With the federal government expected to run out of money for transportation infrastructure projects in July or August and no politically palatable revenue sources available to support an extended six-year surface transportation reauthorization bill, federal lawmakers find themselves facing the familiar conundrum of how to finance our nation's roads, bridges and transit systems, as well as debating the role of the federal government in building and maintaining these networks. As discussions continue Congress and the White House are eyeing a large-scale reform of the federal tax code as a solution to backfill the fledgling Highway Trust Fund. But how far will that get us down the road?
ROAD CLOSED: FIXING THE HIGHWAY TRUST FUND
The Highway Trust Fund was established in 1956 to finance the U.S. interstate highway system. The fund receives money from a federal fuel tax of 18.3 cents per gallon on gasoline and 24.4 cents per gallon of diesel fuel and related excise taxes, and steers this funding to federal transportation programs through the Highway Account, which funds road construction, and the Mass Transit Account, which supports bus and light rail systems. For the last few decades, Congress has modified how money from the fund is spent on federal transportation programs through multi-year bills (typically every six years), designed to give states, to whom much of the funding is directed, assurance in planning and financing statewide and regional transportation improvements.
Over the last seven years, however, increased fuel efficiency in vehicles as well as a recession-induced drop-off in driving has lowered gas-tax revenues to the highway fund, leading to tough debates in Congress and among transportation advocates over how best to keep the needed revenues flowing. While some say the fuels tax should be raised, others say usage-based alternatives such as a vehicle miles tax and greater tolling authority are needed. With no interference, the Congressional Budget Office forecasts that the Highway Trust Fund will have a $13 billion gap between revenue and obligations in fiscal 2016. And U.S. Transportation Secretary Anthony Foxx has stated that the department will have to start taking cash management measures to keep the fund afloat by late July or early August if Congress fails to act.
This is not the first time that Congress has faced this dilemma. Congress periodically approves short-term extensions of surface transportation laws and money from the General Fund to the Highway Trust Fund to maintain the federal commitment to the interstate highway system and state and local projects. Since 2008, lawmakers have transferred $53.6 billion in this manner, and there have been 32 short-term extensions of the highway funding law during the last six years. This includes the first half of 2015, which is being funded through a series of short-term extensions of MAP-21, the two-year, flat-funded transportation reauthorization bill enacted in July of 2012. Emergency cash infusions, which are estimated to increase transportation project costs by close to 30 percent, will continue unless Congress agrees on a long-term funding formula for the Trust Fund.
But members of Congress are divided over how to pay for a new six-year surface transportation authorization bill. Raising the federal gas tax, which has not been increased since 1994 or adjusted for inflation since that time, would seem to be an attractive solution. However, many Republicans are uncomfortable with increasing the gas tax, given the political undesirability of increasing any kind of tax in Washington. Additional...