LegiStorm

Summary:

Federal surface transportation programs are currently funded primarily through taxes on motor fuels that are deposited in the Highway Trust Fund (HTF). Although there has been some modification to the tax system, the tax rates, which are fixed in terms of cents per gallon, have not been increased at the federal level since 1993. Prior to the recession that began in 2007, annual increases in driving, with a concomitant increase in fuel use, were sufficient to keep revenues rising steadily. This may no longer be the case. Although vehicle miles traveled have recently returned to pre-recession levels, future increases in fuel economy standards are expected to suppress motor fuel consumption in the years ahead. Congress has yet to address the surface transportation program s fundamental revenue issues, and has given limited legislative consideration to raising fuel taxes in recent years. Instead, Congress has financed the federal surface transportation program by supplementing fuel tax revenues with transfers from the U.S. Treasury general fund. The most recent reauthorization act, the Moving Ahead for Progress in the 21st Century Act (MAP-21; P.L. 112-141), signed by President Barack Obama on July 6, 2012, authorized spending on federal highway and public transportation programs through September 30, 2014, and provided for general fund transfers to finance the programs. MAP-21 did not address funding of surface transportation programs over the longer term. MAP-21 has been extended three times, most recently by the Surface Transportation and Veterans Health Care Choice Improvement Act of 2015 (P.L. 114-41), which extended both HTF expenditure authority and program authority through October 29, 2015. This act also transferred $8.07 billion from the Treasury general fund to the HTF. The U.S. Department of Transportation (DOT) believes the most recent transfer of funds could sustain the solvency of the HTF through June 2016. However, the pending October 29, 2015, lapse in spending authority would still prevent new obligation of funds and would impact reimbursement to states and transit authorities. This report begins with a discussion of the challenges facing the trust fund financing system (which supports both federal highway and public transportation programs) and then explores possible options for financing surface transportation infrastructure. Among the key points: Raising motor fuel taxes could provide the HTF with sufficient revenue to fully fund the program in the near term, but it may not be a viable long-term solution due to expected future declines in fuel consumption. Replacing current motor fuel taxes with a fuel sales tax or a fee based on vehicle miles traveled (VMT) raises a variety of financial and administrative concerns. Treasury general fund transfers could be used to make up for the HTF s projected shortfalls but could require budget offsets of an equal amount. The political difficulty of adequately financing the HTF could lead Congress to consider the desirability of changes to maintain the trust fund system or of eliminating it altogether. Such changes might involve a reallocation of responsibilities and obligations among federal, state, and local governments. Interest in improving transportation infrastructure with private and non-grant funding sources, such as tolls, public-private partnerships (P3s), and federal loan programs, is increasing, but not all projects are suited to alternative financing.