Ten Options to Secure the Highway Trust Fund

Accounting for the enactment of the bipartisan infrastructure law (formally, the Infrastructure Investment and Jobs Act), we estimate the Highway Trust Fund will be insolvent by 2027 and faces a $215 billion cumulative shortfall through Fiscal Year (FY) 2031. Even if higher levels of baseline highway spending authorized in the bipartisan infrastructure law are not continued beyond FY 2026, when the current authorization for surface transportation programs expires, the trust fund will face a cumulative shortfall of $160 billion through FY 2031. Outside of another irresponsible general revenue transfer, closing this structural gap will require substantial adjustments, which could include ultimately doubling dedicated revenue, cutting spending in half (relative to the levels set under the bipartisan infrastructure law), or some combination.

The following is an update to our prior analysis, "Ten Options to Secure the Highway Trust Fund."

Most federal transportation spending is paid for out of the Highway Trust Fund, which is primarily funded by an 18.4-cent-per-gallon gas tax, along with other transportation-related revenue. Although one-time general revenue transfers have kept the trust fund afloat in recent years, they have done nothing to correct the widening gap between dedicated revenue coming into the trust fund and spending coming out of it. For instance, while the $118 billion of intergovernmental transfers authorized in the bipartisan infrastructure law will simply push back the Highway Trust Fund's projected insolvency date a few years, from 2022 to 2027, the legislation itself will actually worsen the chronic imbalance that exists between the trust fund's spending and revenue. 

Fortunately, options exist to shore up the trust fund's finances and close the structural imbalance between spending and revenue. Below, we highlight ten possible options to improve Highway Trust Fund solvency by increasing revenue or reducing spending. These options are meant to serve as illustrative examples and could be scaled up or down in a variety of ways. Our estimates show the share of the ten-year solvency gap that would be closed by each option under two scenarios: one in which recently increased baseline highway spending levels are continued through 2031 (as assumed under standard scoring conventions) and another in which baseline spending levels are allowed to fall once the current authorization for surface transportation programs expires after FY 2026. Since the Highway Trust Fund enjoys a positive near-term balance and large long-term imbalances, adjustments will have to scale up over time to maintain solvency.

10 Options to Secure the Highway Trust Fund

Policy   % of Shortfall
Savings Through 2031 With Spending Cliff With Spending Extended
Revenue Options
Increase gas and diesel tax rates by 15 cents $185 billion 115% 85%
Impose a 1 cent per mile VMT tax on all vehicles  $135 billion 85% 65%
Impose a 5 cent per mile VMT tax on commercial trucks only $140 billion 90% 65% 
Impose a $5 per barrel tax on oil  $140 billion 90% 65%
Impose a $20 per ton carbon tax in place of the gas tax $300 billion 190% 140%
Spending Options 
Freeze highway spending at FY 2022 levels $15/$25 billion 10% 10%
Replace Surface Transportation Block Grants with matching grants' $70 billion 45% 35%
Cut federal transit spending in half $50/$60 billion 30% 30%
Reduce federal share of the National Highway Performance Program by 15 percent^ $50 billion 30% 25%
Repeal the Davis-Bacon Act  $25 billion 15% 10%
Memo: Allow Infrastructure Investment and Jobs Act spending to expire after FY 2026  $0/$55 billion n/a 25%

Source: Congressional Budget Office and Committee for a Responsible Federal Budget calculations and estimates. 10-year savings are rounded to the nearest $5 billion, savings as a percent of the fund's shortfall are rounded to the nearest 5 percent. The Highway Trust Fund faces a ten-year cumulative shortfall of $215 billion. *For purpose of these estimates, we assume all net revenue or savings would accrue to the trust fund, but in reality the unified deficit impact and trust fund impact could differ in many cases. We also assume all reductions in cost are accompanied by equivalent reductions in funding levels. 'Assumes states would be responsible for half the cost of the grants and the federal spending would be reduced in half to hold total spending constant. ^Assumes states and localities would be responsible for 25 to 35 percent of project costs, rather than 10 to 20 percent, and federal spending would be reduced to hold total spending constant.

On the revenue side, the most straightforward option would be to raise and/or index to inflation the gas and diesel tax rates, which currently stand at 18.4 cents per gallon and 24.4 cents per gallon, respectively. Since gas tax revenue may erode in light of improving fuel efficiency and greater use of electric vehicles, policymakers could consider replacing or supplementing gas taxes with Vehicle Miles Traveled (VMT) taxes. A VMT tax could be imposed on commercial trucks alone, or ultimately phased in for all commercial and personal vehicles (a related option would be imposing a tax on freight traveling by highway). Two other revenue options include imposing a per-barrel oil tax or a broader carbon tax, which could also replace or supplement the existing gas tax.

On the spending side, improving the trust fund would require reducing the amount of authorized spending. For example, policymakers could freeze highway spending at the FY 2022 level – which is already over $11 billion (24 percent) above the 2021 level – or they could reduce certain categories of spending, such as spending on mass transit. Lawmakers could enact changes to various rules and regulations that would reduce the cost of infrastructure projects, such as repealing Davis-Bacon prevailing wage rules. States could also be required to pay a larger share of highway costs – for example, by turning the Surface Transportation Block Grant into a matching grant, or reducing the federal share of spending on other highway projects.

While these options are not additive due to interactions, they are worth a combined $1.1 trillion to the Highway Trust Fund, enough to close the cumulative shortfall at least five times over. Most of these options could also be scaled or adjusted in a variety of ways.

Of course, there are many other options to restore Highway Trust Fund solvency besides just these ten. We outline additional options in our Budget Offsets Bank and in past publications, including Trust or Bust: Fixing the Highway Trust Fund and The Road to Sustainable Highway Spending,

Policymakers must begin discussing possible trust fund solutions immediately. Through our Trust Funds Solutions Initiative, we will continue to promote new and existing ideas to secure the Highway Trust Fund and other endangered federal trust funds.