NCPA - National Center for Policy Analysis

Keep Highway Spending within Our Means

January 6, 2011

Federal highway programs are funded not from general tax revenue but from various highway user taxes, mostly the federal tax on gasoline and diesel fuel.  Legally, all those monies constitute the source of funding for the Highway Trust Fund.  When Congress decides on spending for highways (and since the Reagan era, for mass transit), the dollars are supposed to come from this trust fund, says Robert Poole, director of transportation policy at the Reason Foundation.

  • The appropriations committees used to approve funding for those purposes that was less than the user-tax revenues coming in.
  • That meant federal revenues for surface transportation exceeded federal spending in that area, which made the overall budget deficit look smaller than it really was -- and was manifestly unfair to the highway users who were paying the bills.
  • So in the reauthorization bill before last (called TEA-21), Congress created a "firewall" around the Trust Fund.

The new provision guaranteed that annual highway and transit funding during the years of a reauthorization bill would equal the user-tax revenues coming in to the government each year.  The way the existing rule works is that in a six-year reauthorization bill, Congress adopts an estimate of each year's highway user tax revenue.  Based on that, it legally guarantees those same total annual amounts in highway and transit spending.  It's this rule that the new House leadership proposes to scrap, says Poole.

  • Thanks to higher oil prices and the recession, those fuel-tax projections were wildly optimistic this decade, to the point where the "guaranteed" spending in the last two years was 40 percent more than the revenue.
  • That is why Congress has poured some $34 billion in general tax money into the Trust Fund over the past three years.

General funding of the Trust Fund undercuts the users-pay/users-benefit principle.  It therefore opens the door to attempts by the White House and other interested parties to divert Highway Trust Fund money for other uses.  This removes the link between users-pay and users-benefit, says Poole.

 Source: Robert Poole, "Keep Highway Spending Within Our Means," Reason Foundation, January 3, 2011.

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