Keeping the Highway Trust Fund Solvent

When Congress agreed to finance the Interstate Highway System in 1956 by dedicating taxes on gasoline, tires, autos, and trucks to a Highway Trust Fund, it also adopted a policy of not spending more from the fund that was actually collected in highway fees into that fund. This delayed completion of the interstate highways because inflation increased costs without increasing gas taxes and other revenues, but it ensured that the fund remained solvent.

Congress dipped into the Highway Trust Fund to give the Antiplanner’s favorite airline, Alaska, $500,000 to paint a salmon on a plane. Is it any wonder the Trust Fund is insolvent? Photo by Cubbie_n_Vegas.

That is no longer the case, and today Congress spends about $14 billion more per year out of the fund than it collects in highway user fees. Yesterday, the Senate Environment and Public Works Committee held a hearing on the “long-term solvency of the highway trust fund.” Most of the witnesses at the hearing spoke about problems with gasoline taxes and why they should be replaced with mileage-based user fees.

That’s all well and good, but everyone seems to have lost sight of why the trust fund is insolvent. It isn’t, as asserted by one of the speakers (whose testimony was otherwise fine), because of “revenue shortfalls.” Instead, it was because of Congressional overspending.

The policy of keeping expenditures at or below revenues ended in 2005, when Congress passed the Safe, Accountable, Flexible, Efficient Transportation Equity Act: A Legacy for Users (SAFETY-LU). This law had more earmarks than any transportation bill in history. It was so based on the ego of its lead sponsor, Don Young, that the “LU” part was really named after his wife, Lula.

One of the earmarks in Young’s bill was the infamous “bridge to nowhere.” While the controversy raised about that bridge led to it being cut out, more than 7,000 other earmarks were left in the bill, including $500,000 to Alaska Airlines to paint a plane to look like a salmon. Most of the earmarks came out of funds that would have gone to the states anyway, so all the earmarks did is to ensure that the funds were spent on projects that the states didn’t consider to be high in priority. In other words, earmarks reduced the efficiency of transportation spending.

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In order to make sure that all of the surviving earmarks would be fully funded, Young added a provision requiring that appropriations be no less than authorized even if revenues were less than projected over the six years of the authorizations. Due to the financial crisis, actual revenues ended up being less than the highway administration had projected, so starting in 2008 Congress had to add about $10 billion per year to the trust fund. This had nothing to do with the fact that the revenues came from gasoline taxes as opposed to mileage-based user fees.

The Tea Party revolution of 2010 greatly reduced earmarking, but didn’t end the policy of spending more out of the trust fund than went into it. In fact, the last transportation reauthorization bill, the Fixing America’s Surface Transportation (FAST) Act, systematized overspending by simply transferring $70 billion from general funds to the highway trust fund to cover the five years of overspending authorized by the act.

Aside from allowing Congress to spend money on wasteful projects, the policy of overspending solved a political problem. When expenditures were limited to revenues, large, thinly populated states such as Alaska and Wyoming received more highway funds than they put into the fund, while heavily populated states such as California and New York received less. The latter became known as “donor states” while the former were “recipient states.” Spending more than was received ended any disputes over this because it allowed nearly all states to be recipients, that is, to get more than they put in. Of course, that was deceptive because eventually someone would have to pay the deficits and that would mostly come from the heavily populated states.

Although most of the speakers at the hearing endorsed mileage-based user fees, such fees do not change the incentives for Congress to overspend. If it doesn’t overspend, it will face frictions between donor and recipient states. If it does overspend, it will have more money to earmark to projects favored by special-interest groups.

Unlike gas taxes, which the federal government can collect at a much lower cost than the states because it collects them directly from oil refineries and importers, there is no advantage for the federal government to charge mileage-based user fees. While I support mileage-based user fees, it would be better if these fees were collected solely by state and local governments, cutting the federal middleman out of the picture.

The hearing record will stay open and the committee will accept further comments on this subject until April 28. Comments should be sent to The Honorable Thomas Carper, Chair, and the Honorable Shelley Moore Capito, ranking member, Environment & Public Works Committee, 410 Dirksen Senate Office Building, Washington, D.C. 20510.