CBO Report Says Federal Highway Fund Could Go Broke In 2022

May 27, 2020 by Gaspard Le Dem
Lines of thunderstorms crawled across northern Minnesota and northern Wisconsin on June 17, 2018, after overnight flash flooding washed out highways and other roads. (Carlton County Sheriff’s Office via AP)

WASHINGTON – Federal funding for U.S. highway projects could soon run out, according to a new report by the Congressional Budget Office, a nonpartisan agency that gives lawmakers advice on economic and budgetary matters.

The Highway Trust Fund — a government funding pool that helps states and local governments pay for highway and transit projects — will run out of money in 2022, the report found.

In March, the CBO had predicted that the deficit for federal highway spending could grow to $189 billion over the next decade. But those estimates did not account for the impact of the coronavirus on the U.S. economy.

“Several changes arising from the current public health emergency and resulting decline in economic activity will have offsetting effects on the balance of the highway account of the Highway Trust Fund,” the report says.

Revenue for the Highway Trust Fund is mostly generated by federal taxes on gasoline, diesel, and other fuels. Those receipts have steadily declined in the last decade as cars and trucks become more fuel efficient. Meanwhile, federal spending on highway projects has increased, resulting in significant budget deficits for the fund.

To make up for those shortfalls, the Treasury Department has transferred billions of dollars to the Highway Trust Fund since 2008. The last transfer was approved by lawmakers in 2016 through the FAST Act, which allocated $70 billion for the fund.

But the FAST Act is set to expire in September, meaning the balance for the Highway Trust Fund will go into the red unless lawmakers renew the bill or find new ways to create revenue for highways.

As a result, the federal government could be forced to delay reimbursing states and local governments for the costs of highway construction projects.

In its report, the CBO outlines several ways that the government could increase revenues for the Highway Trust Fund to avoid impeding budget shortfalls.

The most obvious fix is to increase existing fuel taxes, which have been frozen at 18.4 cents per gallon for gasoline and 15 cents per gallon for diesel since 1993.

By raising those taxes by 15 cents, the Highway Trust Fund could increase its revenues by $329 billion over the next decade, eliminating budget shortfalls altogether and adding $140 billion in spending money, the report found.

As another potential solution, the government could create new taxes to raise money for the fund that charge drivers by mile driven, also known as “vehicle-miles traveled” or VMT fees. Taxing trucks 5 cents per mile in 2017 could have raised an additional $13 billion for federal highway spending, the CBO notes.

But VMT fees could be very costly to implement and may present privacy issues for drivers. “Such a tax would raise privacy concerns if calculating and collecting the tax required the government to track people’s movement and use of vehicles,” the report says.

Alternatively, the Treasury could transfer more money to the Highway Trust Fund with approval from Congress, eliminating the need for new taxes. “Under this option, the federal government would, in effect, pay for a portion of highway spending in the same way that it funds other programs and activities,” the report says.

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