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Keep Highway Spending Within Our Means

Robert Poole
January 3, 2011, 12:49am

On Dec. 30, 2010, 21 transportation organizations sent a joint letter to the House leadership urging them to scrap a proposed rule change affecting federal highway and transit funding. It may sound arcane, but a very important principle is at stake here, so bear with me.

Federal highway programs are funded not from general tax revenue but from various highway user taxes, mostly the federal tax on gasoline and diesel fuel. Legally, all those monies constitute the source of funding for the Highway Trust Fund. When Congress decides on spending for highways (and since the Reagan era, for mass transit), the dollars are supposed to come from this Trust Fund.

What the appropriations committees used to do was to approve funding for those purposes that was less than the user-tax revenues coming in. That meant federal revenues for surface transportation exceeded federal spending in that area, which made the overall budget deficit look smaller than it really was—and was manifestly unfair to the highway users who were paying the bills. 

So in the reauthorization bill before last (called TEA-21), Congress created a “firewall” around the Trust Fund. A new provision guaranteed that annual highway and transit funding during the years of a reauthorization bill would equal the user-tax revenues coming in to the government each year. It’s this rule that the new House leadership proposes to scrap.

As an advocate for transparency and a supporter of the users-pay/users-benefit principle, my first reaction was the same as that of the 21 transportation groups. But upon doing some research, I think the status quo the groups wish to preserve is a disaster. The way the existing rule works is that in a six-year reauthorization bill, Congress adopts an estimate of each year’s highway user tax revenue. Based on that, it legally guarantees those same total annual amounts in highway and transit spending.

Thanks to higher oil prices and the recession, those fuel-tax projections were wildly optimistic this decade, to the point where the “guaranteed” spending in the last two years was 40% more than the revenue. And that is why Congress has poured some $34 billion in general tax money into the Trust Fund over the past three years.

General funding of the Trust Fund undercuts the users-pay/users-benefit principle. It therefore opens the door to attempts by the White House and other interested parties to divert Highway Trust Fund money to things like “livability,” “distracted driving,” and even high-speed rail. If this continues, it will transform the Highway Trust Fund into a general public works fund, removing the link between users-pay and users-benefit.


Robert Poole is Searle Freedom Trust Transportation Fellow and Director of Transportation Policy


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