Last month, the Treasury Department overhauled the way it presents the data in its monthly reports on how it manages the 20 federal trust fund accounts. The new format provides unprecedented transparency as to how Treasury manages the balances held by the four transportation trust funds.

Interestingly, three of the four transportation trust funds have their balances invested in radically different strategies, and there is no obvious reason why this should be. Two of the four trust funds have their entire balances invested in special one-day securities that roll over each morning, another trust fund has a bunch of different duration securities that all mature four-and-a-half months from now, and the fourth has securities of blended duration.

Highway Trust Fund and Inland Waterway Trust Fund

The largest and the smallest of the four transportation trust funds currently have their balances invested in the exact same way. Each day, someone at Treasury invests the entire available balance (currently $125 billion for the HTF and $227 million for the IWTF) in special one-day securities that mature first thing on the next business day. So the interest rate on the entire balance fluctuates from day to day, and the trust fund receives an interest payment every single business day.

Example: on January 6, the Highway Account of the HTF redeemed $91.041 billion in securities purchased the day before, pocketed the principal and $11.7 million in interest (at 4.07% per year), transferred $418 million in cash to the Department of Transportation to pay a week’s worth of bills, and invested the remaining $90.633 billion in new one-day securities earning an annual rate of 4.19%. (The most recently posted rate, as of the January 31 investment, was 4.55%.)

The practice of daily rollover makes us glad that we don’t have to model predicted interest earned by these trust funds. But the HTF has earned $1.6 billion in interest on its balances in the first four months of this fiscal year, and is on track to earn between $4 and $5 billion in interest for this fiscal year. Which is funny, when you think about it, because most of that interest is being “earned” by balances created when Congress basically printed $118 billion to transfer into the Trust Fund in the IIJA infrastructure law in November 2021. So that money which Congress just printed is now being used to print more money.

For the HTF, incoming tax receipts (real money) are deposited twice a month, and money is withdrawn by program agencies as needed. The Federal Highway Administration tends to pull money once a week based on what they think they will need in the coming week (and they keep a cash balance on-hand to cover overages as well), while in January, the traffic safety agencies only withdrew funds once.

As of January 31, for the first four months of fiscal 2023, the HTF had received $10.017 billion in net tax revenue, $1.621 billion in interest, and $5.8 million in safety penalties, and had paid out $16.835 billion in transfers to program agencies at DOT, for a net balance drawdown of $5.194 billion. (The IWTF only gets maybe $10 million a month in diesel taxes, and the Corps of Engineers only withdraws money every few months.)

Airport and Airway Trust Fund

The Airport and Airway Trust Fund currently holds a balance of $13.2 billion, all of which is invested in special “certificates of indebtedness” issued by Treasury. New C/I’s are created a few times a month since July 2022, and each batch will mature on June 30, 2023. The C/I’s currently held bear annual interest rates between 1.5 percent (the $4.4 million purchased on June 30, 2022) to 2.25 percent (the $557 million purchased on January 26, 2023).

So, unless they redeem early, there will be a huge rollover on June 30, and whatever interest rate is being paid on that date will be very important.

Like the other trust funds, the AATF receives deposits of taxes twice a month, and the FAA appears to withdraw its estimated needs from the fund twice a month as well.

For the first four months of the fiscal year, the AATF has received $6.996 billion in net tax deposits (plus $72.4 million in interest) and transferred $5.443 billion to the Department of Transportation, for a net balance increase of $1.625 billion.

Harbor Maintenance Trust Fund

The Harbor Maintenance Trust Fund is the only one of the four transportation funds that has a truly varied portfolio. 19 percent of the $10.1 billion balance (as of January 31) was in one-day securities, 36 percent was in various kinds of Treasury notes with maturities between 2 years and 10 years, and 45 percent was in six-month Treasury bills.

But the HMTF appears to be alone in using market-based securities (except for the one-night ones) which allows some of them to be non-interest-bearing, returning yield at maturity instead of interest. And then the HMTF balance sheets, alone amongst the four transportation trust funds, then amortize all of the market-based debt ($70.5 million in amortization in January alone, versus only $7.6 million in interest).

The weighted yield to maturity on the $10.2 billion invested balance is currently 3.90 percent.

Four trust funds. Three radically different investment strategies. Why?