Why the Highway Trust Fund gimmicks need to stop

Congress needs to start being realistic and serious about the future of the Highway Trust Fund, writes Howard Gleckman. Although the Highway Trust Fund worked in the past, it is time for a long-term solution – not just pension smoothing and other gimmicks.

By , TaxVox

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    Vice President Joe Biden speaks to government and business officials about transportation infrastructure and the Highway Trust Fund at a meeting hosted by the White House Business Council at the Eisenhower Executive Office Building across from the White House in Washington, July 9, 2014.
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Congress is in the midst of another Perils of Pauline political showdown: This time the drama is over how to finance the highway trust fund, which will be unable to pay its bills in a couple of weeks. House Republicans have cooked up one set of gimmicks to keep the money flowing for a few months. The Senate Finance Committee may be nearing agreement on another. But all this begs the question: If Congress won’t treat the highway trust fund seriously, why keep it?

In theory, such a fund could make sense. Congress would adopt an earmarked tax on motor fuels that allows it to build and repair roads and mass transit relatively free from political interference. It could build up surpluses for lean years. It would have a guaranteed source of revenue and, because taxpayers link the tax with a valuable—and popular– public program they’d be more likely to back the levy. That was the idea.

It isn’t working very well.

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For a while, the trust fund functioned pretty much as advertised. Taxes on gasoline, diesel fuel, and on trucks and trailers provided more than enough money.

Congress distributed the funds to states according to long-standing formula. And periodically, lawmakers would write a new highway bill that authorized spending over five or six years. One oddity: Congress also had to appropriate funds every year that set a limit on contract authority for projects (and created opportunities for infamous earmarks like Alaska’s bridge to nowhere).

Alas, for the past 13 years those designated revenues have fallen short of spending. By this fiscal year, the account was down to its last $2 billion, and spending was expected to exceed revenue by about $15 billion. Pretty easy to tell where this story is headed.

Part of the problem: Since 1993, gas taxes have been fixed at 18.4 cents per gallon but never indexed for inflation. Plus, more fuel-efficient cars reduced fuel consumption per miles driven.

In a sensible world, Congress would have responded to this by slowing spending for roads and transit to reflect the stagnant revenues, asking states to come up with a larger share of highway dollars, or increasing the taxes to fund the projects Congress wanted to build.

But Congress does not live in that world. It responded to the shortfall by draining the fund’s remaining balance and transferring money from the general fund into the trust fund–$6 billion in 2013 and $12 billion in 2014. If projects are not cut, the Congressional Budget Office estimates that in 2024 alone the fund will spend $18 billion more than it brings in. The cumulative shortfall over the next decade will top $160 billion.

By 2024, CBO figures, general funds would account for about one-third of the trust fund revenues.

Worse, Congress proposes to pay for a short-term fix with a motley collection of budget gimmicks such as pension smoothing and cats-and-dogs revenues from sources that have nothing whatever to do with transportation.

With what seems to be an emerging pattern of ongoing funding crises and endless short-term extensions of non-gas tax revenue sources, and with no reserves, it is increasingly hard to understand what a trust fund brings to the table.

I understand the highway trust fund is a useful inside-the-Beltway accounting fiction. But in reality it is little more than another tool that aides and abets Washington’s ongoing fiscal shell game. To real people, it makes budgets more opaque and less understandable and frays the concept of a gas tax as a user fee. This makes people even more cynical about government, which is not a good thing.

At some point, you’ve got to ask: If Congress is not going to take the highway trust fund seriously, why maintain the fiction?

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