Spending_Highway_Virginia

CRFB's Plan to Repair the Highway Trust Fund

May 13, 2015 | Other Spending

With the deadline for extending the surface transportation authorization just a few weeks away and Highway Trust Fund (HTF) bankruptcy approaching this summer, CRFB has released the The Road to Sustainable Highway Spending, a detailed plan to fix the HTF's finances and bring greater rationality to the process of determining highway spending and revenue. The plan would fully close the $175 billion trust fund shortfall through 2025 and set up processes to make future general revenue transfers to the fund much less likely.

Click here to read the full plan.

The plan first articulates three principles that any responsible highway solution should abide by:

  1. Act quickly to ensure adequate funding. Congress must extend the highway bill this month and provide sufficient funding to avoid disruptions this summer.
  2. Offset any general revenue transfers with real savings. While at least a short-term general revenue transfer is likely needed, it would be irresponsible to enact a transfer without equal-sized spending cuts or revenue increases to offset the cost. Resorting to gimmicks such as pension smoothing undermines the trust fund’s credibility.
  3. Close the structural imbalance. Lawmakers cannot rely on general revenue transfers in perpetuity and must ultimately bring highway spending and dedicated revenue in line. Plans should close this gap, and any that fail to do so should acknowledge that further action will need to be taken in the future.

Our plan consists of four main parts: a $25 billion general revenue transfer to pay for "legacy costs," or projects authorized prior to this year that are being paid out of current funding; $100 billion from raising the gas tax by 9 cents per gallon starting in 2016; $50 billion from freezing highway spending for two years, then limiting it to the previous year's revenue plus interest collections; and creating a "fast lane" for tax reform that allows lawmakers to identify alternative revenue sources to replace an equivalent amount of the other changes.

Summary of The Road to Sustainable Highway Spending

Importantly, the framework of limiting spending to the previous year's revenue means that lawmakers can determine the amount of spending they want by adjusting the tax changes accordingly. In essence, the plan makes much more clear the trade-offs involved and more closely links highway spending and tax decisions.

Highway Spending and Revenue in the CRFB Plan (Billions of Dollars)


Source: Department of Transportation, CBO, CRFB calculations

Of course, this plan is not the only way to responsibly close the Highway Trust Fund shortfall. The appendix to the report provides four tables of options to reduce highway spending, increase revenue from existing sources, use revenue from new sources, or finance a general revenue transfer.

Click here to read The Road to Sustainable Highway Spending.