Coming soon - more potholes. Highway Trust Fund Running Out of Money

What were you doing way back in 1993? Whitney Houston's iconic I Will Always Love You was the number one song in the land.  Google would not be "invented" for another three years.  And it was also the last time the Federal Government raised gasoline taxes.  That year, the Clinton Administration raised gas taxes to 18 cents a gallon, with the money going into the Highway Trust Fund.  And we should all pay attention to this because the Highway Trust Fund is about to go broke unless Congress does something about it.

The Highway Trust Fund was created way back in 1956 to help fund the new Interstate Highway Program proposed by President Eisenhower. It contains three sepearate funds - one to help states repair roads and bridges, one to help fund mass transit projects, and a final smaller fund to mitigate leaking underground tanks. Sounds real exciting, doesn't it?

Now, before the Highway Fund was created, road repairs just came out of the General Fund along with everything else.  But the need to build the nation's interstates caused a shift in tax policy in 1956, as the government imposed a new federal fuel tax to help pay for all the new roads. This new tax was a whopping 3 cents per gallon. In the years since, it's been raised four more times, to the 18.7 cents per gallon that it's stayed at for the last 21 years.

So what's with the Highway Trust Fund running out of money? Why is it happening and what does that mean for all of us?

Going Broke - Inflation and the Unforeseen Catch-22

Reason #1 is because the tax hasn't been raised in such a long time, coupled with the fact that 18 cents doesn't go nearly as far as it used to. The buying power of 18 cents now is more along the lines of what 12 cents would buy back in the day. That's the effect of inflation.

Reason #2 is a funny little catch-22 that we've ended up with.  The big push towards fuel efficient cars has been great for the environment, but ends up costing us more because there's less money being generated for the Fund.  Back in 1993, the average passenger car got about 28 miles per gallon. All the pressure on automakers for lighter cars and more efficient cars and greener cars has resulted in a new 2014 average MPG of about 36. 

Not only are cars more efficient, people are simply driving less than before. Or at least, the amount of driving has levelled off. In 1993, Americans drove about 2.4 trillion total miles per month. That amount historically was on a steady increase since the 1950s, peakingat just over 3.0 trillion in 2005-2006.  Then it started to drop a little bit, to where now we're driving 2.9 trillion miles per month.

So what? Well, consider that there are a lot more cars now than there were in 1993 or even 2005, and it's easy to see that people individually are driving less, while driving more efficient cars at the same time. Less driving means less gas being purchased and less tax revenue going into the Trust Fund.

So What?

What happens if the Highway Trust Fund runs out of money? You like having pots holes in your road? Money to fix those would have come out of the Fund, except there won't be any money left. All manner of infrastructure repair projects to roads and bridges will either cease or not be started at all. And that's not good for the economy as it will affect up to 700,000 jobs. 

Who's got the power to fix it? Congress, of course. But with mid-term elections coming up in a contentious political season, you can bet nobody is going to have the stomach to propose raising the gas tax to fix it. The most likely scenario would see Congress cobbling together six or eight billion dollars in the short term. That seems like a lot, but it would only be enough to postpone the Fund's insolvency for maybe a month or two.  In order to really get the Fund back to where it needs to be, it would need another $100-$200 billion. Stay tuned to see who's going to blame who for this mess and the fact that nobody's really going to be fixing anything.