When it comes to fixing the Highway Trust Fund, Congress reminds me of a high school student pulling an all-nighter to finish a term paper. They’ve known the assignment has been due for months, in this case it’s finding a long-term solution to funding and fixing the Highway Trust Fund before it runs out of money. Instead of planning and working on the assignment a little each day, they’ve procrastinated until the last minute to start working on it and will end up throwing something together that isn’t necessarily good, but will hopefully earn them a passing grade.
What does the construction industry have to lose if the Highway Trust Fund is allowed to deplete? Jobs. Somewhere in the neighborhood of 700,000 jobs could be lost over the next year according to the US DOT and Transportation Secretary Anthony Foxx. These job losses wouldn’t occur the moment the Highway Trust Fund was depleted, but would gradually occur over the course of a year because states would be forced to cancel or delay upcoming highway and transit projects.
Some states like Kentucky, Rhode Island, Missouri and Arkansas have already delayed or scaled back the amount of projects they planned on starting this year in anticipation of the federal funds drying up. The construction industry has been slowly recovering from the recession the last couple of years and can’t afford to take a hit like this. The Federal Highway Administration is already planning to begin cash management procedures on August 1st to allocate the incoming funds to the Highway Trust Fund should Congress not reach an agreement to supplement the revenue with additional funds.
The Highway Trust Fund is a major source of funding for federal highway and mass transit construction and improvement projects. A majority of the revenue that funds the Highway Trust Fund is generated through the federal gas tax which is 18.4¢ per gallon for gasoline and 24.4¢ per gallon for diesel fuel. The problem is simple economics. The Highway Trust Fund is only generating about $38 – 40 billion a year in revenue while spending over $50 billion a year through MAP-21, which is the current surface transportation authorization act.
The House already passed a bill last week that would keep the Highway Trust Fund from becoming insolvent by the end of August and keep it funded through May 2015. The Senate is expected to take up the measure sometime this week and will likely vote on the House bill along with two competing bills from the Senate. It’s almost a certainty that some version will get passed in the Senate and reconciled with the House bill before Congress starts their five-week summer recess at the beginning of August. The problem is the Highway Trust Fund needs a real, long-term fix instead of yet another stop-gap measure that only allows Congress to postpone developing an actual solution.
The simple, straightforward solution to fixing the Highway Trust Fund that doesn’t involve transferring funds from other accounts for pension smoothing would be to raise the federal gas tax, which hasn’t been done since 1993. It should also be indexed to inflation since inflation increases alone since 1993 have rendered the revenue from the federal gas tax incapable of keeping the Highway Trust Fund solvent. Raising the federal gas tax is not the popular choice, but I challenge you to name anything that hasn’t seen a cost increase in 20 years whether it’s taxes, goods or services.
None of the other options for fixing the Highway Trust Fund are all that popular and most would involve users to pay more money. One idea that’s been touted on both the federal and state level is a mileage based road tax which would be costly and intrusive because it would probably require installing GPS transponders in vehicles to track how many miles they are driven. Another option would be to turn responsibility over to the states and local governments which could mean either an increase in state gas taxes or finding other ways to fund transportation projects like toll roads.
Failing to seriously address the issues with the Highway Trust Fund is about as smart as using a roll of duct tape to fix a leaky pipe. Sure, it may stop the leak for a little while and then you’ll keep putting off a more permanent fix until you come home one day and have a much bigger mess on your hands.