Reauthorizing 

Federal Highway 

Programs: Issues 

and Options

MAY 2020

CONGRESS OF THE UNITED STATES

CONGRESSIONAL BUDGET OFFICE

© Johanna Goodyear/Shutterstock.com
At a Glance

In 2019, federal spending for highways totaled $46 billion. Such spending is funded primarily 

by revenues credited to the Highway Trust Fund, which have fallen short of spending from the 

fund for more than a decade. If the taxes that are credited to the trust fund were continued at 

their current rates and funding for highway and transit programs increased annually at the rate of 

inflation, by 2030, the cumulative shortfall in the trust fund would reach $189 billion, according 

to the Congressional Budget Office’s latest baseline projections. (Those projections were prepared 

in March 2020, before the current public health emergency caused by the coronavirus began. The 

net effect that the crisis will have on that shortfall is unclear.)

In this report, CBO discusses choices about revenues and spending that lawmakers face in 

addressing that shortfall and improving the nation’s infrastructure; the agency also analyzes 

options for subsidizing state and local governments’ financing of highway projects.

• Revenues. To increase revenues, lawmakers could raise taxes on motor fuels. Increasing those 

taxes by 15 cents per gallon and indexing them to inflation would generate an estimated 

$329 billion more for the trust fund over 10 years than the amount projected to be raised at 

the current rates in CBO’s March baseline. Another option is to impose a new tax on vehicle 

miles traveled by trucks or on freight shipments carried by trucks. Such a tax could eventually 

reduce the shortfall markedly, but the costs to implement it and ensure compliance would 

be substantial. Finally, lawmakers could increase the Highway Trust Fund’s resources by 

continuing to transfer money from the Treasury’s general fund. 

• Spending. Increasing highway spending from 2021 to 2030 to an annual average of 

$71 billion—nearly 40 percent more than projected in the baseline—could fund all highway 

projects that are estimated to provide a net benefit if state and local governments increased 

their spending proportionally. But doing so would double the cumulative shortfall through 

2030. Alternatively, highway conditions could be maintained with average annual spending 

of $54 billion (if state and local governments increased their spending proportionally), which 

would increase the shortfall by $31 billion. 

Much of the shortfall could be eliminated if federal highway funding were set to match 

projected revenues for the highway account of the trust fund. Average annual spending would 

fall to $39 billion, about 25 percent less than projected in the baseline. The cumulative 

shortfall through 2030 would shrink by $124 billion but would not be entirely eliminated 

because outlays would continue to be made from funding allocated before the cuts were made. 

• Financing. The federal government could provide more subsidies to state and local 

governments to support their borrowing to pay for highway projects. Policymakers could 

broaden the availability of subsidies provided in existing financing programs (tax-preferred 

bonds, direct loans and loan guarantees, and funds to be used to capitalize state infrastructure 

banks), or they could authorize state and local governments to issue tax credit bonds.

www.cbo.gov/publication/56346
Contents

Summary 1

Revenues Credited to the Highway Trust Fund 1

Federal Spending for Highways 3

Federal Programs to Subsidize State and Local Borrowing for Highways 3

A Note About the Possible Effects of the Coronavirus Pandemic on the Estimates 4

Revenues Credited to the Highway Trust Fund 4

Sources of Revenues 4

Costs Imposed by Users 5

Options 6

BOX 1. ELECTRIC VEHICLE FEES AND INCENTIVES 7

Federal Spending for Highways 9

Characteristics of Federal Funding for Highways 10

BOX 2. FEDERAL HIGHWAY SPENDING AND THE AMERICAN RECOVERY AND REINVESTMENT ACT 11

Distribution of Federal Funds to States 12

Options 14

Federal Programs to Subsidize State and Local Borrowing for Highway Spending 16

Tax-Preferred Bonds 17

Direct Federal Credit Programs 19

State Infrastructure Banks 20

Options 20

List of Tables and Figures 22

About This Document 23
Notes

All projections presented in this report are based on the Congressional Budget Office’s 

baseline budget projections as of March 6, 2020 (www.cbo.gov/publication/56268), and 

on the economic forecast that the agency published in January 2020 as part of The Budget 

and Economic Outlook: 2020 to 2030 (www.cbo.gov/publication/56020). Thus, they do 

not reflect changes to the nation’s economic outlook and fiscal situation arising from the 

recent and rapidly evolving public health emergency caused by the coronavirus.

Unless this report indicates otherwise, all years referred to are federal fiscal years, which 

run from October 1 to September 30 and are designated by the calendar year in which 

they end.

Dollar amounts are reported in nominal (current-year) dollars unless this report specifies 

otherwise. Where amounts are given in inflation-adjusted dollars, CBO used the gross 

domestic product price index from the Bureau of Economic Analysis to convert them.

Numbers in the text and tables may not add up to totals because of rounding.
Reauthorizing Federal Highway Programs: 

Issues and Options

Summary

Federal spending on highways (or, synonymously, roads) 

totaled $46 billion in 2019. Most of those outlays were 

for grants to state and local governments to support 

their spending on capital projects. (Those governments 

typically spend roughly three times as much of their own 

funds on highways each year, not only on capital projects 

but also to operate and maintain roads.) That $46 billion 

also includes spending for federal programs that subsidize state and local governments’ borrowing for highway 

projects; other subsidies for state and local borrowing are 

provided through the tax code.

Most federal spending for highways is paid for by revenues credited to the highway account of the Highway 

Trust Fund, largely from excise taxes on gasoline, diesel, 

and other motor fuels. For more than a decade, those 

revenues have fallen short of federal spending on highways, prompting transfers from the Treasury’s general 

fund to the trust fund to make up the difference. If 

the taxes that are currently credited to the trust fund 

remained in place and if funding for highway and 

transit programs increased annually at the rate of inflation, the shortfalls accumulated in the Highway Trust 

Fund’s highway and mass transit accounts from 2021 

to 2030 would total $189 billion, according to the 

Congressional Budget Office’s baseline budget projections as of March 6, 2020.1

 Those projections, which are 

based on the economic forecast that CBO completed on 

January 7, 2020, do not account for the changes to the 

nation’s economic outlook and fiscal situation that have 

stemmed from the 2020 coronavirus pandemic. 

The current authorization for federal highway programs 

expires on September 30, 2020. As they consider reauthorization, policymakers have many decisions to make 

about federal highway programs, including how to pay 

for those programs, how much to spend on them and 

1. See Congressional Budget Office, “Details About Baseline 

Projections for Selected Programs: Highway Trust Fund 

Accounts” (March 2020), www.cbo.gov/publication/51300. 

how to direct that spending, and how much to subsidize 

borrowing by others to finance highway projects.

Revenues Credited to the Highway Trust Fund

The Highway Trust Fund is an accounting mechanism in 

the federal budget with two accounts—one for highways 

and the other for mass transit—to which certain fuel and 

other vehicle-related excise tax collections are credited. 

According to CBO’s March projections, if the excise 

taxes are continued at their current rates and current 

funding for highway and transit programs increases 

annually at the rate of inflation, the revenues and accumulated balances of the Highway Trust Fund will be 

insufficient to cover spending from the transit account 

starting in 2021 and spending from the highway account 

beginning in 2022 (see Figure 1). In those projections, 

revenues credited to the Highway Trust Fund in 2020 

total $44 billion, and outlays exceed revenues by about 

$14 billion. 

Policymakers have a number of options to increase the 

resources available in the Highway Trust Fund: 

• Increase the existing fuel taxes. The tax on gasoline 

has been 18.4 cents per gallon, and the tax on diesel 

24.4 cents per gallon, since October 1993. One 

option is to increase those taxes by 15 cents per gallon 

in 2021 (bringing them up to roughly the rates they 

would be if they had increased with inflation) and 

to adjust them for inflation thereafter. CBO and 

the staff of the Joint Committee on Taxation (JCT) 

estimate that such a change would raise $329 billion 

more in revenues for the Highway Trust Fund from 

2021 to 2030 than projected in CBO’s March 

baseline. An increase of that amount would eliminate 

the fund’s shortfall and provide $140 billion for 

additional spending by 2030. However, that increase 

in fuel taxes would reduce taxable business and 

individual income, resulting in reductions in income 

and payroll tax receipts that would partially offset the 

increase in fuel tax receipts.
2 Reauthorizing Federal Highway Programs: Issues and Options May 2020

Figure 1.

Annual Revenues, Outlays, and Balance of the Highway Trust Fund in CBO’s March 2020 Baseline Projections

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Outlays

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2012 2014 2016 2018 2020 2022 2024 2026 2028 2030

Outlays

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Balance

Revenues

Highway Account

Transit Account Billions of Dollars

Billions of Dollars

Source: Congressional Budget Office.

The projections shown here are based on CBO’s baseline budget projections as of March 6, 2020, which do not account for changes to the nation’s 

economic outlook and fiscal situation that have stemmed from the 2020 coronavirus pandemic. See Congressional Budget Office, Baseline Budget 

Projections as of March 6, 2020 (March 2020), www.cbo.gov/publication/56268. 

Revenues credited to the Highway Trust Fund include tax receipts, interest, and intragovernmental transfers.

Some of the taxes that are credited to the Highway Trust Fund are scheduled to expire on September 30, 2022, including the excise taxes on tires for 

heavy trucks and all but 4.3 cents of the per-gallon federal tax on motor fuels (currently 24.4 cents per gallon on diesel fuel and 18.4 cents per gallon 

on gasoline and other fuels). However, in accordance with the rules governing baseline projections specified in the Balanced Budget and Emergency 

Deficit Control Act of 1985, the estimates shown here reflect the assumption that all the expiring taxes credited to the fund will continue to be collected 

after fiscal year 2022.

Under current law, the Highway Trust Fund cannot incur negative balances. However, to accord with the rules governing such projections, CBO’s 

baseline projections for surface transportation spending reflect the assumption that obligations incurred by programs funded by the Highway Trust 

Fund will be paid in full.

Outlays from the Highway 

Trust Fund have long 

exceeded the revenues 

credited to it from taxes, but 

intragovernmental transfers 

have ensured that the fund’s 

two accounts maintained a 

positive balance. In CBO’s 

projections, the balance 

of the transit account is 

exhausted in 2021, and the 

highway account is in deficit 

the following year.
May 2020 Reauthorizing Federal Highway Programs: Issues and Options 3

• Institute new taxes. Policymakers could institute new 

taxes on vehicle miles traveled (VMT), on freight 

shipments carried by trucks, or on electric vehicles. If, 

for example, a VMT tax of 5 cents per mile traveled 

by trucks had been in place in 2017, it would have 

raised about $13 billion that year—about $1 billion 

more than the fund’s shortfall for the year. The costs 

of implementing such a tax and ensuring compliance 

could, however, be substantial. Alternatively, a tax on 

freight transported by highway could also reduce the 

shortfall, depending on the specifics of the tax, but 

implementing such a tax would require establishing 

new mechanisms for assessing and collecting it, which 

could be an expensive and time-consuming process. 

A tax on electric vehicles would probably not have a 

substantial effect on the trust fund’s shortfall because 

the number of such vehicles remains small. 

• Transfer money from the Treasury’s general fund.

Under this option, the federal government would, in 

effect, pay for a portion of highway spending in the 

same way that it funds other programs and activities.

Federal Spending for Highways

The share of total economic output that federal spending 

for highways has accounted for has been relatively stable 

for several decades, though real (inflation-adjusted) 

federal spending has increased in recent years. Almost all 

of that spending, which takes place primarily through 

grants to state and local governments, is for capital 

projects rather than for operation and maintenance and 

is restricted to federal-aid highways, which consist of the 

Interstate Highway System and most other roads except 

for local roads. Federal highway funds are distributed to 

states on the basis of formulas that depend on how much 

states received in earlier years, so federal spending does 

not necessarily go to the projects that would produce the 

greatest net benefits.

Lawmakers have many options for determining the 

amount of money spent on highways, including these: 

• Fund all projects for which the expected benefits 

meet or exceed the costs. In CBO’s estimation, that 

option would require increasing federal spending 

(which was $46 billion in 2019) to an average of 

at least $71 billion per year—nearly 40 percent 

more than projected in CBO’s baseline from 2021 

to 2030. That estimate is based on analysis from 

the Federal Highway Administration (FHWA) 

and would be applicable only if state and local 

governments increased their spending for federal-aid 

highways proportionally. Implementing that option 

would require identifying sources of funding for the 

additional spending. 

• Maintain the current conditions and performance 

of the highway system. Accomplishing that objective 

would require the federal government to spend at 

least $54 billion per year, on average, CBO estimates 

using FHWA data—nearly $4 billion more than the 

average annual spending in CBO’s 10-year baseline 

projections. To realize the conditions in FHWA’s 

model, state and local governments would also need 

to increase their spending for federal-aid highways.

• Set spending to match revenues. Policymakers could 

set spending to match the revenues projected to be 

credited to the highway account of the Highway 

Trust Fund. Under that option, nominal federal 

spending on highways would average $39 billion per 

year through 2030—an average of $12 billion (or 

about 25 percent) less each year than the amounts in 

CBO’s baseline projections. 

In addition to determining how much to spend on highways, policymakers could adopt a different set of criteria 

for allocating that spending, such as directing federal 

highway funds to programs or projects on the basis of 

expected net benefits. Distributing funds in that manner 

would produce spending patterns that differed from 

those observed in recent years, when funds were distributed to states on the basis of formulas and states selected 

projects according to their own criteria and program 

requirements. Compared with actual spending in 2014, 

if spending were directed according to expected net 

benefits, a smaller share of spending would go to expanding non-Interstate roads in rural areas, and a larger share 

would go to rehabilitating non-Interstate federal-aid 

highways in urban areas. Furthermore, a larger share of 

spending than allocated in 2014 would go to rehabilitating rural and urban bridges on Interstate highways, and 

less would go to rehabilitating the Interstates themselves. 

Federal Programs to Subsidize 

State and Local Borrowing for Highways

The federal government also supports investment in 

highways by state and local governments through 

several financing programs that subsidize the cost of 

borrowing to pay for that spending—that is, the federal government incurs costs to lower state and local 

governments’ borrowing costs. From 2007 to 2016, the 
4 Reauthorizing Federal Highway Programs: Issues and Options May 2020

federal government subsidized an average of $20 billion 

(in 2019 dollars) per year of new financing for highways 

that state and local governments obtained through taxpreferred bonds, direct loan and loan guarantee programs, and funds that were to be used to capitalize state 

infrastructure banks (SIBs). Tax-exempt bonds accounted 

for about three-quarters of that borrowing. 

Federal policymakers could offer new programs or 

expand current programs to subsidize borrowing by 

state and local governments to build more roads. For 

instance, they could introduce a tax credit bond program. Depending on its design, such a program could 

subsidize the same amount of borrowing by state and 

local governments as tax-exempt bonds at a lower cost to 

the federal government by effectively eliminating some 

of the benefits of tax-exempt bonds that go to higherincome bondholders. Policymakers could also expand 

opportunities for state and local governments to use 

federally subsidized financing by authorizing state and 

local governments to issue more tax-exempt bonds to 

fund projects undertaken primarily by private entities or 

by extending more loans to those governments to finance 

transportation projects. In addition, policymakers could 

allow states to collect tolls on Interstate highways, which 

would offer states an additional revenue stream to borrow against. 

A Note About the Possible Effects of the 

Coronavirus Pandemic on the Estimates

Several changes arising from the current public health 

emergency and resulting decline in economic activity 

will have offsetting effects on the balance of the highway 

account of the Highway Trust Fund. Revenues from 

fuel taxes will be lower than CBO projected in March 

because people have been driving less since the coronavirus pandemic began. If all other factors underlying 

CBO’s projections remained unchanged, the reduction 

in revenues would increase the annual shortfall in the 

trust fund’s highway account. But spending from the 

Highway Trust Fund may also decrease, because states, 

whose fiscal outlooks have worsened as a result of the 

decline in economic activity, may have to suspend 

highway projects for an extended period. Reductions 

in spending from the trust fund would, all else equal, 

decrease the annual shortfall. CBO has not yet assessed 

those changes to determine their net effect on the size of 

the shortfall in the Highway Trust Fund or to update the 

agency’s projections of when the fund’s balances will be 

insufficient to cover its outlays without delays.

In addition, if federal lawmakers respond to the economic downturn by providing funds for infrastructure 

projects outside the Highway Trust Fund, as they did in 

the American Recovery and Reinvestment Act of 2009, 

spending from the trust fund may decrease as it did in 

2010. 

Revenues Credited to the Highway Trust Fund

In 2019, $45 billion in revenues were credited to the 

Highway Trust Fund; of that amount, $39 billion went 

to the highway account. Most of those revenues came 

from taxes on gasoline and other motor fuels. 

To cover the shortfalls recorded in the fund’s accounts, 

lawmakers have enacted legislation that since 2008 has 

transferred more than $140 billion—mostly from the 

Treasury’s general fund—to the Highway Trust Fund. 

Most recently, lawmakers transferred $70 billion from 

the general fund in 2016—$52 billion to the highway 

account and $18 billion to the transit account. Such 

intragovernmental transfers have allowed the fund to 

maintain a positive balance, but they have not changed 

the amount of receipts collected by the government. 

If revenues continue to be less than spending, the 

Department of Transportation will have to delay its 

reimbursements to states for the costs of highway construction. To ensure that funding is available for highway 

spending at current levels or higher, lawmakers could 

take measures to increase the Highway Trust Fund’s 

resources.

Sources of Revenues

Of the revenues credited to the Highway Trust Fund in 

2019, $36 billion (or 82 percent) stemmed from excise 

taxes on gasoline, diesel, and other motor fuels (see 

Figure 2). Receipts from the tax of 18.4 cents per gallon 

on gasoline and ethanol-blended fuel contributed the 

largest amount—$26 billion, or nearly 60 percent of the 

fund’s revenues. Receipts from the tax of 24.4 cents per 

gallon on diesel and other fuels totaled $10 billion, or 

about one-quarter of the fund’s revenues. The taxes on 

gasoline and diesel fuel have been in place since 1993, 

and the rates have not been adjusted since then. All but 

4.3 cents of the per-gallon federal tax on motor fuels are 

scheduled to expire on September 30, 2022.2

2. In accordance with the rules governing baseline projections 

specified in the Balanced Budget and Emergency Deficit Control 

Act of 1985, CBO’s baseline revenue estimates reflect the 

assumption that all the expiring taxes credited to the fund will 

continue to be collected after fiscal year 2022.
May 2020 Reauthorizing Federal Highway Programs: Issues and Options 5

If those taxes were extended at their current rates, revenues from gasoline and diesel taxes would decline at a 

rate of about 1 percent per year over the next 10 years, 

CBO projects. Factors contributing to that projected 

decline include the rising fuel economy of vehicles and 

the slow rate of growth of the total number of miles 

traveled by vehicles.3

Not all of the receipts from the excise taxes on motor 

fuels are dedicated to highway spending. A portion of 

those receipts—2.86 cents per gallon, which amounted 

to about $6 billion in 2019—goes to the transit account 

of the Highway Trust Fund. In addition, 0.1 cent per 

gallon goes to the Environmental Protection Agency’s 

Leaking Underground Storage Tank Trust Fund, which 

supports programs run by state and local governments 

that prevent and clean up leaks from underground petroleum storage tanks.

3. CBO’s current projections give equal weight to the fuel economy 

standards established in 2012, which would have increased fuel 

efficiency requirements each year, and to the Safer Affordable 

Fuel Efficient Vehicles rule, which retains the model year 

2020 standards unchanged through model year 2026. (When 

the projections were prepared, the new rule had not yet been 

finalized.)

Revenues from three other taxes, which are specific to 

heavy vehicles, are also credited to the Highway Trust 

Fund. The excise tax on trucks and trailers—equal to 

12 percent of the sales price of tractors, trucks, and 

trailers that exceed certain weights—accounted for 

12 percent of the trust fund’s revenues in 2019. A tax on 

the use of heavy vehicles (a $100 to $550 annual tax on 

trucks over 55,000 pounds) and an excise tax on certain 

tires for heavy trucks contributed smaller amounts to the 

fund. (That excise tax on tires is scheduled to expire on 

September 30, 2022.)

In addition to those taxes, other fees and interest on 

invested balances totaling about $1 billion per year are 

credited to the trust fund.

Costs Imposed by Users

Drawing on the various taxes that are credited to the 

Highway Trust Fund to pay for investment in highways 

is consistent with the view that those who benefit from 

public spending should pay for it and that charging users 

helps allocate resources efficiently. Knowledge of how 

different highway users contribute to highway costs can 

inform lawmakers’ decisions about how to set those user 

charges and how to allocate the resources collected.

Figure 2.

Sources of Revenues Credited to the Highway Trust Fund, 2019

Billions of Dollars

Other Sources

Tax on Tires and Tread Rubber

Use Tax on Certain Vehicles

Tax on Trucks and Trailers

Tax on Diesel and Other Fuels

Tax on Gasoline

0 5 10 15 20 25 30

Other Sources

Tax on Tires and Tread Rubber

Use Tax on Certain Vehicles

Tax on Trucks and Trailers

Tax on Diesel and Other Fuels

Tax on Gasoline

0 5 10 15 20 25 30

Taxes on

Fuels

($36.5 billion)

Taxes

Specific

to Heavy

Vehicles

($6.9 billion)

a

Source: Congressional Budget Office, using data from the Federal Highway Administration and the Internal Revenue Service.

a. Consists of $0.8 billion in interest income, $0.1 billion in civil penalties and fines, and $0.1 billion in other income, primarily intragovernmental 

transfers—that is, funds transferred from other budgetary accounts to the Highway Trust Fund.
6 Reauthorizing Federal Highway Programs: Issues and Options May 2020

The most recent national study of how different types 

of vehicles contribute to the highway costs that federal 

programs pay for was published by FHWA in 2000. 

Passenger vehicles constituted the largest group of 

vehicles in use and were estimated to account for about 

60 percent of federal highway costs in 2000, even though 

their estimated cost per mile of highway use was the 

lowest at 0.8 cents. 

Costs attributed to trucks accounted for the remaining 

40 percent of federal highway costs, but trucks provided 

about one-third of the Highway Trust Fund’s revenues. 

For each mile they traveled in 2000, combination trucks 

(that is, tractors pulling one or more trailers) were estimated to impose a cost of 8.4 cents. For all trucks, the 

estimated cost per mile traveled ranged from 2.2 cents 

for the trucks carrying the lightest loads to 20.3 cents for 

those with the heaviest loads.4

More recently, some states have calculated cost shares for 

different types of vehicles that are similar to the estimates 

in the FHWA study. Oregon estimates that in 2020, 

light vehicles (mainly cars and other passenger vehicles) 

will account for about two-thirds of state highway costs 

and heavy vehicles for about one-third.5

 As the Oregon 

report notes, however, highway spending by state governments includes maintenance costs, whereas federal 

spending does not. Maintenance costs, such as snow 

removal and pothole patching, relate primarily to light 

vehicle use, so a comparable study of federal expenditures 

would be expected to attribute a larger share of costs to 

heavy vehicles.

Options

Lawmakers have several options for increasing resources 

in the Highway Trust Fund. One option is to increase 

existing taxes on gasoline and diesel fuels. Alternatively, 

lawmakers could impose new taxes on vehicle miles 

traveled, on freight movement, or on electric vehicles. 

Finally, the Congress could make additional transfers 

from the Treasury’s general fund to the Highway Trust 

Fund. 

4. See Federal Highway Administration, Addendum to the 

1997 Federal Highway Cost Allocation Study Final Report

(May 2000), Tables 4 and 6, www.fhwa.dot.gov/policy/hcas/

addendum.cfm.

5. See Oregon Department of Administrative Services, Office 

of Economic Analysis, Highway Cost Allocation Study, 

2019–2021 Biennium (prepared by ECONorthwest, 2019), 

www.oregon.gov/das/OEA/Pages/hcas.aspx.

Increase Existing Fuel Taxes. CBO analyzed an option 

that would increase federal excise tax rates on gasoline 

and diesel fuel by 15 cents per gallon and adjust them 

to grow with inflation thereafter. If those rates (which 

have not changed since 1993) had grown with inflation 

as measured by the gross domestic product (GDP) price 

index, the 18.4 cent-per-gallon gasoline tax would have 

increased by about 12 cents by 2019, and the 24.4 centper-gallon diesel tax would have increased by about 

15 cents. 

According to JCT’s estimates, increasing the tax rates 

on fuel by 15 cents in 2021 and indexing them to the 

consumer price index thereafter would increase cumulative fuel-tax receipts credited to the Highway Trust Fund 

over the 2021–2030 period above the amount in CBO’s 

March baseline projections by $329 billion. An increase 

of that amount would eliminate the current shortfall 

and provide an additional $140 billion in revenues to 

the Highway Trust Fund by 2030. Interest payments 

on any accumulated balances would further increase 

the resources available in the trust fund. However, that 

increase in fuel taxes would reduce other federal income 

and payroll tax receipts by decreasing taxable business 

and individual income.6

Institute New Taxes. Another option is to impose new 

taxes that better align the taxes paid for using roads with 

the cost of building those roads. In recent years, revenues credited to the Highway Trust Fund have declined. 

Because of improvements in fuel efficiency, drivers use 

less fuel and therefore pay less in fuel taxes to travel the 

same distance. Meanwhile, under current law, drivers of 

the small but growing number of all-electric vehicles do 

not pay any of the federal taxes that are credited to the 

Highway Trust Fund—though a tax on electric vehicles 

would probably not have a substantial effect on the trust 

fund’s shortfall because the number of such vehicles 

remains small (see Box 1). 

Impose a VMT Tax. Instituting a tax on vehicle miles 

traveled would charge all vehicles for their highway use 

regardless of the vehicle’s fuel efficiency or energy source, 

but doing so would present several challenges. A VMT 

tax would be more costly to administer than the current 

6. From 2021 to 2030, estimated income and payroll tax offsets 

range from 22 percent to 25 percent of the excise tax collected. 

See Joint Committee on Taxation, New Income and Payroll 

Tax Offsets to Changes in Excise Tax Revenues for 2020–2030,

JCX-6-20 (February 25, 2020), https://go.usa.gov/xv69v.
May 2020 Reauthorizing Federal Highway Programs: Issues and Options 7

excise taxes on fuels. In addition, such a tax would raise 

privacy concerns if calculating and collecting the tax 

required the government to track people’s movement 

and use of vehicles. Apart from those challenges, a VMT 

tax has implications for equity that are similar to those 

of fuel taxes—namely, the burden, relative to income, is 

greatest for lower-income households because the money 

paid in taxes for highway use would constitute a larger 

share of their total income than of higher-income households’ total income.

Box 1.

Electric Vehicle Fees and Incentives

More than 1.5 million plug-in electric cars and light trucks were 

on the road in 2019—a number that represents 0.6 percent 

of the stock of light-duty vehicles.1 Because drivers of electric 

vehicles (EVs, including plug-in hybrid vehicles, which combine 

a gasoline engine with a battery-powered electric motor that 

can be recharged by plugging it into an external electricity 

source, as well as all-electric vehicles, which run solely on 

battery power) pay little or no state fuel tax, many states have 

begun charging owners of EVs an annual fee, typically in the 

range of $50 to $200. If in 2019 the federal government had 

charged an annual EV fee of $100—comparable to the average 

amount that drivers of light-duty vehicles would have paid in 

federal fuel taxes in 2017—it would have raised about $150 million, the Congressional Budget Office estimates, using data 

from the U.S. Energy Information Administration.2

 By comparison, in 2019, the Highway Trust Fund’s outlays exceeded 

revenues by $11.6 billion.

Plug-in EVs represent a small but growing segment of the 

light vehicle market. In 2018, 362,000 plug-in EVs were sold, 

accounting for 2 percent of the nearly 17 million light vehicles 

sold that year. That volume of sales represented an 85 percent 

increase over the previous year and was more than six times 

the number of EVs sold in 2012.3

To reduce the reliance on petroleum in the transportation 

system, lawmakers at both the federal and state levels have 

implemented a variety of tax credits and subsidies that incentivize people and businesses to purchase plug-in EVs. Those 

subsidies further that goal, but they also tend to boost the 

number of miles traveled by vehicles paying little or no fuel tax. 

1. U.S. Energy Information Administration, Annual Energy Outlook 2020

(January 2020), Table 39, www.eia.gov/outlooks/aeo/.

2. U.S. Energy Information Administration, Monthly Energy Review 

(September 2019), Table 1.8, www.eia.gov/totalenergy/data/monthly/

previous.php.

3. Stacy C. Davis and Robert G. Boundy, Transportation Energy Data 

Book: Edition 38.1 (prepared by Oak Ridge National Laboratory for the 

Department of Energy, April 2020), Table 6.2, https://tedb.ornl.gov/.

At the federal level, the full value of the tax credit for the purchase of a plug-in EV by a consumer or business ranges from 

$2,500 to $7,500, depending on the vehicle’s battery capacity.4

In 2017, $573 million in plug-in EV tax credits were claimed by 

about 91,000 taxpayers, the Internal Revenue Service reports. 

A disproportionate number of those credits were claimed by 

higher-income households: 75 percent of returns claiming the 

tax credit showed an adjusted gross income of $100,000 or 

more, whereas only 18 percent of all returns reported income 

of that amount.5 The extent to which the benefits of such tax 

credits flow to purchasers or to the manufacturers of EVs is 

unclear. Between 2019 and 2023, the staff of the Joint Committee on Taxation estimates, claims for the plug-in EV tax credit 

will total $4.8 billion.6

State and local governments also provide a variety of financial 

incentives to encourage people and businesses to buy plug-in 

EVs. Examples of such incentives include rebates on purchases 

of EVs, tax credits for purchasing or converting vehicles to 

electric power, exemptions from excise taxes, reductions in 

toll fees, and reductions in vehicle registration fees. As with 

the federal tax credits, those benefits are largely claimed by 

people with relatively high income. Some states also offer EV 

owners additional benefits, such as access to high-occupancy 

vehicle lanes, exemptions from emissions testing, and financial 

incentives to install charging infrastructure.

4. The plug-in electric vehicle credit was established by the Energy 

Improvement and Extension Act of 2008 (Public Law 110-343) and codified 

in 26 U.S.C. §30D. The credit begins to phase out once a manufacturer 

has sold 200,000 qualifying vehicles. General Motors and Tesla have 

exceeded that threshold. See Congressional Budget Office, Effects of 

Federal Tax Credits for the Purchase of Electric Vehicles (September 2012), 

www.cbo.gov/publication/43576.

5. Internal Revenue Service, “All Returns: Tax Liability, Tax Credits, and 

Tax Payments, by Size of Adjusted Gross Income, Tax Year 2017” 

(September 2019), Table 3.3, https://go.usa.gov/xv38b.

6. Joint Committee on Taxation, Estimates of Federal Tax Expenditures 

for Fiscal Years 2019–2023, JCX-55-19 (December 18, 2019), 

https://go.usa.gov/xv3Uy.
8 Reauthorizing Federal Highway Programs: Issues and Options May 2020

Limiting a VMT tax to only commercial trucks would 

raise fewer of those concerns. Because many trucking 

companies already track their vehicles, implementing a 

VMT tax on only commercial trucks would require overcoming fewer administrative and privacy hurdles than 

implementing such a tax on all vehicles would. 

CBO recently analyzed the effects on revenues of several 

possible formulations of a VMT tax on commercial vehicles.7

 One example suggested that if a 5 cent tax per mile 

traveled by trucks had been in place in 2017, it would 

have generated between $4 billion and $13 billion in 

revenues that year, depending on the types of trucks and 

roads that the tax applied to. Taxing all trucks, including 

box and large pickup trucks, would raise more revenues 

than taxing only combination trucks. Similarly, revenues 

would be greater if the tax applied to travel on all public 

roads than they would be if it applied only to travel on 

Interstates or on Interstates and arterial roads (see Table 1).

Imposing a federal VMT tax on commercial trucks 

could eventually be a substantial source of revenues for 

the Highway Trust Fund, but doing so would require 

lawmakers to make several choices about the design of 

the tax:

• Which trucks would be taxed on which roads?

• What would the structure of the tax rates be? 

• How would the tax be implemented?

7. See Congressional Budget Office, Issues and Options for a Tax 

on Vehicle Miles Traveled by Commercial Trucks (October 2019), 

www.cbo.gov/publication/55688.

Establishing and operating a program to collect a VMT 

tax on commercial trucks would entail not only costs 

to set up the program, including capital costs for new 

equipment, but also ongoing administrative and enforcement costs. The costs of instituting such a program 

would be incurred before any revenues were generated by 

the program. 

Establish a Highway Freight Tax. An alternative option 

for raising highway revenues is to institute a new tax on 

freight traveling by highway that is similar to the taxes 

currently collected on freight transported by plane or 

by ship. Taxes on freight transportation could raise a 

substantial amount of money relative to the shortfall in 

the Highway Trust Fund, but the amount of revenues 

generated would depend on what was taxed and the rate 

that was set. Implementing a highway freight tax would 

require policymakers to make decisions about which 

freight shipments would be taxed and to design and 

implement a system to collect those taxes. Those choices 

would determine the capital costs of setting up the 

system as well as the ongoing costs to administer it and 

enforce collections.

The taxes on freight transported by plane and by ship 

provide two different models of how a tax on freight 

transported by trucks might work. The waybill tax 

on domestic cargo transported by air is one of several 

sources of revenues credited to the Airport and Airway 

Trust Fund—the primary funding source for the Federal 

Aviation Administration and for federal grants to airports. The tax is equal to 6.25 percent of the amount 

paid for transport. If policymakers used that tax as a 

model for designing a freight tax on cargo transported 

by truck, they would need to decide which shipments 

to include and which shipping fees to tax. A trucking 

industry association reported that total revenues for the 

industry were about $800 billion in calendar year 2018, 

though that includes only primary shipments (that is, 

the first movement of freight from an origin to a destination), not secondary shipments by truck.8

Cargo transported by ship is taxed in a different manner. The freight tax on ship cargo, which through the 

Harbor Maintenance Trust Fund provides half of the 

funds for federal spending on harbor maintenance, is 

equal to 0.125 percent of the value of domestic and 

8. American Trucking Association, “Economics and Industry 

Data” (accessed April 21, 2020), www.trucking.org/

economics-and-industry-data. 

Table 1.

Estimated Annual Revenues From a VMT Tax of 

5 Cents per Mile If One Had Been in Place in 2017

Billions of 2017 Dollars

All Trucks

Combination 

Trucksa

All Roads 12.8 8.0

Interstates and Arterial Roads 10.1 7.0

Interstates 5.3 4.2

Source: Congressional Budget Office.

VMT = vehicle miles traveled.

a. Tractors pulling one or more trailers.
May 2020 Reauthorizing Federal Highway Programs: Issues and Options 9

imported cargo moving through ports on the coasts 

and Great Lakes. (Exports are not subject to the tax 

because the Constitution forbids the taxation of exports.) 

Policymakers seeking to implement a similar tax on 

freight shipped by trucks over the nation’s highways 

would face decisions about which cargo would be subject 

to such a tax and about how to value those shipments. 

In 2017, the value of shipments sent by truck in the 

United States—including intermediate and finished 

goods and imported and exported goods—totaled nearly 

$10.5 trillion.9

Transfer General Revenues. Since 2008, lawmakers have 

transferred more than $140 billion from general revenues 

to the Highway Trust Fund. Most recently, in 2015, 

the Fixing America’s Surface Transportation (FAST) Act 

authorized a transfer of $70 billion to the fund. Further 

transfers would supplement the revenues collected from 

the excise taxes dedicated to highway and transit programs. In CBO’s 10-year baseline projections, outlays 

from the transit account exceed accumulated balances 

and annual revenues in 2021, and the highway account 

is exhausted the next year. In the highway account, the 

cumulative shortfall over the 2022–2030 period is projected to be $135 billion; the cumulative shortfall in the 

transit account over the 2021–2030 period is projected 

to be $55 billion.

Using general revenues to fund federal highway spending 

on an ongoing basis would have the effect of decoupling 

spending from the user charges that pay for that spending, but that approach has two advantages. First, if taxes 

were increased to pay for highway programs, the incremental costs of collection would be negligible because 

income taxes and other broad-based taxes are already in 

place. In addition, compared with several of the other 

options for increasing the amounts credited to the 

Highway Trust Fund, funding highways through broadbased taxes would have the advantage of not imposing 

a larger burden, relative to income, on lower-income 

households.

Funding highway programs with general revenues 

instead of taxes on highway users would also have some 

disadvantages. If spending on other programs was 

reduced to pay for highway programs, the benefits of 

9. Census Bureau, “Commodity Flow Survey Preliminary Report: 

Shipment Characteristics by Mode of Transportation: 2017” 

(accessed May 19, 2020), https://go.usa.gov/xvuZG.

highway investments would be at least partially offset 

by a reduction in the benefits that would have been 

provided by that other spending. If, instead, lawmakers 

chose to pay for highway programs by taking on additional debt, such a policy would tend to slow the economy in the long term by reducing the amount of money 

available for private investment.10 Finally, if highway 

spending was less connected to highway-use taxes, users 

would have a reduced incentive to drive less or to conserve fuel, and any gains in fairness and efficiency from 

a system in which users pay for the benefits they receive 

would be reduced or eliminated.

Federal Spending for Highways

In 2017, the most recent year for which data about 

highway spending by all levels of government are 

available, the federal government spent $46 billion on 

highways—an amount equal to 0.24 percent of GDP. 

Such spending’s share of total economic output has, in 

general, been stable over the past 30 years, though it is 

only half as large as it was in the 1960s, when construction of the Interstate highway system expanded (see 

Figure 3). 

State and local governments spent nearly three times 

as much as the federal government on highways in 

2017—$131 billion, or about two-thirds of one percent 

of GDP. Like federal spending on highways, state and 

local governments’ spending as a share of GDP peaked in 

the 1950s and 1960s, when it accounted for about twice 

the share it has in recent years. 

Between 2009 and 2011, during and immediately after 

the 2007–2009 recession, federal spending for highways increased as a share of GDP, while state and local 

governments’ highway spending from their own funds 

fell. That shift was due, at least in part, to the additional 

federal funds provided to states for highway capital 

projects in the American Recovery and Reinvestment Act 

of 2009 (see Box 2). As the economy recovered, federal 

spending on highways relative to the nation’s total output 

gradually returned to prerecession levels. Though state 

and local governments’ nominal spending for highways 

has increased, it still accounts for a smaller share of GDP 

than it did before the recession.

10. See Congressional Budget Office, The Macroeconomic and 

Budgetary Effects of Federal Investment (June 2016), www.cbo.gov/

publication/51628.
10 Reauthorizing Federal Highway Programs: Issues and Options May 2020

Nominal federal spending for highways has largely kept 

pace with the growth of the economy in recent decades, 

but the amount of construction put in place has not 

always followed the same path. Using infrastructurespecific price indexes to calculate real spending on 

highways indicates that such spending fell by 4 percent 

from 1998 to 2017. Starting in 2003, construction costs, 

particularly the costs of building materials, increased 

more quickly than general inflation.11

Using the GDP price index to remove the effects of inflation presents a much different picture of federal highway 

spending. Based on that inflation measure, real federal 

spending on highways increased by 55 percent from 1998 

to 2017. That trend indicates that the amount of federal resources that the government devoted to highways 

increased in those years—though that increase did not 

keep pace with construction costs. 

For the past several years, the difference between inflation in prices overall and inflation in construction costs 

11. See Congressional Budget Office, Public Spending 

on Transportation and Water Infrastructure, 1956 to 

2014 (March 2015), p. 1, www.cbo.gov/publication/49910.

has narrowed, so real spending based on the two inflation measures is similar.

Characteristics of Federal Funding for Highways

Two characteristics of the ways that the federal government typically spends on highways stand out. First, most 

federal highway funding takes the form of grants to state 

and local governments, which own most public roads in 

the United States and have broad discretion, with some 

constraints, to spend those federal funds. Second, federal 

spending on highways is almost entirely dedicated to 

capital projects that are intended to expand or rehabilitate eligible federal-aid highways.

Grants to State and Local Governments. In 2017, most 

of the $46 billion that the federal government spent 

on highways took the form of grants to state and local 

governments. State and local governments own almost 

all highways; federal agencies own less than 1 percent of 

public roads (typically, those in national parks and forests, on Indian reservations, or on other federally owned 

land). 

In general, state and local governments decide which 

projects to undertake and, as construction proceeds, 

Figure 3.

Public Spending for Highways as a Share of GDP

Percentage of GDP

0

0.25

0.50

0.75

1.00

1.25

1.50

1.75

2.00

1956 1961 1966 1971 1976 1981 1986 1991 1996 2001 2006 2011 2016

Federal

Government

State and Local

Governments

0

0.25

0.50

0.75

1.00

1.25

1.50

1.75

2.00

1956 1961 1966 1971 1976 1981 1986 1991 1996 2001 2006 2011 2016

Federal

Government

State and Local

Governments

Source: Congressional Budget Office, using data from the Bureau of Economic Analysis, the Census Bureau, and the Office of Management and Budget. 

GDP = gross domestic product.

State and local governments spend 

nearly three times as much as the 

federal government on highways. 

Measured as a percentage of total 

economic output, such spending 

by those levels of government has 

been relatively stable for the past 

30 years.
May 2020 Reauthorizing Federal Highway Programs: Issues and Options 11

receive reimbursements from the federal government for 

projects that meet federal eligibility criteria for various 

programs. Most federal highway programs set a cap on 

the portion of a project’s total costs that a federal grant 

may cover—typically 80 percent. State and local governments must cover the remaining costs with nonfederal 

funds, such as tax revenues or proceeds from issuing 

municipal bonds.

States’ departments of transportation are ultimately 

responsible for planning and coordinating federal highway and transit investments, and each year they prepare 

both long-range (20-year) and short-range (4-year) plans 

outlining how they intend to use funds. In urban areas, 

metropolitan planning organizations—comprising representatives from local governments and transportation 

agencies—coordinate with the states’ departments of 

transportation to develop the plans.12

12. For more information on state and local governments’ 

transportation planning processes, see Federal Highway 

Administration and Federal Transit Administration, 

Transportation Planning Capacity Building Program, The 

Transportation Planning Process Briefing Book: Key Issues for 

Transportation Decisionmakers, Officials, and Staff, FHWAHEP-18-005 (2018), https://go.usa.gov/xdhVn.

Not all roads are eligible for federally funded projects. 

FHWA classifies roads according to their function 

in terms of providing access and mobility, and those 

classifications serve as a basis for directing federal funds. 

Roads that primarily provide access usually serve smaller 

volumes of traffic traveling for shorter distances at lower 

speeds, whereas roads that provide mobility typically 

serve larger volumes for longer distances at higher speeds 

and often have a limited number of access points to 

maintain the speed of travel.13

FHWA identifies four categories of roads, which overlap 

to some extent:

• Highways in the Interstate System;

• Roads in the National Highway System—Interstates 

and other roads serving significant population 

centers, border crossings, transportation facilities, or 

travel destinations;

• Federal-aid highways—roads in the National 

Highway System and most other roads that are not 

local; and

13. For more details, see Federal Highway Administration, Highway 

Functional Classification Concepts, Criteria and Procedures (2013), 

https://go.usa.gov/xdhVm.

Box 2.

Federal Highway Spending and the American Recovery and Reinvestment Act 

Lawmakers are considering options to increase spending for 

infrastructure as one possible response to the economic downturn caused by the 2020 coronavirus pandemic. Depending on 

how such spending was structured, it could have implications 

for the Highway Trust Fund in addition to any effects it had on 

the economy as a whole. Specifically, if the matching requirements or other conditions on the use of such funds are less 

stringent than those for the ongoing trust fund programs, some 

of the new funding may initially be used in place of existing 

funding, rather than in addition to it.

One example of such stimulus spending is the American Recovery and Reinvestment Act of 2009 (ARRA; Public Law 111-5), 

which lawmakers enacted in response to the recession that 

began in 2007. Among other things, ARRA provided $27.5 billion from the general fund of the Treasury in grants for highway 

projects that were awarded to states on the basis of formulas.

The increased funding from ARRA temporarily decreased 

spending from the Highway Trust Fund because the stimulus 

spending replaced some spending from the trust fund. Projects 

that were eligible for funding from the Highway Trust Fund 

were also eligible for the funding provided under ARRA, but the 

ARRA funds had to be committed to a project within one year 

and did not require states to provide a matching contribution. 

In 2010, outlays for highways from ARRA funds totaled $12 billion, while outlays from the highway account of the Highway 

Trust Fund were $32 billion, $6 billion less than they were the 

previous year. Revenues credited to the highway account of 

the Highway Trust Fund equaled 94 percent of expenditures in 

2010; in more recent years, the ratio of revenues to spending 

has been closer to 80 percent.
12 Reauthorizing Federal Highway Programs: Issues and Options May 2020

• Non-federal-aid roads—mostly local roads (two-lane 

roads that are usually owned by local governments 

and function almost entirely to provide access) and 

certain others that are not typically eligible for federal 

aid (see Figure 4).

Capital Spending. Federal highway programs are 

dedicated almost entirely to capital projects rather than 

to the operation and maintenance of roads. In 2017, 

$44 billion (or 96 percent) of federal spending for 

highways went to capital investment (see Figure 5). Such 

an allocation between capital and operation and maintenance has been typical of federal spending for highways 

since the 1950s. Because the federal government does 

not generally own highways, the responsibility to operate 

and maintain them falls to state and local governments. 

Spending patterns reflect that: Operation and maintenance accounted for more than 60 percent of state and 

local governments’ spending on highways, net of federal 

grants, in 2017. 

Federal funds are generally eligible to be spent only 

on capital projects. That spending includes outlays for 

the purchase of structures (such as new highways and 

bridges) and equipment as well as expenditures that 

improve or rehabilitate structures and equipment already 

in place. Operation and maintenance costs include the 

costs of providing necessary operating services (such as 

snow removal) and maintaining and repairing existing 

capital (such as filling potholes) as well as the costs of 

funding other highway-related programs (such as education on highway safety).

Distribution of Federal Funds to States

Under the most recent authorization for highway 

spending—the FAST Act, which became law in 2015—

more than 90 percent of federal highway assistance each 

year was designated for apportionment to states based 

on formulas. Formulas have long been used to distribute 

funds to states under various federal highway programs.14

In the past, those formulas have accounted for a number of different factors, including the state’s population, 

share of national highway lane miles, share of vehicle 

miles traveled, land area, rates of diesel fuel use, and tax 

payments to the Highway Trust Fund. Some formulas 

have also included program-specific factors, such as air 

14. For a historical overview of the use of formulas to apportion 

federal highway funding, see Robert S. Kirk, The Highway 

Funding Formula: History and Current Status, Report R45727, 

version 3 (Congressional Research Service, May 20, 2019), 

https://go.usa.gov/xdhVk.

Figure 4.

Shares of National Vehicle Miles Traveled on Different Types of Roads, 2018

Non-Federal-Aid

Roads (15%)

Federal-Aid

Highways (85%)

National Highway Systema

 (55%)

Interstate System (26%)

= 1 percent of national vehicle miles traveled.

Source: Congressional Budget Office.

Federal-aid highways are eligible for federal funding, and non-federal-aid roads (mostly local roads) are not.

a. The National Highway System comprises Interstates and other roads serving significant population centers, border crossings, transportation facilities, 

or travel destinations.
May 2020 Reauthorizing Federal Highway Programs: Issues and Options 13

quality measures (for air congestion and air pollution 

programs) and fatalities (for safety programs).

Starting in the 1980s, surface transportation authorization acts also included provisions that guaranteed that 

the amount of federal highway funding apportioned to 

each state would, at a minimum, equal a certain percentage of the federal highway taxes collected in that 

state. Most states received additional funds even if their 

apportionment would have been sufficient to meet the 

guarantee without them. Such provisions made the formula factors less important in determining a state’s share 

of funding.15

15. Surface transportation authorization acts provide budget 

authority in the form of contract authority, which is the authority 

to obligate funds in advance of an appropriation act. States and 

other grantees are allocated that authority by the Department of 

Transportation (DOT), which may legally obligate those federal 

funds for construction projects before an appropriation act is 

signed into law. The appropriations committees typically control 

the amount of contract authority that DOT can obligate in any 

one year because, in each year’s appropriation bill, they include 

an obligation limitation—a limit on the obligations that can 

be made from contract authority that was previously provided 

in an authorization act. See Congressional Budget Office, The 

Highway Trust Fund and the Treatment of Surface Transportation 

Programs in the Federal Budget (June 2014), p. 10, www.cbo.gov/

publication/45416.

The two most recent federal highway authorization acts 

further departed from the factors included in earlier 

apportionment formulas. Enacted in 2012, the Moving 

Ahead for Progress in the 21st Century Act, or MAP21, based each state’s apportionment primarily on its 

share of total federal highway funding in 2012. Today, 

under the FAST Act, formula funds are apportioned 

among the states largely on the basis of each state’s share 

of the apportioned funding in 2015, but if necessary, 

the apportioned amount is adjusted to ensure that each 

state receives at least 95 percent of the tax payments that 

it remits to the highway account of the Highway Trust 

Fund.

Once a state’s total apportionment has been set, that 

amount is divided (on the basis of the amounts and 

formulas set out in the FAST Act) among six different 

federal programs—the National Highway Performance 

Program, the Surface Transportation Block Grant 

Program, the Highway Safety Improvement Program, the 

Congestion Mitigation and Air Quality Improvement 

program, the Metropolitan Planning Program, and the 

National Highway Freight Program. For many of those 

programs, after that initial apportionment, states have 

the flexibility to transfer up to half the funds apportioned to one program to the other programs.

Figure 5.

Spending for Highways, by Level of Government and Type of Spending, 2017

Billions of 2017 Dollars

State and Local Governments

Federal Government

0 10 20 30 40 50 60 70 80 90

Operation and

Maintenance

Capital

State and Local Governments

Federal Government

0 10 20 30 40 50 60 70 80 90

Operation and

Maintenance

Capital

Source: Congressional Budget Office.

Federal spending for highways 

consists primarily of grants to state 

and local governments to help 

pay for capital projects. Those 

governments own the roads and 

pay to operate and maintain them.
14 Reauthorizing Federal Highway Programs: Issues and Options May 2020

Programs whose funding is not apportioned to states on 

the basis of a formula account for less than 10 percent of 

federal highway spending authorized by the FAST Act. A 

number of those programs nevertheless support highway 

spending by state and local governments. Some, such as 

the Nationally Significant Freight and Highway Projects 

program, provide grants to state and local governments, 

and others, such as the Transportation Infrastructure 

Finance and Innovation Act credit program, make loans 

to those governments to help finance transportation 

projects. In addition, a small share of federal highway 

spending pays for highway projects on federal lands.

Options

In legislation to authorize federal highway programs, 

the Congress specifies both the total amount of funding 

and the manner in which those funds are to be allocated 

among states and programs. A number of different criteria could be used to set total annual amounts of federal 

highway funding: Lawmakers could, for example, choose 

to target specific levels of highway conditions or to tie 

spending levels to revenue collections. Apportionment 

of those funds could rely on formulas based on highway 

or economic measures, or the Congress could shift away 

from using formulas in that process toward allowing federal policymakers to play a larger role in selecting specific 

projects.

Options for Determining Total Annual Spending 

Amounts. To construct its baseline projections for 

spending on highways from the Highway Trust Fund, 

CBO starts with the funding provided in the most recent 

appropriation law and adjusts that amount to grow 

at the projected rate of inflation (which is based on a 

combination of the projected changes in the GDP price 

index and in the employment cost index). However, 

lawmakers could choose to set annual spending levels for 

highway programs according to a number of different 

criteria. CBO analyzed three options that the Congress 

could pursue.

Fund All Highway Projects for Which Benefits Exceed Costs.

Funding all projects for which benefits are expected to 

equal or exceed costs would require increasing annual 

spending well above recent amounts and the amounts in 

CBO’s baseline projections. On the basis of analysis from 

FHWA that examined the 2015–2034 period, CBO 

estimates that the federal portion of the total average 

annual investment from 2021 to 2030 that would be 

required to implement all highway and bridge projects 

on federal-aid highways for which benefits are expected 

to meet or exceed costs is $71 billion.16 That amount 

would represent an increase of more than 50 percent 

over the $46 billion in outlays that the federal government made for highways from the Highway Trust Fund 

in 2019. State and local governments would also have to 

increase spending on federal-aid highways to achieve the 

total level of investment modeled in the FHWA analysis. 

If those funds were spent only on projects whose benefits 

were estimated by FHWA to meet or exceed costs, that 

spending would improve pavement quality and expand 

the highway system’s capacity. As a result, the share 

of total vehicle miles traveled on federal-aid highways 

whose pavement was rated good or fair (as opposed to 

poor) would increase from 83 percent to 89 percent, and 

annual average travel delays per vehicle would be cut by 

about 9 hours. 

Spending estimates that arise from benefit-cost analysis 

are uncertain, however. They rely on judgments about 

a variety of factors, including the value of costs and 

benefits that are difficult to measure (such as the value 

of travelers’ time), the appropriate interest rate to use to 

discount future costs and benefits to present values, and 

how highways will be used in the future (for example, 

the number of vehicle miles traveled by passenger vehicles and trucks).

Set Spending to Maintain Current Highway Conditions 

and Performance. The Congress could choose to spend 

less than would be required to fund all highway projects 

with an estimated net benefit. Using FHWA’s analysis, 

CBO estimates that an annual average of $97 billion in 

total federal and state spending would be needed over 

16. See Federal Highway Administration and Federal Transit 

Administration, Status of the Nation’s Highways, Bridges, and 

Transit: Conditions and Performance, 23rd ed. (November 2019), 

www.fhwa.dot.gov/policy/23cpr/. The $71 billion estimate is 

based on the $102.7 billion (in 2014 dollars) in total annual 

spending on federal-aid highways such a scenario would require, 

as reported in Exhibit 7-7 of that report. CBO estimates that the 

federal government contributed 56 percent of capital spending 

on federal-aid highways from 2004 to 2014. It arrived at that 

estimate by comparing the federal government’s share of capital 

spending on federal-aid highways for the years reported in 

Exhibit 2-8 of that report with total capital outlays for federalaid highways reported for those years in Exhibit 2-15. To adjust 

that federal share (in 2014 dollars) to nominal dollars over the 

2021–2030 period, CBO used the GDP price index as reported 

in Congressional Budget Office, “Budget and Economic Data: 

Historical Data and Economic Projections” (January 2020), 

www.cbo.gov/about/products/budget-economic-data.
May 2020 Reauthorizing Federal Highway Programs: Issues and Options 15

the 2021–2030 period to maintain highway conditions 

and performance on federal-aid highways—namely, 

pavement quality, bridge conditions, and travel delays—

at their 2014 levels.17 If the federal government’s share 

of spending for capital on federal-aid highways remained 

56 percent (the average share from 2004 to 2014), average annual federal spending from 2021 to 2030 would 

be $54 billion, about 18 percent more than spending in 

2019. 

Limit Spending to the Amount of Revenues Credited to 

the Highway Account of the Highway Trust Fund. Instead 

of targeting certain highway performance levels, this 

option would reduce the funding provided for highway programs so that it equaled the amount of revenues projected to be credited to the highway account 

of the Highway Trust Fund. Annual outlays under the 

option would average $39 billion from 2021 to 2030. 

The federal taxes that directly fund the Highway Trust 

Fund would not change. (The option would not affect 

highway spending that is provided under other funding 

authority—namely, spending for the Emergency Relief 

Program and a small portion of the National Highway 

Performance Program, which totals $739 million per 

year in CBO’s baseline projections.)

Under this option, the total amount of funding provided 

through highway grants to state and local governments 

over the 2021–2030 period would be $156 billion less 

than it is in CBO’s baseline projections. If federal appropriations were set accordingly, outlays over that period 

would be $124 billion less than the amounts projected in 

the baseline. Those two sums differ because some of the 

money is not spent immediately when funds are committed to a project; rather, such outlays typically span several 

years after the funds are obligated. About one-quarter 

of the savings in outlays associated with a reduction in 

17. Ibid. The $97 billion estimate is based on the sum of the 

$59.5 billion reported in Exhibit 10-2 of the agencies’ report 

for investments modeled in FHWA’s Highway Economic 

Requirements System (HERS) and the $10.4 billion reported in 

Exhibit 10-16 for investments modeled in the National Bridge 

Investment Analysis System (NBIAS). The resulting $69.9 billion 

sum was adjusted upward to $78.4 billion to account for the 

components and capital improvements not included in those 

models. That adjustment was based on FHWA’s scenario in 

which highway conditions and performance would be improved; 

the HERS and NBIAS estimates account for 89 percent of the 

total investment in that scenario. CBO then used the GDP price 

index to adjust that $78.4 billion in 2014 dollars to nominal 

dollars. 

obligations in a given year are projected to occur in the 

same year, and about 40 percent occur the following 

year. Thus, the option would not entirely eliminate the 

trust fund’s shortfall over the 2021–2030 period, because 

spending during the first several years of that period 

would be affected by the greater funding provided in 

earlier years.

Options for Distributing Federal Highway Spending. 

For any given amount of spending for highways, the 

federal government can decide to spend or distribute 

those funds in different ways. Under the current system, 

in which federal funds are apportioned to states largely 

according to how those funds were distributed five or 

eight years earlier, federal highway spending is not necessarily distributed in a way that reflects the use or condition of the highway system. Nor does such spending 

necessarily fund the highway projects that are expected 

to generate the largest net benefits. 

If more federal funds for highways were distributed 

to programs or projects whose benefits were expected 

to outweigh their costs, policymakers could boost the 

impact of highway spending on the economy. FHWA 

examined how spending on federal-aid highways in 2014 

was distributed in both rural and urban areas among 

projects that either expanded the highway system or 

rehabilitated highways or bridges.18 The shares devoted 

to those two types of areas and types of projects were 

different from the shares that would be provided under 

the scenario modeled by FHWA in which all highway projects whose benefits equaled or exceeded their 

costs would be funded. In particular, a smaller share of 

spending would go to expanding the federal-aid highway 

system in rural areas under that scenario than actually 

went to such projects in 2014; in urban areas, a smaller 

share would be spent on rehabilitating Interstates, and a 

larger share would go to rehabilitating other federal-aid 

highways. In both rural and urban areas, a larger share of 

funding would go to rehabilitating bridges on Interstates 

(see Figure 6). 

Another option lawmakers could choose is to provide 

more funding to programs that use benefit-cost analysis in selecting projects, such as the Better Utilizing 

18. See Federal Highway Administration and Federal Transit 

Administration, Status of the Nation’s Highways, Bridges, and 

Transit: Conditions and Performance, 23rd ed. (November 2019), 

www.fhwa.dot.gov/policy/23cpr/.
16 Reauthorizing Federal Highway Programs: Issues and Options May 2020

Investments to Leverage Development (BUILD) program.19 Funding projects with the highest net economic 

benefits could realize most of the benefits of current 

highway spending at a lower cost or allow the same 

amount of spending to have a greater economic payoff.20

Another approach is to promote the use of benefit-cost 

analysis at the state and local levels, where most of the 

spending decisions are made. 

Benefit-cost analyses have some limitations, however. 

Lawmakers may want to fund highway projects to 

achieve various other objectives that are not accounted 

19. The BUILD program replaced the Transportation Investment 

Generating Economic Recovery (TIGER) grant program in 

2018.

20. See Congressional Budget Office, Approaches to Making Highway 

Spending More Productive (February 2016), p. 29, www.cbo.gov/

publication/50150.

for in such analyses—increasing employment or increasing rural access to transportation networks, for example. 

In addition, programs that assess the benefits and costs 

of highway spending will improve the economy’s performance only to the extent that the calculations adequately 

capture the benefits to the economy, and benefit-cost 

analysis on a project-by-project basis may miss important ways in which distinct components of the highway 

network affect one another. Also, implementing policies that emphasized such analysis would reduce state 

and local governments’ discretion in how they use their 

federal funds. 

Federal Programs to Subsidize State and 

Local Borrowing for Highway Spending

In addition to providing grants to state and local governments to pay for highway capital projects, the federal 

government also supports state and local investment in 

Figure 6.

Shares of Total Federal-Aid Highway Spending Used for Various Purposes

Percent

Percent

Other Federal-Aid

Highways

Interstate Highways

0 5 10 15 20 25 30 0 5 10 15 20 25 30

Share Suggested by FHWA’s Scenario for Improving Conditions and Performance Actual Share, 2014

System Expansion

System Expansion

Highway Rehabilitation

Bridge Rehabilitation

Highway Rehabilitation

Bridge Rehabilitation

Rural Urban

Source: Congressional Budget Office, using data from the Federal Highway Administration.

The shares suggested by FHWA’s scenario in which highway conditions and performance would be improved are based on investment over the 

2015–2034 period. Under that scenario, the share of spending going to system enhancements (safety enhancements, traffic control facilities, and 

environmental enhancements) would remain constant at the 2014 level, so that spending is excluded from this figure. For details on that scenario, see 

Federal Highway Administration and Federal Transit Administration, Status of the Nation’s Highways, Bridges, and Transit: Conditions and Performance, 

23rd ed. (November 2019), www.fhwa.dot.gov/policy/23cpr/.

FHWA = Federal Highway Administration.
May 2020 Reauthorizing Federal Highway Programs: Issues and Options 17

highways through a variety of mechanisms that reduce 

the cost of their borrowing. In some cases, that federal 

support comes through forgone federal tax revenues. 

Other mechanisms appear as spending in the federal 

budget. The federal cost of each dollar of financing 

provided to state and local governments varies for the 

different mechanisms. 

To finance investments in highways, state and local 

governments borrow from the federal government or 

issue bonds to obtain funds that they repay over time. 

Financing allows state and local governments to pay 

for highways and other infrastructure over a period 

that more closely matches the useful life of that infrastructure. Financing can be particularly attractive when 

a government does not have the resources on hand that 

are required to fund a desired investment. However, 

financing is not a source of revenues; it is a means of 

making future state and local revenues available to pay 

for projects sooner. Future revenues committed to paying 

back funds that are borrowed today will not be available 

to pay for projects in the future.

Of the available federally supported financing mechanisms, tax-preferred bonds are the one that states and 

localities have used most frequently to finance highway 

infrastructure. Most of those tax-preferred bonds are 

tax-exempt bonds, but tax credit bonds, which are no 

longer authorized to be sold, have been used in the past 

and still affect the federal budget. Another financing 

mechanism, direct federal credit programs, offers loans 

or loan guarantees to state and local governments for 

highway projects. Finally, states can establish infrastructure banks to finance highway projects, but the use 

of that financing mechanism for such purposes is not 

widespread.

From 2007 to 2016, CBO estimates, an average of 

$20 billion (in 2019 dollars) each year, or about one-fifth 

of the public sector’s total capital spending on highways, 

involved federally supported financing.21 That federally 

supported financing accounted for 37 percent of the 

$54 billion (in 2019 dollars) that state and local governments spent, on average, each year for highway capital 

projects from funds other than federal grants over that 

period.

21. See Congressional Budget Office, Federal Support for Financing 

State and Local Transportation and Water Infrastructure

(October 2018), www.cbo.gov/publication/54549.

Tax-Preferred Bonds

State and local governments frequently issue bonds, 

which they sell to investors, to raise money to pay for 

capital investments in highways and other infrastructure. 

Tax-exempt bonds are the most frequently used federally supported financing mechanism. The interest paid 

on such bonds is generally exempt from federal income 

tax, so issuers can pay a lower interest rate than private 

bonds would pay and still attract investors. But to attract 

enough investors, issuers must pay a higher interest rate 

than they would need to pay to attract some investors. 

Some of the federal subsidy goes to those investors who 

would have purchased the bonds at a lower interest rate 

and thus does not provide a benefit to the issuer.

Although the federal government does not currently 

authorize state and local governments to issue tax credit 

bonds, when such bonds were issued in the past, the 

federal subsidy was paid either as an annual credit against 

bondholders’ federal income tax liability (instead of, 

or sometimes in addition to, the interest that typically 

would be paid) or as a direct payment to the bonds’ 

issuer that was equal to a portion of the interest paid to 

the bondholder. All of the benefit of the federal subsidy 

for tax credit bonds could, therefore, go to the state or 

local government issuing the bond. 

Federal subsidies for tax-preferred bonds are paid 

through reductions in taxes or spending from the general 

fund, so neither tax-exempt bonds nor tax credit bonds 

affect outlays from the Highway Trust Fund. 

Tax-Exempt Bonds. From 2007 to 2016, state and 

local governments issued an average of $15 billion (in 

2019 dollars) of new tax-exempt bonds for highway 

projects per year (see Table 2). Such bonds accounted for 

about three-quarters of the new federally supported highway financing in those years.22 State and local governments rely on several different sources of funds to repay 

that borrowing, including general revenues and fuel and 

vehicle-related taxes. In addition, some highway projects may generate revenues to repay bondholders from 

tolls. State and local governments may also issue grant 

anticipation revenue vehicle (GARVEE) bonds, which 

are backed by expected future federal grants. All of those 

financing options provide state and local governments 

substantial latitude in choosing which public-purpose 

projects to finance with bond proceeds. 

22. That amount does not include the issuance of “refunding” bonds, 

which are used to pay off bonds that have already been issued.
18 Reauthorizing Federal Highway Programs: Issues and Options May 2020

Another type of tax-exempt bond, qualified private 

activity bonds (QPABs), may be used to finance projects 

that are undertaken mainly by private entities. The state 

or local government issues such bonds on the private 

entity’s behalf after receiving approval from the federal Department of Transportation. The total amount 

authorized to be issued as highway QPABs nationwide is 

currently capped at $15 billion. 

For every dollar of tax-exempt bonds with a 20-year 

repayment period issued in 2021, federal tax revenues 

would be reduced by 23 cents, CBO estimates, because 

the interest paid on those bonds would be exempt from 

federal taxes. If the average annual amount of new bond 

financing from 2021 to 2025 was the same as it was 

from 2007 to 2016, the federal revenues forgone for 

those bonds would be about $3 billion per year. 

Much of that federal cost represents benefits to the state 

and local governments that issue the bonds (by allowing 

them to offer a lower interest rate on their bonds), but 

some of that cost goes to benefits that accrue only to certain bondholders. Bondholders with higher marginal tax 

rates save more than those with lower marginal tax rates. 

To appeal to some investors whose tax rates are lower or 

who find the bonds less attractive for other reasons, bond 

issuers must offer interest rates that are higher than those 

required to attract investors with higher tax rates. The 

benefits received by those bondholders who save more in 

taxes than is necessary to compensate them for the lower 

interest rates of the tax-exempt bonds represent costs 

to the federal government that do not benefit the bond 

issuers.

Table 2.

Selected Federally Supported Mechanisms That State and Local Governments Use to Finance 

Highway Infrastructure

Mechanism

Average Annual 

Amount of 

New Financing, 

2007 to 2016 

(Billions of 

2019 dollars)

Estimated Federal

Cost of New Financing 

Provided in

Fiscal Year 2021

(Cents per dollar financed)a Type of Federal Support Examples

Tax-Exempt Bonds 15 23 Forgone tax revenues Traditional tax-exempt 

government bonds;

grant anticipation 

bonds; qualified private 

activity bonds

Tax Credit Bonds 4b 28 percent less than taxexempt bonds providing the 

same subsidy to issuersc

For traditional tax credit bonds, 

forgone tax revenues; 

for direct-pay bonds, such as 

Build America Bonds, mandatory 

spending

Build America Bonds

Direct Federal Credit Programs 2 1 (FCRA accounting);

24 (Fair-value accounting)d

Discretionary

appropriationse

TIFIA program

Source: Congressional Budget Office.

FCRA = Federal Credit Reform Act of 1990; TIFIA = Transportation Infrastructure Finance and Innovation Act.

a. The estimate for tax-exempt bonds is based on 20-year financing; the estimate for direct federal credit programs is for loans from the TIFIA program, 

which commonly have terms of 30 to 35 years. All estimates are discounted present values—that is, they express related current and future cash 

flows as an equivalent lump sum paid when the financing is provided. 

b. The average reflects the Build America Bonds that were issued for highway projects in 2009 and 2010, the only two years in which those bonds 

were authorized to be sold.

c. No current program allows such bonds to be issued for transportation infrastructure. 

d. These estimates are for direct loans from the TIFIA program. The FCRA estimate is from the Office of Management and Budget. CBO’s fair-value 

estimate reflects the market value of the financial risk associated with the program. 

e. The largest direct federal credit program for transportation, the TIFIA program, is formally funded by contract authority, which is a form of mandatory 

budget authority. However, use of that contract authority is controlled by limitations on obligations contained in annual appropriation acts.
May 2020 Reauthorizing Federal Highway Programs: Issues and Options 19

Tax Credit Bonds. The federal government has also 

supported the issuance of tax credit bonds by state and 

local governments at certain times. Most recently, state 

and local governments were authorized to issue Build 

America Bonds in 2009 and 2010. Those direct-pay tax 

credit bonds required the federal government to make 

cash payments to the bonds’ issuer equal to a portion 

of the interest that the issuer paid to bondholders. That 

allowed the issuer to offer a higher rate of return on the 

bonds, which was necessary to offset the tax liability that 

bondholders would incur on the interest they received. 

For every $100 in interest paid to holders of Build 

America Bonds, an issuer would receive $35 from the 

federal government, resulting in a credit rate of 35 percent. For tax credit bonds that were authorized in earlier 

periods, the form of federal support differed: An annual 

federal income tax credit was provided to bondholders 

instead of, or in addition to, the interest that would typically be paid on the bonds.

The cost to the federal government of tax credit bonds 

depends on the amount of subsidy that is authorized. Tax 

credit bonds could, however, provide the same amount 

of support to their issuers as tax-exempt bonds at a federal cost that is 28 percent lower than that of tax-exempt 

bonds, CBO estimates. That difference exists because the 

entire federal cost of a tax credit bond benefits the issuer, 

whereas part of the cost of tax-exempt bonds provides a 

subsidy to bondholders with high marginal tax rates. 

Direct Federal Credit Programs

The Transportation Infrastructure Finance and 

Innovation Act (TIFIA) program provides credit assistance to state and local governments primarily for highway and mass transit infrastructure, although it can be 

used for a broad range of surface transportation projects. 

Outlays provided through the TIFIA program are paid 

out of the Highway Trust Fund. 

The Department of Transportation must approve a state 

or local government’s application for TIFIA assistance. 

To qualify, a project must cost at least $50 million, 

though the minimum cost is lower for rural or local 

projects ($10 million) and for intelligent transportation 

system projects ($15 million). Projects receiving TIFIA 

assistance are expected to attract other public and private 

investment in addition to the federal support. Examples 

of TIFIA-funded projects include the Central 70 Project 

in Colorado, which will redesign, reconstruct, and add 

capacity to a section of Interstate 70 in Denver; the 

Monroe Expressway toll road in North Carolina; and the 

Portsmouth Bypass in Ohio.

The TIFIA program lends at Treasury bond rates for 

up to 35 years. In addition, repayment is deferred until 

5 years after a project is substantially complete, and 

TIFIA loans have a subordinated status, meaning that a 

project’s other lenders and equity investors retain rights 

to be repaid before the federal government (unless the 

borrower defaults and enters bankruptcy, in which case 

the TIFIA loan takes a priority equal to that of the project’s senior debt). In practice, TIFIA loan amounts have 

typically been limited to about 33 percent of a project’s 

eligible costs, though borrowers may apply for loans of 

up to 49 percent of eligible costs.

The budgetary cost of TIFIA loans depends on the riskiness of the loans made and thus varies from year to year. 

In 2019, TIFIA provided about $1.5 billion in loans; to 

do so, it used $98 million of its budget authority at an 

estimated subsidy rate of 6.3 percent, or a federal cost of 

6.3 cents per dollar financed.23 To estimate the subsidy 

rate for loans made in a given year, the Department of 

Transportation uses a model that it recently updated 

in consultation with the Treasury Department and the 

Office of Management and Budget (OMB). Using that 

model, OMB estimates that the subsidy rate of loans 

made in 2021 will be 1 percent.24

Those official budgetary estimates do not reflect the 

cost of market risk—the risk that arises because borrowers are more likely to default on their debt obligations 

when the economy is performing poorly—but under 

the fair-value accounting method, that risk is taken into 

23. The subsidy rate is an estimate of how much a type of credit 

assistance from a given program costs the federal government 

per dollar disbursed; it is calculated according to the method 

specified in the Federal Credit Reform Act of 1990. For 

budgetary purposes, the subsidy rate is calculated by the Office 

of Management and Budget and is applied to the amounts 

appropriated to a federal credit program to determine the 

volume of loans the program can provide. See Office of 

Management and Budget, Budget of the U.S. Government, Fiscal 

Year 2020: Analytical Perspectives (March 2019), Table 22-2, 

www.govinfo.gov/app/details/BUDGET-2020-PER/; and Federal 

Highway Administration, Center for Innovative Finance Support, 

“Transportation Infrastructure Finance and Innovation Act 

(TIFIA)” (accessed May 19, 2020), https://go.usa.gov/xvJxs.

24. Office of Management and Budget, Budget of the 

U.S. Government, Fiscal Year 2021: Credit Supplement 

(February 2020), Table 1, www.govinfo.gov/app/details/

BUDGET-2021-FCS.
20 Reauthorizing Federal Highway Programs: Issues and Options May 2020

account.25 Using the fair-value method, CBO estimates 

that the loans made under the program in 2021 will have 

a subsidy rate of 24 percent. Those rates may increase in 

subsequent years when Treasury interest rates are projected to rise as the economy recovers from the disruptions caused by the coronavirus pandemic.

State Infrastructure Banks

State infrastructure banks are financial institutions that 

state governments create and run to lend money to fund 

infrastructure projects. SIBs established for highway and 

mass transit projects do not receive designated federal 

grants each year, but state governments may decide to 

use some of the federal formula grants that they receive 

for highways and mass transit to capitalize them. Some 

banks choose to increase their current lending capacity 

by issuing tax-exempt bonds, thus receiving a second 

form of federal support. Most of the financial support 

that SIBs have provided has gone to highway projects.

Of the 33 states that have established SIBs, only about 

a dozen have actively used them. From 2007 to 2016, 

average annual financing for highway infrastructure 

provided by SIBs amounted to $200 million (in 

2019 dollars), or about 1 percent of the total amount 

of new financing by state and local governments that 

the federal government subsidized each year. The data 

necessary to estimate the federal costs of financing SIBs 

are unavailable.26

Options

Changes to federal programs that support the financing 

of state and local highway capital projects could expand 

25. Market risk is the component of financial risk that remains 

even after investors have diversified their portfolios as much 

as possible; it arises from shifts in macroeconomic conditions, 

such as productivity and employment, and from changes 

in expectations about future macroeconomic conditions. 

See Congressional Budget Office, Estimates of the Cost of 

Federal Credit Programs in 2021 (April 2020), www.cbo.gov/

publication/56285.

26. In 2018, CBO estimated that the federal cost of direct loans and 

leveraged loans (those made using the proceeds of bond issues) 

made in 2023 by the Clean Water State Revolving Funds program 

and the Drinking Water State Revolving Funds program would 

be 23 cents and 43 cents per dollar financed, respectively. See 

Congressional Budget Office, Federal Support for Financing State 

and Local Transportation and Water Infrastructure (October 2018), 

www.cbo.gov/publication/54549. If those costs were estimated 

today, they would reflect very different interest rates for Treasury 

bonds and tax-exempt bonds from those that were anticipated in 

2018. How well such estimates would correspond to the costs of 

loans from transportation SIBs is unclear.

the amount of investment that occurred on federal-aid 

highways by making state and local investments less 

costly to finance. Policymakers could establish a new 

program to provide state and local governments with the 

opportunity to issue new tax credit bonds. Or they could 

expand existing financing programs. Another option 

federal lawmakers could pursue is to allow more tolling 

on Interstate highways, thereby providing states with a 

revenue stream that could be borrowed against. If those 

options were implemented and state and local governments expanded their use of the financing mechanisms, 

the federal costs would, in most cases, take the form of 

forgone federal revenues. TIFIA outlays, however, are 

paid out of the Highway Trust Fund, so expansions of 

that program would affect the shortfall in the trust fund.

Institute a Tax Credit Bond Program. Instituting a new 

tax credit bond program that was similar to the Build 

America Bonds program that was active in 2009 and 

2010 would provide state and local governments with 

an additional option for issuing debt to finance capital 

spending. Tax credit bonds could offer state and local 

governments the same federal subsidy as tax-exempt 

bonds at a lower cost to the federal government.

Whereas CBO estimates that 20-year tax-exempt bonds 

issued by state and local governments in 2023 would 

cost the federal government 26 cents for each dollar 

financed, tax credit bonds issued that same year (with 

the same maturity and the same federal subsidy of a 

22 percent reduction in interest costs) would cost the 

federal government 19 cents per dollar financed. In other 

words, for the same federal cost as traditional tax-exempt 

bonds, the federal government could, by authorizing tax 

credit bonds, provide state and local governments with 

a subsidy that was 39 percent larger, thereby reducing their financing costs more than tax-exempt bonds 

would. Ultimately, the federal cost of such a program 

would depend on the amount of subsidy that lawmakers 

authorized and the amount of bonds that state and local 

governments issued. 

Tax credit bonds might offer one further advantage over 

tax-exempt bonds—they might appeal to a broader 

set of investors, particularly those with little or no tax 

liability, such as pension funds and other tax-exempt 

organizations. 

Raise the Cap on Highway QPABs. Of the $15 billion 

in qualified private activity bonds allowed to be issued 

for highway and other surface transportation projects, 
May 2020 Reauthorizing Federal Highway Programs: Issues and Options 21

about $12 billion in such bonds had been issued as of 

April 2020, and another $2 billion in such bonds had 

been approved by the Department of Transportation but 

had not yet been issued. (In the past, some projects that 

received a QPAB allocation switched to other forms of 

financing, so many of those bonds that have had funds 

allocated for them but that have not been issued may 

never be issued.)27

Giving private entities access to the tax-exempt bond 

market through QPABs lowers the cost of capital for 

those borrowers and can promote infrastructure projects 

when state and local governments have self-imposed 

limits on borrowing. Development of large, complex 

infrastructure projects often takes years, so the limit on 

the use of QPABs for funding highway and surface transportation projects reduces the certainty that the bonds 

would still be available if developers chose to apply for 

them in the future.

If the availability of QPABs increased and their use 

became more widespread, federal costs would go up. 

Like tax-exempt bonds, QPABs result in forgone federal 

revenues. Another consideration in weighing this option 

is that, to the extent that private funding was available to 

developers without QPABs (albeit at a higher cost), the 

only projects that would be unable to receive financing 

without them would be those of marginal value.

Expand the TIFIA Program. From 2015 through 

2019, 19 highway and bridge projects received financing through the Transportation Infrastructure Finance 

and Innovation Act program. The average total cost per 

project was $1 billion, and each received, on average, 

$314 million in TIFIA loans. The smallest project to 

receive assistance had a total cost of $127 million; the 

TIFIA loan for that project totaled $47 million. 

The financing assistance provided through TIFIA is 

paid for with outlays from the Highway Trust Fund, so 

expanding the program would increase the trust fund’s 

shortfall if no changes were made to the revenues credited to the fund. 

Lawmakers have several different options for expanding 

TIFIA financing:

27. See Department of Transportation, “Private Activity Bonds” 

(April 7, 2020), https://go.usa.gov/xv6NQ.

• Authorize additional funding and increase the 

amount of loans made. The FAST Act authorized 

$300 million in both 2019 and 2020 to pay the 

subsidy cost of TIFIA assistance. Earlier surface 

transportation legislation authorized $1 billion in 

TIFIA assistance for 2014 and 2015. At the end 

of 2019, the TIFIA program had accumulated 

$1.88 billion in unused budget authority.28

Policymakers would also need to increase the amount 

of loans made, perhaps by changing other terms 

of the program, as the next two options would, to 

make the loans easier to obtain or otherwise more 

attractive. In 2019, for example, at the estimated 

subsidy rate for that year, the loans made used only 

about one-third of the program’s budget authority. 

• Increase the maximum federal share of eligible 

projects’ costs. By law, the maximum share of 

costs that can be financed through the program 

is 49 percent, but in practice, the Department of 

Transportation has not provided more than about 

one-third of a project’s cost in TIFIA assistance. At 

the end of 2019, TIFIA assistance accounted for an 

average of 28 percent of the total cost of each of the 

active projects funded by the program.

• Extend TIFIA assistance to a wider variety of 

projects. To be eligible for TIFIA assistance, a 

project’s costs must generally exceed $50 million, 

though lower minimums are set for rural or locally 

sponsored projects. In practice, however, no projects 

with estimated costs of less than $50 million have 

received TIFIA assistance. 

Allow States to Collect Tolls on Interstate Highways. 

With a few exceptions, federal law does not permit states 

to collect tolls on existing Interstate highways. Allowing 

them to do so would offer a new source of revenues that 

state and local governments could use to back bonds 

for capital projects or to attract private developers that 

would provide financing for a public-private partnership. 

If any of the financing mechanisms supported by the 

federal government were used for such projects, federal 

costs would increase, either through lending programs, 

such as TIFIA, or through the federal subsidies provided 

for financing mechanisms, such as tax-exempt bonds.

28. Department of Transportation, personal communication 

(May 8, 2020).
Tables

1. Estimated Annual Revenues From a VMT Tax of 5 Cents per Mile If One 

Had Been in Place in 2017 8

2. Selected Federally Supported Mechanisms That State and Local 

Governments Use to Finance Highway Infrastructure 18

Figures

1. Annual Revenues, Outlays, and Balance of the Highway Trust Fund in 

CBO’s March 2020 Baseline Projections 2

2. Sources of Revenues Credited to the Highway Trust Fund, 2019 5

3. Public Spending for Highways as a Share of GDP 10

4. Shares of National Vehicle Miles Traveled on Different Types of Roads, 2018 12

5. Spending for Highways, by Level of Government and Type of Spending, 2017 13

6. Shares of Total Federal-Aid Highway Spending Used for Various Purposes 16

List of Tables and Figures
About This Document

This Congressional Budget Office report was prepared at the request of the Chairman and 

Ranking Member of the Senate Committee on Finance. In keeping with CBO’s mandate to 

provide objective, impartial analysis, the report makes no recommendations.

Sheila Campbell prepared the report with contributions from Pranav Bhandarkar and guidance 

from Joseph Kile and Chad Shirley. Perry Beider, Kim Cawley, Sebastien Gay, John McClelland, 

Nathan Musick, and Robert Reese provided comments. 

Robert Sunshine and Jeffrey Kling reviewed the report. The editor was Bo Peery, and 

the graphics editor was Robert Rebach. This report is available on CBO’s website 

(www.cbo.gov/publication/56346).

CBO continually seeks feedback to make its work as useful as possible. Please send any comments 

to communications@cbo.gov.

Phillip L. Swagel

Director

May 2020