Highway Trust Fund Bankruptcy Will Halt Nation’s Transportation Projects

2014 0418road(Photo: Pothole road via Shutterstock)By the time of President Obama’s election in 2008, the nation’s transportation system was in need of repair and many portions of the original system were still somewhat incomplete. Entering office in the midst of a recession, Congress was able to pass the American Recovery and Reinvestment Act, which allocated funding for various public works projects, including repairs to the nation’s ailing highways and bridges. The act also included the Transportation Investment Generating Economic Recovery (TIGER) competitive grant program that invested $3.5 billion in 270 projects across the country.

Today, all of those projects risk being halted before completion.

The idea of an interstate network of highways and roads crossing the United States began in the 1930s. There were many ideas and plans presented to create a transcontinental system that would meet the defense needs and the anticipated traffic of a peacetime society. Amid regional and national political differences, the first attempts at such a network began in 1945, though there were no uniform standards in place. By the time President Dwight D. Eisenhower took office in 1953, less than a quarter of the highway system was deemed adequate for the then current traffic and definitely not ready for the projected levels of the future.

One year later, Congress passed the Federal-Aid Highway Act of 1954, which authorized $175 million for the interstate highway system. Eisenhower was not happy with it, however, noting that there had to be a more permanent funding source to properly establish an elaborate superhighway system that would last for generations and that it should be maintained in partnership between state and the federal government. Two years later, his goal would be achieved after much political wrangling.

The Federal-Aid Highway Act of 1956 called for uniform design standards, and included a network of free and toll roads. Regional plans could include bridges and tunnels as long as the inclusion promoted integration into the system. The act also included a one cent increase in the gas tax – from 2 cents to 3 cents – which would be put into a fund to be known as the Highway Trust Fund.

Called the greatest public works project in history, it would be nearly 35 years before it was deemed complete.

The Highway Trust Fund will be bankrupt by the fall (and possibly as early as August) unless emergency action is taken. The federal gas tax which provides much of the revenue for the fund has been at 18.4 cents per gallon since 1993. While it is more than obvious that the current funding is not adequate to meet needs, politicians have been reluctant to increase it after the backlash from the 1993 increase. The gas tax was established with the idea that those that use the roads were helping pay for them when they purchased gasoline and currently provides $34 billion in funding annually. After the increase during the Clinton presidency, Democrats lost their majorities in both the House and Senate.

Neither party has been willing to face that sort of retribution since.

In 2012, Congress pieced together a series of one-time tax changes and spending cuts unrelated to transportation to help fund the trust fund. Now that money is expected to be gone before the fiscal year ends on September 30th. In February, President Obama signed into law an additional $600 million in the TIGER grant program, which was funded by Congress’ Consolidated Appropriations Act. That money, however, will not be enough to address the long-term funding needs.

The federal government provides most of the funding for highway projects.

U.S. Transportation Secretary Anthony Foxx is currently trying to gain public support for congressional approval of the president’s proposed four-year, $302 billion plan that would keep the trust fund solvent partially through changes in corporate tax laws. Closing corporate loopholes such as those that encourage investing overseas, for example, would provide $150 billion in revenue to the fund. While that effort would be a one-time fix, it would provide enough funding for several years, allowing many more projects to go forward.

This week, Reps. John Delaney (D-Md.) and Mike Fitzpatrick (R-Pa.) wrote a letter to their colleagues to get the conversation started on the transportation funding issue. In it, the congressmen suggested the repatriation of foreign revenue and investments as per President Obama’s plan. Congress is under pressure to provide $100 billion over the next six years for highway funding.

Delaney and Fitzpatrick are also looking at a long term solution by suggesting the creation of a financing entity, the American Institute Fund, that would provide loans to state and local governments. They would repay the loans at a rate determined by the American Institute Fund. They also propose that the Treasury issue $50 billion in treasury bonds, the profits of which would go to the proposed financing entity. This is part of the bill introduced by Rep. John Delaney this year.

In a contentious election year, Congress is left with few options that seem politically expedient. The halting of projects would mean the loss of thousands of jobs, further risking the fragile forward progress the nation’s economy has made thus far. However, after the Supreme Court’s recent ruling on campaign finance limits, they will also feel pressure from their corporate donors that are unwilling to let go of their massive profits. Needless to say, an increase in the gas tax is off the table.

Nevertheless, Delaney’s bill has more than 30 members of each party as co-signers to his bill. There is also some talk that Congress may do yet another quick fix and transfer money from general treasury. Sen. Barbara Boxer (D-CA) told reporters last week that there does seem to be consensus on some sort of tax reform to prevent the trust fund from going bankrupt.

For now, states are holding off plans to start any new projects until the funding issue is resolved.