What Are Some Viable Options to address the Future of the Highway Trust Fund?

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 HTF, lawmakers must increase revenue dedicated to the fund, reduce spending, or some combination of the two. Options include:

• Raise the gas tax: Lawmakers could increase the fuel tax — for example, the current tax of 18.4 cents per gallon could be adjusted for inflation over the past 30 years, which would bring the current rates to 40 cents per gallon of gasoline and 52 cents per gallon of diesel fuel; the tax could also be pegged to future inflation. The Congressional Research Service (CRS) notes that adding just a penny to federal fuel taxes would provide the trust fund between $1.7 billion and $1.8 billion per year. However, maintaining the gas tax as the major source of revenue for the fund may not be a long-term solution. First, cars are becoming more fuel-efficient, reducing the number of gallons of fuel consumed. Also, Americans are beginning to drive slightly less; according to CRS, the growth in annual vehicle miles traveled (VMT) is expected to grow by less than 1 percent per year over the next 30 years. In addition, the increasing number of hybrid and electric cars on the road may lead to decreased demand for gasoline, and therefore reduced opportunity to collect taxes from that source; it may also disproportionately affect owners of gasoline-powered cars, particularly in rural areas where the number of miles driven is often greater and electric cars are less common. In an effort to make a tax increase more appealing, lawmakers have suggested offering a tax rebate to drivers to alleviate some of the added pressures of a new tax hike, but many rebuke that proposal as just another general fund transfer.
• Raise revenue some other way: Lawmakers could instead supplement or replace the gas tax with another revenue source. One proposed alternative is a sales tax system in which the fuel tax would be levied as a percentage of the retail price of fuel and not as a fixed amount per gallon. That way, fuel tax revenues could rise with fuel price increases independent of any fuel consumption increase. However, the inverse is also true, and any sharp decreases or price shocks could lead to substantial revenue shortfalls. Another alternative to the fuel tax is a mileage-based road user charge, which many see as a viable and eco-friendly option. Under this system, drivers would pay fees based on distance driven, regardless of their vehicle’s fuel efficiency. Some downsides to this strategy include concerns of personal privacy relating to the suggested use of GPS to track vehicle movements, costs to establish and enforce the charge, and the administrative challenge of actually billing individual drivers given the enormity of the country’s vehicle fleet.
• Reduce spending: Lawmakers could simply reduce spending so that it remains in line with the fund’s existing level of revenues. Under that approach, the HTF would only be able to expend the precise amount of its revenues, thereby eliminating the chance for deficits. However, the number of projects the federal government would be able to support could be substantially restricted, thereby placing an even greater strain on state and local governments to fund key infrastructure projects.

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