Highway Trust Fund 101: What You Need to Know

April 24th, 2014 | By: America's Infrastructure Report Card

The Highway Trust Fund is set to become insolvent this summer, creating exponential negative consequences for our economy. What? When? Why? Find out how it can be fixed and what you can do to help. What is the Highway Trust Fund? The Highway Trust Fund is how Congress provides federal funding for transportation projects. It was created in 1956 to build the Interstate Highway System and now provides funding for roads, bridges, and transit projects across America. The Fund is paid for by the federal motor fuels taxes on gasoline and diesel fuel. Historically, federal highway funding has accounted for approximately 45 percent of what state DOTs spend on highway and bridge capital improvements. Why Does the Federal Government Pay for Roads, Bridges, and Transit? The U.S. Constitution’s Commerce Clause (Article 1, Section 8, Clause 3) grants Congress the power to establish “post roads” and to regulate commerce “among the several states,” allowing the federal government to invest and maintain roads, bridges, and transit. These constitutional responsibilities formed the basis for the U.S. government to play a significant role in our nation’s transportation and infrastructure system. Outside of U.S. law, Adam Smith–seminal economist and often cited as the ‘father of modern economics”–cited infrastructure investment as one to the “three duties” in his famous “The Wealth of Nations”:

“…the duty of erecting and maintaining certain public works and certain public institutions, which it can never be for the interest of any individual, or small number of individuals, to erect and maintain; because the profit would never repay the expense to any individual or small number of individuals, though it may frequently do much more than repay it to a great society.”

What is the Gas Tax? The first federal gas tax was established in 1932 (1 cent/gallon). The gas tax was tied to the Highway Trust Fund in 1956 via The Highway Revue Act and the creation of the Interstate Highway System. The federal gas tax has been raised a number of times since, including by Presidents Reagan, George H.W. Bush, and Clinton. The last time the U.S. federal gas tax was raised was 1993 to 18.4 cents per gallon. It was not been raised in over twenty years. How is the Fund Doing? The U.S. Department of Transportation projects that the Highway Account of the Highway Trust Fund will run out of money for new projects as early as July. For the 10 year window, 2015-2024, the cumulative shortfall in the highway and mass transit accounts of the HTF will be over $170 billion. According to the Congressional Budget Office, to prevent insolvency of the Highway Trust Fund in 2015, federal surface transportation investment would have to be cut by 92 percent that year. Why is the Highway Trust Fund Quickly Becoming Insolvent? The Fund is paid for by the federal gas tax. The gas tax has not been raised in over twenty years. Many items have doubled or tripled their cost since 1993. For example, a new car cost $12,750 in 1993, yet in 2013 a new car cost $31,252. The easiest explanation is that we are trying to build a 2014 infrastructure system with 1993 dollars. This is obviously an untenable formula. How Does the Insolvency Affect Me? Almost half of capital investments made by states on our nation’s roads, bridges, and transit systems are supported by the federal highway and transit programs administered by the U.S. Department of Transportation. Already, infrastructure projects are being slowed or stopped because of the uncertainty surrounding the Highway Trust Fund. Any delay in reimbursement from FHWA will prevent states from being able to pay contractors in a timely manner.  Contractors who rely on prompt payment from the state won’t be able to pay their employees and suppliers. Disruptions to this process have the potential to send unwelcome shockwaves throughout our economy, decreasing spending, hiring, and damaging any ability to plan for future projects. We Knew this Was Coming, Right? Oh yes. As far back as 1997, Congress was moving money from the General Fund into the Highway Trust Fund. Recently, in 2008, Congress moved $34.5 billion to the trust fund from the general fund to keep it solvent. So Why Haven’t We Fixed it Before Now? One word: Politics. In order to make the Trust Fund solvent, Congress would need to find a long-term, sustainable solution. Because of how the Fund is currently structured, according to commentators such as Matt Yglesias, the easiest way to do that would be to raise the gas tax to a modern rate and tie the rate to inflation. This would raise needed revenue and assure that future insolvencies would not occur. Obviously, given the climate of fiscal restraint as well as the escalating cost of gasoline over the last twenty years, raising the gas tax has been politically impalpable. And, since any solution outside of raising the gas tax would have to involve dramatically restricting the funding mechanism of the Trust Fund, such proposals have been unable to move forward. What Can I Do? We have to tell Congress to act now. We are using #FixTheTrustFund across all of our social media platforms to spread our message the letting the Trust Fund become insolvent is unacceptable. We have also set up a Legislative Action Center, where you can send you Congressman a message about how the Highway Trust Fund is going to affect you. Good luck and let’s #FixTheTrustFund

Tags: Constitution, gas tax, highway trust fund, infrastructure, transportation
4 Comments »