U.S. highway funding may need cuts, tax hikes-federal analysts

WASHINGTON, April 24 Wed Apr 24, 2013 5:17pm EDT

WASHINGTON, April 24 (Reuters) - The U.S. government may have to slash road and highway spending almost entirely or raise the gasoline tax by more than 50 percent in the face of a perpetual funding shortfall, the Congressional Budget Office said on Wednesday.

The nonpartisan agency, which analyzes policy for Congress, said that to bring the trust fund for highway and transit projects into balance in 2015 lawmakers could reduce spending obligations to $4 billion from $51 billion.

Another possible solution would be to raise the gas tax by 10 cents per gallon, Sarah Puro, analyst for surface transportation programs at CBO told the House Budget Committee. She added that Congress could also combine smaller spending cuts with a slimmer tax hike.

The federal government charges motorists an 18.4 cents-per-gallon gas tax when they fill up at the pump, and then uses these revenues for highways and public transit. Suggestions in recent years to raise the tax even a few pennies have met heavy political resistance.

With cars becoming more fuel efficient and commuters turning more to alternatives, the fund perpetually does not have enough revenue to cover spending demands. The federal government frequently steps in with emergency transfers, and Puro told the committee that since 2008 Congress has poured $41 billion into the fund.

Another transfer of $12.6 billion has been authorized for 2014, after lawmakers approved deposits of $6 billion this year. If Congress were to continue making the emergency transfers instead of cutting spending or raising the gas tax it would have to provide $14 billion in 2015, Puro said.

The trust fund was spared from the automatic spending cuts, known as sequestration, which began last month.

CBO forecasts that the highway part of the trust fund will end this fiscal year in September with a balance of $5 billion and the public transportation segment will have a balance of $3 billion.

But in five years the entire fund covering both highways and transit will end fiscal 2018 with a gap of $47 billion. At the end of 2023, the fund will be short $126 billion, according to CBO projections that consider the pace of inflation and the slow growth in the tax revenues.

Most of the highway money flows to states for road repair and construction, and projected shortfalls make it hard for them to plan capital works projects often spanning several years. That, in turn, can slow down construction companies and others which provide tools and materials for major infrastructure undertakings.

Many states that charge their own gas taxes have also faced shortfalls in recent years. Some are looking for more stable sources of revenue, with Virginia recently moving its transportation program away from a gas tax.

Puro noted the federal gas tax was last increased in 1993 and if it had been adjusted for inflation the rate would be about 29 cents per gallon. Because the tax did not rise with prices, the fund's purchasing power is only about 62 percent of what it was 20 years ago, she said.

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