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Highway Trust Fund

Highway Trust Fund

What is the Highway Trust Fund?

The Highway Trust Fund was established in 1956 to provide a dedicated source of federal funding for highways. Prior to the 1956 Highway Revenue Act and the establishment of the Highway Trust Fund, roads were financed directly from the General Fund of the U.S. Treasury. The Highway Revenue Act provided revenues from certain highway-user taxes would be credited to the Highway Trust Fund and used to finance the greatly expanded highway program.

It is the primary way that federal highway and transit programs are funded for state, local, and national projects across the country.

How is it Funded?

The Highway Trust Fund has two main sources of revenue. The first is through federal excise taxes on motor fuels also known as the gas tax. Americans pay a tax for the amount of motor fuels that they purchase. 

The second tax is based on truck-related (trucks, trailers, and other heavy-use vehicles) taxes. Truck manufacturers and tire retailers primarily pay these taxes.  

The gas tax was last increased in 1993 and has remained at 18.4 cents/gallon since that time.

What Does it Fund?

The vast majority of the fund goes to the Highway Account, which funds road and bridge projects. A smaller amount goes to fund mass transit and a tiny fraction of the money goes to clean up leaking underground storage tanks. 

The Federal Highway Administration (FHWA) sends funds to states through six formula programs, but the money isn't provided in advance. Instead, state departments of transportation enter agreements with FHWA, award contracts to construction companies and then rely on getting payments from the Federal Government in order to make payments to the contractors.

Highway Trust Fund Fiscal Situation:

Improvements in vehicle fuel-efficiency have cut directly into gas tax revenues by allowing drivers to travel farther distances while buying less gasoline. Additionally, inflation has greatly reduced the purchasing power of the 18.4 cents.The combined impact of these two factors has reduced the value of the gas tax by 28 percent relative to 1997.

Based on current spending and revenue trends, the U.S. Department of Transportation estimates that the Highway Account of the Highway Trust Fund will encounter a shortfall before the end of fiscal year (FY) 2014.

  • The Highway Account began FY 2014 with approximately $1.6 billion in cash.
  • A $9.7 billion transfer from the General Fund to the Highway Account was processed shortly after the start of the fiscal year ($10.4 billion authorized in MAP-21, reduced by sequestration).
  • The surface transportation program continues to outlay at a greater pace than receipts are coming in.  As a result, the cash balance has dropped by nearly $3.3 billion since the General Fund transfer occurred.  As of the last week of February 2014, the Highway Account cash balance was $8.6 billion.

Source: US Department of Transportation Highway Trust Fund Ticker

Since 2008, Congress has transferred a cumulative $41 billion from the general fund to the fund to avoid shortfalls, and will need to transfer an estimated $12.6 billion in 2014.

Options for Fixing the Trust Fund

While changing the rates of the current gas taxes would be the easiest and fastest way to inject new funds into the highway trust fund, there continue to be challenges to the long term funding as more vehicles use less or no gasoline.

A well-designed “variable-rate” tax structure that rises each year alongside inflation and fuel-efficiency would have brought the Highway Trust Fund from frequent deficits to surpluses. If it had been enacted in 1997, this reform would have raised a total of $215 billion in revenue to build and maintain America’s infrastructure. The cost of this reform for the average driver would have been fairly modest. The gas tax rate today would be 29 cents per gallon—or 10.6 cents higher than where it currently stands. That 10.6 cent tax increase would cost the average driver $4.66 per month in 2013. (Source: Institute on Taxation and Economic Policy)

The American Association of State Highway and Transportation Officials (AASHTO), which is composed only of instrumentalities of government, has put together a matrix of different funding options which could be used to fund the Highway Trust Fund and how much revenue those funds will generate. 

Surface Transportation Matrix 

Source: AASHTO