How Imbalanced Will Another Large Bailout Make the Highway Trust Fund?

With Democrats holding the White House and both chambers of Congress, a clear appetite exists for significantly increased funding on surface transportation infrastructure in this Congress. And with the reauthorization of Highway Trust Fund programs due by September 30 of this year, the HTF and the traditional highway/transit reauthorization bill may yet be the centerpiece of the spending effort.

But the Highway Trust Fund can’t support its current spending levels, much less support significantly new funding. What will happen to the Trust Fund if Congress once again, as it has done in the previous reauthorization cycles for the last twelve years, just pays for increased spending with another one-time bailout from general revenues?

The new Congressional Budget Office baseline projections show the Trust Fund running a unified deficit of $12.6 billion in 2022 (lower than last year, because the one-time COVID hit to tax revenues was pushed from FY 2020 into FY 2021) and that the deficit will rise by about $2 billion per year thereafter as new spending obligations grow at about 2 percent per year (standard inflation factor) and tax receipts remain stagnant.

The $13.6 billion bailout deposited in the Trust Fund in October 2020 should be able to keep things solvent through mid-summer 2022, perhaps even to late August or early September 2022. In billions of dollars:

FY20 FY21 FY22 FY23 FY24 FY25 FY26 FY27 FY28 FY29 FY30 FY31
Baseline HTF Deficit -15.2 -19.0 -12.6 -14.0 -16.2 -18.6 -20.7 -22.4 -23.7 -25.1 -26.4 -27.7
Baseline HTF EOY Balance 17.7 12.3 -0.3 -14.3 -30.6 -49.1 -69.8 -92.2 -115.9 -141.0 -167.4 -195.1

If the political will existed to keep the Trust Fund solvent from this day forward, solely by increasing the gasoline and diesel excise taxes above their current HTF rates of 18.3 cents per gallon on gasoline and 24.3 cents per gallon on diesel, you would need about a nickel increase effective at the start of fiscal 2022 to lift the year-end balance to the prudent minimum, then you would need another nickel (almost) in fiscal 2023 to get back to solvency. A cent or two per year increase after that would cover the inflated spending and the steady erosion of the tax base. This would double the gasoline tax over the course of a decade.

Minimum Motor Fuels Tax Increase Necessary to Keep Highway Trust Fund Solvent at New CBO Baseline Levels
FY20 FY21 FY22 FY23 FY24 FY25 FY26 FY27 FY28 FY29 FY30 FY31
Annual Fuels Tax Increase Needed +5.0¢ +4.8¢ 1.6¢ +1.8¢ +1.6¢ +1.3¢ +1.0¢ +1.2¢ +1.0¢ +1.1¢
Gas Tax Rate Would Be 18.3¢ 18.3¢ 23.3¢ 28.1¢ 29.7¢ 31.5¢ 33.1¢ 34.4¢ 35.4¢ 36.6¢ 37.6¢ 38.7¢
Baseline HTF Deficit -15.2 -19.0 -12.6 -14.0 -16.2 -18.6 -20.7 -22.4 -23.7 -25.1 -26.4 -27.7
Plus Fuels Tax Increase Revenue +5.7 +14.0 +16.2 +18.6 +20.7 +22.4 +23.7 +25.1 +26.4 +27.7
HTF EOY Balance 17.7 12.3 5.4 5.4 5.4 5.4 5.4 5.4 5.4 5.4 5.4 5.4

Last year’s Democratic infrastructure bill (H.R. 2, 116th Congress) would have provided significantly increased spending out of the Highway Trust Fund. Over the five-year 2021-2025 period it would have provided about $70 billion in above-baseline highway spending and about $28 billion in above-baseline mass transit spending. The bill would have paid for five years of baseline deficits, and the first five years of cash flow from the extra spending, with yet another bailout ($145.3 billion) that was approximately the size of all previous Highway Trust Fund bailouts put together.

H.R. 2 never came up in the Senate, and Congress enacted a one-year extension of the FAST Act covering fiscal year 2021. In order to convert last year’s bill into new legislation as a starting point for discussion, I moved all of the dollar amounts in H.R. 2 one year into the future – H.R. 2’s 2021 funding levels are now 2022, and so forth. As with last year, looking beyond the expiration of the bill, I then increased the highway and transit spending levels in the final year of the five-year bill by the same percentage that CBO inflates its baseline spending levels to extrapolate for the latter five years of the ten-year budget scorekeeping window.

Predictably, the spending levels from H.R. 2 would make the Trust Fund’s systemic imbalance even worse. What was going to be a $21 billion deficit in 2026 under the baseline would be a $38 billion deficit in the final year of the revised H.R. 2. And a decade from now, in 2031, the Trust Fund’s deficits would be $20 billion per year higher than baseline.

FY20 FY21 FY22 FY23 FY24 FY25 FY26 FY27 FY28 FY29 FY30 FY31
H.R. 2 (+1 yr.) Unified Deficit -15.2 -19.0 -16.7 -25.4 -30.8 -34.7 -38.1 -40.7 -42.1 -43.9 -45.5 -47.3

But since last summer, consensus on increasing highway user taxes appears to be farther away, not closer. In particular, even longtime stalwart supporters of increasing the gasoline tax, like Rep. Earl Blumenauer (D-OR), appear to have thrown in the towel.

Assume that Congress enacts the one-year-delayed H.R. 2 spending levels for the Trust Fund this year and pays for it with another giant bailout, the minimum level needed to keep the Trust Fund solvent for the full five years, to September 2026 (we think that is around $139 billion). Once that bailout runs out, the Trust Fund will face a $41 billion deficit in fiscal year 2027.

If Congress then were so inclined as to make the Trust Fund solvent once more through a fuels tax increase, Congress would need to increase gasoline and diesel taxes by 29 cents per gallon in October 2026 in order to keep the Trust Fund solvent.

Minimum Motor Fuels Tax Increase Necessary for Highway Trust Fund Solvency After H.R. 2 (Shifted Forward 1 Year) Ends
FY20 FY21 FY22 FY23 FY24 FY25 FY26 FY27 FY28 FY29 FY30 FY31
Annual Fuels Tax Increase Needed +29.2¢ +1.3¢ +1.5¢ +1.4¢ +1.5¢
Gas Tax Rate Would Be 18.3¢ 18.3¢ 18.3¢ 18.3¢ 18.3¢ 18.3¢ 18.3¢ 47.5¢ 48.8¢ 50.3¢ 51.6¢ 53.1¢
H.R. 2 (+1 yr.) Unified Deficit -15.2 -19.0 -16.7 -25.4 -30.8 -34.7 -38.1 -40.7 -42.1 -43.9 -45.5 -47.3
Plus Fuels Tax Increase Revenue +40.7 +42.1 +43.9 +45.5 +47.3
HTF EOY Balance 17.7 12.3 133.9 108.5 77.7 43.0 5.0 5.0 5.0 5.0 5.0 5.0

(Or, if you had a national mileage tax/fee system ready to go by that point, you could abolish fuel taxes and fill the gap with a 2.3 cent per mile VMT tax, though that back-of-envelope guesstimate treats cars and trucks equally, which a real VMT revenue system presumably would not do.)

If today’s political system lacks the willpower to increase motor fuels taxes by a dime per gallon spread out over a couple of years, in order to pay for current Trust Fund spending, what are the odds that a new Congress and possibly-new-President in 2026 will be willing to bite the bullet and increase fuels taxes by 30 cents per gallon, all at once, to keep the Trust Fund solvent?

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