Highway Trust Fund: Congress Considers Another Highway Bailout

Status: The federal government is responsible for 40 percent of national spending on surface transportation projects (highways and mass transit) through the Highway Trust Fund (HTF). Congress is looking at a bailout of the HTF that extends the federal highway program for up to 6 years and costs up to $317 billion. As a result of an $8 billion extension passed in July, on October 29 the legal authority for the HTF to distribute federal funds will expire, though sufficient funds will remain to continue covering transportation projects until June 2016.

The fact that HTF outlays have exceeded revenues since 2001 is evidence that federal surface transportation spending is out of control and inefficient. As an alternative, conservatives have long pushed the Transportation Empowerment Act (TEA) to return responsibility and revenue for transportation funding back to the states, placing infrastructure funding on a sound long-term footing.

Background: Major federal activity in highway construction began with the 1956 Federal Aid Highway Act, and with it came the HTF. The HTF was envisioned as a self-sustaining fund. Revenue would come in, and that money would be earmarked specifically for highway construction. The primary source for that revenue was, and remains, the federal gasoline tax, which at the time was 4.3 cents per gallon. Today the tax stands at 18.3 cents per gallon.

The federal highway system was completed decades ago, but Congress, accustomed to federal transportation spending, elected to continue the operation of the HTF and the taxes that supported it. Congress also created the Mass Transit Account, diverting around 17 percent of gasoline tax revenue to fund mass transit projects.

A Broken Fund: Today, the HTF is insolvent and will once again run out of money by June 2016. More fuel efficient cars and wasteful diversions have led to periodic transfers of federal money from the general fund into the HTF to cover obligations. Since 2008, more than $70 billion in bailouts have gone into the fund. Future shortfalls are growing astronomically, totaling an estimated $180 billion over the next decade. In the past, present, and future, funding methods for the HTF have proven deeply ineffective.

Wasteful Diversions: The gap between revenue and outlays in the HTF is self-inflicted, the result of excessive spending driven by a congressional infatuation with mass transit and pork-barrel diversions. According to the Heritage Foundation, 25 percent of all gasoline tax dollars paid into the HTF are used for a purpose other than highways.

Mass transit spending is ineffective. As spending on transit has climbed, transit ridership has decreased by 20 percent from 1980 to 2012, while driving increased by the same amount. In the meantime, traffic congestion has increased, with the average auto commuter spending almost a workweek every year (38 hours) sitting in traffic.

There are other diversions from the HTF. The Transportation Alternatives Program (TAP) allows funding for bike paths, museums, and highway beautification. Last year, the federal government spent almost $900 million on TAP. The Congestion Air Quality Mitigation Program, a program intended to help states reduce pollution, cost $2.2 billion in 2014 and has had little effect on air quality.

Unequal Treatment of States: The HTF has long allocated funds based on which states possessed the most political clout rather than on the basis of true highway needs. Transit money goes disproportionately to six cities: Philadelphia, Washington, D.C., New York, San Francisco, Boston, and Chicago. 28 states pay a larger proportion of the gasoline tax revenue than the proportion of federal highway spending that they receive. Northeastern states with large union presences get a bigger percentage of HTF revenue, while fast-growing southern states are left with more limited amounts.

Transportation Empowerment Act (TEA): TEA is the conservative solution to the current system. It would reduce the federal gasoline tax in increments over a five-year period, down to 3.7 cents per gallon. Over that time frame, remaining revenue from the gas tax and other user fees would be block-granted to the states. At the end of the five-year period, state governments would become responsible for their own transportation planning and financing. States have unique transportation needs that should be met at the discretion of state officials, not distant federal lawmakers.

Under TEA, wasteful diversions would be eliminated, ensuring that highway dollars fund highways. If states wish to fund transit projects with their highway dollars they are welcome to do so. The federal government would retain a small role in maintaining connections between state transportation networks.

Bad Solutions: But current negotiations seek to continue the policy of bailing out the fund rather than establishing a sustainable transportation policy. A proposal passed by the Senate in July threatened to inject up to $317 billion into the fund for 6 years, creating bigger fiscal cliffs for Congress to deal with down the road. Of the bailout, the supposed “pay fors” are expected to only provide three years of money, at most, and involve “tax compliance” measures and “fees & receipts” changes that are covert tax increases. Additionally, it is unlikely that selling barrels of crude oil from the Strategic Petroleum Reserve will raise as much money as expected – the Senate proposes selling 101 million barrels at $89 each, while the current price hovers around $50 a barrel. Because of the gimmicky nature of these pay fors, the bailout will begin adding to the deficit immediately, with later pay fors contributing even more.

The Export-Import Threat: The charter of the Export-Import Bank, a long-time hub of cronyism and special interests, expired this June. The bank faced overwhelming opposition from conservatives, but attempts to reauthorize the bank may be made by attaching an Export-Import Amendment to a HTF bill. In addition to making a bad bill worse, an Export-Import Amendment would bundle together two different policy issues that are best dealt with separately (for more information, see our Export-Import Brief). It is quite possible that Export-Import advocates will attempt to use Boehner’s lame duck status to attach a reauthorization to the Highway Transportation Fund during the month of October. For this reason, Heritage Action would support pushing the reauthorization date into next year, as long as such a move is not accompanied by an additional bailout.

Call to Action: The House should reject any long-term reauthorization that bails out the Highway Transportation Fund, especially if it includes a reauthorization of the Export-Import bank.

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