Highway Trust Fund Revenue Hole Approaches $300B by 2035

The nonpartisan Congressional Budget Office released its official budget “baseline” projections for the coming decade this week. (Earlier projections released in February were preliminary).

The data released includes a new baseline projection of Highway Trust Fund cash flow for the coming decade that is more accurate on the spending side than the earlier February baseline. (In February, action on fiscal 2024 appropriations were not yet complete, so that baseline assumed the stopgap continuing resolution as the 2024 spending numbers instead of, in this case, the levels set by the 2021 IIJA law. Now that the 2024 appropriations, at the IIJA level, have been enacted, the new baseline spending assumptions for 2025 and 2026 sync up almost exactly with the IIJA totals, and 2027-onward are increased for annual inflation).

We’ll get to the cash flow forecast momentarily, but first, a brief look at the assumptions about the spending levels set by Congress, which, after being processed through USDOT and then through state DOTs and mass transit providers, becomes cash flow. The new baseline assumes $78.5 billion in 2025 and $80.0 billion in 2026 in total new obligation authority (the obligation limitations in the appropriations bills, plus the $739 million per year (pre-sequestration) in contract authority exempt from limitation). These are very close to the precise IIJA-recommended amounts. Then, the obligation limitations receive an inflation bump each year of around 2 percent, taking the total to $93.2 billion in new obligation authority in 2034, the end of the ten-year forecast window.

But CBO’s forecast of Trust Fund receipts and interest goes from $49 billion in 2025 down to $38.8 billion in 2034. So the gap between the spending that Congress is agreeing to start, versus the new money coming in to offset that spending, goes from $29.5 billion in 2025 all the way up to $54.5 billion in 2034. (The unfunded new promises start exceeding annual revenues in 2030).

On the revenue side, the baseline, like the one in February, assumes that the Biden Administration’s latest GHG emission rules will take effect, causing gasoline demand to be reduced by about one-third over a decade. Increased growth in the trucking sector, which is responsible for most highway diesel consumption as well as all the other trucking taxes, will stay solid.

The resulting cash flow projections show the Trust Fund remaining solvent through the middle of 2020, in large part due to the unexpected $20 billion in interest that the $118 billion general fund bailout provided by the IIJA will earn on itself due to high interest rates that were not in the forecast when the IIJA was enacted in late 2021.

But at the end of the forecast, the Highway Account and the Mass Transit Account need $284 billion in additional general fund bailouts or increased tax revenues to meet those projected spending levels, plus an additional $6 billion cash cushion for day-to-day operations, making the total revenue hole at the end of the ten-year forecast window $290 billion. A five-year extension of IIJA funding levels plus inflation, to the end of 2031, would require around $143 billion.

We have updated our proprietary chart going back to the Trust Fund’s last solvent year (2007) and showing how the $275 billion in general fund bailouts of the Trust Fund since that date have kept the Trust Fund afloat, and how far the spending line exceeds projected revenues once those bailouts run out in 2028.

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