“The Bucks Stop Here: The Absurdity of the Highway Trust Fund” Centennial Recap

“The Bucks Stop Here: The Absurdity of the Highway Trust Fund” Centennial Recap

January 28, 2022  | Jonathan Hammond

The year was 1955. The Salk vaccine hit the shelves. The first McDonalds opened. And in Washington, D.C., a highway funding proposal was soundly defeated by the U.S. House of Representatives out of concerns about misdirected spending. The defeat of the bill forced the Eisenhower administration to create a new highway funding mechanism—the federal highway trust fund (HTF), funded directly through a tax on gasoline. The revisions were greeted enthusiastically by Congress, and in 1956, the new funding proposal—and the system it would finance—was enacted into law. However, few could have foreseen the fund-amental flaw in the HTF that would trouble it later down the road.

Eno recently hosted a series of webinars, panels, and discussions on the pressing issues facing transportation as part of the Centennial Institute. One panel explored the current state of the HTF and what its future may entail. The panel included:

Jeff Davis, Senior Fellow and Editor, Eno Transportation Weekly, Eno Center for Transportation

Paul Lewis, Chief Finance Officer and Policy Director, Eno Center for Transportation

A History of Highway Hurdles

As Jeff Davis (Eno) elaborated in the panel, the HTF was created in part because highway stakeholders wanted a guarantee that any funds raised by user fees would only be spent on road improvements. With that in mind, a gas tax was leveled on road users across the nation that raised the necessary funding for interstate construction. New interstate construction was tied to revenue on hand and construction commenced.

However, cracks began to show in the asphalt. Davis highlighted that in the 1960s, President Lyndon B. Johnson “impounded” highway spending to control inflation as well as fund the war in Vietnam, and President Nixon continued the practice. Another nail in the coffin came when then-Federal Reserve Chairman Paul Volcker’s increased interest rates to slow inflation. The sudden increase in interest rates caused the HTF’s compound interest to snowball. By 1997, the federal government owed itself $23 billion in interest credited to the Trust Fund.

Congress helped dig the grave of the HTF even further with several transportation spending bills in the late 1990s. The 1998 “Transportation Equity Act for the 21st Century” law tied highway spending to estimated tax receipts, but no program cuts were made even in the face of decreased gas tax revenue. Davis pointed out that the “Safe Accountable Flexible Efficient Transportation Equity Act: A Legacy for Users” even intentionally outspent estimated future taxes to put the HTF on a “glide path” to zero balance by 2010. All the while, the gas tax had not been touched since 1993.

The self-sufficiency of the HTF finally came to an end in 2008, when House Democrats moved $8 billion from general revenues to the HTF to make up for revenue shortfalls. The following two years, the Obama administration refused to raise gas taxes due to the recession, cutting off new revenue streams. Davis showed an excerpt from a speech on the House floor where Representative Paul Ryan (R-WI) predicted that transfers from the general fund to the HTF would become permanent. He was right.

The State of the Fund

Following the first transfer from the general fund, Davis noted that a precedent had been set. Paul Lewis (Eno) noted that during discussions on the Bipartisan Infrastructure Bill (now the Investing in Infrastructure and Jobs Act) gas taxes were barely discussed and raising them was not seriously considered. In fact, the last time a gas tax increase was ever seriously considered to pay for transportation was in 1991. Davis also pointed out that the Biden Administration’s commitment to not raising taxes on Americans making less than $400,000 a year means that a gas tax increase is unlikely in the near future.

When asked about potential alternatives to the gas tax, such as a vehicle miles traveled tax, Davis discussed the two Congressional blue-ribbon commissions that studied it as an alternative. In February 2009, one of the commissions suggested raising gas taxes temporarily to transition to a VMT system. However, the Obama administration balked at raising gas taxes during the recession, and Congressional Republicans refused to consider it during their control of the House. Davis also pointed out that securing the equipment and infrastructure necessary to accurately assess VMT fundraising would take four to five years to enact properly.

As of 2021, Davis revealed that $272 billion in general fund transfers have taken place since 2008 (or, as the late Norm MacDonald would have put it, “six score and 12 billion dollars”). By the fiscal year 2031, the Congressional Budget Office predicts that the HTF cast deficit will be around $27 billion annually. Davis’ calculations puts that cash deficit at around $41.7 billion. When polling the audience about the future of the HTF, roughly a third said it should be abolished and replaced with a new transportation funding mechanism. After several questions, Davis made a point that until something changes regarding HTF funding, Congress is simply digging the hole deeper.

To hear more from the panelists on transportation equity, check out a recording of the panel hosted during Eno’s Centennial Institute on September 15, 2021.

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