In March, the Eno Center on Transportation, a transportation think tank in DC, released a report on the state of the Highway Trust Fund. This is a summary of that report.
What the Highway Trust Fund Is
The Highway Trust Fund (HTF) is basically a bank account for transportation. The federal gas and diesel fuel tax, plus a few other taxes on commercial vehicles, are deposited into the HTF. Funds in the HTF account can only be spent on transportation projects authorized by Congress in a transportation reauthorization bill.
The existence of the HTF means there is a guaranteed source of transportation funds which then allows Congress to write multi-year transportation bills instead of having to debate on transportation funding every year.
From 1956 to 2009, this system worked well. In fact, it worked so well that Congress occasionally raided the HTF for the interest on its deposits to help pay for other programs. However, since 2009, the gas, diesel, and other taxes going into the trust fund have not kept up with demand.
This leaves the HTF with two big problems
Insolvency
The first problem is that there is not enough money coming in through the gas tax and other transportation taxes to pay for the funding authorized and appropriated by Congress. Right now, every state receives more funding from the federal government than it pays into the trust fund. In fiscal year 2026, the Trust Fund is expected to run a $32 billion deficit.
Ponzi scheme
The other problem is that projects take years to build, so funding that is obligated in fiscal years 2022 and 2023 may just be coming due in fiscal year 2026. That means that even if Congress chose to stop funding any new transportation projects this year, we’d still need to keep the federal gas tax in place for years to pay for projects already obligated (under contract) but not yet paid out.
How did we get here?
Declining Growth in Vehicle Miles Traveled
- From its creation until the oil crisis in the early 1970s, Vehicle Miles Traveled was increasing at 4.5% annually
- From the 1970s to the early 2000s, VMT grew at 2.5% annually
- After 2003, VMT growth fell to less than 1% a year. It is now predicted to grow at 0.3% over the next few years.
Stagnant Gas Tax
The gas tax was last increased in 1993, and was not indexed to inflation.
Increasing Fuel Efficiency
Starting in 1978 the federal government introduced CAFE standards to increase fuel efficiency in passenger cars. The first standard in 1978 set a fleet average at 18 miles per gallon (mpg). That increased to about 23 mpg in the late 1990s, and has since reached 26-27 mpg in 2005.
Electric Vehicles
This has been a tiny factor until recently, but electric vehicles are a growing factor in the insolvency of the HTF. Had the incentives created in the Biden Administration to increase utilization of electric vehicles been fully realized, the HTF annual deficit was projected to reach $50 billion a year. Given changes by the Trump Administration, it is now only projected to be $37 billion.
When you add this up, plus inflation, you get our current situation.
Can the deficit be fixed?
There are three options: cut spending, increase revenue, or a combination of the two.
Cutting spending
The HTF has two accounts, one is for highways (roads) and the other is for transit.
- The Highway Account could be solvent by 2028 if Congress cut the contract authority (the amount states and USDOT are allowed to obligate) by 35%.
- The Transit Account is more insolvent and cannot be made solvent by just cutting spending. It is set to go into negative spending by mid-2027.
To make both accounts solvent through spending cuts alone would require Congress to transfer funding from the highway account to the transit account, and then cut spending from both accounts by 48%.
Increasing revenue
The Eno report explores a few options based on their ability to raise funds, practical considerations, and political viability:
- Raising the gas tax
- Instituting a Vehicle Miles Travelled fee
- Federal registration fees
- Devolution
Gas Tax Increase
Eno calculated it would take a 17 cents/gallon increase to the current gas tax (18.3 percent) brought in over multiple years with an increase at 10 cents/gallon the first year. The tax would also be indexed for inflation.
The good news is that the gas tax is easy to administer, costing less than one percent of the revenue. Politically, it has been a non-starter in discussions for the last 10 years.
Vehicle Miles Travelled Fee
This has been the darling for many lawmakers because it would be a fix that gave them an excuse to not vote for a gas tax. Revenue-wise, it could be set to meet current needs and it is inline with the idea of a user fee, which is generally popular.
Practically, the U.S. is not ready to implement a VMT fee. The Infrastructure Investment and Jobs Act of 2021 instituted a board to study how to implement a VMT, but the Biden Administration was slow to appoint the Board so it never really got off the ground before 2025. The Trump Administration then fired the Board, so the project is stalled and cannot move forward unless other appointments are made.
New Zealand has a program like this but it costs them 3% of the revenue raised to administer, so the fee’s price will have to account for a higher administration cost.
On the political side, it was touted as the solution because it wasn’t do-able. However, when IIJA created the study, the familiar complaints about privacy almost killed the bipartisan support.
Registration Fees
Creating a new federal registration fee for vehicles is an option that has come into vogue as electric vehicles become more popular. It addresses the loophole in the gas tax where vehicles that do not use gas don’t pay for roadway use. In New Hampshire there was even a bill to create an annual $50 registration fee on bikes!
House Transportation & Infrastructure Committee Chair Sam Graves proposed a vehicle registration fee in the Inflation Reduction Act, but it was stripped out before passage. There’s a good chance we’ll see it in a 2026 reauthorization proposal.
Eno calculated that an annual registration fee of:
- $120 on all motor vehicles (gas, diesel or electric) would close the gap between the HTF revenues and expenditures.
- $290 on all motor vehicles (gas, diesel or electric) would cover all expenditures and replace the gas tax.
- They acknowledged that the fees could be adjusted for different types of vehicles.
- I believe this included public sector vehicles as well (which don’t have to pay gas tax).
Managing this fee could be easy. All 50 states already have a vehicle registration fee, so they could also collect the federal fee at the same time, keeping administrative fees low. However, it is not clear if the federal government can require that as it may be a violation of the 10th Amendment.
One thing Congress could do is make it voluntary, but bar states from receiving funds from the federal transportation program if they don’t take part. That may work for the $120 fee because the state would then be incentivized to join to get the gas tax fees. If Congress were to choose the higher registration fee – the $290 option – then any state whose drivers pay more into the HTF with the gas tax than the state gets back would have no incentive to cooperate.
One of the interesting political dilemmas is that it would change the donor/donee states. Pre- 2015 one of the big political issues in federal transportation debates is that some states, like Texas, were considered donor states because their residents paid more into the HTF than they received back based on funding formulas. Other states, like Washington, were donee states, meaning they receive more funds back from the transportation program then they contribute in fuel taxes.
Since the mid 2010s, Congress has transferred so much in general funds to the Highway Trust Fund that all states are now donee states. However, if we went to registration fees, that dynamic would shift and Texas would become a donee state and Washington would become a donor state, because Washington has a higher car ownership rate. This will upset the transportation dynamic in Congress.
As for political feasibility, we saw what happened when Chairman Graves proposed a $20 fee on gas cars, and a $200 registration fee on electric cars: Congress stripped it out.
Devolution
One other talked about solution is devolution, where the federal gas tax is reduced to only cover the interstate system and other federal lands. The thinking here is that states have been more successful in raising new revenue either from raising gas taxes, tolling, and congestion pricing.
Any administrative burdens would also be passed onto the state.
However, one of the political problems with it is the federal government would have to continue collecting the federal gas tax at current rates until all projects in already underway are completed and paid for. This would be several years, making the scheme politically difficult.
Will Congress take this on?
The only serious proposal I’ve heard to make a dent in the HTF deficit was Graves’ idea to add a nominal registration fee to all cars and much higher fees for electric and hybrid vehicles. His legislation didn’t get far.
Before the Transportation Committee would vote on it, Graves had to remove the fee on gas and diesel powered vehicles, and by the time the bill was voted through the full House and Senate, the registration fees on electric and hybrid vehicles was also removed.
There doesn’t seem to be an appetite in Congress for cutting spending or increasing taxes- and Congress is expected to bail out the HTF with general funds for the next reauthorization bill.
The next time the problem will become acute will be in the early 2030s.
If that is the case, the Highway Trust Fund won’t be the only Trust Fund hitting a cliff. The Medicare and Social Security trust funds are also expected to hit insolvency around 2033. Perhaps Congress can take one really hard vote to fix all three?