Limit Highway Funding to Expected Highway Revenues

The Federal-Aid Highways Program provides grants to states for highway and other surface transportation projects. The last reauthorization for the highway program-- the Safe, Accountable, Flexible, Efficient Transportation Equity Act of 2005 (Public Law 109-59)--expired in 2009 and has been temporarily extended several times since then. Highway funding is provided as contract authority, a type of mandatory budget authority. However, most spending from the program is controlled by annual limitations on obligations set in appropriation acts.

Historically, most of the funding for highway programs has come from the Highway Trust Fund, which has two accounts. In 2010, the fund's highway account spent $32.0 billion and was credited with $30.2 billion in revenues. The fund also includes a mass transit account. Revenues credited to both accounts are generated by the federal taxes on gasoline and diesel fuels, as well as other federal taxes related to highway transportation. Since 2001, outlays from the highway account have been outpacing revenues credited to it by an average of about $2.8 billion per year. Because of that gap, the Congress has supplemented revenues dedicated to the trust fund with three separate transfers totaling $29.7 billion from the Treasury's general fund. In addition, the American Recovery and Reinvestment Act of 2009 (P.L. 111-5) appropriated $27.5 billion for highway programs from the general fund. About half of that amount--$14.2 billion-- was spent in 2009 and 2010; the Congressional Budget Office estimates that the remaining amount will be spent over the next several years.

This option would reduce federal funding for the highway system, starting in fiscal year 2012, by lowering the obligation limitation for the Federal-Aid Highways Program to the amount of projected revenues going to the highway account of the Highway Trust Fund. The federal taxes that directly fund the Highway Trust Fund would not change. CBO estimates that this option would reduce resources provided for the highway program by almost $48 billion from 2012 through 2016 and by about $108 billion over 10 years. Outlays would decrease by about $33 billion over the 2012-2016 period and $86 billion over the 2012-2021 period, CBO estimates.

A key rationale for this option is that federal funding for highways should come from highway users, not general taxpayers: first, because it is fairer if those who benefit from government spending pay for those benefits; and second, because resources are allocated most efficiently when beneficiaries pay and will therefore consider those user costs when determining their behavior. In that view, if the Congress believes that higher levels of federal support for highways are appropriate, it should increase the taxes that are credited to the Highway Trust Fund.

Another rationale for this option is that shifting more responsibility for highway construction and maintenance costs to the states not only would give the states stronger incentives to focus on projects with the greatest net benefits but also could reduce the substitution of federal spending for spending by state and local governments. (The Government Accountability Office reported in 2004 that the existence of federal highway grants has encouraged state and local governments to reduce their own spending on highways and to allocate those funds for other uses.) Supporters of this option might also contend that the revenues credited to the highway account of the trust fund are sufficient to fund an appropriate share of all highway projects with true interstate significance-- and those are the projects that should be the primary responsibility of the federal government.

An argument against this option is that the government should spend more on roads and bridges to offset the effects of aging and increased traffic. Federal support for the road network as a whole is appropriate, moreover, because even local roads support interstate commerce and strengthen the national economy--for example, by allowing Internet retailers to operate with large economies of scale. Another argument against this option is that the use of general taxpayer funds to supplement trust fund revenues from highway users is appropriate because money from the Highway Trust Fund is spent on nonhighway projects and purposes, such as public transit, sidewalks, bike paths, recreational trails, scenic beautification, and preservation of historic transportation structures.