November 13, 2013

Discretionary SpendingOption 15

Function 400 - Transportation

Limit Highway Funding to Expected Highway Revenues

(Billions of dollars) 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2014-2018 2014-2023
Change in Spending                        
  Obligation limitations 0 -7.2 -7.3 -7.5 -8.2 -9.1 -10.1 -10.9 -11.7 -12.6 -30.2 -84.5
  Outlays 0 -1.8 -4.8 -5.9 -6.6 -7.4 -8.3 -9.1 -9.9 -10.7 -19.1 -64.5

Note: This option would take effect in October 2014. Most of the outlays for the highway program are controlled by limitations on obligations set in annual appropriation acts rather than by contract authority (a mandatory form of budget authority) set in authorizing law. By CBO’s estimate, $739 million in contract authority is exempt from the limitations each year; spending stemming from that authority would not be affected by this option.

The Federal-Aid Highway program provides grants to states for highway and other surface transportation projects. The last reauthorization for the highway program—the Moving Ahead for Progress in the 21st Century Act, or MAP-21—provides highway funding for 2013 and 2014 in the form of contract authority, a type of mandatory budget authority. However, most spending from the program is controlled by annual limitations on obligations set in appropriation acts.

Historically, most of the funding for highway programs has come from the Highway Trust Fund, which has two accounts. In 2012, $42 billion was spent from the fund’s highway account and $35 billion in revenues and interest was credited to that account. The fund also includes a mass transit account. Revenues credited to both accounts are generated by the federal taxes on gasoline and diesel fuels, as well as other federal taxes related to highway transportation. Since 2001, revenues credited annually to the highway account have consistently fallen short of outlays from that account. Since 2008, lawmakers have addressed the funding shortfall by supplementing revenues dedicated to the trust fund with multiple transfers totaling $41 billion from the Treasury’s general fund. (In 2012, an additional $2 billion was transferred from the Leaking Underground Storage Tank Trust Fund.) MAP21 authorizes a transfer of about $12 billion more from the general fund in 2014.

This option would reduce federal funding for the highway system, starting in fiscal year 2015, by lowering the obligation limitations for the Federal-Aid Highway program to the amount of projected revenues going to the highway account of the Highway Trust Fund. The federal taxes that directly fund the Highway Trust Fund would not change. The Congressional Budget Office estimates that this option would reduce resources provided for the highway program by $85 billion from 2015 through 2023, relative to the obligation limitations in CBO’s baseline projections. Outlays would decrease by $65 billion over those years, CBO estimates.

A key rationale for this option is that funding federal spending on highways with revenues obtained from highway users, rather than from general taxpayers, is fairer (because those who benefit from the highways would pay the costs of the program) and tends to promote a more efficient allocation of resources (because use of highways would better reflect the costs of building and maintaining them). That argument suggests that it would be appropriate to increase the taxes that are credited to the Highway Trust Fund if current revenues are too low to fund a desired level of federal support for highways.

A related argument is that it is fairer and more efficient to have local or state tax revenues pay for highway projects that primarily benefit people in a particular area and to reserve federal revenues for projects that have true interstate significance. Another rationale for this option is that it would reduce the extent to which differing amounts of federal support distort the spending choices states make between highways and other priorities and among highway projects, perhaps resulting in projects that do not yield the greatest net benefits. It could also reduce the substitution of federal spending for spending by state and local governments. (The Government Accountability Office reported in 2004 that the existence of federal highway grants has encouraged state and local governments to reduce their own spending on highways and to use those funds for other purposes.)

A general argument against reducing federal spending on highways is that doing so would increase the economic and social costs associated with aging roads and bridges and increased traffic on them. In addition, the road network as a whole supports interstate commerce and thus strengthens the national economy.

A specific argument against reducing federal spending on highways by funding it solely through the current federal taxes on highway users is that the existing federal taxes give motorists only weak incentives to use highways efficiently—that is, to avoid contributing to traffic congestion and to minimize pavement damage by heavy trucks. Another argument for using general revenues is that money from the Highway Trust Fund is spent on nonhighway projects and purposes, such as public transit, sidewalks, bike paths, recreational trails, scenic beautification, and preservation of historic transportation structures.