The Highway Trust Fund is running out of money, but there are options available to help replenish it.
As more Americans shifted to working from home because of the pandemic, state governments and transportation agencies have seen declines in ridership and gas tax receipts. The gas tax is the leading source of revenue for the federal Highway Trust Fund, which is down 49% from May 2020, according to Anirban Basu, chief economist for Associated Builders and Contractors.
In addition, projections made in mid-2020 show that state transportation departments will face an average revenue decline of 30% over the next 18 months.
"All of sudden you have things like remote work. People are commuting less. If they're commuting less, they're using less gasoline. Less gasoline means less fuel taxes for the Highway Trust Fund," said Basu during an online session of the 2021 Construction Financial Management Association Conference last month. "They're also shopping more online; we're having meetings on Zoom. All of these things affect the demand for fuel and therefore the revenues available to the Highway Trust Fund."
Since the pandemic began, 16 states and 20 local governments have announced delays or cancellations of projects, totaling around $9.6 billion, according to the American Road & Transportation Builders Association review of public data in July 2020. Ten states or local areas have vetoed, canceled or postponed legislative plans related to transportation funding. Lastly, 44 states, transportation authorities and local governments publicly projected revenue losses.
But confidence in the industry remains high despite these delays and cancellations. The Senate recently voted to advance a bill which includes $550 billion in new federal funding for infrastructure, and specifically $110 billion for roads, bridges and other major infrastructure projects.
"At the same time what I see from contractors, including heavy hiring contractors, is some degree of confidence that work is coming back," said Basu. "That it is easy to get work done now that COVID-19 is beginning to dissipate, although I understand again that very recently we have seen a pickup thanks to the delta variant, but it's not nearly as bad as it was, say, earlier this year before many of us were vaccinated."
On the brink
The loss of this source of public revenue across the country could translate into less funding for infrastructure. Without legislative action, the Highway Trust Fund will be depleted at the start of fiscal year 2022, which begins on Oct. 1.
For this reason, legislators are considering several actions to increase the resources available in the Highway Trust Fund, according to Basu. These include:
- Transferring money from the Treasury Department's General Fund, which is beginning to run out, said Basu.
- Increasing fuel taxes. For example, increasing the fuel tax by 15 cents per gallon in October 2022 and indexing it to inflation would eliminate the fund's shortfall and provide $95 billion for additional spending by 2031, according to Congressional Budget Office projections.
- Adopting new taxes. This could be a vehicle-miles-traveled tax on certain types of vehicles or freight. If a 5-cent-per-mile tax on trucks were in place in 2017, that would have generated between $4 billion and $13 billion that year, according to the CBO.
"None of these is a perfect solution. Whatever you do to fund infrastructure, someone will be upset," said Basu. "Whether that is people paying more in gasoline taxes, people paying additional taxes for heavy trucks or people paying a new vehicle miles traveled tax that they have not been paying in the past."
Still, as insolvency looms, Basu said he remains certain that lawmakers will pass policies to assist with the issue. He added that state and local government finances held up much better during the pandemic than anticipated, and that it appears the U.S. will be spending more on roads over the next several years.