# Presentation: 436477

## Peter “Jack” Basso 

Chief Operating Officer
American Association of State Highway and Transportation Officials

***Chief Operating Officer***
**American Association of State Highway and Transportation Officials**

**Long-term Revenue and Expenditure Picture of the Highway Trust Fund**

**Notes:**
Good morning it is a pleasure to have the opportunity to be here this morning to address the long-term outlook for revenues and expenditures into the Highway Trust Fund. Gary has given substantial background on needs and outlined the data from various studies that have been completed on highways and transit issues. I would like to now turn to the current cash crisis facing the Trust Fund and the continuing erosion of purchasing power. 

## The Looming Crisis

**Notes:**
First, by current projections we will face a deficit in the Highway account of the HTF in fiscal 2009. Just using the President’s budget projections as a basis the cash shortage in the account is estimated to be $200 million in fiscal 09. That would result in the need to reduce program obligations by about $800 million in that year down to $42.6 billion. However, this is jus the tip of the iceberg. The obligations we make in 09 will hit their highest level in payout sin 2010 and lacking additional revenue the program would need to be reduced 42 percent or down to $25.2 billion. This is the best case scenario since it assumes that the Administrations proposal to cancel about $630 million in RABA in fiscal 2008 is enacted. It seems clear that we will not see that and thus the 09 numbers actually could require a reduction of $2.5 billion down to just under $40 billion and in 10 a reduction of $19 billion down to $24.2 billion.

This all is against the backdrop of dramatic needs as Gary described.

## Inflation Impact

**Notes:**
The cash shortage is just one edge of the double edged knife. Inflation is taking a dramatic toll on our resources i.e. commodity prices for steel, concrete, petroleum, asphalt and construction machinery increased dramatically from 2004 to 2006. As a result, we estimate that between 1993, the year in which federal fuel taxes were last adjusted, and 2015, construction costs will have increased by at least 70 percent. 

## Restoring Purchasing Power

**Notes:**
To restore the purchasing power of the federal highway program, funding will have to be increased from $43 billion in 2009 to $73 billion by 2015. A 70 percent cut in purchasing power.
To restore the purchasing power of the federal highway program, funding will have to be increased from $43 billion in 2009 to $73 billion by 2015. A 70 percent cut in purchasing power.

## International Trade Growth

**Notes:**
On e of the key factors is also the dramatic growth in freight that is a key part of our international competitiveness. Looking ahead it is predicted that international trade will reach 35 percent of GDP by 2020. The question is will our transportation system be ready to handle the load?

## Revenue Picture

- Highway Trust Fund revenues are _NOT_ declining:
- 1995-2005:  $22 billion to $38 billion
- 2005-2015:	$38 billion to $47 billion
- Fuel tax is still viable
- But purchasing power eroding
- Spending has exceeded income

**Notes:**
Le time spend a few minutes on the question of revenue growth. There is much said about a myth that fuel tax revenue is declining in fact that is not correct. As you can see it actually has been growing  and is predicted to continue to grow. By all measures the fuel tax is still viable. The real issues are the needs outstripping income and spending exceeding income. The plain facts are in SAFETEA:LU we continue to spend more than we are taking in. In light of the needs I am not going to fault that but simply recognize it is time to make some decisions.

## Highway Trust Fund Optionsto Increase Revenues

_**Highway Program Level Made Possible by 2021**_
**10 Cent Rate Increase****	****	****	****$75 billion**
**10 Cent Rate Increase, Indexed to CPI****	****$82 billion**
**Five Percent Sales Tax on Gas****	****	****$85 billion**
**	****(if fuel prices increase 4% annually)**
**14.2 Percent Sales Tax on Gas****	****	****$95 billion**
**	****in lieu of 28.4 Cent Gas Tax**
**	****(if fuel prices increase 4% annually)**

**Notes:**
Let me just take you through some options. These are not meant to be all inclusive. Let me start with a Ten Cent Rate Increase. The first option is to increase federal fuel taxes by the equivalent of 10 cents. To avert a major cut in the highway program in 2009 would take the equivalent of a 3 cent fuel tax increase. To restore the purchasing power of the program would take the equivalent of an additional 7 cent fuel tax increase in 2010. If the gas tax were increased by 10 cents to a total of 28.4 cents, to maintain their historical shares, the diesel tax would have to be increased by 13 cents to a total of 37.4 cents. Our analysis shows that by 2021 the revenues made possible by this 10 cent increase could support a highway program of $75 billion.
Index to the Consumer Price Index. The second option is to index fuel tax rates to the consumer price index (CPI) from 2010 and beyond.  According to our analysis, indexing rates to the CPI from 2010 forward could generate enough revenue to increase the highway program to $82 billion by 2021.
Five Percent Federal Sales Tax on Motor Fuels. A third option would substitute for the first. Instead of increasing fuel tax rates by 10 cents for gasoline and 13 cents for diesel, impose a federal sales tax on motor fuels at a rate that generates the equivalent amount of revenue. Assuming gas and diesel wholesale prices of $2.00 per gallon, an equivalent amount of revenue could be generated by a 5 percent sales tax on gasoline and a 6 percent sales tax on diesel fuel. This would result in a tax structure at the national level similar to that in California, which levies a motor fuel excise tax of 18 cents per gallon, and a state sales tax on motor fuels of 7.25 percent.  If during the six years from 2015 to 2021, fuel prices increased by 4 percent annually, having a 5 percent sales tax in place could support an $85 billion highway program by 2021.
Replace the 18.4 cent Federal fuel tax with a 14.2 percent Federal Sales Tax on Gasoline and replace the 24.4 cent Federal tax on diesel with an 18.7 percent Federal sales tax on diesel.  Assuming gas and diesel wholesale prices of $2.00 per gallon, a sales tax rate of 14.2 percent generates revenues equivalent to a fee per gallon of 28.4 cents. An 18.7 percent sales tax on diesel generates revenues equivalent to a fee per gallon of 37.4 cents. Converting the entire federal fuel tax to a percentage rather than just the ten cent portion, would make it even more responsive to fuel prices. A floor would have to be imposed so that revenue generation is not adversely affected if prices dropped below a given rate such as $2.00 per gallon. If during the six years from 2015 to 2021, fuel prices increased by 4 percent annually, revenues would enable the highway program to increase to $95 billion by 2021.  

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**Notes:**
Lastly I would like to close by just summarizing that it will take a whole series of parts working together to address the Nation’s transportation needs. The diagram I think puts things into prospective by highlighting the components that are part of a total revenue package. Discuss.

## 
Questions?

Jack Basso
jbasso@aashto.org

**Questions?**
**Jack Basso**
*jbasso@aashto.org*