November 21, 2014

Insolvency Threatens Highway Trust Fund

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The Congressional Budget Office (CBO) told lawmakers last week that the Highway Trust Fund would become insolvent in 2015 unless they further limit spending obligations or increase revenue dedicated to the fund.

Over the next year the balances of the two accounts comprising the fund will be reduced to $5 billion and $3 billion before being exhausted completely in 2015. Between 2008 and 2014, CBO projects, $53 billion will have been transferred from the government’s general fund to the Highway Trust Fund to close its funding gap.

Congress has not come to an agreement over how to fund transportation priorities and prevent the projected deficits. While some lawmakers may support raising the motor fuels tax, it has been difficult to gain enough congressional support to raise taxes.

The lack of an agreement has led the Government Accountability Office (GAO) to place surface transportation funding on its 2013 list of “high risk” programs that require close scrutiny and significant changes.

CBO projects that gasoline tax revenue, the main source of funding for the Highway Trust Fund, will continue to lag behind spending due to a 20-year freeze in the motor fuels tax rate and to improving fuel economy standards for vehicles. Because of inflation, the 18.4 cent tax on gasoline that was enacted in 1993 is equivalent to only 11.5 cents today.

If lawmakers fail to pass a long-term plan to finance surface transportation work, the government will be unable to obligate funds for new and needed transportation projects and will have to delay payments for construction projects already underway.