This week at the Eno Center we released a new report on the Highway Trust Fund’s gap between spending and revenues, and how to close it. That gap – a gaping hole really – is not new. If transportation spending were Wile E. Coyote, it would be well past the point where, having bicycle-wheeled his legs past the edge of the cliff, Wile suddenly looks down and realizes he has to accept gravity and fall. Yet for the last three cycles of reauthorization, spending has not fallen. In fact, it’s increased, and not only that – the rate of increase has grown since it has become untethered to any factor other than how much Congress is willing to transfer in to keep the trust fund solvent. Congress has repeatedly extended that lifeline of General Fund transfers to enable the spending to continue growing while revenues stay mostly flat.

A stable trust fund confers significant benefits to a spending account. Highway and transit formula spending have no need to worry during the annual appropriations fights about being defunded because members of Congress decide that the housing programs or other priorities in the Transportation Housing and Urban Development (THUD) Appropriations Subcommittee are of greater importance. 21st-century budget rules, as applied, don’t make trust fund contract authority and its outlays compete with regular appropriations under the same spending ceilings. As a result, even if THUD members had a motivation to restrain Highway Trust Fund spending – cutting highway and transit formula spending doesn’t free up budget authority for other programs, which shields programs from having to compete with other priorities in annual appropriations bills, and prevents programs from having to comply with pesky spending caps.

But contract authority should be properly thought of as a reward for having dedicated revenues. Lots of programs would like to have mandatory spending – before the Budget Control Act of 1974, many more did. But this uncontrollable spending got out of hand and so contract authority was limited to the handful of programs that deserved to be mandatory because they were paying their way in their own trust funds.

Except, in the case of the Highway Trust Fund, are they? Are they really?

Until 2005, Congress had a way of making sure that spending did not get out of line with revenues in the trust fund. Called the Byrd Test, it requires Congress to compare the outstanding authorizations from the HTF to the anticipated revenues to liquidate those authorizations. If resources are not anticipated to be sufficient, the Byrd Test is triggered, and the Secretary of Transportation is required to reduce the amount of contract authority apportioned to States DOTs and transit agencies. The test is technically still on the books, but has been progressively weakened first in 1982 by extending out the timeline from 12 months of revenue to 24 months, and then again in 2005, when Congress neutered the test by making it a comparison of four years’ worth of revenues, compared to just one year of contract authority plus the unfunded obligations of past years. This made it mathematically possible for the trust fund to hit zero without even failing the test (which it did, just three years later). Then in 2019, even that neutered test became too difficult for the transit account to pass, but rather than address spending or allow automatic cuts to occur, Congress waived the test. Now the Treasury Department projects that the highway account is soon set to also fail the Byrd test.

Let the math of the test sink in for a minute: in four full years at current tax rates, the HTF won’t raise as much money as we reimburse from past years and newly obligate out of the trust fund in one year.

It’s been far too easy to pass the buck on this topic. In Congress, the Senate Environment and Public Works, Banking, and Commerce Committees, together with the House Transportation and Infrastructure Committees can blithely authorize the ever-higher spending levels, while pointing to the Finance and Ways and Means Committees’ responsibility to take the heat of raising taxes to pay for that spending. In the Administration, when Secretaries of Transportation dare to wade into the pay-for debate in their confirmation hearings they have been scolded for doing so, while the Treasury Secretaries are almost never asked to comment. And each year, spending grows while revenues stay flat.

The insolvency of the HTF is an issue that has been reported on at length over the last 25 years, in articles, reports, committees, even Congressionally mandated commissions. We have contract-authority-funded studies and pilot programs that explore ways to address contract authority shortfalls.

We sought to add our report to that body of work for several reasons.

For one thing, the politics may be changing. Transportation has benefited from strong bipartisan support for decades, but there is some evidence that priorities may be shifting along partisan lines. In 2021 the Infrastructure Investment and Jobs Acts (IIJA) passed the House on a largely party-line vote. Questions on spending priorities, funding recipients, and performance outcomes percolate just below the surface; Democrats seek to pretzel highway building formula funds into programs to address climate impacts and Republicans deride “woke highways” and double down on highway capacity expansions.

IIJA also created more mouths to feed by introducing passenger rail and other non-formula transportation programs to the benefits of medium-term certainty with a five-year advance appropriations. As funding nears expiration, advocates for these programs ask how rail can be treated on equal footing and receive contract authority funds from a trust fund as well. The reason they can’t, of course, is that contract authority is only given to programs that have dedicated revenue sources in line with spending. And that’s a good reason – except that it’s not actually true, since the HTF will receive nearly half of its funding from a General Fund transfer next cycle. So returning non-highway modes to the perils of the annual spending cycle may become ever harder to justify.

Time is also not on the side of the HTF. Although electric vehicle adoption and fuel efficiency improvements are projected to slow under current administration policies, they are not disappearing and consumer preferences historically do shift toward more efficient vehicles during times of high oil prices. The era of easy money may also be at an end, as major credit rating agencies have downgraded the nation’s credit rating as a result of our unsustainable fiscal path, which will increase the costs of borrowing and adding to the deficit. Should Congress decide to give the can of the HTF pay-for one last good kick down the road, the next expiration will likely line up with the coming insolvency crises of the Social Security and Medicare Trust Funds in the 2030s, an era in which it is certain that tough choices will have to be made and no unfunded spending programs should assume they are still guaranteed.

Yet for all the sense that this is an immense intractable problem, the solutions remain reasonably straightforward: program funding could be cut or revenues could be increased. Our paper dives into the details and determines that on the spending side, if Congress were to cut all new transit and highway authorizations by half (and rebalance the distribution between “highway” account and “transit” account), then Congress could achieve HTF solvency with no new revenue. Obviously that would also involve some significant rethinking about what programs and activities are absolutely necessary for the federal government to lead on and which could be eliminated. If those cuts were deemed too onerous, then Congress can fix the problem on the revenue side. The gas tax, though long maligned as dwindling away, could still solve the revenue shortfall for the foreseeable future. A steady annual increase of both gas and diesel taxes over the next ten years that brings both taxes up by an extra 17 cents per gallon would close the gap. If Congress wants to find a revenue to capture all vehicles regardless of fuel source, then it can implement a vehicle registration fee or a VMT fee. Either would involve some hurdles to clear in establishing and administering these new funding mechanisms, but none are insurmountable.

Or Congress can keep on. A five-year bill passed this year will require a $126 billion transfer just to keep the current contract authority programs funded at baseline levels. If Congress doesn’t pass the bill until next year, that five-year transfer cost increases to nearly $160 billion. In cartoons, the laws of physics don’t apply and Wile E. Coyote can often go some distance past the edge of a cliff without falling as long as he takes care not to notice, but even in cartoons, things do eventually come crashing down.