Committee for a Responsible Federal Budget

Ten Options to Secure the Highway Trust Fund

Mar 22, 2021 | Other Spending

Congress must pass a new highway bill or extend the current one by October 1 of this year, and the Highway Trust Fund (HTF) itself will likely run out of reserves at some point in the next 18 months. The Congressional Budget Office (CBO) estimates the HTF faces a $195 billion cumulative shortfall over the next decade, and trust fund solutions will be needed soon.

Most federal transportation spending is paid for out of the Highway Trust Fund, which is funded mainly from an 18.4-cent-per-gallon gas tax and other transportation-related revenue. While one-time general revenue transfers have kept the HTF afloat in recent years, they've also allowed for a growing disconnect between revenue and spending. In 2022 alone, CBO projects dedicated revenue will only cover just over three-quarters of all spending. 

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 restore solvency by increasing revenue or reducing spending associated with the HTF. These options are meant to serve as illustrative examples and could be scaled up or down in a variety of ways.

10 Options to Secure the Highway Trust Fund 

Policy 10-Year Savings % of 10-Year Shortfall
Revenue Options    
Increase gas and diesel taxes by 10 cents  $140 billion 75%
Impose 1 cent per mile Vehicle Miles Traveled Tax on all vehicles  $150 billion 80%
Impose 5 cent per mile Vehicle Miles Traveled tax on commercial trucks, only $160 billion 80%
Impose $5 per barrel per barrel tax on oil  $160 billion 80%
Impose $25 per ton carbon tax in place of the gas tax $700 billion 360%
Spending Options     
Freeze Highway Spending for Five Years $60 billion 30%
Replace Surface Transportation Block Grants with Matching Grants' $70 billion 35%
Cut Federal Transit Spending in Half $60 billion 30%
Reduce Federal Share of National Highway Performance Program by 15%^ $50 billion 25%
Repeal Davis-Bacon Act  $20 billion 10%

Source: Congressional Budget Office and CRFB calculations and estimates. 10-year savings are rounded to the nearest $10 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 $195 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. These options could also replace or supplement the existing gas tax.

On the spending side, improving the trust fund would require reducing the amount of spending allocated. For example, instituting a five-year spending freeze so rather than having spending grow with inflation would close nearly a third of the ten-year funding gap. A number of policy options could make space for lower spending levels. Lawmakers could change various rules and regulations that reduce the cost of various infrastructure projections, such as repealing Davis-Bacon prevailing wage rules. States could be required to pay a larger share of highway costs - for example, by turning the Surface Transportation Block Grant into a matching growth or reducing the federal share of spending on other highway projects. Finally, policymakers could reduce the scope of projects financed under the Highway Trust Fund - for example, by cutting federal mass transit spending in half.

While these options are not additive due to interactions, they are worth a combined $1.6 trillion to the trust fund, enough to close the ten-year shortfall 8 times over. Most options could also be scaled or adjusted in a variety of ways.

There are of course many other options to restore Highway Trust Fund solvency. 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,

Through our Trust Funds Solutions Initiative, we will continue to put forward existing and new ideas to secure the Highway Trust Fund.

Policymakers must begin discussing possible trust fund solutions immediately.