The Highway Trust Fund Is Running Low, Ctd

As the Highway Trust Fund approaches its fiscal cliff, the DOT is preparing to take drastic measures to ration funds for state infrastructure projects before the money runs out by the end of August. That is, unless Congress does something quick (ha!):

Any solution will need to pass the House of Representatives, whose own plan for funding DOT involves shuttering Saturday deliveries by the U.S. Postal Service—a plan that critics described as “unworkable” and “bad transportation policy.” The Congressional Budget Office estimates that DOT would require $8.1 billion to meet its obligations through Dec. 31. A spending solution that moved the deadline to the end of the year would push it past the November midterm elections, after which solutions like gas-tax increases might stand a chance. Senate Finance Committee Chairman Ron Wyden (D-Ore.) supports a $9 billion bill that would do exactly that: kick the ball down the road.

But the damage may be done already: Even if construction projects aren’t suspended in the middle of the summer construction season, states may be reluctant to launch big transportation infrastructure projects—especially since states depend overwhelmingly on federal funds for transportation spending. If the funding stream is shaky, the infrastructure planning will be, too.

Vinik looks over the options:

Congress is contemplating three proposals – none of them with broad support and all of them seriously flawed, for reasons I discussed last week. The White House proposal is not much better:

It’d use revenues from corporate tax reform as a short-term patch, which would mean we’ll be back in the same position four years from now. The optimal solution remains what it’s always been: Raising the gas tax by six cents in each of the next two years, then indexing it to inflation. By recouping the value lost to inflation and ensuring such erosion doesn’t happen in the future, this would make the Highway Trust Fund whole over the long-term.

It’s easy to see why the White House isn’t endorsing such a policy: It’s a political nightmare. Doing so would break the president’s promise not to increase middle class taxes. Beyond that, Republicans would never agree to it. Obama has spent enough of his presidency searching for a compromise by proposing politically risky policies. He’s not about to do it again with the gas tax. But that means it’s up to Congress to craft a sensible solution to this problem. So far, it’s not looking very good.

But Chris Edwards argues that excess spending is to blame for the shortfall, rather than a lack of tax revenue:

Tax-hike advocates say the gap is caused by insufficient gas tax revenues. It is true that the value of the federal gas tax rate has been eroded by inflation since it was last raised two decades ago. But the gas tax rate was more than quadrupled between 1982 and 1994 from 4 cents per gallon to 18.4 cents. So if you look at the whole period since 1982, gas tax revenues have risen at a robust annual average rate of 6.1 percent (see data here). In recent years, gas tax revenues have flat-lined. But the source of the HTF gap was highway and transit spending getting ahead of revenues, and then staying at elevated levels.

Previous Dish on the HTF here.