Washington Report: History and Challenges of the Highway Trust Fund

by Craig Piercy

At the ACPA board meeting earlier this fall, several members asked me to explain the situation with the Highway Trust Fund (HTF)—specifically why it always seems like it’s on the verge of bankruptcy these days.

As you probably know, the HTF was originally created by Congress in 1956 at the behest of then President Dwight D. Eisenhower. Ike wanted a dedicated funding source for the newly-minted National Highway System that was not dependent upon annual action by Congress. The HTF provided states with both a guaranteed funding stream and the ability to plan long-term projects, tools they employed in partnership with the Feds to ultimately build one of the most economically significant public works projects in the history of the world.

Yet, look where we are today. Since 2008, the HTF has been in a full-fledged death spiral as federal highway construction and maintenance needs have increasingly outstripped its available revenue sources (mainly gas and diesel taxes). Indeed, in the last four years, Congress has transferred roughly $35 billion from the general fund to prop up the HTF. Most recently, the latest transportation bill (MAP-21) authorized the transfer of $20 billion in order to keep the HTF solvent just through 2014.

In essence, like the federal budget writ large, the Highway Trust Fund is currently on an unsustainable path, one that can only be corrected by either increasing revenues or significantly reducing federal contract authority for federal highway projects.

How did we get here? The answer may surprise you. Let’s start with the obvious: Congress hasn’t raised the gas tax since 1993—nearly 20 years ago!—and since that time, its purchasing power has shrunk from 18.4 cents a gallon to only 11 cents in constant dollars. In contrast, highway maintenance costs per vehicle mile traveled have increased at an average annual rate of 7.7 percent between 2005 and 2011. Commodity costs have also risen, led by the price of asphalt which has jumped nearly 200 percent since 2003.

Looking forward, the tighter federal fuel economy standards enacted by the Obama administration are estimated to result in a 13 percent reduction in the total receipts credited to the HTF in the next ten years, as new, more fuel efficient cars use less gas per mile driven. Plug-in hybrids may be great for clean air, but they are not good for funding highways.

There is a larger trend at play, however. Throughout the 1960s and early 70s, federal highway policy followed a predictable path of growth: the government built more miles of federal highways; Americans traveled more, using more gas and paying more taxes; and businesses used the highways to conduct more commerce, thereby contributing to one of the longest sustained period of economic growth in our nation’s history.

There were course corrections along the way. In the late 1970s, Congress sought to allocate a portion of the revenue from the highway trust fund to support the development of mass transit systems in U.S. cities. (Today, the portion of the highway trust fund dedicated to mass transit is roughly 15 percent.) In the 80s and 90s, as the basic layout of the U.S. interstate system was completed, federal transportation policy shifted emphasis to “multi-modal” projects and “enhancements” that were aimed at making the existing infrastructure more efficient and our communities more accessible to “non-vehicle” transportation.

Generally, however, this virtuous cycle of growth allowed successive Congresses and administrations to pass generous transportation bills with large bipartisan majorities without raising gas tax rates. Life was good in highway-world.

Then, right after the beginning of the 21st century, a funny thing happened. Americans, who for the last 50 years had derived a large part of their self-identity from the automobile, started driving less. On a per capita basis, the number of miles the average American drove peaked in 2000 and started to drop in 2004. The total miles driven on the public highways—so-called national VMT—leveled out in 2004 and dropped in 2007 for the first time in 25 years. While the Great Recession has certainly extended the trend, the initial declines occurred before the downturn (and the gas price spikes of 07-08) indicating a more significant change.

In short, our transportation system has entered a new phase— one that lacks the virtuous growth cycle of yesteryear; one that is more focused on metropolitan areas where vehicle miles traveled continues to rise, but new roads are expensive to build and maintain; and one that (it pains me to say) lacks a committed federal partner at the moment.

My next column will take a look at the various possible futures of U.S. transportation policy in this new environment. Stay tuned.