Shell game

April 1, 2006
Can truckers be confident that federal highway taxes will not rise? The administration's budget, released on February 6, appeared to show that the federal Highway Trust Fund (HTF) would maintain a positive balance through fiscal 2010. That is one year past the expiration date of the highway spending and tax bill (SAFETEA-LU). This projection would seem to suggest that no tax increases would be needed

Can truckers be confident that federal highway taxes will not rise? The administration's budget, released on February 6, appeared to show that the federal Highway Trust Fund (HTF) would maintain a positive balance through fiscal 2010. That is one year past the expiration date of the highway spending and tax bill (SAFETEA-LU). This projection would seem to suggest that no tax increases would be needed to pay for the spending levels Congress had set.

But the HTF consists of two accounts, one for highway spending and one for mass transit. Both receive fixed percentages of gasoline and diesel taxes. In addition, the highway account gets all of the money collected from taxes that are levied exclusively on medium and heavy trucks.

When the administration finally broke out its projected highway and transit account balances, it showed that the highway account would be in deficit by the end of fiscal 2009. The HTF would have a positive balance only because the mass transit account would not be spent down. Since the highway account is not allowed to borrow from the mass transit account or the general fund, keeping it in the black will require cutting highway spending or increasing highway account taxes.

The administration played down the urgency of doing anything about the highway account deficit, stressing the uncertainty of projection three to four years out. But several factors could wipe out the positive balance even sooner.

Spending rates can be affected by how quickly states design projects and award contracts. In the short term, exceptional weather can also change spending rates. Unusually high temperatures this winter in states that are usually frozen and snow-covered meant that many highway projects were accelerated. Massive repairs to highways and bridges damaged by Hurricanes Katrina, Rita, and Wilma also added to spending totals.

Receipts respond to changes in economic activity and gas prices. When the retail price of gasoline spiked to more than $3/gal. after Katrina hit, motorists trimmed unnecessary trips, used their more fuel-efficient cars, and bought replacement vehicles with more of an eye on fuel economy. Those changes may be reflected soon in lower HTF receipts.

Another spike or shortage may be just around the corner. The Energy Information Administration warned in a report on February 23 that a rapid conversion to ethanol from the gasoline additive MTBE could cause shortages and price spikes in some areas. Unlike MTBE, ethanol must be blended at local terminals. But there is insufficient production, transport and storage capacity to satisfy near-term demand for ethanol once refiners stop shipping MTBE-blended gasoline, as they have begun to do.

Ironically, higher revenues than anticipated could also cause problems for future highway account balances. The highway law requires highway spending to rise when receipts exceed the estimates adopted as part of SAFETEA-LU. This was designed to keep the HTF balance from being used to mask the size of the overall deficit. But it means that short-term revenue pickups push up future spending levels.

Such a revenue boost may be coming from truck sales due to a signficant “pre-buy” before new emissions standards take effect later this year.

The bottom line: Despite the administration's efforts to hide or downplay the shortfall in the highway account, truckers have ample reason to worry that the account will be in the red before the end of 2009. Since trucks and diesel fuel produce more than one-third of highway account revenue, it is likely that they will also be called upon to make up a large part of any shortfall.

About the Author

KEN SIMONSON e-mail: [email protected]

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