Why Lawmakers Were Able to Extend Highway Spending for Free
At the end of last month, lawmakers passed a two-month extension of the highway authorization bill with very little fuss. There was no discussion of offsets, and there didn't need to be because the Highway Trust Fund (HTF) is comfortably funded through the end of July, later than policymakers expected the last time they had to fill the HTF last summer. Here's the story on what happened in the last year with highway funding.
Last July, policymakers temporarily plugged the trust fund shortfall with a $10.9 billion general revenue transfer, financed mostly with "revenue" from the pension smoothing gimmick. This transfer intended to extend highway funding through the end of May, when the highway authorization was also set to expire. CBO projected in its August 2014 baseline that the law would leave a $2 billion shortfall in FY 2015 in addition to the $5 billion cushion the Department of Transportation says it needs to be able to reimburse transportation projects in a timely fashion.
Since then, two developments improved the near-term highway funding picture. The FY 2015 CROmnibus passed last December held highway spending to its FY 2014 level rather than having it grow with inflation as assumed in CBO's projections. This change resulted in FY 2015 spending which was lower by about $1 billion.
More importantly, gas prices fell significantly in late 2014 and early 2015, leading to higher fuel consumption and thus more revenue for the trust fund. Now CBO projects that the trust fund will take in $2.2 billion of more revenue in 2015 than they thought last August.
These two changes mean there is no longer projected to be an outright shortfall in FY 2015 (although the trust fund balance will only be $1 billion at the end of the year), and the trust fund's finances are tracking closely to last year's, when lawmakers had until the end of July to act. This improvement allowed lawmakers to extend the highway authorization by two months without having to enact another transfer.
Going forward, lawmakers have a $175 billion shortfall to close over the next ten years, or they can continue kicking the can down the road as they have been (it would take $8 billion to get through the end of 2015). They should use these two months to find a lasting solution for the trust fund. We proposed one such solution in our paper The Road to Sustainable Highway Spending.