Policy Analysis | March 2014

Highway Trust Fund Balance

Sujit CanagaRetna

The latest update (March 16, 2014) from the U.S. Department of Transportation (U.S. DOT) regarding the funding position of the Highway Trust Fund (HTF) contains the disturbing news that the HTF is under greater strain than previously indicated.1 The HTF, created by the 1956 Highway Revenue Act, is the source of funding (via the federal gasoline tax) for most of the federal government’s surface transportation programs implemented in states across the country. According to the U.S. DOT, the HTF’s balance could slump below $4 billion in late July 2014; just last month, in February 2014, US DOT had projected that the HTF would dwindle below $4 billion in early August 2014. (U.S. DOT attempts to maintain a minimum of $4 billion on hand to appropriately manage day-to-day financial transactions). The HTF is projected to run out of funds in early September, several weeks before last month’s slightly rosier estimates. Consequently, U.S. DOT officials have indicated that they are prepared initiate a number of cash management measures to prolong the solvency of the HTF, such as reimbursing states weekly instead of daily and only paying states a portion of their reimbursement requests, all strategies that will complicate the financial and strategic direction of state transportation departments.

The HTF comprises two funds: the highway account (funding highway projects) and the mass transit account (funding mass transit projects). On October 1, 2013, the first day of the current fiscal year (2014), the highway account had a balance of $1.6 billion in cash. Shortly thereafter, the account received a transfer of $9.7 billion from the General Fund. Given that disbursements out of this account have been occurring at a greater pace than inward receipts in the ensuing months, the account’s cash balance has declined by nearly $3.3 billion since the General Fund transfer in October 2013. As of the end of February, the highway account had less than $8.6 billion in cash. With regard to the mass transit account, while the account had a balance of $2.5 billion in cash at the start of the current fiscal year, the account received an infusion of $2 billion from the General Fund. While the latest US DOT report indicates that the account has a balance of $3.2 billion, the agency projects that the account will dwindle to about $1 billion by the end of the fiscal year.

The news about the alarming funding position of the HTF already has triggered responses from state transportation departments as they make decisions on future projects in preparation for the busy summer construction season. For instance, the Arkansas State Highway and Transportation Department (AHTD) announced in mid-March that it was deleting 10 projects from its planned list of highway projects scheduled to commence later in the year because “the department may not have adequate funds to ensure full payment to contractors during this period of reduced federal reimbursement.” Specifically, AHTD noted that after scrutinizing available state and federal funds for the scheduled projects, the possibility of the state receiving full and timely reimbursements from the federal government propelled the decision to suspend the projects. The suspended projects, amounting to $60 million, were spread over several counties and included highway rehabilitation and widening, bridge replacements, traffic signal upgrades and highway connections. The Department also indicated that the agency would continue to monitor the situation and suspend additional projects going forward, if necessary.

In a similar vein, the Missouri Highways and Transportation Commission (MHTC) ceased adding new projects to its five-year construction budget and suspended its popular Cost-Share Program earlier this year.2 (Missouri’s Cost Share Program builds partnerships with local entities to pool efforts and resources to deliver state highway and bridge projects.) The Commission’s officials cited growing uncertainty about future federal transportation funding, evaporating fuel tax revenues and increasing costs of doing business as the factors driving this decision. In fact, Missouri officials cited the looming insolvency of the HTF in fall 2014 as a major reason for limiting any new highway and infrastructure projects.

In North Carolina, in late March 2014, Governor Pat McCrory informed state business leaders that North Carolina’s transportation improvement projects will stall if Congress failed to avert the expected bankruptcy of the HTF this summer.3 Given that federal transportation funds account for about 28 percent of state transportation spending in North Carolina, the state’s Transportation Secretary Tony Tata indicated that “[W]e’re going to have to stop writing checks in July or August this year if the federal government does not reauthorize the transportation law.” North Carolina officials, both public and private, have been pressing Congressional leaders to authorize transportation spending in five year allotments (not the two year timeframe contained in MAP-21) and establish new legislation that would protect the solvency of the HTF, enable state transportation departments to embark on multi-year transportation projects and provide states with more flexibility in how they make transportation improvements.

In the context of the tenuous funding position of the HTF and the enormous challenges this places on the trajectory of state transportation departments, there is momentum at the state level to initiate independent actions to bolster state infrastructure and transportation funding. Furthermore, notwithstanding the dominant federal role and influence over our nation’s transportation policy, there is a noticeable transformation currently in progress: an increase in the decision-making authority of state governments with regard to federal transportation funds. This trend is evident in the latest iteration of the federal transportation reauthorization, Moving Ahead for Progress in the 21st Century or MAP-21, signed into law in July 2012 and scheduled to expire on September 30, 2014. In addition, given that recent federal transportation reauthorizations have been very late, stricken by partisan gridlock, and funded at inadequate and stagnant levels, a number of state governments have been forced to initiate and implement their own plans to fund essential transportation and infrastructure projects. The value of states devising their own strategies to embark on essential transportation and infrastructure investments only has been magnified in the context of the latest details regarding the enfeebled HTF. In fact, AHTD Director Scott Bennett (a presenter at the upcoming Economic Development, Transportation and Cultural Affairs Committee session at the 2014 SLC annual meeting in Little Rock) noted that “[W]e are hoping that a long-term revenue solution for the federal HTF can be found so that we in Arkansas and across the country can continue to award construction projects and adequately invest in our nation’s infrastructure.”


Highway Account of the Highway Trust Fund (HTF)

Chart of end of month cash balances for the highway account

Source: http://www.dot.gov/highway-trust-fund-ticker

Abbreviations:

FHWA ‐ Federal Highway Administration

FMSCA ‐ Federal Motor Carrier Safety Administration

NHTSA ‐ National Highway Traffic Safety Administration


Mass Transit Account of the Highway Trust Fund (HTF)

Chart of end of month balances for the mass transit account

Source: http://www.dot.gov/highway-trust-fund-ticker

Abbreviations:

FTA ‐ Federal Transit Administration


References

1 Information for this document is extracted from the U.S. Department of Transportation’s Highway Trust Fund Ticker, http://www.dot.gov/highway-trust-fund-ticker (accessed on March 25, 2014) and ‘Arkansas Transportation Department Suspending Projects Due to Highway Trust Fund Uncertainty,’ AASHTO Journal, March 24, 2014, http://www.aashtojournal.org/Pages/032114ArkansasProjects.aspx (accessed March 24, 2014).

2 ‘Bleak Financial Forecast for MoDOT,’ MoDOT News Release, January 23, 2014, http://www.modot.org/newsandinfo/District0News.shtml?action=displaySSI&newsId=192529 (accessed March 25, 2014).

3 ‘Federal transportation dollars could dry up this summer, NC Gov. Pat McCrory says,’ The News-Observer, March 26, 2014, http://www.newsobserver.com/2014/03/26/3735259/federal-transportation-dollars.html?sp=/99/102/105/135/#storylink=cpy.