September 10, 2015

New estimates from the U.S. Department of Transportation show that the $8.1 billion bailout of the Highway Trust Fund enacted in August, combined with a slight uptick in projected gasoline, diesel, and trucking excise taxes, put the Trust Fund in shape to stay solvent at current law spending levels through May 2016.

According to the DOT weekly projections made in mid-August, balances in the HTF Highway Account will drop below $4 billion in December and go to as little as $2.8 billion in January before slowly increasing back to almost $5 billion at the end of February. Balances in the Highway Account would then drop back below $4 billion around Memorial Day and continue a drop to zero by the end of July 2016. Balances in the Mass Transit Account would stay above $1 billion until June 2016. The chart below shows DOT’s latest weekly projections.

How is it possible that a bailout of the Trust Fund designed to get it to mid-December can instead last five months longer? First of all, as mentioned above, the revenue situation has improved slightly in the new budget estimates that came out in August, after Congress had enacted the $8.1 billion transfer. We don’t have access to the revised White House Office of Management and Budget (OMB)/U.S. Department of the Treasury excise tax forecast, but the Joint Committee on Taxation’s Congressional forecast has projected FY 2015 HTF tax revenues increase by about $690 million in the August estimate (compared to the earlier March estimate) and the FY 2016 projection is up $750 million, and at least one-third of that will be deposited in the HTF prior to June 2016. So the HTF tax situation between now and summer 2016 has gotten about a billion dollars better.

More importantly, it has not exactly been a secret that the Trust Fund runs a surplus during the cold weather months, when construction activity slows down dramatically. The Federal Highway Administration has posted online the month-by-month cash flow totals for the Highway Trust Fund going back eight years. Using that data, we can see that the Highway Account of the HTF comes close to breaking even in November and December, and runs a small but steady surplus during January and February, and at least breaks even during March and April.

So any solution that keeps the HTF solvent through the first week of January inherently keeps it solvent until April, at least.

Dropping below the $4 billion “safe cushion” balance for the Highway Account is not necessarily disruptive from a cash management point of view. In the summertime, it might be – Federal Highway Administration outlays can average over $250 million per day in July, August, and September. But in January and February, FHWA outlays drop to as low as $100 million per day.

Excise taxes are deposited in the Trust Fund twice a month. Even at an average $125 million per business day of outlays, a $2 billion minimum balance should last the Highway Account three weeks in January-February. But in July-August, when daily outlays average closer to $225 million per day, $2 billion in balances would last less than two weeks.

Also, the Federal Highway Administration has changed its position on the “safe minimum balance” over the years. Here is an excerpt from a FHWA explanatory document published in 1998: “A safety cushion equal to 3 months of expenditures is recommended for the Highway Account to ensure that obligations could be liquidated (funds available to reimburse States) during an emergency until Congress acted to reduce future commitments or to increase future revenues.”

Three months of Highway Account outlays today would be a minimum balance of $11 billion, not $4 billion. (One reader suggests that the three-month minimum may have been a holdover from the days when FHWA processed repayment requests in the form of paper vouchers which were then paid with paper checks, through the U.S. Postal Service. But that raises the question: if the states would wait a week or two before getting a check in the mail from 1916 until the last decade, will a couple of days’ wait on getting a wire transfer make a difference now?)

And finally, to put the $4 billion threshold in more perspective, ask yourself: do you remember the September 2013 HTF funding crisis, where the state highway programs collapsed in on themselves due to a lack of federal funding, forcing massive job losses project suspensions, and causing massive public unrest? No? Well, according to FHWA, these were the HTF Highway Account end-of-week balances for the four weeks of September and the first week of October 2013:

So going below $4 billion, even for weeks at a time, is not necessarily disruptive, and even dipping below $2 billion for a few days is not the end of the world. (The difference is that in September 2013, FHWA had funding authorizations good for another year and was waiting for a $9.7 billion transfer from the general fund provided in the MAP-21 law that would not take effect until October 2014.)