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Updated November 19, 2018
Highway and Public Transit Funding Issues
Federal highway and public transportation programs and
surface transportation law to include significant intercity
activities are funded in surface transportation authorization
rail provisions, including authorization of Amtrak funding.
acts. The most recent is the Fixing America’s Surface
Transportation (FAST) Act (P.L. 114-94). Signed on
Funding Issues
December 4, 2015, the act funds federal highway and
Historically, all of the federal highway program and 80% of
public transportation programs through September 30,
the public transportation program have been funded with
2020.
revenues from the HTF. These revenues are raised from a
combination of fuel, truck, and tire taxes, with the fuel
The FAST Act provided a modest increase in annual
taxes providing 85% to 90% of the money in recent years.
spending on surface transportation from the previous level.
It funded this, in part, by transferring $70 billion from the
The excise taxes on gasoline and diesel are fixed in terms of
Treasury general fund to supplement other revenues that are
cents per gallon (18.3 cents for gasoline and 24.3 cents for
dedicated to the Highway Trust Fund (HTF), from which
diesel). They do not adjust for inflation or change with fuel
federal funds are distributed to state governments and
prices. The rates were last raised in 1993. Increases in
public transportation operators. However, the FAST Act did
gasoline and diesel consumption generally kept revenue
not address the widening gap between the dedicated
growing until the recession of 2007. Since that time,
revenues flowing into the HTF and the costs of the highway
improving fuel efficiency and modest growth in vehicle
and public transportation programs authorized by Congress.
mileage have slowed the increase in revenue from the taxes
More money will be needed after FY2020 if Congress
dedicated to the HTF. Spending from the HTF has
wishes to continue these programs at their current levels,
consistently exceeded that tax revenue. Unable to agree on
adjusted for inflation. The 116th Congress is expected to
tax increases or program reductions, Congress in 2008
address surface transportation reauthorization, including
began transferring funds, totaling $143 billion to date, from
consideration of how to deal with the persistent gap
the Treasury general fund to the HTF to fund the authorized
between projected HTF revenues and program costs.
programs.
The Federal-Aid Highway Program
The transfer of funds in the FAST Act provided short-term
The FAST Act provides an average of $45 billion annually
stability for the HTF by filling the gap between revenues
for highways. Of these funds, more than 90% are provided
and outlays through the life of the bill. However, the
to the states via formula. The states have nearly complete
underlying gap persists. It is projected to widen after the
control over the decisionmaking in regard to these funds,
FAST Act expires in 2020, as the impact of vehicle fuel
within the limits of federal planning, eligibility, and
efficiency standards grows and electric vehicles come into
oversight rules. Money is not provided up front. A state is
wider use. The annual difference between revenues and
reimbursed after work is started, costs are incurred, and the
outlays is expected to rise from $17 billion in FY2021 to
state submits a voucher to the Federal Highway
$23 billion in FY2026 (see Figure 1).
Administration. The highway programs are focused on
highway planning and construction, and do not support
Figure 1. Projected HTF Revenues and Outlays
operations or routine maintenance. The federal share of
project costs is generally 80%, but 90% for Interstate
System projects. In general, projects are limited to a
designated system of roads that make up roughly 25% of all
U.S. public roads.
The Federal Public Transportation Program
The FAST Act authorized an annual average of $12 billion
for the federal public transportation program over the life of
the bill. About 80% of this funding is distributed by
formula to local transit agencies. Most of the remaining
20% goes to the discretionary Capital Investment Grants
Program (New Starts), which supports construction of new
local rail, bus rapid transit, and ferry systems, and the
expansion of existing systems. Intercity rail programs are
Source: Congressional Budget Office.
not part of the federal public transportation program and
traditionally have not been authorized through surface
Trust fund shortfalls will likely become a problem in
transportation legislation. The FAST Act was the first
FY2021, once the transfer balances authorized in 2015 are
spent down. The HTF has two accounts, the highway
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Highway and Public Transit Funding Issues
account and the mass transit account. Both accounts are
billion a year for the HTF. Based on current fuel use, an
expected to be close to zero at some point in FY2021 unless
increase of 10 to 15 cents per gallon would be required to
Congress provides additional funding. Low account
fully fund highway and public transit programs at their
balances would probably require the Department of
current levels. Even if Congress were to approve such a
Transportation to slow reimbursements to states and transit
change, likely improvements in vehicle fuel efficiency and
agencies, as the law specifies that the accounts cannot incur
more use of hybrid and electric vehicles threaten the long-
negative balances. Based on current law, a future five-year
term viability of fuel taxes as the main source of surface
reauthorization bill would need to cover an $85 billion
transportation funds. Indexing fuel taxes to inflation and
shortfall, and a six-year bill would need to cover $109
fuel efficiency could extend the viability of the fuel taxes.
billion (see Figure 2).
Or Congress could impose other taxes and dedicate the
revenue to the HTF.
Figure 2. Projected Highway Trust Fund Shortfall
Tolling. Tolls could be used to pay for highway projects,
perhaps reducing the demands on the HTF. However, toll
systems can be expensive to administer and enforce, and
often can be evaded by motorists. Many roads may not have
enough traffic to make tolling worthwhile. Tolling is
unlikely to expand on a scale that would allow for major
reductions in federal grant spending in the near term.
Impose a Vehicle Miles Traveled (VMT) Charge. Also
called a mileage-based road user charge, a fee on each mile
traveled has been discussed for many years as an alternative
to the motor fuels tax. However, this revenue source has
privacy, implementation, and collection cost issues, and
Congress would still need to set the per-mile rate and raise
Source: Congressional Budget Office.
it as necessary.
What Are the Options?
Electric Vehicles. Since electric vehicles do not burn taxed
Continue Transferring General Funds. By FY2020, the
motor fuels, their wider use could further weaken the HTF.
last year of the FAST Act, federal highway programs will
Congress could consider imposing fees on electric vehicles
have been funded for 12 years under a de facto policy of
so that owners pay into the HTF in amounts similar to
providing a Treasury general fund share. Congress could
owners of gasoline and diesel vehicles. Several states have
make this permanent. However, in recent years Congress
imposed such fees.
has required offsets to assure that the transferred spending
will not increase the budget deficit, meaning that spending
Substitute Private Investment. Public-private partnerships
on other programs must be reduced or tax receipts increased
(P3s) to build new roads and bridges and long-term leasing
in amounts equal to the amounts of the transfers.
of existing government-owned facilities may reduce federal
costs in some cases. However, relatively few transportation
Cut Spending. Congress could reduce federal highway and
projects are suitable for large-scale private investment, and
public transportation spending to match the currently
investors often insist that the public sector retain the risk
projected revenues. This would require spending cuts
that traffic volumes will be below expectations.
approaching 30%. Cuts could be made across the board or
Infrastructure Legislation
by eliminating programs. They could be accompanied by
requirements that states and municipalities pay a greater
Congress is expected to consider an increase in surface
share of the cost of highway and public transportation
transportation spending as part of a broader infrastructure
programs. Congress could replace some grant funds with
package. This money could be distributed to state and local
increased lending through mechanisms like the
governments by the formulas established in the FAST Act,
Transportation Infrastructure Finance and Innovation Act
or could be allocated in a different way. One challenge will
(TIFIA) program; under law, $1 made available to TIFIA
be for Congress to ensure that states and localities do not
can generate approximately $14 of lending for
substitute any additional federal funds for their own
transportation projects.
spending, as this could adversely affect the total amount of
highway and public transportation spending.
Separate Public Transportation from the HTF. Under
More Information
this scenario, federal support for public transportation
would be provided from the general fund. However, if all
CRS Report R45350, Funding and Financing Highways
HTF tax revenue were dedicated solely to maintaining the
and Public Transportation, by Robert S. Kirk and William
current level of highway spending, a gap between annual
J. Mallett.
receipts and outlays would remain. The annual gap would
be $7 billion in FY2021, rising to $12 billion in FY2026.
Robert S. Kirk, Specialist in Transportation Policy
William J. Mallett, Specialist in Transportation Policy
Increase Tax Revenue. A 1-cent-per-gallon increase in
federal motor fuel taxes would raise roughly $1.5-$1.7
IF10495
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Highway and Public Transit Funding Issues
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