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ISSUE
Highway Trust Fund

Published:2014-Sep-20
Last Updated:2015-May-29
Principal Writer:Rob Dennis and Barry Shatzman

Issue Sections

Understanding The Issue
Issue Status
Our Analysis and Actions

Reported News

Transportation: Infrastructure

Related Bills

Tax Relief And #FixTheTrustFund For Infrastructure Certainty Act

2015 (S-1994)

Developing a Reliable and Innovative Vision for the Economy Act

2015 (S-1647)

Transportation Empowerment Act

2015 (HR-2716)

Surface Transportation Extension Act, Part II

2015 (HR-3996)

Surface Transportation Extension Act

2015 (HR-3819)

Surface Transportation and Veterans Health Care Choice Improvement Act

2015 (HR-3236)

Highway and Transportation Funding Act

2014 (HR-5021)

Moving Ahead for Progress in the 21st Century Act

2012 (HR-4348)

Federal-Aid Highway Act

1956 (HR-10660)

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What is this about?

Each state maintains its own roads, bridges, and tunnels. But the cost to keep this transportation infrastructure in good condition is much more than any state can afford. So about half the money to pay for the needed materials and workers comes from the federal government. - from a special fund called the Highway Trust Fund.

This money will stop on Dec. 4, 2015.

If Congress does not allocate more money to the fund by then, states will be forced to cut back on transportation projects. This not only will damage the quality of our transportation systems, it also will cost the jobs it would take to do the work.

Even if Congress does allocate money to the fund, where that money comes from also will affect you.

Road quality affects your life quality

Well-maintained roads mean more than just a comfortable drive. They also save you time and money by reducing congestion.

A study by the Texas A&M Transportation Institute (TTI) showed that the average commuter in 2011...

o Sat in traffic for the equivalent of a full work week

o Wasted 19 gallons of fuel

o Needed to allow 60 minutes for what normally would be a 20-minute trip in light traffic if going to an important appointment.

Traffic congestion costs businesses $27 billion a year, resulting in higher prices on everyday products, according to a 2014 report by the National Economic Council and the President's Council of Economic Advisers. For example...

o Portland General Electric estimates that extra travel time for its maintenance crews costs it an extra half-million dollars a year

o Intel makes its last shipment of a day 2 hours earlier than it had in the past in order to avoid peak congestion.

Congestion and bad road conditions also increase accident rates.

This affects jobs

Building and maintaining infrastructure such as roads and bridges creates jobs. It takes construction workers, surveyors, engineers, and even accountants to track the projects.

Because the federal government pays about half of the cost to build roads, states will need to put many projects on hold if this funding dries up - meaning fewer jobs.

Is this really needed?

Despite the impacts, more than 60 percent of U.S. roads currently are rated as being in less than good condition. A quarter of U.S. bridges either are not able to handle today's traffic or need significant repair.

Making the situation even worse, the nation's population has continued to increase. Yet, the percentage of our Gross Domestic Product (GDP) spent on roads has decreased over the past 20 years.

How does the Highway Trust Fund work?

Each state manages it's own projects to build and repair roads, bridges, and other infrastructure. States typically pay for about half of the cost of these projects. The federal government covers the other half.

The federal contribution comes to about $50 billion each year. More than 90 percent of that comes from the Highway Trust Fund.

The Highway Trust Fund gets its money from a federal fuel tax - about 18 cents per gallon of gasoline and 24 cents per gallon of diesel.

Why is the Highway Trust Fund running out of money?

The Highway Trust Fund has been taking in less and less money every year. In the past decade, the fund has spent $52 billion more than it has taken in, according to the Congressional Budget Office (CBO).

Reasons the fund has been taking in less money include...

o The gas tax that pays for highway projects has not been increased since 1993, so it has not kept up with the cost of projects.

o Fuel economy has increased, meaning people are buying less gas.

o Americans are driving less on the average, also resulting in less gas being bought.

Since the fuel tax is paid for each gallon, fewer gallons sold means less revenue from the tax.

For the fund to stay solvent, Congress would need to increase fuel taxes by between 10 and 15 cents, or find an extra $18 billion from other sources every year for the next decade, according to the CBO.

Should taxes on fuel be increased?

As our discussion of sensible tax rates explains, taxes need to be set based on what we need our government to provide and where that money should come from.

We explain above why improving our roads and other infrastructure would benefit most Americans. Obviously if that's going to happen the money needs to come from some tax or another. So the real question is whether Americans should pay for infrastructure improvements based on their income, or whether they should pay based on how much fuel they buy.

Arguments can be made for or against either way...

o As in income tax, even those who don't drive much will pay more

o As a fuel tax, those who are poorest will be hit the hardest - both because they would pay the same rate as anyone who buys fuel and because they might not be able to afford a newer fuel-efficient car (see our explanation of regressive taxes).

With gas prices so high, how can we add 15 cents to the cost of a gallon?

Gas prices seem high, but only if you never drive outside of the United States. Most of that difference is attributable to fuel taxes. This chart compares fuel taxes in the U.S. to those of other countries...



Increasing the fuel tax by 15 cents a gallon still would leave the cost of gas in the U.S. well below that of most other countries.

Congress kicks the can down the road by borrowing from pensions

For the past several years, Congress has refused to increase either tax. With fuel taxes currently bringing in about $20 billion less than the cost of repairs, they have voted for several last-minute extensions.

So if the extra money in those extensions isn't coming from additional income taxes, where is it coming from?

Most of the money effectively has come from borrowing from the pension funds of future retirees - an accounting trick known as Pension Smoothing. Other money has been taken from the Leaking Underground Storage Tank Trust Fund.

Where did we get our facts from?

To read the National Economic Council report on the country's roads and other infrastructure, click here.

To read the 2012 Texas Transportation Institute report on the how road conditions affect you, click here.


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