Treasury-CBO explain disparities in Highway Trust Fund projections

April 12, 2006

U.S. Treasury Department and Congressional Budget Office (CBO) officials told members of a House highways subcommittee last week why the two agencies differ over when the Highway Trust Fund will go in the red, but they both said it will go broke under current revenue and spending practices.

U.S. Treasury Department and Congressional Budget Office (CBO) officials told members of a House highways subcommittee last week why the two agencies differ over when the Highway Trust Fund will go in the red, but they both said it will go broke under current revenue and spending practices.

House Highways, Transit and Pipelines Subcommittee Chairman Thomas Petri (R-Wis.) noted in his opening remarks that Treasury forecasts, in President Bush’s Fiscal Year (FY) 2007 budget, that the highway account will go into a negative balance in 2009. CBO, meanwhile, predicts a negative balance in FY 2010.

“When Congress passed SAFETEA-LU [the Safe, Accountable, Flexible and Efficient Transportation Equity Act: A Legacy for Users] last summer, it was done with the expectation that the guaranteed funding levels prescribed in the bill would be fulfilled for FY 2005 through FY 2009,” Petri said. “We can’t ignore it [Highway Trust Fund solvency] and under finance it. The economy is going to have to move goods and people.”

Robert Carroll, deputy assistant secretary for tax analysis at the Department of Transportation, and Donald Marron, acting director of the CBO, both explained the different methodologies used in calculating estimates. By FY 2009, Treasury predicts $36.168 billion in highway account revenues, with CBO estimating $37.932 billion, for a difference of $1.764 billion.

Treasury is responsible for collecting the 18.4-cent federal gas tax and dispersing the revenues to the Highway Trust Fund. Carroll said uncertainty in those forecasts comes from changing economic conditions, energy markets and usage and shifts in economic variables and tax liabilities. CBO assumes greater increases in fuel usage and with growth in the economy. CBO said the differences between the estimates are similar to past projections. The Government Accountability Office confirmed the cause of the disparities.

Carroll and Marron told subcommittee members the difference is not that substantial. However, they did warn that as long as outlays are higher than revenues—which is the current situation—the account will run into a deficit.

Treasury figures predict FY 2009 outlays from the highway account to total $40.8 billion, while CBO projects outlays to reach $41.7 billion.

Some House members asked for advice on how to cure the future funding gap, but officials testifying were not advocating any approach such as raising the gas tax, indexing the excise to account inflation or other revenue enhancements. Marron said CBO views tolling as a benefit to the economy and GAO noted that SAFETEA-LU lets states experiment with innovative financing options.

While Congress considers several options to solve the revenue-outlay disparity, Katherine Siggerud, director of Physical Infrastructure Issues for the GOA said that “to reduce obligation limitation would effect states’ ability to plan” transportation projects. Siggerud added that Highway Trust Fund solvency recommendations will be part of the National Surface Transportation Policy Review and Study Commission’s recommendations, which are due in July 2007. The commission was created as part of SAFETEA-LU.

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