CBO Offers Grim View of Highway Fund

This story appears in the July 29 print edition of Transport Topics.

WASHINGTON — The Congressional Budget Office last week presented a grim picture of an insolvent Highway Trust Fund to the House committee that oversees highway policy, but there was little discussion of possible solutions.

In 2015, there will be an estimated $50 billion in outlays for highways and transit — if spending levels stay the same as today — but only $40 billion in receipts, said Kim Cawley, a chief official at the Congressional Budget Office. “Without some change in policy, there won’t be enough money to go around.”

“That means at some point in 2015, the Department of Transportation will be unable to reimburse states for all of the federal highway and mass transit expenses they have already incurred,” Cawley told the Transportation and Infrastructure Committee’s subcommittee on Highways and Transit here July 23.

Cawley said that to balance the trust fund in 2015, Congress would have to eliminate all spending that year on highways and transit, raise the 24.4-cent-a-gallon diesel tax and the 18.4-cent gasoline tax by 10 cents, or come up with a combination of spending cuts and tax increases.

The hearing made it clear that the highway trust fund “will go off a cliff,” said Rep. Nick Rahall (D-W.Va.), the ranking Democrat on the Transportation and Infrastructure Committee.

“As the purchasing power of the federal fuel taxes continues to decline year to year and vehicles become more fuel-efficient, current spending levels will continue to outpace the money collected from fuel taxes,” subcommittee Chairman Tom Petri (R-Wis.) said. “Over time, the gap will only worsen.”

Indeed, Cawley cited figures showing that by the end of 2023, if Congress does not act to generate new revenue, the shortfall in the trust fund will be $132 billion.

Of that $132 billion, on the highway side of the ledger, the shortfall would be $97 billion — more than double what Congress appropriated for highways in 2013.

The trust fund supports highway and transit programs, with 85% of the revenue flowing into it coming from fuel taxes. The remaining 15% is generated largely by federal taxes on new trucks, trailers and truck tire sales.

Trust fund revenues have not been able to sustain highway and transit spending levels since 2008, so Congress has been transferring money from the General Fund to the trust fund.

“By the end of 2014, a total of $54 billion will have been transferred from the General Fund into the Highway Trust Fund to maintain its solvency,” Petri said.

Rep. Reid Ribble (R-Wis.) asked if CBO had done any macroeconomic evaluation on the effect of motor fuel and other taxes on the trucking industry, given that those taxes are ultimately paid by everyone, from the people who build the trucks to those who buy the goods hauled on them.

“I’m curious if we’re not just shooting ourselves in the foot; we’re almost treating it like a sin tax,” Ribble said of trucking taxes.

Cawley said he did not know of any such evaluation, but the second witness at the hearing, Polly Trottenberg, DOT’s undersecretary for policy, said that in terms of fuel tax revenue, diesel has been on a different trend line than gasoline.

“Although overall fuel usage is going down, diesel use has been going up,” Trottenberg said. “The trucking sector is a growing one.”

While committee members offered no proposals for addressing the fund’s looming insolvency, some suggested streamlining construction projects to save time and money, looking for administrative efficiencies or studying a tax on vehicle miles traveled.

Trottenberg said there’s no “appetite” in Washington for a VMT tax.

Comments from committee members reflected the various geographical perspectives on transportation needs.

Rep. Janice Hahn (D-Calif.), for example, said she drove an electric car and wondered, because they don’t require motor fuel, if they should be taxed another way.

“I haven’t been in a gas station in two years,” Hahn said.

However, Rep. Rodney Davis (R-Ill.) said much of his rural district has only two-lane highways and that people there pay a lot in fuel taxes just to get around.

“I feel like I haven’t been to the gas station in two minutes,” Davis said of the miles he puts on his pickup truck.