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Are you a highway user who wants to travel on safe, less congested roads?
Join Andrew Stasiowski, President and CEO of the American Highway Users Alliance, as he speaks with leading experts about the latest policies impacting the transportation community. Each month, Andrew will cover topics of critical importance to the highway user community, from reducing congestion on roads, to reforming highway trust funds, to increasing global competitiveness.
Listen to new episodes of “Driving Forward” wherever you get your podcasts.
The American Highway Users Alliance is a nonprofit organization advocating for public policies that promote roadway safety, increase freedom of movement, and preserve opportunities for all people to live, work, shop, and travel unencumbered.
To learn more about AHUA, you can visit our website.
Andrew Stasiowski [00:00:05]:
Hello and welcome to the Driving Forward podcast. I'm your host, Andrew Stasiowski of the American Highways Alliance. We have a great interview for you today talking about probably the most important subject facing the surface transportation program. And that of course is the solvency of the Highway Trust Fund. Our interview today is going to touch on a variety of subjects, including how we got here with the trust fund shortfall, what that could mean for future investments, and what we need to do to fix the shortfall long term. I really hope you all enjoyed today's conversation and now onto our interview. Joining us now is Jeff Davis. Jeff is a senior fellow with the ENO center for Transportation and is also the editor of the ENO Transportation Weekly.
Andrew Stasiowski [00:00:46]:
Jeff began his policy work on the House Rules Committee and for six years he worked on a wide variety of legislative budget, process and oversight and parliamentary procedure issues. In June 1998, he began publishing Transportation Weekly, a news service covering federal transportation and public policy work. He joined the new center in January of 2015. His work focuses on analysis of the federal transportation budget and the long term trends in transportation funding policy. And for those of us in the transportation policy world, his work has been invaluable. Jeff, welcome to the Driving Forward podcast.
Jeff Davis [00:01:17]:
Thank you for having me.
Andrew Stasiowski [00:01:19]:
Thank you for coming on. I think this is gonna be a really important issue. It's the beginning of the new Congress, I think, as everyone in transportation world is talking about the next highway infrastructure reauthorization. And I think having you on here today to talk about probably the most pressing issue in my mind facing the next highway bill is the Highway Trust Fund. So wanted to start with, you know, your thoughts on what goes into the Highway Trust Fund, what are the problems facing it and what's the kind of the long term concerns we're looking at with the gas tax and all the truck taxes.
Jeff Davis [00:01:54]:
Okay, to start with, all federal trust funds aren't really trust funds in the outside real world sense that you and I think of. There's no third party holding on to money that's being transferred from two separate parties to each other. No fiduciary responsibility. All it is is the fact is that the federal budget is kept in two separate sets of books. There's all the spending accounts treasury keeps in one book and all the receipt accounts treasury keeps in a second book. And the sum total of those two books are compared on a monthly and the annual basis to tell you what the overall budget deficit or surplus is. What a trust fund is, is a sort of bridge between those two books. It's a visibility exercise that compares specific tax receipt accounts with specific spending accounts for the same group over time.
Jeff Davis [00:02:45]:
And so since 1956, we've had a highway trust fund that holds federal gasoline, Diesel fuel and 3 trucking industry Excise taxes and holds those against the expenses of the Federal Highway Administration and later the National Highway Traffic Safety Administration, Federal Motor Carrier Safety Administration and part of the Federal Transit Administration and compares those over time. So that's basically what it is. It was done in 1956 so that the truck industry would feel a little better about having their taxes raised so they could see that it was going to be associated with road spending for them over a long number of years.
Andrew Stasiowski [00:03:25]:
And can you, you mentioned it a little bit, but can you kind of just go in for our listeners on what all the taxes that make up the Highway Trust Fund are?
Jeff Davis [00:03:33]:
Right now We've got an 18.3 cent per gallon exclusive tax on gasoline that brought in a little under $25 billion last year. We have a 24.3 cent per gallon diesel fuel tax that brought in about $9.5 billion last year. And you've got a 12% tax on the sales of new heavy trucks. Tractors and trailers brought in 6 billion. A tax on tires basically for heavy trucks only, 750 million or so. And then a tax on the annual use of a heavy truck that brought in about one and a half billion dollars. So together you had about $42 billion in in receipts from highway users in fiscal 2024. The problem was that's weighed against $70 billion in spending taken out of the trust fund.
Jeff Davis [00:04:21]:
We've had a systemic imbalance for the last, since 2007, at least that. That's becoming increasingly problematic.
Andrew Stasiowski [00:04:28]:
Yeah. And that about $28 billion shortfall, you know, that we've seen that kind of growing, that annual shortfall has been growing, I think, pretty consistently since what, SAFETEA-LU in 2006 or so?
Jeff Davis [00:04:41]:
The problem goes back farther than that. There's three trends of work here and we're almost too slow to see. First of all, back in the glory days of the Interstate Building, the 50s and 60s and early 70s, the actual amount of driving was taking place on US roads. Vehicle miles traveled was increasing so fast that it would double every 16 years or so. And that's an incredible growth rate. And that's why we had to have all these new roads being built. The rate of growth of VMT has slowed to the point that now it's only growing on a pace to double every 90 to 100 years. So the amount of if what you're taxing, taxing a lot of these things is sort of a proxy for taxing the driving itself.
Jeff Davis [00:05:21]:
And the rate of increase to driving has been dropping significantly for decades. So you can't just keep tax rates level and count on the growth of the underlying things that trying to act to save you. And second of all, fuel efficiency is increasing. Cars and trucks are getting more fuel efficient. So back in the 70s, you drove a car 100 miles, it would burn about 7 gallons of gasoline. Today you drive a car 100 miles after car, it only burns 4 gallons of gas. So in addition to VMT not growing so fast, the use of gallons of gas as a proxy for VMT gets worse and worse. And then finally the political process consensus we had for the gas tax broke in 1990 when they started using tax increases on gasoline for deficit reduction instead of highways and transit.
Jeff Davis [00:06:09]:
And that hasn't gotten any better. So we haven't been able to raise the actual rates on gasoline and diesel fuel since 1993. And to make matters even worse, the actual buying power of these has taken a beating in recent years. The inflation that started in early 2021 has caused the average cost of highway construction, the materials, manpower, et cetera, to go up by about 70%, 7 0% since the end of COVID so to the onset of COVID So that is, those are the trends that are very difficult to reverse on any kind of a sudden basis.
Andrew Stasiowski [00:06:51]:
And that increase in inflationary costs in construction, the that, you know, that 70% balanced about a 35% increase in what we spent in IIJA versus what we spent in Fastaq, correct?
Jeff Davis [00:07:03]:
Yes, yes. Pretty much the entire nominal spending increase in the IJA has been eaten up by inflation. Once you work the numbers fully.
Andrew Stasiowski [00:07:12]:
Now I know we had Alex Etchen on about a year ago to talk about the construction industry from AGC's perspective. And I think at the time he said that, you know, they were seeing some not reduction in costs, but at least leveling in costs. About a year later, where are we?
Jeff Davis [00:07:28]:
FHWA reports the NHCCI National Highway Construction Cost Index quarterly and they're about six to nine months behind. So the one we just got was, the one was April, May, June of 2024. And that one showed cost decreasing ever so slightly. And the one that followed a slight increase, a second slight decrease in the October, November, December quarter. So we, we finally leveled off. But you it's not going to go down that much. So we're probably at a new normal plateau level. For a while.
Jeff Davis [00:08:05]:
So even the, the fact that the increase, the massive increases have stopped is nice. But you're still paying a lot more for diesel fuel for asphalt, Portland cement, ready mix, earth moving, et cetera, than you were three or four years ago.
Andrew Stasiowski [00:08:22]:
So it seemed to me, as we're looking at the next highway bill, we need to at least maintain IIJA level funding just to meet the current projects that are being funded now. If we were to reduce funding for the next in the next highway bill, what could that mean for current projects or planned projects that are in different stages of the construction phase?
Jeff Davis [00:08:47]:
States look at their annual predictable highway formula take and they extrapolate from there. So most of their plans are constrained on assuming that we keep going and we don't let the program fall off a cliff and we extend it as September 2026. And those guesses are going to be predicated on getting roughly what they were already getting out of the trust fund. The problem is the IJA was unique in that it didn't just provide another big slug of money out of the trust fund with an increase, which these reauthorization bills tend to do. They also added a bunch of new spending out of the general fund that was guaranteed for five years, which had never happened before. And whether or not that is extended at the IIJ levels is an open question because that's, that's a separate set of committees and that's a separate process that had never been used before. So many in the construction industry want to maintain that as well. And that was another 9 billion a year, I think, for federal highways on top of 60 out of the trust fund.
Jeff Davis [00:09:50]:
So we'll see if that goes as well. But the problem is the general fund advances in the IJA tended to go for more democratic priorities like electrification and things like that, whereas the plain old road expansion apocalypse stuff came outside of the trust fund. So you have different parties with different priorities, using different kinds of money. That's not going to go well during ratherization? I don't think so.
Andrew Stasiowski [00:10:16]:
You mentioned a key thing that I think we've talked a lot about in a couple of conversations about the trust fund over the last year or so, the general fund. I think we have maintained that a couple of things, and I really want to get your thoughts on this one. I think I want to say CBO has the trust fund going insolvent around 2028. You build that out a little bit longer. We're looking at Medicare, Medicaid, Social Security issues on the debt, facing insolvency Crisis in the early 2031. We may get one bite at the apple for a highway bill between then and now. I would assume possibly two between now and 2032 or so. But what does that mean that, you know, the concerns we're looking at for the general fund, what does that mean for our ability to fund infrastructure the way we've been doing?
Jeff Davis [00:11:03]:
You're correct to look at that. And we should also take a step back and make sure people understand that the Highway Trust Fund ran out of money in September 2008. And ever since then, the answer has been to just print money in the form of a general fund to highway Trust fund ledger entry and to keep the money flowing. And we've done $272 billion of these great money building general fund transfers through IJ to keep the Highway Trust Fund solvent. And since we have a, since hourlies are exceeding the real usual taxes largely and so systemically. And the problem is this was now that that precedent has been set that you can fix a defunct trust fund just by printing money and putting it in there, when we run up to the very painful Social Security and Medicare insolvencies like you mentioned, that temptation is going to be there as well. And the only thing I'm afraid that can stop it is the fact that the bond market may finally have awakened to this. You've noticed that, of course, anybody who owns a house has, has noticed what's happened with mortgage rates lately.
Jeff Davis [00:12:11]:
And that's the bond market saying we're not sure what, you know, how much demand is going to be out there for, for, for, you know, in 30 years. And the bond market is doing the same thing to the Treasury 10, 20 and 30 year notes. The, the, the 10 year is most, is the one that's most scrutinized and that's up to like almost 5% now after years of being at near zero. And that is in turn, the Congressional Budget Office is going to announce its budget forecast 48 hours from now and it's going to have a lot of really ugly deficit projections based largely on the fact that a growing share will be interest on this debt that we've been running up. And at some point, the bond market makes the further provision of, makes the cost of printing money high enough that you've got to take some kind of budget balancing step. This is what happened to Bill Clinton in 1993, for example, where the bond market basically told him, you need to open your presidency with some deficit reduction so we can get mortgage rates back down and get the Housing market moving again. And so the question is, will this finally come to roost before or after Republicans finish extending the tax cuts, et cetera, et cetera? But yes, at some point, the bond market, if it keeps going the way it is, is going to seriously constrain the ability of the treasury just to print money to fix problems like this without raising real revenue and taxes from somebody, some lawyer.
Andrew Stasiowski [00:13:40]:
Okay, so given what you said about the bond market and what we're looking at in terms of our long term general fund concerns, it would seem to me that we need to find a new way to fund the higher trust fund that does not rely on general fund money. How long do you think we have? What's the timeline that you would say we have to be able to fix the trust fund funding mechanism and maintain the federal program as is?
Jeff Davis [00:14:11]:
Well, the last general fund bailout transfer to the Highway Trust fund from the IJA was $118 billion. And there's a surprisingly large amount of that still left because it's earning interest on itself. It earned $6 million, almost $7 billion in interest on itself last year. And so that has extended the projected life of the trust fund until late summer 2028. So, and you've got that long to figure it out. However, the opportunity to get something done will go quicker than that because Congress has to extend the Trump as much of the Trump tax cuts as they can this year. They expire at the end of this year. And it is much more, we find in the past, and it's much more convenient if you're going to have to raise real revenue from somebody to solve part of the trust fund problem, it's going to be politically painful.
Jeff Davis [00:14:56]:
No one likes paying new taxes. But if you're trying to solve a 20 to 30 billion dollars a year trust fund revenue problem, it's a heck of a lot easier to solve that in the context of a $5 trillion tax cut bill than it is on its own. And so the fact that we've got a large tax cut bill moving this year, 2025 and no later, and that it needs all the offsetting tax increases it can get to sort of keep its top line spending number down. And so top line, the tax deficit number down means that if you could get something done this year, that's really the time to do it. And then you can come along later and transfer whatever it is from the general fund of the Highway Trust Fund. But this is the year to get a tax increase on the books and start collecting money so that you can deposit into the trust fund when you need it.
Andrew Stasiowski [00:15:52]:
One of the things that I think we've thought about and we've talked about is whatever solution we're going to do, it has to be simple, right? It can't be, in my view, it has to be something the public can accept and it has to be something that they can understand. We can't just completely rewrite how we funded highway trust, the highways in general, with some new mechanism that no one's ever used before. And it has to be something that people understand and can see the benefits of. Correct?
Jeff Davis [00:16:25]:
That would be better, yeah. If you're going to deposit money on the revenues in the trust fund, it's much, much better. They should be based taxing some kind of highway use or transportation service, transportation use somewhere than it is for just any kind of random thing. There's still a provision in budget law that tries to say that you can't have any more contract authority unless it's drawn on a trust fund that's at least 90% sufficient based on taxes that are related to the spending purpose. You know, so at least, you know, related to that somewhere rather than something random.
Andrew Stasiowski [00:16:59]:
Okay, so that makes sense. So, you know, I think one of the concerns that we've had and one of the reasons why we think saving the trust fund is so important is because we believe that there needs to be, you know, a federal role in infrastructure, especially in highway funding and highway investment. But given the concerns of the solvency of the trust fund and the costs associated and all of that, I think we've started to see more people argue that we should just let the states keep their money and eliminate the federal program. What would that mean? What are your thoughts on that?
Jeff Davis [00:17:35]:
Well, first of all, I haven't heard as much about the devolution thing since the trust fund got so far out of imbalance. Because right now the federal government can print its own money and support its own trust funds. States cannot. We settled that in 1865. So the fact that the federal government is currently floating itself this huge 30 ish billion dollar a year highway deficit, if you devolve that to states, states won't be able to do that. States have to balance their own budget. So they would have to increase their own revenues immediately and by significantly more than what have you if they simply continue with the federal program. And second of all, the math has never really worked because the federal government program is reimbursed and it's very slow right now.
Jeff Davis [00:18:23]:
If you kill the trust fund today instead, no more new contracts ever from today and then lay everybody off except the people who are actually paying bills. You'd still have to keep the program going for two and a half years because there's $110 billion plus in bills they're going to have to pay based on contracts have already been signed up to today. And so you have to keep those federal taxes in place for two and a half years after you kill the federal program. But states having to balance their own budgets would have to raise their own taxes immediately to start replacing that federal revenue with their own. So you have a two year period of double taxation. And there's never been any way around that that people could figure out the math to. It's always been the hidden problem with devolution as well.
Andrew Stasiowski [00:19:04]:
I'm glad to hear that said so well. All right, let's move into our last question and this is something we've asked all of our guests and it's always been kind of fun. I want to get your thoughts. If you had the ability to do one thing, wave your magic wand and enact one policy that you think would be the most important thing for your world, which in this case is the highway infrastructure investment and policy there, what would it be and why?
Jeff Davis [00:19:31]:
I would overrule the Supreme Court. This is going to sound odd. I would overrule the Supreme Court's precedent in the INS vs Chadha case from 1982 or 83. Legislative veto is what it did. There was so much that Congress could do that would pass a law that would let the executive branch take certain actions subject to either chamber or both chambers enacting a concurrent resolution to stop it by majority vote. They would be able to nullify regulations just by House, Senate passing a majority vote versus a super majority 2/3 to pass an overturned presidential veto. They used to do a lot of earmarking that way. The public works budgets really rested on letting the committee's Congress and the President got along much better when they were able to divide labor that way where that they could.
Jeff Davis [00:20:20]:
Congress could simply on its own without involving the President. You know, certain regulatory actions, certain project lists, things like that and go back and forth. And nowadays you can't do any of that. You can't reorganize government at all like they used to. You know, for example, Richard Nixon created the epa. The reorganization plan just said, okay, move these things together. And those, those revolution plans worked on the principle that it would take effect in 90 days unless Congress passed a concurrent resolution or one House or the other decided to kill it similarly with that's how the highway obligation limitations started. All these other things.
Jeff Davis [00:20:55]:
I understand why the court made their decision on constitutional grounds. I can get the reasoning. But the practical effect it's had on how Congress and the presidency work together has just been terrible. And I had to say magic one, because it takes a magic one to overrule the Supreme Court's rulings on constitutional interpretation.
Andrew Stasiowski [00:21:16]:
Well, I appreciate it that that's one I have. I admit that's one I haven't heard before. So it's good to hear a new way to improve the government that's through the Supreme Court ruling. That's good. I appreciate that. Thank you for bringing that one to the for the to the Driving Forward podcast with that. Jeff, I really want to thank you for coming on. This is for me.
Andrew Stasiowski [00:21:35]:
I've wanted to get you on for a while. I think your voice and kind of your thoughts on the trust fund and how the highway program works, you know, as a former staffer, have always been very beneficial to me. And I appreciate you giving us some time to talk about the trust fund today.
Jeff Davis [00:21:49]:
No problem. Thanks for having me here.
Andrew Stasiowski [00:21:51]:
Thank you. All right. I want to thank Jeff for coming on once again. I thought that was a great interview. I learned a lot. I hope you did as well. I think Jeff is one of those people. Every time he talks about the Highway Trust Fund or the high program in general, you always learn something.
Andrew Stasiowski [00:22:04]:
And I know I did today. Please remember to review and subscribe to the Driving Forward podcast wherever you get your podcasts.