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Wednesday, September 14, 2011

Surface Transportation Funding and Finance

Robert S. Kirk
Specialist in Transportation Policy

William J. Mallett
Specialist in Transportation Policy

Federal surface transportation programs are currently funded primarily through federal fuel taxes on gasoline, diesel, and other fuels that are deposited in the highway trust fund. Although there has been some modification to the tax system, the basic fuel taxes have not been increased at the federal level since 1993. Prior to the recession that began in 2007, annual increases in driving, with a concomitant increase in fuel use, were sufficient to keep revenues rising steadily on an annual basis. This is no longer the case. Further, future changes in the nation’s vehicle fleet as a result of federal fuel economy standards, including increased use of electric hybrid and fully electric vehicles, are expected to suppress future fuel use even if annual increases in vehicle mileage resume.

Congress has yet to address the surface transportation program’s revenue issues, except by increasing transport spending from the U.S. Treasury general fund. Many Members of Congress have expressed an aversion to raising fuel taxes, and alternative methods of financing surface transportation have not received serious legislative consideration.

These financial issues have delayed reauthorization of federal surface transportation programs. In the past Congress has reached agreement on reauthorization only when it could count on sufficient revenues to meet many of the competing demands for funding. With efforts to reauthorize the existing, but already expired, surface transportation program at a standstill, the programs authorized by the Safe, Accountable, Flexible, Efficient Transportation Equity Act: A Legacy for Users (SAFETEA-LU or SAFETEA) (P.L. 109-59) continue to operate as a result of extension legislation and cash infusions to the trust fund from the U.S. Treasury general fund.

This report focuses on possible revenue sources for surface transportation infrastructure. It begins with a brief discussion of the problems associated with the trust fund financing system and then explores possible immediate and longer-term solutions to the financing problem. Some of the major issues discussed in this report are:

  • Raising motor fuel taxes offers a simple short-term solution to the revenue issue, but is not a long-term solution due to likely future declines in fuel consumption. 
  • Proposals such as replacing current motor fuel taxes with a fuel sales tax or a fee based on vehicle miles traveled (VMT) pose their own problems, and in any event will require overcoming numerous administrative and political barriers. 
  • The trust fund system itself may be a barrier to increased or more effective federal transportation spending, and its continuation in its current form could be reconsidered. 
  • The general aversion to taxation in the current economic climate has drawn attention to private and nontraditional funding sources, such as tolls, leveraging private capital through pubic-private partnerships (PPPs), existing federal loan guarantees, and creation of a national infrastructure bank. These nontraditional funding mechanisms could potentially make an important but somewhat limited contribution to overall national infrastructure needs.

Date of Report: September 2, 2011
Number of Pages: 32
Order Number: R41490
Price: $29.95

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