March 19, 2019

The details of the President’s budget proposal for fiscal 2020 make it clear that, if the Trump Administration has a plan for long-term fiscal solvency of the Highway Trust Fund, they aren’t presenting it in this budget. Here’s an overview:

• The budget proposes finishing out the FAST Act in FY 2020 at the funding levels recommended by the FAST Act.
• The budget does not propose to fix the $7.6 billion rescission of highway contract authority mandated by the FAST Act on July 1, 2020. However, the budget does present a new baseline format that restores baseline funding to its pre-rescission level in 2021, so the FY20 rescission isn’t assumed to decrease highway contract authority by $7.6 billion per year in perpetuity.
• Starting in FY 2021, the budget assumes a “hard freeze” in new obligation limitations at the FY 2020 FAST Act level – $58.0 billion per year.
• However, the budget assumes that the Trust Fund will run out of money early in fiscal year 2022 and does not propose to fix that. Instead, states and transit agencies would see delays in reimbursements as USDOT waited for more tax dollars to come in via twice-monthly transfers from the Treasury Department of excise tax receipts. Outlays would drop from a projected $58.2 billion in 2021 to $46.9 billion in 2022 and then stabilizing at the level of estimated tax receipts ($43.5 billion in 2023, rising slightly thereafter each year).
• OMB has adjusted their baseline. Budget law (BBEDCA, which is the too-long acronym for the Gramm-Rudman law) requires baselines to be constructed a certain way, and those assumptions require OMB and CBO to assume that the Trust Fund will keep paying money on time even after it runs out of money, which is clearly impossible on its face. OMB has decided to present an alternate baseline that is not BBEDCA-compliant in this regard, explaining: “…beginning in 2022, the Budget presents an adjusted baseline to account for the mismatch between baseline rules that require assuming that spending continues at current levels and the law limiting the spending from the HTF to the level of available balances in the HTF. Under current law, DOT is unable to reimburse States and grantees when the balances in the HTF, largely reflecting the level of incoming receipts, are insufficient to meet their requests. Relative to the BBEDCA baseline levels, reducing outlays from the HTF to the level of receipts in the adjusted baseline presentation results in a reduction in HTF outlays of $145.6 billion over the 2022-2029 window.”
• In the real world, that $145.6 billion would be the cumulative delay in reimbursements by USDOT to state DOTs and local transit agencies by the end of 2029. Politically, something would obviously have to give before then.
• As part of the budget release, OMB did issue a fact sheet on infrastructure, part of which addressed the HTF solvency issue: “We must provide our State, local and private partners – who build, own and operate the vast majority of the Nation’s surface transportation infrastructure – the long-term funding certainty they need to effectively plan and deliver projects. Such reauthorization must, at a minimum, address the long-term solvency of the Highway Trust Fund in a fiscally responsible manner, focus on nationally and regionally significant projects (emphasizing projects on the Interstate Highway System and other nationally-strategic freight networks), support emerging technologies and innovation, encourage the revenue mechanisms of the future, and promote more efficient and effective permitting.”

The ten-year numbers proposed in the budget for the Highway Trust Fund are shown below. The budget documents were prepared while FY 2019 was still under a CR so that is why some of the obligation limitation numbers for that year look a little weird. Note that the budget assumes that the FY 2020 highway contract authority rescission is restored starting in 2021.