Highway Funding Crisis

What is the Highway Trust Fund?

The HTF, created in 1956, is a source of funding from the federal government designed to help local and state governments afford the construction and maintenance of major infrastructure. This aids them a lot; in 2022, local and state governments spent over $180 billion on highway spending.

The HTF is made up of two accounts: the Highway Account, which is mainly used for construction and maintenance costs for highways and bridges, and the Mass Transit Account, which makes capital expenditures on modes of public mass transit, including buses, railways, subways, ferries, and more. Both accounts depend on direct funding via grants and financing systems, like direct federal credit programs and tax-preferred bonds, to keep afloat.

The primary source of revenue for the accounts comes from what is called the “gas tax.” 83% of the HTF’s income comes from taxes on fuel for cars and trucks; currently, fuel tax rates sit at 18.4 cents per gallon for regular gasoline and 24.4 cents per gallon for diesel. The remaining 17% comes from taxes on heavy trucks (like semi-trailers) and tires.

State of Our Highways and Bridges: What is Causing the Highway Funding Crisis?

As A-to-Be reports in their white paper, America’s Transportation Infrastructure — A Funding Crisis, seven percent of America’s bridges have been designated structurally deficient. At the same time, the percentage of significant highways rated as being in poor or mediocre condition is approaching 20%. Highways and bridges are not as stable as they may seem; one violent collision can collapse a decades-old bridge, as seen with the Francis Scott Key Bridge in Baltimore, Maryland.

This can also be seen in traffic congestion. A 2022 report showed seven out of 20 of the world’s top congested cities are in the U.S., with Chicago ranked number two. Poorly managed infrastructure leads to slow economic activity, disadvantaging the country.

Why are federal and state governments not launching more revitalization projects for infrastructure, then? Mostly, it has to do with the imbalance between revenue and spending. Revenue is down for the HTF, mainly because the “gas tax” hasn’t been altered for inflation like other taxes have been. This has degraded the revenue power the tax has had over time since 18.4 cents buys 53% less in 2023 than it did in 1993.

Other issues plaguing the HTF’s revenue include:

• Rising construction costs
• Too many updates are required for the aging highway system
• Decreasing fuel consumption due to vehicles being more fuel-efficient and the rise of electric/hybrid cars
• People traveling less due to the popularity of remote work

The federal government cannot reach a consensus on how to fix the structural damage caused by the imbalance, resulting in periodic highway funding crises. While governments have managed to gather funding at the last second every couple of years, this isn’t a long-term solution, and more shortfalls are expected.

What’s Being Done to Solve the Highway Funding Crisis?

Currently, there isn’t a long-term solution in place due to the complexity of the situation. Lawmakers are considering several methods, but each has downsides that could negatively impact commuter and commercial driving. Let’s look at each method:

Increase the “Gas Tax”: The “gas tax” has been stuck at the same fixed rate since 1993. The most immediate solution, therefore, is to set it free by increasing the fuel tax rate immediately or gradually over the next few years. Even if it were increased by just one cent, the HTF would make between $1.7 and 1.8 billion per year. However, this may not be a long-term solution, as gasoline is losing relevance in transportation. People travel less or rely on fuel-efficient or electric/hybrid vehicles instead of traditional, gasoline-fueled ones. Increasing the gas tax will also likely affect rural residents, where miles are more significant and fuel-efficient/hybrid cars are less common, creating a disadvantageous divide between urban and rural areas.

Reduce Spending: Another solution is to reduce spending altogether, aligning the amount spent on construction projects with the revenue currently being made. However, this would reduce the number of construction projects being worked on, which could mean that infrastructure that needs drastic renovations will have to wait its turn. This also puts greater pressure on local and state governments to find other funding for infrastructure projects, which may have to come from their citizens’ tax dollars.

Find Alternate Revenue Source: The HTF can also find other avenues for funding. Two proposals for alternative revenues include adding a sales tax system to the retail price of gas and a mileage-based road user program, where drivers pay fees based on the miles they’ve driven. These proposals have economic and privacy issues, respectively, and need more legal considerations before implementation.