America’s unstable road funding

June 25, 2014

Congress General Fund

The national account to fund America’s highway construction and other transportation is nearly empty. The revenues that go into the Highway Trust Fund, which come from a federal 18.4 cent per gallon tax on gasoline, are expected to dip below $4 billion in July. Congress has transferred monies from the general fund in four of the past five years (the yellow stars above) into the Highway Trust to make up for the shortfall from the fuel tax.

In anticipation of the fund’s drawdown, Transportation Secretary Anthony Foxx alerted said that the federal Department of Transportation would go into “cash management,” possibly delaying payments for state road projects.

Several members of Congress have sponsored legislation to prop up the HTF, including Senate Finance Committee Chairman Ron Wyden, who offered a $9 billion patch to tide the fund over to the end of this December without drawing money from the federal budget. Wyden’s proposal relies on a mix of five revenue sources. From Rollcall:

The biggest of them would be a change in how inherited individual retirement accounts are paid out to heirs.

Under current law, a 25-year old who inherits an Individual Retirement Account from a parent could collect payments for the rest of his life, with a required minimum distribution of money from the IRA each year.

Wyden’s provision would require retirement savings accounts to be paid out within five years of the death of the account holder in most cases. That would raise $3.7 billion in revenue over 10 years, according to an estimate by the staff of the Joint Committee on Taxation.

The most significant part of Wyden’s package for those who drive the nation’s highways was his $1.3 billion increase in taxes on heavy trucks. This provision would replace the current $550 annual limit on the highway use tax for vehicles over 75,000 pounds, with a $1,100 cap for vehicles over 97,000 pounds.

The response from Finance Committee ranking Republican Senator Orrin Hatch “was chilly,” according to Rollcall.

A bipartisan effort to raise gas taxes was launched in the Senate, according to the National Association of Budget Officers:

Senators Christopher S. Murphy (D-CT) and Bob Corker (R-TN) proposed a long-term plan to ensure the solvency of the Highway Trust Fund by raising the gas tax by six cents in each of the next two years and indexing it to inflation. The bipartisan proposal would raise roughly $164 billion in additional revenue over the next 10 years.

The federal gas tax has remained at 18.4 cents per gallon since 1993. The combined effects of inflation and more fuel-efficient vehicles have left revenues from this tax insufficient to sustain the HTF, which has periodically needed cash infusions from the U.S. Treasury to continue meeting its obligations.

The senators’ proposal would also make permanent certain popular temporary tax breaks, including the deduction of state and local sales taxes, with the intent to make the plan revenue neutral.

Unfortunately, the Murphy legislation is unlikely to move quickly enough to stop the DOT fund drawdown.

Meanwhile conservatives are plotting a long-term strategy to push the federal government out of highway funding (except for the Dwight D. Eisenhower National System of Interstate and Defense Highways). From Rollcall again:

For conservatives, that will be the time to make another attempt to ease the federal government out of transportation decisions and give states more authority to spend federal money without following Washington’s guidelines and formulas so closely. That’s the case they already are making in proposals from the right addressing the impending shortfall in the Highway Trust Fund and the move toward the broader highway bill.

‘You’re seeing the groundwork being laid now for what will become a real conversation about the future of the federal role in surface transportation,’ said Dan Holler, a spokesman for Heritage Action for America, the political arm of the conservative Heritage Foundation. ‘Our point is the people up here [DC] aren’t the best ones to make decisions. Let’s cut out the middle man and move this back to the states where it belongs.’

Conservatives have a grand strategy to grant federal funds to states so they can set priorities locally. Rollcall describes how it would be done for transportation funding:

Conservatives are rallying around bills introduced last year by Sen. Mike Lee, R-Utah, (S 1702) and Rep. Tom Graves, R-Ga., (HR 3486) that would phase out the federal gasoline tax and turn over most of the federal transportation program to state legislatures. Their bills would reduce the tax from 18.4 cents per gallon to 3.7 cents per gallon over five years. States could then decide whether to make up the difference by raising their own gas taxes. They would also have more authority to decide how that money would be spent.

But there are some issues with the federal government taking a smaller role in highway issues.

Making states responsible for their own transportation networks could have serious national consequences. States such as Montana or North Dakota that carry truck traffic to and from the West Coast are crucial for commerce and homeland security purposes. But they would not be able to maintain their current level of infrastructure if they were forced to rely on their own tax revenue.

‘You’ve got a lot of your large-landmass, low-population states where it would be hard for them to actually raise enough gas tax revenue at the state level to replace what the federal funding brings to that state,’ said Jim Tymon, director of program finance at the American Association of State Highway and Transportation Officials. ‘If you want an interconnected system of transportation across all states, that’s the whole rationale for a federal program.’

Some states already have or are considering raising their own gas taxes. Texas voters will see a November constitutional amendment to divert oil and gas severance taxes from the state’s rainy day fund to build and repair roads. America has about 4 million miles of public roads to maintain along with new ones that must be built. How that is paid for is shifting, but in the short term it is not likely to increase.



Department of Transportation’s “Trust fund ticker

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