Looming Highway Trust Fund Shortfall Could Have Significant Impact for States

Three million jobs and the safety and mobility of drivers could be at stake if Congress fails to address an impending shortfall in the Highway Trust Fund (HTF). That’s what Sen. Barbara Boxer (D-CA), Chair of the Environment and Public Works Committee told her colleagues in a letter last week. Also passing along a state-by-state breakdown of the potential job losses, Boxer along with Sens. Jay Rockefeller and Tim Johnson wrote that “simply put, the economy of our nation is at stake.” The HTF, which is funded by the federal gas tax, provides states with federal funding for surface transportation projects. MAP-21, the surface transportation authorization bill approved by Congress last year, failed to address the long-term solvency of the trust fund and the long-term future of the gas tax.

States rely on prompt payments from the HTF to keep pace with their obligations to construction contracts. Funds are not given to states up front when a project is approved. Instead funds are reimbursed to a state. In order to keep a construction project going, states need to maintain a steady stream of federal reimbursement to match their expenses. July 23rdtestimony by U.S. Department of Transportation Under-Secretary Polly Trottenberg explained  that a shortfall could wreak havoc on this system, forcing the Federal Highway Administration (FHWA) to reimburse states less frequently and perhaps only providing  partial, pro-rated reimbursements.

Even a short-lived shortfall could delay or cancel a project. Governing’s Ryan Holeywell explains that states have had to endure similar crises in the past:

If such a scenario seems far-fetched, it shouldn’t. While the Highway Trust Fund has a relatively healthy history that dates back to 1956, it was in fiscal year 2008 that the DOT announced that it didn't have enough cash in the account to cover states’ outstanding bills. At the time, it was agreed that FHWA would stop twice-daily payments and switch to weekly payments. States would get most of what they were owed on their scheduled payment dates, with a portion of the balance carried over to the following week. The system ensured a steady stream of funds coming to states, but it quickly built up the balances owed on the back end and relied on states to carry the difference.   

That crisis ended when then-Transportation Secretary Mary Peters went to Congress for help, requesting an $8 billion transfer from the General Fund. Since then Congress has transferred $41 billion to the HTF. In order to fix the 2015 shortfall,  Congress could continue these transfers, make cuts to state support or generate new revenue. The 18.4 cent gas tax has not been raised since 1993.

Boxer did not offer a specific proposal for filling the impending gap but said that she would be open to   either supplementing existing gas tax revenues or replacing the gas tax with something new. Boxer told reporters at a press conference that Congress should begin work on this bill now and not wait until “midnight.” Boxer was referring to the most likely opportunity for fixing this impending shortfall will be a new surface transportation authorization bill.  MAP-21  is due to expire  at the end of September 2014. Under the current MAP-21 formulas, $54 billion is apportioned for surface transportation and transit projects. The gas tax currently produces only $35 billion in revenue. 

Trust Fund insolvency could stall construction projects and force states to choose between infrastructure investment, debt service and critical safety. States may also be forced to shoulder more of the burden by raising more of their revenue themselves.

Over in the House, the Chairman of the House Transportation and Infrastructure Committee Bill Shuster (R-PA) has repeatedly expressed a willingness to consider additional revenues for the trust fund.

But the looming shortfall is still likely to be a difficult nut to crack for a Congress that needed 10 temporary extensions and three years for the last authorization bill, which failed to address the elephant in the room. That should be a worrisome concern for every state transportation official, legislator, highway contractor and driver in the country.