One Month Left Before Highway Spending Disruptions

Department of Transportation Secretary Anthony Foxx started the Highway Trust Fund clock yesterday, informing state transportation directors that disruptions in federal reimbursement of highway projects would begin on August 1. The cash management measures are intended to prevent outflows from depleting the Highway Trust Fund.

Starting August 1, the federal government would no longer reimburse states for projects immediately. Instead, they will distribute to states a proportionate share of available funds every two weeks when the fund receives incoming revenue. This is a major change from the current scenario of daily distributions. Of course, uncertainty will make it difficult for the state transportation departments to anticipate precisely how much they will be reimbursed and will lead states to delay some projects until there is a longer-term solution.

DOT considers $4 billion of funding the cut-off point for implementing cash management measures for the highway account. Their latest Highway Trust Fund ticker shows the account's fund running out by late August or early September, at which point spending could only be reimbursed with incoming revenue, enough to cover about three-fourths of spending.

With Congress in recess for July 4, they will have to get to work quickly to fix HTF's finances upon their return. Last week, the Senate Finance Committee marked up a bill to transfer $8 billion to the HTF, financed by increasing revenue through tax compliance, which would extend the fund's solvency through the end of the year. There had been discussion in the House of using savings from Postal Service reform to offset a general revenue transfer, but the idea did not go far. Senators Chris Murphy (D-CT) and Bob Corker (R-TN) proposed increasing the gas tax by 12 cents and indexing the tax to inflation, closing the HTF's ten-year shortfall, although they paired the bill with deficit-financed tax cuts. Sens. Tom Carper (D-DE) and Mike Enzi (R-WY) also offered an amendment to the Finance bill to index the gas tax to inflation. President Obama and Ways and Means Chairman Dave Camp (R-MI) would both use temporary revenue from tax reform to finance a general revenue transfer, but there is too little time to take that route.

At this point, lawmakers are likely to rely on at least a short-term patch to transfer general revenue to the HTF. They should make sure that any transfer is offset with other changes to the budget, and we have presented many options to do so. Importantly, they should use the time they buy themselves to agree on a solution to bring Highway Trust Fund spending in line with revenue, either by reducing spending, increasing revenue from current HTF financing sources, and/or bringing in new revenue to the trust fund.