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A Double Standard to Pay for Highways, Mass Transit

September 16, 2015 at 10:45 AM

Congress, while addressing a shortfall in the Highway Trust Fund this fall, has taken inconsistent approaches to whether and how to pay for new costs; in fact it is applying special, stringent rules only to the highway fund, effectively forcing lawmakers to pay for some highway funding that does not constitute an increase above existing levels, as we explain in a new paper.

The standard approach to budgeting is that Congress should pay for (or offset the cost of) any legislation that increases deficits above what they would otherwise be.  This approach is embodied in the pay-as-you-go (PAYGO) law, which states that policymakers must cover the ten-year cost of any measure cutting revenues or increasing mandatory spending.  Though the highway fund isn’t subject to PAYGO for technical reasons, it makes just as much sense to pay for new highway program costs as for any other new costs that Congress may consider.

The key issue is what should constitute the benchmark for determining a “new Highway Trust Fund cost.”  Typically, Congress would see whether any proposal increased the cost of the underlying highway program above the level projected by the Congressional Budget Office (CBO).  The CBO baseline includes $506 billion in Highway Trust Fund funding over the next decade, which is a simple continuation of the $50.6 billion that was provided for the current year.  CBO — and we — consider any amounts above that $506 billion to be a new cost.

But this year, the House and Senate are applying special rules to require Congress to find offsets even though Congress intends merely to continue highway and transit funding at the level that CBO assumes in its budget projections.  The problem is that the gasoline tax no longer produces enough revenue to fully cover the $506 billion cost; CBO estimates that revenue would fall about $170 billion short over the decade.  The House and Senate are acting as though they should fully offset the costs of filling up the trust fund — even though that produces no funding increase.

Consider the short-term Highway Trust Fund measure that policymakers enacted July 31.  That law transferred $8 billion from the Treasury’s general fund to the highway program, allowing the Highway Trust Fund to continue to operate through October 2015 (the first month of fiscal year 2016) at the level the CBO baseline assumes.  In its cost estimate of that measure, CBO writes, “The [$8 billion] transfer would increase the balances in the Highway Trust Fund, but would not, by itself, increase direct spending or affect budget deficits.”  (Emphasis added.)  CBO explains that the funding linked to the transfer “is already reflected in CBO’s baseline, which includes an annualized amount for the year ($51 billion) based on the amount that was previously authorized through July 31, 2015.” 

Notwithstanding CBO’s clear statement that the new law doesn’t increase spending, the House and Senate felt compelled to offset the $8 billion transferred to the Highway Trust Fund.  We disagree; this sets a standard for highway and mass transit funding that’s stricter than those used for any other program.

Click here for the full paper.