Executive Summary

Congressional decisions on which transportation activities to prioritize and what funding levels to authorize are by no means easy decisions. But even more difficult is the decision on the source of funding for those transportation programs—so difficult, in fact, that there has been no decision made and no real funding solution provided for any of the transportation reauthorization laws passed since TEA-21 expired in 2003.

The source of revenues for these programs is critical because unlike programs that rely on annual appropriations, highway and transit programs are funded with contract authority from the Highway Trust Fund. Contract authority is a form of budget authority that confers many advantages; specifically, contract authority is considered mandatory spending, rather than discretionary, and therefore the contract authority spending from the HTF does not need to compete with other spending accounts and priorities within the Transportation Housing and Urban Development (THUD) appropriation bill’s limits on discretionary spending (referred to as 302(b) suballocations), or for space under discretionary spending caps when those are in place, as they were from 1991-2002 and from 2013-2022. However, contract authority is reserved for funding that originates from a trust fund with dedicated revenues. And without a decision for how to restore solvency, the HTF has become steadily underfunded, such that it may become difficult to defend the use of that prioritized form of budget authority. No decision is also a form of decision, and before long the country may arrive at a point where eliminating contract authority or another onerous outcome is the only choice remaining.

Instead of continuing to slide toward that future, this paper seeks to lay out the options clearly to facilitate Congressional consideration and decision making. Fortunately, while the decision is difficult, the choices are fairly straightforward.

Congress can cut spending down to current revenues—although the path for that is already impossible for the transit account on its own, which could be cut to zero new spending and still require four years of current transit account revenues just to pay out the obligations from prior years. But by rebalancing the distribution between the highway and transit account, and cutting all new transit and highway authorizations by half, Congress could achieve Highway Trust Fund (HTF) solvency with no new revenue.

A second option: Congress can increase revenues to current spending. New revenues could take a variety of forms. Increasing the existing HTF revenues with an immediate 10 cent increase to the motor fuel taxes followed by gradual upward adjustments until they reach an increase of 17.8 cents per gallon by 2036 would close the solvency gap. New revenues could also be generated by vehicle registration fees or a VMT fee—a $120 registration fee on all vehicles or a 2.4 cents per mile fee would fill the shortfall by our calculations, although either option would involve addressing certain implementation challenges to ensure success.

Finally, there is the option to continue down the path of insolvency and for Congress to continue using the General Fund to support transportation programs, as has been done for the last 20 years now. Congress has steadily increased funding levels beyond revenues while also avoiding new taxes, and the de facto “solution” to enable this has been to backfill the shortfall with steadily larger transfers from the General Fund. This has taken the transportation programs to the point where in 2026, the receipts into the HTF will cover just 60 percent of its spending and that gap will continue to widen. In recent years, Congress has further expanded the amount of transportation spending outside of the HTF, in both annual appropriations laws and in a five-year advance appropriation in the Infrastructure Investment and Jobs Act (IIJA), which was designated as emergency spending.

It is possible that General Fund transfers and supplements will work for yet another cycle, and the highway and transit programs will continue to glide forward for another five- or six-year reauthorization period. However, an expiration date for that reauthorization would land in the mid-2030s, which will almost certainly ensure that discussions on HTF solvency become wrapped up in the insolvency crisis for the Social Security trust funds projected for 2032 and the Medicare Part A insolvency point in 2036. Amid this broader budgetary crisis it is dubious that transportation programs could continue to enjoy the advantages of contract authority spending when dedicated revenues cover just half of the actual spending. Determining a solution—before becoming embroiled in that wider set of revenue and spending challenges—will undoubtedly be to the benefit of those who prefer to see long-term funding that keeps pace with spending needs.

This paper explores how we have arrived at this point and seeks to objectively analyze each of the options for solvency: cut spending to meet revenues; increase revenues to meet spending; or keep using general revenue, either as bailouts to the HTF or as annual or advance appropriations. Any of these paths will bring substantial change to the HTF and the programs it funds, but it is just as clear that the current situation for the HTF is unsustainable. In the spirit of recognizing that change must come and analyzing all options, the paper concludes with a section on devolving the federal programs to states and evaluates state options for raising revenues instead.