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 sub-funds:
While the majority of spending on surface transportation in the U.S. is provided by state and local governments, funding from the HTF plays an important role in facilitating many projects. Federal assistance comes most often in the form of grants and other direct contributions, or in less direct forms like credit assistance to states to finance projects on more favorable terms.
The Highway Trust Fund receives roughly 85 to 90 percent of its revenue 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 and has not been raised since 1993, the purchasing power of the revenue has eroded over time — over 40 percent less today than 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.
Those funding shortfalls have generally been filled by transfers from the Treasury’s general fund; those transfers have shifted a total of $143.6 billion to the HTF since 2008, including $70 billion authorized in the Fixing America’s Surface Transportation Act in 2015. Such transfers do not bring in any new federal revenues, but they allow spending from the fund to continue.
The HTF faces recurring funding shortfalls due to an imbalance between revenues and spending, and the lack of agreement on a structural fix creates periodic funding crises that put the infrastructure system at risk. Since 2008, the trust fund has spent $103 billion more than it has collected; spending in 2018 alone is expected to exceed revenues by $9 billion. The Congressional Budget Office (CBO) estimates that the Mass Transit Account will be exhausted in 2021, while the Highway Account will be exhausted in 2022. Additionally, CBO projects that the funding gap between dedicated surface transportation revenues and spending will grow rapidly over the next 10 years, from $13 billion in 2019 to $25 billion in 2028.
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 U.S. ranks 10th in road quality, and 9th in overall infrastructure quality.
Considering the importance to the economy of infrastructure in transporting goods and people, this puts the U.S. at an economic disadvantage. According to a 2017 report published by INRIX, a leading transportation analytics firm, indirect costs such as sitting in traffic and searching for parking cost the average U.S. driver $3,037 in 2017; 5 out of INRIX’s top 10 cities with the worst traffic were in the United States.
Although the need for serious, long-term changes to the funding structure of the Highway Trust Fund 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 over transportation funding, or the proper distribution of expenditures on highways versus mass transit; other disagreements center on specific policy proposals.
In general, the federal government directly funds a relatively small share of total expenditures on highways for capital projects, maintenance, administration, and research. For example, the federal government contributed $47.4 billion of the $221.3 billion total highway expenditures in 2012; states contributed $105.8 billion and local governments contributed $68.1 billion. However, only $3.2 billion was designated for capital outlays, maintenance, administration, and research, while the remaining $44.2 billion went to state and local governments in the form of transfers. So, as the HTF’s funding shortfalls continue to worsen in the next few years, the federal government’s ability to aid state and local governments will be increasingly restricted.
Another key challenge to the Highway Trust Fund is its funding source. The majority of the fund’s revenue comes from a fuel tax of 18.4 cents per gallon for gasoline, and 24.4 cents per gallon for diesel, neither of which has been raised since 1993. While that alone has led to funding shortfalls, ever-decreasing fuel consumption as a result of both improved fuel efficiency from gasoline-powered vehicles as well as from the growth in hybrid and electric cars on the road will ensure that the shortfalls persist if left unaddressed.
In order to create long-term stability for the Highway Trust Fund, lawmakers must increase revenue dedicated to the fund, reduce spending, or some combination of the two. Options include: