All About the Highway Trust Fund…

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Somewhere between storming the beaches at Normandy and marching into Berlin, General Dwight D. Eisenhower became enamored with the German Autobahn system of superhighways, and so resolved to create a similar system in the United States — or so goes the legend.

After the war, America began to build out from its crowded urban cores, placing new homes and businesses where before there was farmland and wilderness. At first, these new developments were reachable only by hastily expanded surface streets, and longer distance trips used the U.S. Highway system of two-lane roads first designed in the 1920s.

For a forward thinking superpower, this was not enough. Enter the Interstate Highway System — and the Highway Trust Fund that literally paid to pave its way.

The year is 1956. Then-President Eisenhower signed into law the Federal Aid Highway Act of 1956 that created the Interstate and Defense Highway System of modern untolled, limited-access highways. The new law also fundamentally changed the way federal highways were funded. Instead of subjecting highway funding to the annual whims of Congress, highways would now be financed out of a dedicated fund with a defined revenue stream.

The newly created Highway Trust Fund (the Fund) levied a $0.03 per gallon tax (equal to $0.26 in 2016, according to the Bureau of Labor Statistics inflation calculator) on motor fuels to fund federally sponsored highway construction and maintenance, according to the Federal Highway Administration. The tax increased to $0.04 ($0.32) per gallon in 1961 and increased again in 1982 when then-President Ronald Reagan signed an increase to $0.09 ($0.22) per gallon into law. The tax increased again in 1986 to $0.10 ($0.22) and most recently to $0.184 ($0.30) per gallon in 1993. the Fund also taxes Ultra Low Sulfur Diesel sold for on-road use at $0.244 per gallon.

While taxes on gasoline and diesel fuel make up 86.5 percent of the Fund’s revenue, according to the website Statista.com, taxes on heavy trucks and trailers provide 9.6 percent of revenue, taxes on buses and other heavy vehicles contribute 2.5 percent, and taxes on heavy-truck tires tack on the final 1.3 percent of revenue for the Fund.

Since its creation in 1956, the Highway Trust Fund’s spending has diversified. The same 1982 law President Reagan signed into law raising the fuel tax to $0.09 per gallon also created the Mass Transit sub-account to fund public transportation projects, according to the Federal Highway Administration. Under that law, $0.08 per gallon went to highway projects, while $0.01 per gallon went to the new Mass Transit sub-account. Later, the 1986 gas tax increase signed into law by George H.W. Bush raised the tax to $0.10 per gallon and directed the $0.01 increase to fund cleanup of leaking underground storage tanks, according to the Environmental Protection Agency. The 1993 increase was originally part of a deficit reduction package, but was redirected to the Fund by the Taxpayer Relief Act of 1997 signed by President Bill Clinton.

In the fiscal year ending September 30, 2015, the Fund received $40 billion from dedicated taxes on fuel, tires, and other sources. The Fund also received $8 billion from the U.S. Government’s general fund. It spent $43 billion on highway projects, and $9 billion on mass transit projects, according to the Federal Highway Administration.

The general fund infusion isn’t technically from the general fund, which receives its bankroll mostly through income taxes, and pays for things like the Department of Defense, the Department of Education, and the National Parks Service. Instead, the transfer is siphoned from other monies that would ordinarily be paid into the general fund. Since money is fungible, it’s as good as a general fund transfer.

Since 2008, general fund transfers to the Fund became common as emergency stopgap bills sought to temporarily prop up the Fund without increasing fuel and other transportation taxes. Currently, the long-term Fixing America’s Surface Transportation Act (FAST Act) guarantees a total of $70 billion in transfers from the general fund to the Highway Trust Fund thru 2020, according to StreetsBlog.org. The transfers will come from: $53.3 billion from the Federal Reserve’s surplus, $6.9 billion from dividends that would have been paid to commercial banks that are members of the Federal Reserve System, $5.2 billion in customs fees, $6.2 billion from selling off a fraction of the strategic petroleum reserve, and $2.4 billion from privatizing certain Internal Revenue Service functions, according to Forbes.

Budgetary shenanigans aside, criticisms of the Fund come from many points across the political spectrum. Conservatives complain about spending for public transit projects, arguing that public transit should be funded some other way, or exclusively by state and local governments. Disciples of Ronald Reagan also point to hybrids and EVs that pay little or no taxes into the fund due to their failure to burn much gasoline. Liberals complain that fuel taxes are somewhat regressive, hitting lower-income motorists harder than 1%-er drivers, and that current laws don’t allow much flexibility for state and local governments to use money marked for highway use for alternatives like expanded commuter train service.

Neither party in Congress is in much hurry to raise fuel taxes for myriad reasons. Some transportation commenters say fuel taxes should increase because the current $0.184 levy has lost much of its value to inflation since it was last raised. Others want to pursue entirely different funding models, such as tolls and annual per-mile charges like the pilot program Oregon implemented in 2012.

Few believe the current system of highway and surface transportation funding is sustainable over the long-term, but workable alternatives have gained little political support.

This story originally appeared on The Truth About Cars

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