March 15, 2018

Last Friday, the Treasury Department released the quarterly Treasury Bulletin, a publication containing a trove of data about all kinds of federal fiscal dealings. The March bulletin of each year is notable because that is the annual issue that contains detailed end-of-year summaries of, and out-year projections for, all federal trust funds.

Those projections raise the possibility that the Federal Transit Administration may see small across-the-board cuts in formula apportionments to transit agencies next year, in fiscal 2020, because unfunded balances may slightly exceed future revenues.

Highway Trust Fund.

The Bulletin projections are interesting because they do not reflect the drastic slowdown in Highway Trust Fund outlays starting in 2022 that were reflected in the Office of Management and Budget’s presentation of the 2019 in the rest of the budget documents. The Treasury projections are in line with the traditional presentation that shows outlays continuing at the budgeted rate and producing negative balances after an account runs out of money.

The cash flow projections are based on the spending assumptions in the FY19 budget, which meets the FAST Act’s recommended obligation limitations for 2019 but then assumes a hard freeze thereafter. If one looks at the 2020 FAST Act authorization and then inflates by 2 percent thereafter, here are the differences between the obligation limitations for highways and mass transit in the budget versus FAST-plus-inflation:

So the outlays in the Bulletin’s projections should probably be a couple of billion higher for highways and over the 2021-2022 period, but they are still pretty close to what a FAST-plus-inflation baseline would look like:

The good news is it looks like both accounts of the HTF are now projected to stay solvent into the summer of 2021.

However, the March Bulletin also contains the annual Highway Trust Fund solvency tests required by the Internal Revenue Code. The test for the Highway Account was put into law in 1956 by Senate Finance Chairman Harry Byrd (I-VA) and the test for the Mass Transit Account was added in 1982 by House Ways and Means Chairman Dan Rostenkowski (D-IL). The tests bear the names of the authors.

Highway Trust Fund excise taxes expire two years after the expiration of Trust Fund spending authority, so the original Byrd test provided that the sum total of all unfunded contract authority could not exceed the cash balance in the Trust Fund (later just in the Highway Account) plus two future years of estimated revenue, enforced by automatic across-the-board reductions in contract authority apportionments. The Rostenkowski Test for the Mass Transit Account originally just used one year of future revenues but was later changed to two years. The Byrd test was triggered in 1958 and again in 2004 and the Rostenkowski Test was never triggered.

The 2005 SAFETEA-LU law extended the calculations for the tests from two future years of tax revenues to four years, even though the taxes still only lasted two years longer than the spending authorization. This was done, over the objections of the Bush Administration, to allow the “spending down” of Trust Fund balances, but it wound up allowing the Trust Fund to go bankrupt in 2008 without ever triggering either test.

The new calculations show both HTF accounts passing their solvency tests handily for fiscal 2019 – the Highway Account with $83 billion to spare and the Mass Transit Account with $4 billion to spare (a legacy of the massive $70 billion bailout from the FAST Act, most of which is still unobligated).

But the Mass Transit Account may be in trouble in the final year of the FAST Act, FY 2020. (The rounded-to-the-billion presentation is unhelpful in this regard. The Bulletin reports other transportation trust funds to the million or the tenth-of-a-million – a little consistency would be nice.)

As shown above, the estimated end-of-FY20 cash balance for the Transit Account is projected to drop to $4 billion, which is the amount by which the Account passed the test this year. If unobligated balances plus new apportionments stay at the $30 billion level next year, the Transit Account might fail the test, forcing a small percentage reduction in 2020 apportionments.

(If the test were still two years of future taxes instead of four years, the Transit Account would fail the test so badly it would virtually wipe out the transit program.)

Airport and Airway Trust Fund.

The Bulletin projects that, if aviation spending is restrained the way it is proposed in the President’s FY19 budget, and if the Trust Fund to general fund ratio supporting Federal Aviation Administration operations stays the way it was in 2017, then cash balances in the Airport and Airway Trust Fund will rise from $15 billion this year to $26.5 billion at the end of fiscal 2022. Aviation excise tax receipts are projected to rise between 4 and 5 percent per year.

Harbor Maintenance Trust Fund.

The FY19 budget proposed to flat-line spending from the Harbor Maintenance Trust Fund. But tax receipts from the Harbor Maintenance Tax are expected to rise by 9 percent in 2019 and grow by about 4 percent per year thereafter. So the balance in the Trust Fund is projected to rise from 2018’s $9.1 billion (ten full years worth of spending at the constrained 2018 rate) to an even more ridiculous $13.7 billion at the end of 2022.

Inland Waterways Trust Fund. 

Something strange is going on with the IWTF numbers in the Bulletin. In FY17, outlays from the Trust Fund were $108 million, not far below the $114 million in new taxes received that year. The FY19 budget proposes that the fund take a one-year hiatus, cutting spending to $5 million before rebounding to future tax levels in all out-years. But while the budget shows FY18 spending outlays being $65 million (see page 1019 in the Appendix), the Bulletin shows them as being $26 million. And the Bulletin does not show the proposed new inland waterway user fees, which would more than double IWTF annual receipts.

Leaking Underground Storage Tank Trust Fund.

The LUST Trust Fund is where the other tenth-of-a-cent of federal gasoline and diesel fuel excise taxes goes. Since 2012, Congress has reclaimed $3.7 billion of that money and transferred it to the Highway Trust Fund, where the rest of the gas and diesel taxes go. (The last $100 million of that transfer took place in FY18.) The Bulletin projects that LUST balances at the end of 2020 (when the FAST Act expires) will be around $800 million, which would free up a few hundred million more in balances for transfer to the Highway Trust Fund if spending stays around the current $91 million per year level.

But after the Budget went to press, the White House proposed a one-time $350 million balance spend-down to go in the FY18 omnibus appropriations bill, which is not reflected in the Bulletin, either.