CBO: Proposed CAFE rules will hit Highway Trust Fund hard down the road Proposed light-duty CAFE standards expected to cut gasoline-tax collections starting in 2017

CBO: Proposed CAFE rules will hit Highway Trust Fund hard down the road

Culprit will be resulting drop in gasoline taxes collected starting in 2017

With long-term reauthorization of the highway bill still on the table for the House and the Senate, the Congressional Budget Office (CBO) has issued a sobering report on how it expects the Highway Trust Fund to be impacted in future years by the expected tightening of federal corporate average fuel economy (CAFE) standards for light-duty vehicles (cars, SUVs, crossovers, minivans and pickups) manufactured from 2017 through 2025 to up fuel efficiency and cut greenhouse-gas emissions.

As CBO sees it, the Highway Trust Fund-- which finances most federal surface-transportation programs and is largely funded by fuel taxes—will be severely impacted by the resulting drop in gasoline tax revenues as more light-duty vehicles meeting the proposed harsher CAFE standards start hitting the road.

The impact, of course, will not be felt immediately, but it will be substantial enough that policymakers should start thinking about how to deal with it today.  CBO estimates that the proposed CAFE standards would gradually lower gasoline tax revenues and eventually cause them to drop by no less than 21%.

CBO noted that the full effect would not be realized until “around 2040” because the standards would gradually increase in stringency-- only reaching their maximum level in 2025-- and because the nation’s light-duty fleet changes slowly as older vehicles are replaced with new ones.

To illustrate the eventual effect of the standards on the trust fund’s cash flows, CBO looked at how a 21% falloff in gas tax collections would alter the agency’s current projections for the trust fund, spanning the period from 2012 through 2022.

CBO estimates that “such a decrease would result in a $57 billion drop in revenues credited to the Highway Trust Fund over those 11 years— a 13% reduction in the fund’s total receipts from all sources. The full 21% reduction in gasoline tax revenues, however, would not occur for about 30 years.”

That may be so, but given the glacial swiftness of Congressional action in the ongoing era of political polarization in Washington, DC, an issue that won’t be fully felt for three decades may in the end creep right up on trucking.

And CBO is not waiting to weigh in with its advice on what lawmakers should consider doing to avoid constraining the Highway Trust Fund in this coming revenue trap.

According to CBO, “Policymakers could consider several options to avoid adding to a shortfall in the Highway Trust Fund,” including these:

·         Reducing spending on highways and mass transit

·         Transferring additional money from the U.S. Treasury’s General Fund to the Highway Trust Fund

·         Increasing the gasoline tax or raise revenue from other sources to provide receipts to the trust fund.

Certainly, none of those options will be any easier to sell politically in the future than they would be now:

·         Highway and mass transit projects are not only necessary, they are pork-barrel rollers of the first order.

·         Transferring monies from the Treasury’s General Fund— which is already being tapped to cover shortfalls in today’s Highway Trust Fund— will likely be achieved only if lawmakers make matching cuts elsewhere.

·         Upping the gasoline tax won’t be popular with any but the greenest of voters.

What’s more, the CBO report makes no mention of what “other sources” may be tapped to add to the Highway Trust Fund.

In the report, CBO did point out these specifics regarding future actions that could be taken:

·         Spending from the trust fund would have to be reduced by about 10% to offset the 2% reduction in gasoline tax revenues. Lawmakers could allocate such reductions in various ways between the highway and mass transit accounts.”

·         “Transferring more money from the [Treasury’s] general fund to the Highway Trust Fund is the action the Congress took to address the shortfall each year from 2008 to 2010. Those actions ensured that the fund maintained a positive balance, but they weakened the relationship between spending on highways and the taxes imposed on users of those highways…. with such transfers, the trust fund will, over time, contribute to budget deficits rather than yield a balance between receipts from the designated transportation-related excise taxes and outlays for federal highway and transit programs.”

·         The gasoline tax would have to be raised “about 5 cents per gallon” to make up the shortfall in revenue projected as a result of the proposed CAFE standards.

To read the full CBO report “How Would Proposed Fuel Economy Standards Affect the Highway Trust Fund?,” click here.






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