LegiStorm

Summary:

For many years, federal surface transportation programs were funded almost entirely from taxes on motor fuels 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 in most years to keep revenue rising steadily. This is no longer the case. Although vehicle miles traveled have recently surpassed prerecession levels, future increases in fuel economy standards are expected to reduce motor fuel consumption and therefore fuel tax revenue 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, since 2008 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 Fixing America's Surface Transportation Act (FAST Act; P.L. 114-94), was enacted on December 4, 2015, and authorized spending on federal highway and public transportation programs through September 30, 2020. The act provided $70 billion in general fund transfers to the HTF to support the programs over the five-year life of the act. This use of general fund transfers to supplement the HTF will have been the de facto funding policy for 12 years when the FAST Act expires. The FAST Act did not address funding of surface transportation programs over the longer term. Congressional Budget Office (CBO) projections indicate that the HTF revenue shortfalls relative to spending will reemerge following expiration of the FAST Act. The trust fund financing system (which supports both federal highway and public transportation programs) faces a number of challenges. As Congress examines possible options for financing surface transportation infrastructure, it may consider several key points: Raising motor fuel taxes could provide the HTF with sufficient revenue to fully fund the program in the near term, but may not be a viable long-term solution due to expected declines in fuel consumption. It would also not address the equity issue arising from the increasing number of personal and commercial vehicles that are powered electrically and therefore do not pay motor fuel taxes. Replacing the fuels tax with a mileage-based road user charge or vehicle miles traveled (VMT) charge would need to overcome a variety of financial, administrative, and privacy barriers, but could be a solution in the longer term. Treasury general fund transfers could continue to 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 funding the HTF could lead Congress to consider altering the trust fund system or eliminating it altogether. This might involve a reallocation of responsibilities and obligations among federal, state, and local governments. Private investment and federal loans can meet some surface transportation needs, but many projects are not well suited to alternative financing. Tolling may be an effective way to finance specific roads, bridges, or tunnels that are likely to have heavy use and are located such that the tolls are difficult to evade, but tolls are unlikely to provide broad financial support for surface transportation programs.