Spending_Transportation_Highway

Highway Trust Fund Runs Out Next Summer

Sep 22, 2015 | Other Spending

According to a new Department of Transportation (DOT) estimate, the Highway Trust Fund will likely last until late next summer instead of at the end of the year as previously thought. The DOT estimate now shows that the deadline for action on the Highway Trust Fund would occur in the 4th quarter of fiscal year 2016 (July, August, or September of next year).

The last highway bill, passed on July 28, authorized transportation programs through late October and transferred $8.1 billion into the Highway Trust Fund, paid for with a hodgepodge of different revenue-increasing policies. At the time, lawmakers thought the money would extend the life of the trust fund only to December. Transportation officials realized they would be able to stretch the funds until late next summer with the slowdown of construction projects in the winter.

While a more permanent fix is needed, in the short term Congress needs to reauthorize highway programs before October 30, 2015, or states will no longer receive funding from the federal government. With the new estimate, lawmakers are now able to extend the highway bill for several months without having to find additional financing for the trust fund, similar to the situation they faced earlier this year.

Going forward, lawmakers will have to close a $175 billion gap between highway spending and revenue over the next ten years. They have been patching the trust fund since 2008 with $75 billion of general revenue transfers, many of which have not been paid for (although more have been in recent years).

There are a few different proposals to finance a long-term bill in Congress. The Senate passed a 6-year bill in July with 3 years of funding from a variety of options, and lawmakers in the House have been discussing whether to use revenues from offshore corporate profits to pay for highway projects. However, if they are unable to come up with a tax reform plan in time, they may be forced to accept the Senate bill, which they have criticized previously, or pass another short-term fix.

CRFB has proposed a more permanent solution in The Road to Sustainable Highway Spending, by setting up a process for tax reform while making sure the Highway Trust Fund continues to be funded even if no tax reform is enacted. The plan would first pay for the legacy costs ($25 billion) of obligations prior to 2015 with savings elsewhere in the budget. It would then close the remaining gap of $150 billion by increasing the gas tax by 9 cents after a year and limiting annual spending to income, for a total of $100 billion of revenue increases and $50 billion of spending cuts.

Finally, it would encourage Congress to find alternative financing solutions if they are not satisfied with the default plan. These alternative financing solutions could include additional dedicated revenue increases or tax reform that replaces or supplements the gas tax increase. Either way, it would ensure that lawmakers make decisions about revenue and spending together rather than the scattered process they use now. Additional options for financing highway spending are available in the appendix of The Road to Sustainable Highway Spending.

Lawmakers should use the extra time they have to work on a lasting solution for highway spending, unlike what they have done in the past. And however they do it, they should ensure that the solution is fiscally responsible.