes this far lower than our peer nations, but (more critically) we uniquely rely on revenues from the federal fuel tax to fund the Highway Trust Fund (HTF), the funding mechanism for federal level surface transportation investment.

Due to our inability to raise the federal gas tax (which has been stagnant since 1993), the HTF will find its coffers close to empty yet again at the end of May. Due to loss of buying power, increasing fuel economy, and changes in driver behavior, the HTF has been broke since 2008. In order to keep the fund solvent, Congress has infused the fund with about $65 billion in other funds over the last six or so years.

The combination of dropping gas prices and the need to identify a way to sustainably keep the HTF solvent has led a number of lawmakers on both sides of the aisle to suggest that perhaps now is the time to raise the federal fuel tax. Unsurprisingly, not everyone is on board. Mid-January the Wall Street Journal and the Orange County Register each independently published editorials written by constituents who disagreed with the sentiment that it was time to raise the federal gas tax, and instead argued that it would be more opportune decrease the levy.

The editorials both championed the idea of devolving much of the federal role and committing the revenues that continue to flow into the HTF to only highway projects. While one can sympathize that the federal role in surface transportation currently lacks clarity, some of the arguments that each author made need revisiting.

Both articles allude to the fact that not all revenues that flow into the HTF are dedicated to highway and road investment. This is absolutely true- since 1982, 80 percent of the HTF revenues have been dedicated to roads, while 20 percent of the revenues are dedicated to transit investment. And they each suggest that if 100 percent of the revenues were dedicated to road expenditure that the HTF would remain solvent. This ignores the fact the capital programs spend slowly, and about three-fourths of tax-receipts that will come in this year will go to pay off bills have already been incurred. So, if this approach were to be taken there would be several more years of bailouts (or significantly reduced highway spending) until all prior year obligations are paid off.[1]

Budgetary accuracy aside, the WSJ editorial suggests that if the HTF, “goes broke the feds will continue to spend all of the money that the gas tax will continue to throw off. Some projects would merely be delayed, or states and cities would fill the gaps.” The federal government provides grants to states for surface transportation that are generally in the form of reimbursements for debts already incurred, accounting for about 25 percent of total surface transportation expenditure in the country.

As the HTF nears insolvency those reimbursements will be reduced or delayed. This would force states to find money elsewhere to pay off their debts or slow projects, or not pay their bills on time. Finding replacement funding at the state and local level is no easy task. Because there is no guarantee that Congress will bailout the HTF in May, states have already begun to delay projects, which not only puts people out of work but delays the potential economic benefits of these new investments.

While the federal government’s expenditure on surface transportation only accounts for about 25 percent of the dollars spent on transportation, it still accounts for about 45 percent of capital expenditure, and filling that gap at the local level would be challenging. States would either need to raise revenues in the form of taxation or user-fees, or to decrease spending. While some states are stepping up to identify new revenue streams, available funding for surface transportation at both the federal level and the state and local levels continues to decline.[2] Furthermore, the states aren’t interested in, or often capable of filling the gap.[3] This was demonstrated by a recent hearing held by the Senate Environment and Public Works committee where two governors and one state secretary of transportation testified to the committee that the federal role in surface transportation is important to their state.

The WSJ article also reignites the age-old donor-donee debate, which is the discussion of whether of not states should receive as much from the HTF as they pay into the system. While there was a time where some states did indeed receive less in surface transportation funding than they paid into the system, those days are long gone. In 2011, the Government Accountability Office published a study that demonstrated that from 2005-2009 every single state received more funding for highway programs than they paid into the Highway Account of the HTF.[4] Since that time even more money has been throw into the HTF, ensuring that all states are receiving a surplus.

The overarching theme in each of the pieces is that the federal role in surface transportation is to pay for highways, not transit. For some more rural states this may make sense, and their economic contribution to overall GDP may be in freight corridors or road infrastructure. But in states with large metropolitan areas that function as strong economic engines, such as New York, Illinois, or California, investment in transit is essential to mobility. It helps to boost not only the state’s economy, but contributes directly to the national economy as well. This suggests that there is a strong national interest in making sure these urban transportation systems continue to work effectively, and they should not be jettisoned simply because there is no political will to raise taxes.

The federal surface transportation program is far from perfect, but Congress is not in a position to simply ignore the issues with the HTF. Perhaps raising the gas tax and reinvigorating the HTF is not the best long term solution (as the Eno team explores in detail in our recent publication How We Pay for Transportation: The Life and Death of the Highway Trust Fund), but it is likely a better solution than forcing states to scramble to cover debts already incurred. Now is the time to revisit the purpose of the federal surface transportation program and its funding mechanism, but within the context that there is a clear need for robust federal level support. Rather than wasting time discussing the devolution of the program, Congress should be focused on reforming the program to target expenditures more effectively.

[1] Davis, Jeff (2015). New FHWA Analysis Shows Devolution “TEA” Bill Requires $50 Billion in Additional Trust Fund Bailout Money. Eno Transportation Weekly. Retrieved from https://www.enotrans.org/wp-content/uploads/downloads/2015/01/ETW011415-FINAL.pdf on February 4, 2015.

[2] The Pew Charitable Trusts (2014). Intergovernmental Challenges in Surface Transportation Funding. Retrieved from https://www.pewtrusts.org/~/media/Assets/2014/09/SurfaceTransportationIntergovernmentalChallengesFunding.pdf?la=en on February 4, 2015.

[3] Eno Center for Transportation (2012). The Consequences of Reduced Federal Transportation Investment. Retrieved from https://www.enotrans.org/wp-content/uploads/wpsc/downloadables/Consequences-Paper-09-12.pdf on February 4, 2015.

[4] Government Accountability Office (2011). Highway Trust Fund: All State Received More Funding than they Contributed in Taxes from 2005 to 2009.

The views and opinions expressed in this article are those of the author and do not necessarily reflect the official policy or position of The Eno Center for Transportation.

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