Heavy traffic at rush hour in Los Angeles, California
Photograph by Jonathan Alcorn — Bloomberg via Getty Images
By David Z. Morris
July 10, 2015

Without a cash injection, the Federal Highway Trust Fund will be insolvent within weeks, and would cut support for state and local highway and transit projects. Congress and the President are wrangling over how to provide supplemental funding.

If that sounds familiar, it’s because they did the same thing two months ago. And every few months since 2009. And made similar stopgap moves as far back as 1997.

The Highway Trust Fund provides about 25% of all transit and highway financing nationwide. James Burnley, Secretary of Transportation from 1987 to 1989 and now a D.C. transportation lawyer, says that recent short-term funding “creates inefficiencies, and requires the states to do additional planning and scrounging around for resources.”

How did highway funding become such a mess? Culprits include legislative intransigence, economic stagnation, and advancing automobile technology.

From its creation in 1956 until 2008, the Highway Trust Fund was a self-contained program, funded by taxes on tires, commercial vehicles, and most of all, gasoline. The federal gas tax (which itself stretches back to 1932) has been raised a handful of times, including by 5 cents per gallon under Ronald Reagan in 1982, and 4.3 cents per gallon under Bill Clinton in 1993.

Burnley remembers the era as a smooth ride: “We had not only sufficient revenues to cover the programs for highway and transit aid, but with economic growth . . . we had reasonable growth on the revenue side.”

As anti-tax hardliners like Grover Norquist gained influence through the 1990s, the gas tax became a target. In 1996, presidential candidate Bob Dole blasted the 1993 increase as the “largest tax increase in the history of the world.” In 2000, Republicans sponsored a bill to repeal it.

As much as anti-tax dogma, though, opponents in the 1990s objected to shifts in the purpose of the tax. President Reagan had characterized the gas tax as a “user fee” for highways in 1982, but starting in the early 1990s, funds were partly diverted to deficit reduction. There has also been opposition to the portion of the gas tax—still around 20%—that goes to mass transit and other non-highway projects. That bargain was initially struck to balance rural and urban interests.

The Taxpayer Relief Act of 1997 returned the deficit-reduction portion of the gas tax to the Highway Trust Fund. That bought some time in the battle with inflation—between 1993 and 2008 the fund lost about 1/3 of its buying power.

But the financial crisis and ensuing recession delivered the knockout blow, leading to a large dip in driving and gas tax revenue. The fund got a $35 billion prop as part of the broader stimulus package, but the unsteady recovery has kept driving below 2007 levels.

Meanwhile, yet another headwind has emerged—fuel efficiency regulations. In 2012, the Obama administration mandated a near doubling of national fuel efficiency by 2025, which, while positive for the environment, will amount to a huge cut in gas tax revenues.

In the short term, Ways and Means Committee chairman Paul Ryan (R-WI) has endorsed using temporary funds from corporate tax reform to yet again patch the Highway Trust Fund. It’s characteristic of the various accounting tricks and found money that have propped up the fund for nearly seven years. Frustration with the new normal has gotten bad enough that the President is dropping hints that he’d veto another short-term patch.

But we’re unlikely to get a long-term solution by the end of July, or even by the end of the year. The trucking industry supports a gas-tax hike, but nearly nobody else does, including President Obama.

Burnley says the only viable alternative is a true user fee based on miles driven. Such a system would more fairly assess fees for drivers of hybrid and electric cars, who now contribute little or nothing to highway maintenance. Oregon launched just such a program this month, but implementing it at the national level would take considerable time and investment.

Subscribe to Data Sheet, Fortune’s daily newsletter on the business of technology.


You May Like