Guest commentary: We Can No Longer Trust the Feds With Our Federal Highway Trust Fund Dollars

By Tom Sanderson, CEO, Transplace

The Highway Trust Fund (HTF) currently takes in and pays out about $35 billion per year— excluding transfers from the Treasury General Fund. What started off as a user-fee system to pay for highway construction and repair has morphed into a large federal “cookie jar” that politicians use to direct money to their favorite causes while our highways and bridges deteriorate at an alarming pace. Now is the time to take the cookie jar back.

HTF History & Purpose: The HTF was created in 1956 when our nation launched one of its most successful projects—the construction of the Interstate Highway System (IHS). To construct such a massive network of roads, we wisely decided against funding the construction from the General Fund of the Treasury, opting instead for a user-fee system of fuel and excise taxes that would fund building and maintaining the IHS. The 50’s were a time of fiscal responsibility and restraint, and thus, the 1956 legislation intended the HTF to be temporary—expiring in 1972, by which time the IHS was expected to be largely complete.  For quite a long time the HTF served as an effective mechanism to fund highway infrastructure investment. Sadly, over the last couple of decades the HTF has become a giant federal cookie jar, with politicians fighting over who gets the most cookies and also magically refilling or raiding the jar when it suits their desires.

The first big raid came in 1982 when the Surface Transportation Assistance Act siphoned off a portion of highway user fees to fund a special Mass Transit Account in the HTF, the logic being that since mass transit customers wouldn’t pay enough to cover the cost of subways then non-customers should foot the bill. In Fiscal Year 1983, the Mass Transit Account got 10.3% of total receipts, but by Fiscal Year 2010 that had grown to 13.7% of user-fee (tax) receipts. In addition to increasing the percentage of receipts going to the Transit Account, starting in 2006 there have also been substantial transfers from the Highway Account to the Transit Account in the HTF.

The numbers are staggering—$1.4 billion, $394 million, $428 million, $897 million, and $1.1
billion respectively—in the years ’06 through ’10. Why are your tax dollars funding subways in New York? Transit is inherently a state or regional solution, not a federal network.

Another big raid came in 1990, when the concept of user fees was partially set aside. President George H. W. Bush raised the gas tax by 5 cents, but half of the money went to the General Fund for deficit reduction and the other half to the HTF. In 1993 President Clinton doubled down on that strategy with an additional 4.3 cent tax increase, all of which went to the General Fund. At that point 6.8 cents of the 18.4 cent gas tax and 24.4 cent diesel tax were going to the General Fund, not highway improvements. In 1995, the siphoning dropped to 4.3 cents and thankfully, in 1997 President Clinton redirected the remaining 4.3 cents back to the HTF. In total during this period, approximately $43 billion was taken out of the cookie jar for general revenue purposes.

A less subtle raid on the HTF occurred in 1999 when $8 billion was taken directly from the HTF and transferred to the General Fund. This was done as part of the TEA-21 highway funding bill with the rationale that the interest earned on the HTF more properly belonged in the General Fund and that the HTF balance was too high.
The only reason a high balance existed is that more taxes were collected than money was spent on highways, thus building a surplus. From 1957 through 1973, while the bulk of the IHS was being built, the HTF spent slightly less than it took in and the annual difference ranged between -/+ $1 billion. The HTF balance grew to $7.7 billion. From 1974 to 1995 volatility increased, but still the annual difference ranged between -/+ $2 billion and the balance grew to $9.4 billion. Beginning in 1995, all hell broke loose. Receipts shot up with the 1990’s tax hikes and annual surpluses averaged $4.2 billion from 1995 to 1999 peaking at $10.7 billion in 1999 with a balance of $27 billion before the Feds took back $8 billion and ramped up spending. From 2001 to 2004 annual deficits averaged $2.9 billion peaking at $4.2 billion and the HTF balance dropped back to $10.8 billion. From 2008 to 2010, $8 billion, $7 billion, and $14.7 billion respectively have been transferred from the General Fund to the HTF, spending went up and then down and the balance was back to $21 billion by the end of FY 2010.

Not only is the HTF a large and frequently abused cookie jar, it is also used as a club to force states to adopt policies the federal government wants to enforce, but that are not clearly within its constitutional authority. For instance, threats of withholding federal highway dollars have been used over the years to enforce the 21-year old drinking age, the 55 MPH speed limit and motorcycle helmet laws. Similar kinds of threats are used today with federal education and Medicaid dollars.

The IHS was largely completed by the 1980’s and ironically, the abuses of the HTF have largely occurred in recent years well after the bulk of the network was built. To be sure, there are some multi-state and intra-state construction projects (such as I-69 in Texas), but for the most part our current highway challenge is to repair and maintain our highways and bridges. That can be done far more effectively by the states that are already doing the work, but have their hands out to the Feds to get back money that was collected at the gas pumps in their states in the first place. It is time to roll federal fuel taxes into the state tax rates and eliminate the federal role in highway funding. Along with that money should come a mandate against the conversion of current Interstate Highways to toll roads. The Interstates are already paid for and tolls should be reserved for new construction.

With the current highway funding extension due to expire on June 30, 2012 there will be a push to do something, do anything, or just pass the 2-year Senate bill. Isn’t it time to step back and fix this problem for the longer term even if that means passing another extension? One excellent approach is to get the federal government out of the highway tax collection and redistribution game and let the states spend the money the way their own citizens, who paid the taxes in the first place, prefer.