Limit Highway Funding to Expected Highway Revenues

The Federal-Aid Highway program provides grants to states for highway and other surface transportation projects. The last reauthorization for the highway program—the Fixing America’s Surface Transportation Act, or FAST Act—provided highway funding for 2016 through 2020 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, an accounting mechanism in the federal budget that has two separate accounts—one for highways and another for mass transit. Both accounts are credited with revenues generated by the federal taxes on gasoline and diesel fuels, and the highway account is credited with other federal taxes related to highway transportation as well. Since 2001, the revenues credited to the highway account each year have consistently fallen short of outlays from that account; in 2016, for example, $45 billion was spent from the account and $36 billion in revenues and interest was credited to it. Since 2008, lawmakers have addressed the funding shortfall by supplementing revenues dedicated to the trust fund with several transfers, primarily from the Treasury’s general fund. The FAST Act authorized the latest such transfer: $52 billion to the highway account and $18 billion to the mass transit account in 2016. The Congressional Budget Office estimates that those transfers, along with the revenues and interest credited to the fund, will permit the highway account to meet all obligations presented to the account through 2021. For later years, in accordance with the Balanced Budget and Emergency Deficit Control Act of 1985, CBO’s baseline for highway spending incorporates the assumption that obligations incurred by the Highway Trust Fund will be paid in full.

This option would reduce federal funding for the highway system, starting in fiscal year 2021, by lowering the obligation limitations for the Federal-Aid Highway program to the amount of revenues projected to go to the highway account of the Highway Trust Fund. The federal taxes that directly fund the Highway Trust Fund would not change. CBO estimates that from 2021 through 2026, this option would reduce resources provided for the highway program by $58 billion, relative to the obligation limitations in CBO’s baseline projections. Outlays would decrease by $40 billion over those years, CBO estimates.

One rationale for this option is that funding federal spending on highways with revenues obtained from the current taxes on highway users, rather than from general taxes paid by all taxpayers, is fairer (because those who benefit from the highways pay the costs of the program) and tends to promote a more efficient allocation of resources (because the taxes give users some incentive to limit their travel and because as use increases, more revenue becomes available). That argument suggests that if current revenues are too low to fund a desired level of federal support for highways, an increase in the taxes that are credited to the Highway Trust Fund is appropriate.

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, as well as those they make among competing highway projects, which is beneficial because such distortion could lead states to pursue projects that do not yield the greatest net benefits. Also, some of the reduction in federal spending under this option could be offset by greater 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 could increase the economic and social costs associated with aging roads and bridges and with increased traffic. In addition, the road network as a whole supports interstate commerce and thus strengthens the national economy.

A specific argument against the option is that using general revenues to support federal spending on highways is reasonable because a portion of the money from the highway account of 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. In addition, the efficiency benefits of the current federal taxes on highway users are limited because they give motorists only weak incentives to avoid contributing to the main social costs of road use—traffic congestion and pavement damage by heavy trucks.