Highway Trust Fund Outlook Improved, But Still Not Solvent, According to the Congressional Budget Office25 Apr 2016, Posted in Analysis, Blog Posts
Written by Shane Skelton, Aii Executive Director
Last month, the Congressional Budget Office (CBO) released its most current Highway Trust Fund (HTF) baseline projecting that the fund would suffer a $107 billion cumulative shortfall by 2026. By almost any measure, this is bad news, but compared to other recent estimates, this is actually an improvement. Last May, when Aii released “The Highway Trust Fund: A History, Analysis, Discussion, and Assessment for Improving Solvency”, CBO projected a $164 billion cumulative shortfall by 2024 and had not made any projections out to 2026.
While improving solvency is always a positive outcome, CBO’s baseline also demonstrates that Congress and the Administration haven’t taken any steps to reach balance or shore up the fund in the long-term. Looking only at the window between 2016 and 2024 (the years covered by both projections), not much has changed other than a one-time cash infusion from the FAST Act, which was enacted into law on December 4, 2015. The current baseline reflects a $70 billion FAST ACT authorized intergovernmental transfer into the HTF (essentially moving money from Treasury into the HTF, rather than raising it through the gas tax or interest) in 2016.
Notwithstanding the transfer, the numbers held relatively steady, which is not good news. A line-by-line comparison of 2016-2024, excluding intergovernmental transfers, shows the following:
— A $25 billion increase in projected revenues and interest in the updated baseline; and
— A $14 billion increase in projected outlays (spending) in the updated baseline.
In short, the updated baseline shifted its projection of the HTF’s cumulative budget shortfall in 2024 from $164 billion to $59 billion, but only $11 billion of the difference is attributable to activities related to the HTF itself with the rest attributable to intergovernmental transfers, and slightly inaccurate projections of spending in previous years, resulting in slightly more cash on hand to begin the year.
To prevent future intergovernmental transfers, which result in increased deficits and a larger national debt, Congress needs to find a long-term solution that will either increase revenue, decrease spending, or a combination of both. In the aforementioned paper, Aii analyzed some of the proposals that are frequently offered as a remedy to HTF insolvency, including:
— Devolution – the concept of limiting the federal governments role in surfaces transportation funding and shifting more responsibility and control to the states;
— Increasing excise taxes (the gas and diesel taxes) without any additional structural spending reforms; and
— Mandatory Repatriation – requiring multinational corporations to bring overseas earnings back into the U.S. for taxation purposes.
We also offered a new hybrid approach, which includes:
— Making gas and diesel taxes true user fees by eliminating all authorized spending unrelated to physical constructions of roads and bridges and ensuring that road use by hybrid and electric vehicle owners were fully captured by the fee; and
— An automatically adjusting excise tax rate, which could increase and decrease based on a fixed formula depending on current gas prices.
There is relief in the fact that the account responsible for funding our nations highway system inched closer to solvency in recent years. Unfortunately, until the larger structural issues are resolved the HTF will not become solvent – a serious cause for concern.