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Funding Federal-aid Highways Cover

Funding Federal-aid Highways

Office of Policy and Governmental Affairs

Publication No. FHWA-PL-17-011
January 2017

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7. The Highway Trust Fund

The previous chapters have only peripherally mentioned the Highway Trust Fund (HTF). This has been intentional. The HTF’s role as the source of liquidating cash for the Federal-Aid Highway Program (FAHP) has a limited impact on the financial procedures under which the highway program operates. However, the use of the Trust Fund provides a direct benefit to the highway program: it allows the program to operate with contract authority.

This chapter describes the history and operations of the HTF, its sources of revenue, and actions that Congress has taken in recent years to ensure that the Fund could pay its bills on a timely basis.

History and legal authorities

Prior to 1956, Congress funded Federal highway programs under the public finance principle of “spend where you must, and get the money where you can.” Budget authority came through the granting of contract authority, as it does now. Congress levied Federal taxes on motor fuels and automobile products, but the receipts from these taxes were not linked to funding for highways. Instead, the Federal government used cash from the General Fund of the Treasury to liquidate previously-incurred obligations for the FAHP. Otherwise, the program operated in terms of authorizations, obligations, appropriations, and reimbursements—much as it does today.

The Federal-Aid Highway Act of 1956 increased authorizations for the Federal-aid Primary and Secondary Systems[67] and authorized significant funding of the Interstate System. The Highway Revenue Act of that same year established a budgetary mechanism—the HTF—with dedicated revenues to fund the expanded highway program. To support the increased authorizations, the Revenue Act increased some of the existing highway-related taxes and established new ones. It also credited most of the receipts from these taxes to the HTF, which was dedicated to funding Federal-aid highways.

A number of Trust Fund-related legal authorities periodically expire, including the imposition of the taxes that are dedicated to the HTF, the authority to place the receipts from those taxes into the HTF, and the authority to expend HTF revenues on Federal-aid highway projects. Congress exercises its spending power to periodically extend each of these authorities, and has done so repeatedly over the six decades that the Trust Fund has been in operation. The expiration date for the collection of user taxes is normally two years following the expiration of the authorization act.

Table 6 shows the dates on which each of these authorities will expire under the FAST Act.

Table 6. Expiration dates of Highway Trust Fund-related authorities
Legal authority to… Under the FAST Act, expires on…
Impose HTF-related taxes Sept. 30, 2022 [68]
Transfer these receipts to the HTF Sept. 30, 2022
Expend HTF revenues on Federal-aid highway projects Sept. 30, 2020

Sources of income

The HTF was created as a user-supported fund: highway users would pay taxes, the tax receipts would flow into the HTF, and HTF balances would be dedicated for use on highway projects (later expanded to surface transportation projects). This overall construct is still in place, but the tax structure has changed since 1956.

The HTF has three long-standing sources of income:

  1. Federal fuel taxes;
  2. Other Federal taxes on truck users; and
  3. Interest on invested balances.

Since the latter years of SAFETEA-LU, these sources have not yielded enough income to fully cover the HTF’s ongoing expenses. To keep the HTF solvent, Congress has on a number of occasions passed legislation to transfer additional amounts into the HTF. These transfers are described later in this chapter.

Federal fuel taxes. Subsequent to the 1956 establishment of the HTF, a number of laws have increased Federal fuel taxes—most recently in 1993:

The Federal-aid Highway Act of 1959 included the first post-1956 Federal gas tax increase, increasing the tax from three cents per gallon to four cents per gallon.

The Surface Transportation Assistance Act (STAA) of 1982 and the Deficit Reduction Act of 1984 made major revisions to the highway taxes, including another increase in Federal motor-fuel taxes. The 1982 STAA also established a special Mass Transit Account in the HTF and directed a portion of the motor-fuel tax to that new account.[69] The rest of the tax remained dedicated to the original portion of the Trust Fund, referred to as the “Highway Account.”

The Omnibus Budget Reconciliation Act of 1990 (OBRA 90) increased the Federal gasoline tax by another five cents per gallon (up to 14.1 cents per gallon), effective December 1, 1990. It also established a “first” for the HTF: half of the revenues derived from the five-cent increase went to the General Fund of the Treasury for deficit reduction. Before that time, virtually all revenues from Federal motor fuel (and other highway-related Federal excise taxes) had been credited entirely to the HTF.[70] The General Fund portion of the tax was imposed on a temporary basis through September 30, 1995.

The Omnibus Budget Reconciliation Act of 1993 (OBRA 93) increased the Federal gas tax yet again, this time by 4.3 cents per gallon, effective October 1, 1993 (and with no expiration date). The increase brought the gasoline tax to 18.4 cents per gallon, and the entire amount of the increase was directed to the General Fund of the Treasury for deficit reduction. The law also permanently extended the General Fund fuel tax imposed by OBRA 90 and directed those revenues (except in the case of certain alcohol fuels) to the HTF, effective October 1, 1995.[71]

In addition to increasing Federal fuel taxes, Congress has also passed laws to redirect certain fuel tax revenues:

The Taxpayer Relief Act of 1997 redirected the revenues from the 4.3-cents per gallon levied under OBRA 93 from the General Fund to the HTF, effective October 1, 1997.

The Surface Transportation Extension Act of 2004, Part V (STEA 04-V) redirected to the Highway Trust Fund the portion of the gasohol tax that had continued to be deposited in the General Fund under the provisions of OBRA 90 and OBRA 93. This redirection was effective for the period October 1, 2003, through September 30, 2004.

The American Jobs Creation Act of 2004 (AJCA 04) made the STEA 04-V redirection permanent. It also eliminated gasohol’s partial exemption from the gasoline tax, which had been enacted in 1978 as an incentive to alternatives to petroleum fuels. In lieu of the exemption, AJCA 04 authorized the General Fund to pay a credit to eligible filers.

Table 7 lists the rate currently in effect for each Federal fuel tax. Appendix K shows the history of the highway fuel tax rates since the creation of the HTF.

Truck-related Federal taxes. In addition to the fuel taxes, there are three other Federal excise taxes that target heavy trucks to support the HTF:

  1. A tax on the sale of certain new heavy-duty trucks;
  2. A fee assessed annually on heavy vehicles that operate on public highways; and
  3. A tax on certain heavy truck tires.

Table 7 lists the rate currently in effect for each of these taxes.

Table 7. Current Highway Trust Fund tax rates
Tax type Tax rate
Federal fuel taxes
Gasoline and gasohol 18.4 cents per gallon
Diesel 24.4 cents per gallon
Special Fuels:  
General rate 18.4 cents per gallon
Liquefied petroleum gas 18.3 cents per gasoline-equivalent gallon
Liquefied natural gas 24.3 cents per gallon diesel-equivalent gallon
M85 from natural gas 9.25 cents per gallon
Compressed natural gas 18.3 cents per gasoline-equivalent gallon
Other Federal taxes on truck users
Tires: (maximum rated load capacity)  
0-3,500 pounds No Tax
Over 3,500 pounds 9.45 cents per each 10 pounds in excess of 3,500
Truck and Trailer Sales 12 percent of retailer’s sales price for tractors and trucks
over 33,000 pounds gross vehicle weight (GVW) and
trailers over 26,000 pounds GVW
Heavy Vehicle Use Annual tax: Trucks 55,000 pounds and over GVW, $100
plus $22 for each 1,000 pounds (or fraction thereof) in
excess of 55,000 pounds (maximum tax of $550)

Proceeds from penalties and interest. The HTF also benefits from a few other sources of non-tax revenue, such as penalties. Since October 30, 1984, the proceeds from fines and penalties imposed for violation of motor carrier safety requirements have been deposited in the Highway Account.[72] Similarly, since October 22, 2004, the proceeds of certain penalties imposed by the Internal Revenue Code related to highway-user taxes have been deposited in the Highway Account.[73] Effective October 1, 2015, the net proceeds of certain NHTSA motor vehicle safety penalties are also deposited in the Highway Account.[74]

In addition, the HTF collects interest on its invested balances. By law, the Treasury Department must invest in public debt securities any balance in the HTF beyond that which is needed to cover current expenses of programs funded from the HTF.[75] From October 1, 1998, through March 17, 2010, the HTF was prohibited by law from receiving interest on these investments.[76] However, prior to that period—and since March 18, 2010—the Treasury Department has invested HTF balances in interest-bearing securities, and has credited interest from those securities to the Trust Fund.

Transfers to maintain solvency. Beginning in Fiscal Year (FY) 2008, and in each subsequent fiscal year to date, the HTF’s outlays have exceeded the revenues it has received from the afore-mentioned sources. To ensure that the Trust Fund could promptly pay its bills, Congress has passed a number of laws that have transferred amounts from other sources into the HTF. The majority of these funds have come from the General Fund of the Treasury, but some originated elsewhere; for example, Congress has in recent years transferred some funding into the HTF from the Leaking Underground Storage Tank Trust Fund.

Table 8 lists the amounts that Congress has transferred in this manner (or in the case of FY 2017 and 2018, scheduled for transfer).

Table 8. Transfers to ensure Highway Trust Fund solvency
Fiscal Year To Highway Account
($ billions)
To Mass Transit Account
($ billions)
2008 $8.0 $-
2009 7.0 -
2010 14.7 4.8
2011 - -
2012 2.4 -
2013 1/ 5.9 -
2014 1/ 18.4 4.0
2015 6.1 2.0
2016 52.0 18.1
2017 2/ 0.1 -
2018 2/ 0.1 -
Total $114.7 $28.9
1/ Amounts shown are net of any required sequester
2/ Scheduled for October 1, 2016, and October 1, 2017, respectively

Collection of taxes

Collection and deposit. The Federal government does not directly collect from the consumer most of the excise taxes credited to the HTF. Instead, these taxes are typically paid to the Internal Revenue Service by the producer or importer of the taxable product; as exceptions, the tax on trucks and trailers is paid by the retailer, and the heavy vehicle use tax is paid by the heavy vehicle owner. As a result, most of the Federal fuel taxes come from a handful of States (those where major oil companies are headquartered) and most tire taxes are paid from Ohio (the home of the U.S. tire industry). Of course, all of these taxes become part of the price of the product, and are ultimately “paid” by the highway user.

User taxes are deposited in the General Fund of the Treasury and the amounts equivalent to these taxes are then transferred to the HTF. Transfers are required to be made at least monthly on the basis of estimates by the Secretary of the Treasury and later adjusted up or down on the basis of actual tax receipts.[77] And as described earlier, amounts in the HTF are invested in public debt securities.

Attribution to the States and the question of equity. Since there is considerable focus on each State’s contributions to the HTF, FHWA estimates the amount of taxes paid by the highway users of each State. The FHWA calculates this estimate on the basis of data reported by State motor-fuel tax agencies.

Highway users in some States pay more in user taxes than those States receive back in Federal-aid highway apportionments and allocations. Such States have at times been referred to as “donor” States—in contrast to “donee” States that pay less in user taxes than they receive in Federal-aid highway apportionments and allocations. There has been a longstanding debate on the how to balance the Nation’s need for a strong, connected highway system in every State with the desire for an equitable return on State contributions to the HTF. In response, Congress has included in authorization acts a variety of provisions to address the balance.

The specific approach has varied among acts, as has the range of States that benefitted. For example, STAA, ISTEA, TEA-21, and SAFETEA-LU each authorized separate equity programs, from which FHWA apportioned funding to States that met statutorily-specified criteria. In contrast, neither MAP-21 nor the FAST Act authorized a specific equity program. Instead, they each required FHWA to increase the total apportionment of each State for which the apportionment did not meet a certain mathematical threshold, and to proportionally decrease the total apportionments of all other States by an equal and offsetting amount. The threshold for this “equity adjustment” is whether a State’s total apportionment equals at least 95 cents for each dollar of contributions to the Highway Account of the HTF that FHWA attributes to the State’s residents (based on the most recently-available data).[78]

Trust Fund operations

Table 9 describes the operations of the Highway Account in FY 2015. As the table shows, the Highway Account began that year with a balance of $11.4 billion. That year the Treasury Department made a statutorily-required transfer of $6 billion from the General Fund to the Highway Account. However, even after accounting for that transfer, the account’s outlays exceeded its income by $1.1 billion for the year. Furthermore, that year FHWA transferred a net total of $1.2 billion from the Highway Account to the Mass Transit Account. After all of this, the Highway Account ended the year with a balance of $9 billion.

Table 9. Operation of the Highway Account, FY 2015
  $ billions
Balance, beginning of FY 2015   11.376
Gross tax receipts 36.738  
Transfers to other funds - 0.997  
Interest and penalties 0.026  
Transfer from General Fund [79] 6.068  
Net income 41.831  
Outlays - 42.952  
Income less outlays   - 1.118
Transfers to Mass Transit Account (MTA) - 1.246  
Transfers from MTA 0.029  
Total impact of MTA transfers   - 1.217
Balance, end of FY 2015   9.040

Transfers to other funds. Taxes on gasoline and special fuels used in motorboats are dedicated to the Sport Fish Restoration and Boating Trust Fund[80] with $1 million of that amount annually transferred to the Land and Water Conservation Fund. Tax receipts from gasoline used in small engines, such as lawnmowers and chain saws, are also dedicated to the Sport Fish Restoration and Boating Trust Fund. Such uses cannot be determined from the fuel tax returns filed by the taxpayers, which are typically oil companies. Therefore, the receipts are initially deposited into the HTF along with the highway fuel taxes. From there, the Treasury Department estimates the portion of the taxes deposited in the HTF derived from such uses and transfers those tax receipts to the appropriate Trust Fund.[81]

Taxes on aviation fuels are intended for the Airport and Airway Trust Fund (AATF). However, because aviation kerosene (jet fuel) can be used as a substitute or additive to highway diesel fuel and is taxed as a lower rate than highway diesel, most aviation kerosene is initially taxed as highway diesel fuel with the receipts deposited into the HTF. When aviation users claim their tax refunds, the Treasury Department charges the refunds to the HTF and transfers the remainder of the tax to the AATF.[82]

As Table 9 indicates, transfers to other funds totaled to $997 million in FY 2015.

Significance of the balance

The balance of the HTF has long been a point of controversy. Because of the nature of a “reimbursable” program like the FAHP, there may be cash in the fund that is not needed for immediate use. It is important to understand that this is not a “surplus,” or excess cash. Rather, those amounts will be needed over time to pay States as they submit vouchers related to prior obligations.

A comparison of the HTF operation to a personal financial situation may help clarify this point. Imagine a person who has a checking account balance of $500, has outstanding monthly bills of $1,000, and will receive another $500 in a paycheck at the end of the month. The current $500 balance cannot be considered excess, given the bills that will soon come due. However, the account also is not in a deficit situation, given the projected income.

The HTF operates in a similar manner. At the close of FY 2015, the Highway Account held a cash balance of $9 billion (see Table 10). At the same time, though, there were $64 billion in unpaid commitments against the HTF: authorizations that FHWA had previously apportioned or allocated to States (and other eligible recipients), but for which the Treasury Department had yet to outlay cash. Therefore, the $9 billion balance was not excess cash.

The true reflection of the status of the HTF is the difference between commitments and income, considering in each case the full period of time over which the Trust Fund is authorized to operate. This difference is the amount that Congress considers when proposing any new commitments (additional authorizations). However, it is also important to remember that any such calculation is based on revenue projections, which can change from time to time.

Byrd Test

During initial consideration of the HTF in the 1950s, some in Congress raised concerns about the ability of the new fund to sustain itself: specifically, that the proceeds of the taxes dedicated to the HTF might prove insufficient to make reimbursements when claims were made. In response to those concerns, Congress included in the 1956 law a provision that required the Treasury Department periodically to compare the HTF’s outstanding commitments against the HTF’s expected resources (current and future), and to reduce highway apportionments if necessary to keep the two in balance. This comparison is referred to as the Byrd Amendment, or the Byrd Test.[83] The Mass Transit Account is subject to a similar, but separately calculated, test, known as the Rostenkowski Rule.[84] Congress has changed the exact requirements of the Byrd Test several times over the life of the HTF, most recently in SAFETEA-LU.[85]

The current version of the Byrd Test hinges on whether the HTF’s “unfunded” authorizations exceed the total revenues that the Treasury Department projects the HTF will earn over the following four year period. The Treasury Department calculates this quarterly, with unfunded authorizations defined as:

If unfunded authorizations exceed projected revenues, FHWA must reduce the current year’s highway apportionments by an equal and offsetting amount. [86]

As an example, Table 10 shows the amounts that the Treasury Department considered when carrying out the Byrd Test for the first quarter of FY 2016. At that time, Treasury determined that the Trust Fund had “passed” the Byrd Test, with HTF resources exceeding HTF commitments. However, if that calculation had shown commitments exceeding resources, FHWA would have proportionately reduced all FY 2016 highway apportionments.

Table 10. Calculation of initial FY 2016 Byrd Test.
  $ billions
Outstanding Highway Account authorizations not paid as of September 30, 2015 64
Less: Highway Account cash balance as of September 30,2015 - 9
Unfunded authorizations 55
Anticipated Highway Account revenues during FYs 2017-2020 138

Over the history of the Trust Fund, the FHWA has twice reduced apportionments under the Byrd Test: Interstate System construction apportionments for FY 1961 and all Highway Account apportionments for FY 2004. However, the current version of the Byrd Test is a less stringent method of measuring sustainability, and has reduced the likelihood that a reduction will be triggered.[87] No Byrd Test reductions are anticipated for the foreseeable future.

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