Running on Empty: The Highway Trust Fund

On Wednesday, October 18th, the U.S. House Transportation and Infrastructure subcommittee on Highways and Transit met to discuss the solvency challenges associated with the Highway Trust Fund (HTF). The committee called on several witnesses to provide insight on HTF challenges and opportunities for improvement of transportation funding to ensure a sustainable and reliable surface transportation system.

List of Witnesses:

Mr. Kris Strickler, Director, Oregon Department of Transportation

Dr. Chad Shirley, Ph.D., Principal Analyst, Microeconomics Studies Division, Congressional Budget Office

Mr. Jeff Davis, Senior Fellow, Eno Center for Transportation

Ms. Reema Griffith, Executive Director, Washington State Transportation Commission

In his testimony, Eno’s own Jeff Davis urged policy makers to consider three buckets of questions regarding the future of the HTF, which he lists separately in an ETW op-ed here:

History of the Trust Fund

The Highway Trust Fund (HTF) was created in 1956 as a means to finance government spending for federal highways, mass transit, highway safety, and motor carrier safety programs. The HTF was established to be a separate source of spending from the General Fund. Revenue for the HTF comes from federal transportation excise taxes on gasoline, diesel fuel, heavy truck and trailer sales, heavy truck tires, and heavy vehicle use. Gasoline and diesel fuel taxes comprise 84 percent of HTF revenues.

The HTF saw structural change with the Surface Transportation Assistance Act of 1982, which saw the motor fuel tax increase from 4 cents to 9 cents per gallon. The legislation also divided the HTF into two accounts: the Highway Account receiving 80 percent and the Mass Transit account receiving 20 percent of the 1982 tax increase and subsequent gas tax increases (although, since the pre-1982 fuel taxes and the trucking taxes are not split 80-20, over the past ten years, the Mass Transit account has only received around 13 percent of total tax revenues).

In 2022, federal government spending on highways totaled $52 billion. In the 67 years of its existence, the HTF has received $1.316 trillion in net tax receipts and has paid $1.489 trillion in highway and transit projects. Historically, the HTF was seen as a dedicated and predictable source of funding, that has provided certainty to state and local governments in maintaining good quality highways and transit.

Why is it failing?

In recent years, the solvency of the HTF has come into question because of an imbalance between spending and revenue generation. According to the Congressional Budget Office, the current rates of funding for the HTF will not be sufficient to keep it afloat past 2028. The gap between spending and funding between FY2027 and FY2031 will reach $40 billion annually, or about $200 billion total. The imbalance in the HTF has been around since the early 2000s, and Jeff Davis goes into detail about the HTF woes and lessons from that time.

The HTF’s maintenance light has been flashing for almost 20 years. There are multiple reasons that explain the HTF’s struggle. Subcommittee ranking member Eleanor Holmes-Norton (D-DC) noted that the fuel tax rate has remained unchanged since 1993, and the tax is not tied to inflation. While the fuel tax remains unchanged, prices have risen and the 18.4 cent per gallon tax bought 51 percent less in 2021.

Another reason comes from the increase in fuel-efficient vehicles, which allow more miles to be driven—‚more roadway to be ‘used’—on a gallon of gas. Hybrid and electric vehicles use little to no gasoline, so the revenue generated from the gas tax is reduced. Mr. Davis noted that U.S. energy policy has been focused on reducing the number of gallons used, but transportation policy has been focused on spending based on number of gallons used, creating a constant tension between environmental goals and funding goals.

Since 2008, when the HTF ran out of money, the federal government has transferred $275 billion from the General Fund to the HTF, including $118 billion authorized by the Infrastructure Investments and Jobs Act (IIJA). These transfers allow the HTF to remain solvent in the short term, but Chairman Rick Crawford (R-AR) and full committee ranking member Rick Larsen (D-WA) both cited concerns about the sustainability of continued transfers to the HTF. With increasing population and freight movements, Larsen noted that Congress must decide how to adjust HTF revenue sources accordingly.

The current environment of infrastructure investment creates an opportunity to discuss the future of the HTF. Politicians and transportation stakeholders have been exploring solutions and revenue alternatives for almost two decades. The “Safe, Accountable, Flexible, Efficient Transportation Equity Act: A Legacy for Users” (SAFETEA-LU) 0f 2005 created the National Surface Transportation Policy and Revenue Study Commission, whose final report in 2008 recommended raising the rates of existing taxes being deposited into the highway trust fund and the long-term pursuit of a mileage-based user fee. Additional revenue alternatives to gasoline and diesel taxes that are being considered include kilowatt hour fees and annual electric vehicle registration fees.

Charging Drivers by the Mile: MBUF/RUC/VMT Fee

A mileage-based user fee (MBUF), also known as a road usage charge (RUC), or a vehicle-miles travelled (VMT) fee, would charge drivers by the mile they drove instead of by the gallon of fuel, as fuel is no longer an accurate proxy of road usage; it is the option most prevalently being explored at the federal level and was thoroughly discussed at Wednesday’s hearing. Thirteen states have piloted RUCs or have legislation implementing an optional RUC program. Two such states— Washington and Oregon—were represented on the witness panel. Griffith leads the RUC pilot program and research in Washington State, while Stickler’s department of transportation operates Oregon’s optional RUC program, OReGo. Implemented in 2015, OReGo was the first fully implemented program in the United States.

As both Griffith and Stickler brought to light in their testimony, a RUC is fairer than the gas tax because it makes sure each road user pays proportionally for their usage, regardless of the fuel efficiency of their vehicle. Federal investments through various grant programs, including the Surface Transportation System Funding Alternatives (STSFA) program from the FAST Act (2015) and the upcoming Strategic Innovation for Revenue Collection (SIRC) program from the IIJA (2021) have allowed state and regional entities to pilot RUC across the country; coincidentally, the SIRC program got its second mention in the federal register on Wednesday (the first being in the request for nominations for the Federal System Funding Alternative Advisory Board for the subsequently mentioned National Pilot) in a Request for Comments in the federal register. The IIJA appropriated $50 million for a ‘National Per-Mile User Fee Pilot’ to test the concept at a federal level—13 years after it was recommended by the commission in 2008. To learn more about the national pilot, check out the Eno report that made recommendations on pilot implementation, here.

Road Usage Charging Concerns

While many in the room were optimistic about the prospects of RUC, a handful of concerns were raised about RUC, most notably those surrounding privacy and data collection, undue burden on the trucking industry, and equity.

Privacy

Representative Chris Pappas (D-NH) pressed the witnesses on privacy concerns. Griffith indicated how important it was that drivers are offered a choice of reporting methods in Washington State (including self-reporting miles driven). As of the publishing of Eno’s report on the National Pilot in July, all pilots and programs have offered more than one reporting option, at least one of which has been location agnostic. Regardless, privacy concerns still remain. Author’s note: According to Nate Bryer, the senior director of RUC development at WSP, voluntary participants opt for GPS reporting methods about 60 percent of the time, on average, typically through an OBD-II port plug-in device or a GPS-enabled mobile phone app. Privacy concerns are often red-herrings, and the implementation of GPS technologies is often misunderstood. Existing programs have strict data rules that protect participant privacy. In the typical RUC program, a GPS enabled device samples a vehicle’s location at a regular interval, typically every thirty seconds, and the information is sent via cellular technology to a private commercial account manager. That location point is assigned a ‘segment’ so a rate can be applied. That segment data is what is retained, not the exact location data. Any location data that is shared with the government program manager is anonymized. Data retention is also regulated. In Oregon, for example, data is deleted by the account manager no later than 30 days after the payment is reconciled, as required by law. Theoretically, technology improvements and the use of on-board telematics systems in cars could lead to this rate assessment ‘on-device,’ meaning that location data would not even have to leave a vehicle. This author also notes that in a federal system, those with privacy concerns could still opt out of GPS collection methods and manually report their miles, or even if that was concerning to them, pay an annual opt out fee altogether, which might be a less accurate measure of their road usage (they may pay less if they opt to do it by the mile), but the participant then would not need to be concerned about their data. Program design can alleviate many of these concerns.

Undue burden on the trucking industry

Representatives Mike Collins (R-GA) and Doug LaMalfa (R-CA) expressed concerns about RUC for the trucking industry. Collins, who owns a trucking company in Georgia, indicated that companies like his already pay thousands of dollars each year in taxes and fees and he does not want to see this burden increased. This author notes that all trucking RUCs that have been tested and proposed have been as a replacement to the diesel tax, and not as an additional tax. RUC has the ability to simplify the fee and reporting structures for trucking, which currently causes great administrative cost for the trucking industry, by replacing all the separate fees and excise taxes, with one uniform RUC.

Equity Impacts

The witnesses also discussed equity impacts. Chairman Crawford (R-AR) asked about the impacts on low-income drivers. Griffith indicated that low-income drivers were included in the Washington state pilot so the impacts could be explored. For households that make less than $30,000 a year, transportation accounts for about 40 percent of household costs. While the current gas tax or a replacement RUC is a very small percentage of that annually (currently, the average driver pays about $110 in federal fuel taxes each year), discount rates could be offered to drivers of lower incomes to make the program more equitable. Concerns about the impacts of a RUC on rural drivers were raised by Representative Burgess Owens (R-UT). Strickler indicated that rural drivers pay more in gas taxes than urban drivers because they typically drive more miles and have less fuel-efficient vehicles. A RUC would be more equitable for these drivers, as pilots have shown they pay less under a RUC than existing gas taxes. Suburban drivers typically drive as many miles as rural drivers because rural drivers couple their trips together, saving miles over time.

EV Registration Fees

33 states currently impose registration fees on electric vehicles as EV drivers do not pay for their road usage through the fuel tax. Representative Rudy Yakym (R-IN) wondered if these fees were being pushed for by “big oil,” which the witnesses could not speak to. Griffith indicated that to the best of her knowledge, the Washington State legislature implemented an EV registration fee to ensure drivers paid their fair share. Benefits of an EV registration fee include simplicity and the use of an already existing system at the state level—at the federal level there is no vehicle registry that could be used—however, a RUC would be more equitable as it would more accurately reflect road usage.

Kilowatt Hour Fees

Representative Dusty Johnson (R-SD) wondered the merits of Kilowatt Hour (KwHr) fees, as they would retain the fuel-based pay structure of the gas tax. KwHr fees would be implemented at charging stations. As Davis pointed out, the problem with KwHr fees is that currently about 80 percent of vehicle charging happens at home. Implementing a fee for this charging would require the installation of expensive submeters at private residences, which is unlikely. KwHr fees do, however, have potential to capture the road usage of out of state drivers, especially at fast chargers along interstate highways. This would be especially beneficial for states with a lot of tourist traffic, such as Florida. At the federal level, out of state drivers are not a concern, but these fees would be a proxy for long distance highway usage.

Key Questions Related to the HTF

The role of a federal infrastructure bank

Representatives Daniel Webster (R-FL) and Salud Carbajal (D-CA) asked about the role of a federal infrastructure bank in providing funding for transportation projects. The purpose of a federal infrastructure bank would be to facilitate long-term financing for infrastructure projects in the United States. Such a bank would prioritize infrastructure projects and provide a source of funding separate from the general fund (ideally to lessen the burden on the federal government). The two have introduced legislation (H.R. 3360) creating a “National Infrastructure Investment Corporation.”

In response to the idea of a federal infrastructure bank, Davis noted that all loans from a bank must be repaid from somewhere, and that conversations about a federal bank must consider higher interest rates that can impact borrowing. Additionally, Shirley noted that with a federal infrastructure bank, the decision-making responsibility shifts away from government at all levels; the infrastructure bank would determine which projects should receive funding.

Transit Funding

Representative Holmes-Norton in her opening statement expressed the importance of public transit investments and expressed concerns that cutting public transit funding would be a detriment. In response to representative Holmes-Norton, Strickler pointed out that each part of the transportation network is linked and a reduction in funding for transit would hurt highway and transit users. Representative Jesús “Chuy” García (D-IL) asked about the impact of shifting the funding split of the HTF more towards public transit, touching on the 80/20 split of the HTF into the highway and mass transit accounts. In response, Griffith suggested that the decision to split funding is up to Congress. She added that while there will be opportunities to discuss a funding structure for the future, it is important to first have a sustainable source of funding.

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