March 23, 2016

Recent projections published by the Treasury Department indicate that the Mass Transit Account of the Highway Trust Fund will run out of money almost a year before the expiration of the FAST Act in September 2020.

The Administration predicts that the Mass Transit Account will end FY 2019 with a balance of $1 billion and will end FY 2020 $3 billion in the red, which in real-world terms would necessitate a bailout of the Account early in FY 2020 unless the Federal Transit Administration is prepared to slow reimbursements to local transit agencies to match tax receipt rates.

The HTF cash flow projections were published in the March 2016 issue of the quarterly Treasury Bulletin (see page 99). The earlier HTF projections by the Administration in the 2017 Budget (in Table 26-4 of Analytical Perspectives) included the Administration’s proposed oil barrel fee and associated spending increases, and in any case it showed all HTF accounts lumped together, so no comparison of Mass Transit Account spending was possible.

The Administration is projecting that the Highway Account of the HTF will finish FY 2020 with a balance of about $9 billion, meaning that if those predictions hold up, a simple transfer of about $4 billion from the Highway Account to the Mass Transit Account sometime in 2019 would enable both accounts to finish out the FAST Act without another bailout from the general fund – but just barely.

[March 29 edit to original article: The new projections by the Congressional Budget Office released on March 24 were substantially different. Whereas the Administration projects a total HTF end-of-FY20 balance of $6 billion ($9 billion HA and -$3 billion MTA), CBO projects that the HTF will have about $14 billion more than that at the end of the FAST Act ($20 billion, split $17 billion HA and $3 billion MTA). (Ed. Note: This once again puts the Administration of having to disavow its own numbers and say that CBO is probably more accurate in case they are ever questioned on this by Congress, a situation that has happened repeatedly since the Trust Fund first went broke in 2008.)]

Comparing the Administration and CBO projections to discern the source of the disagreement is difficult because both sets of projections are unhelpfully rounded to the billion dollars, which means that significant rounding errors can result when adding year to year and account to account. But  most of the discrepancy seems to be that CBO assumes FAST Act funding will be spent more slowly than the Administration does. This is a common occurrence – the Office of Management and Budget generally assumes that programs will function efficiently and spend money as quickly as possible, while CBO generally looks at the historical outlay rates of existing programs or similar programs and projects those rates into the future.

Over a five-year period, the differences are pretty small – CBO and the Administration are about 1 percent apart on HTF revenues and 2 percent apart on HTF spending. But even if the Administration’s projections prove completely accurate, the fix (as mentioned above) would be relatively simple – enactment of a new provision of law transfer between HTF accounts, which would not score from a budgetary perspective and would not require any kind of “pay-for.”

In essence, such legislation would simply reallocate the $70 billion FAST Act general fund bailout, which was originally split $52 billion Highway Account and $18 Mass Transit Account. A transfer to meet the Administration’s projected needs would effectively reallocate the FAST Act’s $70 billion so that it would be spread $48 billion Highway Account, $22 billion Mass Transit Account.

But this begs a larger question – in a world where preventing a slowdown of federal mass transit programs is as simple as reallocating the last general fund bailout of the Trust Fund from one account to another, what is the point of maintaining separate accounts for highways and mass transit?

The Mass Transit Account was established by the Highway Revenue Act of 1982 as a way of segregating the 1 cent per gallon gasoline and diesel fuel tax increase for mass transit levied by that law from the remainder of the HTF taxes. The Mass Transit Account taxes (which now total 2.86 cents per gallon) bring in about $5 billion per year, so the $18 billion in FAST Act bailouts represented 3.6 years worth of real tax revenues. Going back and shifting another $4 billion in FAST Act general fund bailouts from highways to transit would mean that the FAST Act propped up the Mass Transit Account with general fund bailouts equal to 4.4 years of real tax revenues.

Put another way, the FAST Act provided $18 billion from the general fund to prop up the Mass Transit Account in addition to $25 billion in anticipated real Mass Transit Account highway user taxes, for a ratio of 1.4 to 1 (real taxes to GF bailouts). Retroactively upping the GF bailout from $18 billion to $22 billion would lower that ratio to 1.1 to 1, which is perilously close to 1 to 1.

But wait, it gets worse. The 1982 law also established separate “self-sufficiency” tests for both accounts. Total Mass Transit Account contract authority would automatically be reduced if it exceeded total MTA tax receipts plus one year’s estimated extra tax receipts. (The Highway Account’s “Byrd test” at the time provided for automatic cuts in highway funding if total contract authority exceeded two extra years’ receipts, not one year.)

Over the decades, as Congress faced pressure to increase spending from the HTF but could not muster the votes to increase highway user taxes, the self-sufficiency tests were modified so that they now allow total contract authority from each account to be measured against four extra years’ projected tax receipts. In practical terms, this meant that either account could (and did) run out of money and require a bailout from the general fund before tripping the automatic spending cuts in the “self-sufficiency” tests.

Yet even under the dumbed-down, four-year self-sufficiency requirements, the latest tests (in Table TF-6A of the March 2016 Treasury Bulletin) show that without the general fund bailouts from the FAST Act, the Mass Transit Account would be perilously close to failing the self-sufficiency test in 2017 (if you took away the cash balances from each account, which in 2017 will entirely be due to the FAST Act bailout, the MTA would only pass its 2017 self-sufficiency test by $2 billion whereas the Highway Account would pass its test by $48 billion).

This raises the possibility that the Mass Transit Account might fail its self-sufficiency test in 2019 or 2020, which could also affect the timing of the next bailout. (Ed. Note: It is telling that the main projections table on page 99 of the new Bulletin shows the “unfunded authorizations” and four-year revenue estimates for the self-sufficiency tests for the Highway Account through 2020 but do not show the same projections for the Mass Transit Account. It’s almost as if they knew that the projections would show the MTA failing the test in the future and therefore it would be better not to show them. Several of the (admittedly small number of) budget experts who follow the HTF believe that Treasury and USDOT have played fast and loose with their Mass Transit Account self-sufficiency test calculations in the past, mostly because almost no one is watching.)

In any case, if Congress dumbs down the “self-sufficiency” tests to the point that they are supposed to be impossible to fail, and then the Administration routinely takes steps to gloss over the fact that the Mass Transit Account might yet fail the test anyway, what is the point of keeping the increasingly notional self-sufficiency tests on the books?