The Road to Sustainable Highway Spending

May 13, 2015 | Other Spending

The current legislation authorizing highway and mass transit spending is scheduled to expire at the end of May, and only a few months later the Highway Trust Fund will run out of reserves. Extending the life of the trust fund through the end of the year will require $11 billion, and extending it for a decade will require nearly $175 billion.

For over 50 years, federal highway spending had been financed with dedicated revenue, mainly from the gas tax. Since 2008, however, dedicated revenues have fallen short of spending, and policymakers have covered the difference with about $65 billion of general revenue transfers – often without truly paying for the cost. Those transfers are projected to run out before the end of the year, disrupting infrastructure spending across the county.

To maintain important infrastructure investments and avoid adding an additional $175 billion to the debt, Congress must identify responsible solutions to close the shortfall in the Highway Trust Fund. Fortunately, Congress has many options at its disposal to do so (see Appendix for more).

One solution that has recently gained popularity would rely on revenue generated from business tax reform to close some of the $175 billion gap. While this would be a sensible solution, tax reform will not pass before the current highway bill expires, and there is a risk it will not pass at all this year.

CRFB’s plan, The Road to Sustainable Highway Spending, would encourage the passage of tax reform while also ensuring the Highway Trust Fund remains adequately funded regardless of tax reform’s fate. The plan would:

  1. Get the Trust Fund Up to Speed ($25 billion) by paying the “legacy costs” of pre-2015 obligations with savings elsewhere in the budget.
  2. Bridge the Financing Gap ($150 billion) with a default policy to raise the gas tax by 9 cents after a year and limit annual spending to income.
  3. Create a Fast Lane to Tax Reform to help Congress identify alternative financing before the gas tax increase and spending limits take effect.

The Road to Sustainable Highway Spending would ensure the Highway Trust Fund remains solvent while giving policymakers flexibility to decide the level of highway spending and how it would be paid for. Our plan represents just one of many possible solutions. Importantly, any solution must responsibly address the gap between spending and revenue without resorting to gimmicks or deficit-financed transfers.

The full paper can be read below, or downloaded here. A 1-page summary is available here.