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Funding Options for the Nation’s Infrastructure

Congress has several legislative options to address shortfalls in the Highway Trust Fund, although most of them are politically unacceptable or unlikely.

1) Do nothing. The Highway Trust Fund generates about $40 billion a year in revenue and will do so for the next decade. That’s about $13 billion less than the federal government is planning to spend in fiscal 2016. Doing nothing would effectively cap the federal participation in highway spending, and inflation would steadily erode that.

2) Close the Transit Account. The fund includes a highway account and a transit account. About $5 billion of the $40 billion in revenue now goes to the transit account. Lawmakers who would like to use all the money for highways aren’t likely to find enough support from urban areas to close the transit account.

3) Raise the gas tax. The tools are in place to collect the revenue, making this the easiest solution to implement. The tax hasn’t budged from 18.4 cents per gallon since 1993. Had it kept up with inflation, it would be about 30 cents per gallon, enough to cover the funding gap in the Highway Trust Fund. Each 1 cent per gallon increase would raise about $1.5 billion in revenue. Key lawmakers have ruled it out this year.

4) Move to a vehicle-miles travelled tax. A VMT tax would reflect Americans’ increasing use of more fuel-efficient cars. It charges users based on how much they drive, not how much gasoline they use. But there is no nation-wide mechanism to monitor miles driven or collect the tax, and privacy advocates don’t want the government snooping into their driving habits. Oregon and Washington are experimenting with VMT pilot programs and could pave the way for policy changes.

5) Devolution. The federal government stops funding infrastructure and leaves it up to the states to raise the money needed. Sen. Mike Lee, R-Utah, and Rep. Tom Graves, R-Ga., have proposed slowly reducing the federal gas tax to 3.7 cents per gallon and leaving states to make up the difference. Conservative groups such as Heritage Action back the idea.

6) Tax repatriated corporate profits. President Barack Obama has proposed a one-time tax on corporate profits overseas to raise $238 billion to help pay for infrastructure improvements. While some lawmakers have embraced that concept, it’s encountered resistance from key lawmakers such as Sen. Orrin G. Hatch, R-Utah, chairman of the Finance Committee. Congress is unlikely to approve tax changes outside a broad overhaul of the tax code, and that’s unlikely this year. Critics also say that using one-time tax revenue would leave the Highway Trust Fund facing the same deficit once the money runs out.

7) Transfer general fund dollars. Congress has relied on the general fund since 2008 to top up the Highway Trust Fund. Each time, lawmakers vow to find a better long-term solution that does not require more infusions of general fund dollars. They haven’t found one yet. Transfers from the general fund are still among the most likely solutions this year.

8) Public-private partnerships. State and federal lawmakers are increasingly looking for ways to pay for projects with more private money. Public-private partnerships are a vehicle to tap private money for a public purpose. But partnerships take time to set up and often require revenue-generating mechanisms such as tolls that are unpopular. The partnerships have yet to take hold in the U.S.The Congressional Budget Office estimated that privately financed projects accounted for about 0.5 percent of all highway spending over the past 25 years.

9) Create infrastructure banks. The Department of Transportation operates a financing program known as TIFIA (for Transportation Infrastructure Finance and Innovation Act), but the president has proposed a broader infrastructure bank that would offer federal financing to state and local governments. Financing such as this often need a revenue source, such as tolls, to work. That is likely to reduce its appeal among policy makers.

This piece originally appeared as part of the cover story of the April 20 CQ Weekly.

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