Joseph Kile from the CBO testified before congress today. This was a discussion of the Federal role in maintaining/building the nation’s highway system. Central to the presentation was the status of the Highway Trust Fund. Like all the other government Trust Funds (Social Security, Medicare) The Highway Fund (“HF”) is, well, running out of gas. This chart shows the problem:
Note the dark blue line on the bottom. It goes negative in about one year. That is because gas tax receipts and other revenues are falling behind expenditures. The CBO sums up the problem:
Under current law, the Highway Trust Fund cannot incur negative balances.
Hmmm. If the law prohibits the HF from running red ink why is the CBO showing all the deficits? The CBO explains:
Highway Trust Fund balances once were stable, but over the past decade, the fund’s receipts have fallen behind its expenditures.
The trust fund will be unable to meet its obligations in a timely manner by the summer or fall of 2012.
Jeepers! Another trust fund going broke. In a year! Actually, these trust funds don’t go broke, they just cutback on what they are paying out. How big a cutback?
Cuts would need to decrease spending by about one-third.
Cutting spending by 1/3 would add to those potholes. It would also be a drag on the economy. Given that this bad news is going to hit in the middle of a presidential election year I think it is unlikely that the administration is going to allow spending to fall by this much. So what are the options? The CBO always has the answers:
If the Congress chose to boost revenues, it could do so by increasing taxes that are dedicated to the Highway Trust Fund or by making transfers from the Treasury’s general fund.
Ah! We can raise the tax on gasoline and diesel (89% of the HF’s revenues) or we can do more deficit spending. Well, neither of those things are going to be very popular, so they won’t happen. The consequence of these dominoes falling:
The Department of Transportation has stated that if the fund faced a shortfall, it would ration the amounts it reimburses to states.
Welcome to America. The land of potholes.
Go back to the CBO chart and look again at the top two lines. Compare them with history. Note that ‘planned’ expenditures are greater than ‘revenues’. Generally speaking that has not been the case in the past. It is the rule in the future. Every economic forecast that is made in D.C. is based on the assumption that more debt is incurred. Don’t trust those forecasts, is my take from that.
This business of the HF is really not that big a deal. It comes to $30-40b a year as a possible shortfall. That’s peanuts in the scheme of things. I think this will be glossed over for another few years. They will not raise the gas tax. The shortfall will be funded with debt.
I do think the status of the HF is worth noting as it is symptomatic of so many of the federal programs that exist. They are all running on empty.