President Trump’s unexpected endorsement of the Senate Environment and Public Works Committee’s highway bill (S. 2302, reported unanimously from committee last August 1) last night got us thinking – how does last week’s updated forecast of Highway Trust Fund cash flow from the Congressional Budget Office affect the need for new revenues to pay for that bill?

(Trump said, according to the transcript of his State of the Union address last night, “We must also rebuild America’s infrastructure. (Applause.) I ask you to pass Senator John Barrasso’s highway bill to invest in new roads, bridges, and tunnels all across our land.” Barrasso (R-WY) is chairman of the EPW committee.)

That new CBO baseline estimates that over the next five years, the Highway Trust Fund will need about $72 billion in new revenues or transfers in order to keep paying its bills, assuming current tax rates and the 2020 spending levels given annual inflation increases. (For a deep dive of how the Trust Fund got to be insolvent in the first place, read this.) How would the increased spending in the Barrasso bill affect this amount?

First, we will look at the increased cost of S. 2302 to the Highway Account of the Highway Trust Fund over the five-year authorization period of the bill (fiscal years 2021 to 2025), and then we will make an assumption about mass transit spending and run those assumptions as well.

Highway Account

First, here is the new CBO forecast for the cash flow of the Highway Account through the end of fiscal year 2025, in millions of dollars. The receipt numbers are the estimate for current law tax rates, extended indefinitely, and the spending is based on the just-enacted FY 2020 funding levels plus annual inflation increases of around 2 percent per year, per baseline construction rules.

Below are the annual obligation limitations on the highway program assumed in the above baseline, the obligation levels assumed in S. 2302, and the increase of S. 2302 over baseline:

Then we ran that additional $36.7 billion in spending through the CBO outlay rate model (as of last year, they assumed that 25 percent of new highway ob limit was converted to outlays in year one, 41 percent in year two, then 15, 5, 4 and 3 percent in subsequent years). Under those assumptions, the $36.7 billion increase above baseline would spend out like so:

You plug that extra $25.3 billion in above-baseline outlays from S. 2302 into the above baseline, and you get:

This does not assume any increase in the NHTSA and FMCSA spending from the Highway Account above baseline, but any reasonable increase they would get would be a rounding error compared to the much-larger highway program.

S. 2302 only reauthorizes the Federal Highway Administration – the Commerce, Science and Transportation Committee will have to add provisions reauthorizing the Trust Fund spending for NHTSA and FMCSA, and the Banking, Housing and Urban Affairs Committee will have to add provisions reauthorizing the Trust Fund spending for mass transit.

For the true revenue cost for the Highway Account, you then need to add at least $4 billion to make sure that the Account doesn’t run out of money on a day-to-day basis in August or September, when spending over $200 million per day in outlays while awaiting twice-monthly transfers of tax receipts from Treasury.

Under this model, the Highway Account would need an additional $75 billion in additional revenues or transfers to fund the Barrasso bill.

Mass Transit Account

Since the Banking Committee has not yet produced a bill, we don’t know how much that unwritten bill would cost. Here is the new CBO cash flow baseline for the Mass Transit Account, based on the current law tax rates and FY 2020’s $10.15 billion obligation limitation for formula grants from the Account, extrapolated forwards with inflation.

For purposes of this model, in order to assume how much mass transit funding might be provided to go alongside S. 2302, we just assumed that mass transit obligation authority would increase each year at the same rate as the highway obligation limitation increased. Above, you can see that the FY 2021 obligation limitation under S. 2302 is $7.085 billion above the baseline FY 2021 number, or 15.0 percent above baseline. FY 2022’s highway number was 14.8 percent above baseline, and that 14.8 percent rate continues for the rest of the bill.

We then took the baseline transit obligation authority number from the new CBO baseline and inflated that by the same percentages as S. 2302 gives to highways:

We then ran that extra $8.0 billion in obligation authority through the same CBO outlay model (transit spends out more slowly – 10% in year 1, 30% in year 2, then 20, 13, 12 and 8 percent.)

You then plug that extra $4.2 billion in outlays into the January 2020 CBO baseline for the Mass Transit Account:

Add another $1 billion for the same kind of end-of-year cash cushion described above, and the Mass Transit Account needs an additional $27 billion in additional revenues or transfers under this scenario.

Conclusion.

Under the new CBO baseline, the Highway Trust Fund needs additional revenues or transfers totaling about $72 billion to get through the end of fiscal 2025 safely. If you pass S. 2302, and give transit the same annual percentage increases above baseline that you give highways, the Trust Fund will need an additional $30 billion, or $102 billion total, in additional revenues or transfers to get through the end of fiscal 2025.

Interestingly, though the 80-20 split of additional user tax revenues from the 1982, 1990 and 1993 motor fuel tax increases will clearly not work under either scenario, transit needs a lower percentage of new revenues if they get a spending increase above baseline, because transit dollars spend out of the Treasury more slowly than highway dollars. Per CBO, if you increase highway spending by $1 billion in the 2021 appropriations bill, about $800 million of that will “spend out” of the Treasury in outlays by the end of 2023. But if you increase transit spending by $1 billion in 2021, only about $600 million of that will spend out by the end of 2023.

The outlays from increased transit spending tend to be pushed out past the end date of the authorization bill, which passes more of the funding imbalance to the next generation of lawmakers.