New USDOT Models Move Highway Trust Fund Insolvency Date Up to April-May 2021

New USDOT Models Move Highway Trust Fund Insolvency Date Up to April-May 2021

June 12, 2020  | Jeff Davis

Representatives of the U.S. Department of Transportation went to Capitol Hill this week to provide an update on the projected finances of the Highway Trust Fund since coronavirus-related travel and economic changes have begun to drag its revenues downwards. New projections show that the Trust Fund could begin to have trouble paying its bills on a daily basis by late April or early May 2021 and that the Mass Transit Account could become completely insolvent by the end of June 2021. Per their modeling, the Highway Account could run dry only a month or so behind the Mass Transit Account.

Reduced tax revenues to date. As ETW has described before,  the estimated taxes transferred from the general fund of the Treasury to the Highway Trust Fund twice a month trail the economic activity that is being taxed by some time (there is a lag between the time that a motorist cuts down his/her fuel purchases at the service station until the refinery (where the fuel is usually taxed on the way out) cuts down its output to meet reduced demand, and there is an additional delay between the time the refiner or blender sends out the fuel and the date that the estimated taxes are paid to Treasury twice a month.

Taking those delays into account, DOT reported to Congress that the last three transfers of tax revenue to the Trust Fund compared to their 2019 equivalents like this (in millions of dollars):

April 1-15 April 16-30 May 1-15
Highway Account
FY 2019 1,662 1,567 1,809
FY 2020 1,224 853 1,043
Difference -438 -714 -766
-26% -46% -42%
Mass Transit Account
FY 2019 245 228 263
FY 2020 178 121 147
Difference -67 -107 -116
-27% -47% -44%

It took until the second half of April for the 40-plus percent reduction in the production of gasoline at the refiner/blender level (which happened in late March and very early April) to be felt by the Trust Fund. But since then, tax revenues have been down over 40 percent. Plus, there was a $1.3 billion balance reduction in May 2020 to reflect the quarterly alignment of old estimated tax transfers with actual quarterly returns) for the October-December 2019 period. (These things happen every three months, but this one was a much bigger downwards adjustment than usual.)

Changes in spending to date. DOT reports that, so far in fiscal 2020, Highway Account spending (primarily reimbursement of state DOTs) has been $2 billion higher than by this point in FY 2019. For the Mass Transit Account, DOT reports greater uncertainty because of the $25 billion in funding given to mass transit agencies by the CARES Act – if things work out the way they did when the 2009 ARRA stimulus act was enacted, recipients of some of the money may defer the expenditure of regular federal transit funding in order to expend the more flexible, 100 percent federal share money that was added on top of that. The DOT presentation says “CARES Act funding could displace or supplement regular formula funding depending on if Transit agencies continue capital projects and/or focus efforts on extra safety precautions while operating during COVID-19.”

Modeling the future. For both accounts, DOT ran three revenue scenarios: one where tax receipts return to normal by October 2020, one where they return to normal by January 2021, and one where they return to normal by April 2021. They were run against the baseline spending and revenue assumptions from January 2020 (moving forward, from a starting point of actual balances in mid-May, post-adjustment) and against adjusted baseline assumptions that adds another 40 percent drop in receipts in the second half of May the end of May (with recognition that the transit spending assumptions could vary more, and if future laws give more transportation aid, the spending displacement problem could grow).

The chart below shows the results of those projections. For the Highway Account, all the projections show that the balances in the account could brush up against the “safe” $4 billion mark as earlier as November 2020 – but because outlays slow down drastically when cold weather slows down outdoor construction activities, the Trust Fund would then recuperate slightly under those scenarios until April or May 2021, when the account would head below $4 billion and might start running of cash on a day-to-day basis here and there while waiting for the twice-monthly transfer of estimated taxes from the Treasury. The account could then hit a zero balance by June 2021, which would mean significant delays in payments to states, and unpaid bills that would continue to add up until Congress provides another bailout. (This slide was updated to somewhat more pessimistic scenario late on June 12 and the text of this paragraph updated accordingly.)

For the Mass Transit Account, the models show that the account could see its balances drop below the $1 billion safe mark by early April 2021, risking day-to-day cash shortages, and that the account could hit the zero mark by June 2021.

Share

Related Articles

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

The books have closed on federal fiscal year 2020, which ended on September 30, and despite coronavirus and its effects on travel and the...

Gasoline Production Plateau Continues at 10 percent Below 2019

Gasoline Production Plateau Continues at 10 percent Below 2019

Data from the Energy Department through the end of September continue to support the hypothesis that, post-lockdowns, U.S. gasoline...

10-Week CR, 1-Year FAST Act Extension Signed Into Law

10-Week CR, 1-Year FAST Act Extension Signed Into Law

At 1 a.m. on October 1, President Trump signed into law a 72-day stopgap appropriations bill (H.R. 8337) for fiscal year 2021 that also...

Gardner Bill Pushes Long-Sought Eastern Plains Interstate. But Big Hurdles Remain

Gardner Bill Pushes Long-Sought Eastern Plains Interstate. But Big Hurdles Remain

Gardner’s bill would not provide new funding for the highway. Designation is “just a way of attracting attention to the project and...

One-Year FAST Act Extension Passes House

One-Year FAST Act Extension Passes House

The House of Representatives has passed a one-year extension of FAST Act funding and policy as Division B of a larger fiscal-year-end...

House-Passed Extension Gives Highway Funding Increase to Texas and Colorado - And No One Else

House-Passed Extension Gives Highway Funding Increase to Texas and Colorado - And No One Else

As predicted earlier this week by ETW with 99.999 percent accuracy, the Federal Highway Administration has confirmed to Congress that the...

Rapid Response Webinar: AMA with Jeff Davis on CR and FAST Act Extension

Rapid Response Webinar: AMA with Jeff Davis on CR and FAST Act Extension

Congress is acting on a ten-week appropriations extension and a year-long FAST Act extension. How will these be implemented, and what does...

Estimated State-by-State Highway Funding Under 1-Year FAST Act Extension

Estimated State-by-State Highway Funding Under 1-Year FAST Act Extension

This is a two-sheet Excel spreadsheet. Sheet one is a table showing the process by which the Federal Highway Administration will apportion...

One-Year Surface Extension, 72-Day Appropriations CR Introduced in House

One-Year Surface Extension, 72-Day Appropriations CR Introduced in House

The text of a 72-day extension of fiscal year 2020 appropriations into fiscal year 2021, accompanied by extension of other unfinished...

Short-Term Appropriations Extension to Carry One-Year, Flat-Line HTF Funding Extension

Short-Term Appropriations Extension to Carry One-Year, Flat-Line HTF Funding Extension

Congress is waiting for the release of the text of a package of stopgap appropriations and other extensions that are scheduled for House...

1956 Treasury Secretary Letter to Harry Byrd on Pay-As-You-Build Highways

1956 Treasury Secretary Letter to Harry Byrd on Pay-As-You-Build Highways

This PDF is a copy of a letter from Treasury Secretary George Humphrey to Senate Finance Committee chairman Harry Byrd (D-VA), dated March...

Administration Befuddles Congress With Highway Trust Fund Revenue Estimates

Administration Befuddles Congress With Highway Trust Fund Revenue Estimates

As legislators and Congressional staff negotiate the parameters of what increasingly looks like a one-year extension of the FAST Act, the...

Be Part of the Conversation
Sign up to receive news, events, publications, and course notifications.
No thanks