What are the Pros and Cons of the Current Highway Funding Structure

The Highway Trust Fund

The financing and funding of highways and public transportation, in general, have been fixed for many years.

The current highway funding structure is based on the use of the Highway Trust Fund.

This is a fund that receives funding from taxation on motor fuels. This is a fixed system that relies on transportation-related excise taxes.

A critical problem with this system is that the tax rates for transportation-related excise taxes have remained constant since 1993.

However, the demands of the federal surface transportation programs have changed. As a result, the Highway Trust Fund requires more funding from other sources to remain solvent because the current structure is insufficient.

The Pros and Cons of the Current Highway Funding Structure

Pros

• Funding comes from taxes on fuel which is a commodity that relies on surface transportation program
• The reliance on taxes from motor fuel means a good source of revenue for the Highway Trust Fund is available but on if it is properly structured.
• A focus on motor fuel taxes for the funding creates an incentive for environmental conservation.

Cons

• The government is forced to use general revenues to fund the Highway Trust Fund because, since 2008, tax revenue from motor fuel has not been sufficient.
• Congress is unwilling to increase the tax rate on motor fuel, and this means that funds remain constant despite change
• The tax rate on motor fuel does not take into account the cost of inflation

The Reliance on General Revenues

The Highway Trust Fund relies on funds from tax revenue, which has been sufficient to meet the needs of outlays. However, the need for spending on surface transportation has grown beyond what was sustained before by tax revenue.

As a result, shortfalls have resulted in the use of general revenues which to sustain the fund. Every year outlays from the Highway Trust Fund are projected to exceed the reserves in the funds, which means that government spending from general revenues will continue to increase as a solution is developed.

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