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The Highway Trust Fund (HTF) was established in 1956 to provide a more dependable source of funding from the federal government for the construction of the interstate highway system. The HTF is comprised of two constituent accounts:
In general, state and local governments provide the majority of spending on surface transportation in the United States. For example, state and local governments funded nearly three-quarters ($131 billion) of total spending for highways in 2017, the latest year for which data are available. However, funding from the HTF also plays an important role in facilitating many projects. In 2017, the federal government contributed $46 billion in highway investment, 95 percent of which went towards specific capital projects, such as the Interstate Highway System.
Federal assistance comes most often in the form of grants and other direct contributions, but also in a number of financing mechanisms like tax-preferred bonds and direct federal credit programs that allow states and localities to finance projects on more favorable terms.
The Congressional Budget Office (CBO) reports that the Highway Trust Fund received 82 percent ($36 billion) of its revenue in 2019 from excise taxes on motor fuel, commonly known as the “gas tax.” Since 1993, fuel tax rates have been fixed at 18.4 cents per gallon for gasoline, and 24.4 cents per gallon for diesel. Taxes on tires and heavy vehicles (trucks) make up the rest of the fund’s income. Because the federal gas tax is not pegged to inflation, the purchasing power of the revenue has eroded over time — 18.4 cents bought 51 percent less in 2021 than it did in 1993. What’s more, rising construction costs and the growing needs of an aging highway system have placed a greater strain on the fund, resulting in recurring funding shortfalls in recent years. Decreasing fuel consumption as a result of both higher fuel efficiency from gasoline-powered vehicles as well as from more hybrid and electric cars on the road will ensure that those shortfalls persist if left unaddressed.
HTF funding shortfalls have generally been filled by transfers from the Treasury’s general fund; such transfers have shifted a total of $275 billion to the fund since 2008, including $118 billion authorized in the Infrastructure Investment and Jobs Act (IIJA) in 2021. Such transfers do not bring in any new federal revenues, but they allow spending from the fund to continue.
The HTF faces recurring — and increasingly large — funding shortfalls due to an imbalance between revenues and spending. The lack of agreement on a structural fix to this imbalance creates periodic funding crises that put the infrastructure system at risk. CBO projects that the Highway and Mass Transit accounts will be depleted in 2028. What’s more, CBO projects that the cumulative shortfall in funding for the Highway Trust Fund will grow rapidly over the next 10 years to around $250 billion in 2033.
The Highway Trust Fund provides a steady source of funding for investment in and maintenance of essential infrastructure. Likewise, safe and efficient infrastructure is a significant contributor to economic growth and productivity. Yet, by many measures, the current system is not meeting America’s 21st century needs. According to the World Economic Forum, the United States ranks 17th in road quality, and 13th in overall infrastructure quality.
Considering the importance of infrastructure in transporting goods and people in the economy, this puts the United States at an economic disadvantage. According to a 2022 report published by INRIX, a transportation analytics firm, American drivers lost an average of 51 hours, at a total cost of $81 billion, due to congestion in 2022. Seven out of INRIX’s 20 most congested cities were in the United States in 2022, the highest concentration for any country in the grouping.
Although the need for serious, long-term changes to the funding structure of the HTF is clear, there is disagreement over the approach to do so. Some of those disagreements focus on general questions like the responsibility of the federal government for transportation funding or the proper distribution of expenditures on highways as opposed to mass transit; other disagreements center on specific policy proposals. In order to create long-term sustainability for the Highway Trust Fund, lawmakers must increase revenue dedicated to the fund, reduce spending, or some combination of the two. Options include: