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Wednesday, January 23, 2013

Funding and Financing Highways and Public Transportation



Robert S. Kirk
Specialist in Transportation Policy

William J. Mallett
Specialist in Transportation Policy


Federal surface transportation programs are currently funded primarily through taxes on motor fuels that are deposited in the highway trust fund. Although there has been some modification to the tax system, the tax rates, which are fixed in terms of cents per gallon, 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. This is no longer the case. Future increases in fuel economy standards are expected to suppress motor fuel consumption in the years ahead even if annual increases in vehicle mileage resume.

Congress has yet to address the surface transportation program’s fundamental revenue issues, and has not given serious consideration to raising fuel taxes in recent years. Instead, Congress has financed the federal surface transportation program by supplementing fuel tax revenues with transfers from the U.S. Treasury general fund. The most recent reauthorization act, the Moving Ahead for Progress in the 21
st Century Act (MAP-21; P.L. 112-141), signed by President Barack Obama on July 6, 2012, authorized spending on federal highway and public transportation programs through September 30, 2014 and provided for general fund transfers to finance the programs. MAP-21 did not address concerns about funding of surface transportation programs over the longer term.

This report begins with a discussion of the problems associated with the trust fund financing system (which supports both federal highway and public transportation programs) and then explores possible options for financing surface transportation infrastructure. Among the key points:


  • Raising motor fuel taxes could provide the highway trust fund with sufficient revenue to fully fund the program in the near term, but it may not be a viable long-term solution due to expected future declines in fuel consumption. 
  • Replacing current motor fuel taxes with a fuel sales tax or a fee based on vehicle miles traveled (VMT) raise a variety of financial and administrative concerns. 
  • The political difficulty of adequately financing the highway trust fund could lead Congress to consider the desirability of changes to maintain the trust fund system or eliminating it altogether. Such changes might involve a reallocation of responsibilities and obligations among federal, state, and local governments. 
  • Interest in improving transportation infrastructure with private and nontraditional funding sources, such as tolls, public-private partnerships (PPPs), and federal loan programs is increasing, but many projects may not be well suited to alternative financing.


Date of Report: December 26, 2012
Number of Pages: 30
Order Number: R42877
Price: $29.95

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