Almost every conversation about surface transportation finance begins with a two-part question: What are the "needs" of the national transportation system, and how does the nation pay for them? This report is aimed almost entirely at d iscussing the "how to pay for them" question. Since 1956, federal surface transportation programs have been funded largely by taxes on motor fuels that flow into the Highway Trust Fund (HTF). A steady increase in the revenues flowing into the HTF due to increased motor vehicle use and occasional increases in fuel tax rates accommodated growth in surface transportation spending over several decades. In 2001, though, trust fund revenues stopped growing faster than spending. In 2008 Congress began providing Treasury general fund transfers to keep the HTF solvent. Every year since 2008, there has been a gap between the dedicated tax revenues flowing into the HTF and the cost of the surface transportation spending Congress has authorized. Congress has filled these shortfalls by transfers, largely from the general fund, that have shifted a total of $143.6 billion to the HTF (roughly 22% of outlays). The last $70 billion of these transfers were authorized in the Fixing America's Surface Transportation Act (FAST Act; P.L. 114-94 ), which was signed by President Barack Obama on December 4, 2015. The FAST Act funds federal surface transportation programs from FY2016 through FY2020. When the act expires the de facto policy of relying on general fund transfers to sustain the HTF will be 12 years old. Congressional Budget Office (CBO) projections indicate that the imbalance between motor fuel tax receipts and HTF expenditures will persist beyond FY2020. In consequence, funding and financing surface transportation is expected to continue to be a major issue for Congress. The HTF has two separate accounts—highways and mass transit. The primary revenue sources for these accounts are an 18.3-cent-per-gallon federal tax on gasoline and a 24.3-cent-per-gallon federal tax on diesel fuel. Although the HTF has other sources of revenue, such as truck registration fees and a truck tire tax, and is also credited with interest paid on the fund balances held by the Treasury, fuel taxes in most years provide 85% to 90% of the amounts paid into the fund by highway users. The transit account receives 2.86 cents per gallon of fuel taxes, with the remainder of the tax revenue flowing into the highway account. An additional 0.1-cent-per-gallon fuel tax is reserved for the Leaking Underground Storage Tank (LUST) Fund, which is not part of the transportation program. Since the trust fund was created in 1956, Congress has increased federal motor fuel taxes four times: in 1959, 1982, 1990, and 1993. Since the 1993 increase, additional changes to the taxation structure have modestly boosted trust fund revenues. However, since 2001, revenue flowing into the HTF has not met expectations in most years. The American Jobs Creation Act of 2004 ( P.L. 108-357 ), for example, provided the trust fund with increased future income by changing elements of federal "gasohol" taxation. In 2005, the Safe, Accountable, Flexible, Efficient Transportation Equity Act: A Legacy for Users ( P.L. 109-59 ; SAFETEA) sought to bolster the trust fund by addressing tax fraud. SAFETEA also provided for the transfer of some general fund revenue associated with transportation-related activities to the trust fund. It was believed at the time of SAFETEA's passage that the tax changes, a $12.5 billion unexpended balance in the trust fund, and higher fuel tax revenue due to expected economic growth would be sufficient to finance the surface transportation program through FY2009. This prediction proved to be incorrect. Trust fund revenue has generally lagged inflation since FY2007. The shortfalls resulting from the overly optimistic forecasts associated with SAFETEA were rectified by Treasury general fund contributions. In September 2008, Congress enacted a bill that transferred $8 billion from the general fund to shore up the HTF. Other transfers followed (see Table 1 ). When the HTF was conceived, annual vehicle miles traveled (VMT), and therefore motor fuel tax revenue, were rising rapidly. That is no longer the case. The Federal Highway Administration (FHWA) projects that VMT will grow at an average of roughly 1.2% per year over the next 20 years. Meanwhile, other policy changes are weakening the link between driving activity and motor fuel tax revenues. Under rules issued in 2012, new passenger cars and light trucks are expected to attain an average fuel economy of 41.0 miles per gallon in model year 2021 and 49.7 miles per gallon in model year 2025. Improved fuel economy is slowly reducing the average amount of fuel used per mile of travel. The expanding fleets of hybrid and electric vehicles, respectively, pay less or nothing by way of fuel taxes, raising equity issues that are likely to become more prominent as the electric/hybrid vehicle fleet expands. On April 2, 2018, the Trump Administration announced its intent to revise the Corporate Average Fuel Economy (CAFE) standards for the model years 2022-2025. This change could slow the increase in the average fuel economy of the motor vehicle fleet. An increase in the existing fuel tax rates would provide immediate relief to the trust fund. As a rule of thumb, adding a penny to federal motor fuel taxes provides the trust fund with roughly $1.5 billion to $1.7 billion per year. The prospect of reduced motor fuel consumption, however, casts doubt on the ability of the motor fuel taxes to support increased surface transportation spending beyond the next decade, even with significant increases in tax rates. CBO projects that from FY2021 to FY2026 the gap between dedicated surface transportation revenues and spending will average $19 billion annually ( Table 2 ). In 2020, as Congress considers surface transportation reauthorization, it could again face a choice between finding new sources of income for the surface transportation program and settling for a smaller program, which might look very different from the one currently in place. Figure 1 shows the impact of the general fund transfers within the context of the underlying imbalance between HTF revenues and projected spending for FY2018-FY2026. Table 2 provides projections of the gap between HTF receipts and outlays following the expiration of the FAST Act at the end of FY2020. In recent decades, Congress has typically sought to reauthorize surface transportation programs for periods of five or six years. As the table indicates, a five-year reauthorization beginning in FY2021 faces a projected gap between revenues and outlays of roughly $94 billion. A six-year reauthorization would face a gap of almost $117 billion. These projections assume that spending on federal highway and public transportation programs would remain as it is today, adjusted for anticipated inflation. When the FAST Act expires at the end of FY2020, the balance in the HTF is expected to be $14 billion—an amount equal to almost three months of outlays. CBO projects that this balance, plus incoming revenue, will allow the Federal Highway Administration (FHWA) and the Federal Transit Administration (FTA) to pay their obligations to states and transit agencies until sometime in FY2021. However, without a reduction in the size of the surface transportation programs, an increase in revenues, or further general fund transfers, the balance in the HTF is projected to be close to zero near the end of FY2021 (see Table 3 ). At that point, both FHWA and FTA would likely have to delay payments for completed work. Based strictly on projected income and expenses, the HTF would move from a positive balance of $14 billion at the start of FY2021 to a negative balance of $85 billion at the end of FY2025. However, current law does not allow the HTF to incur negative balances. Unless this is changed, $85 billion represents the minimum amount the House Ways and Means Committee and the Senate Committee on Finance would need to find over the FY2021-FY2025 period in some combination of additional revenue and budget offsets for general fund transfers, should Congress choose to continue funding surface transportation at the current, or "baseline," level, adjusted for inflation. Because the HTF currently provides all but about $2 billion of annual spending authorized for the highway and transit programs (the main exception being the FTA Capital Investment Grants Program), these numbers have implications for the size of the program Congress may approve to follow the FAST Act. Highway and transit spending based solely on the revenue projected to flow into the HTF under current law would be limited to roughly $41 billion in FY2021, significantly less than the "baseline" FY2021 outlays of roughly $58 billion. The projected stagnation and eventual FY2026 decline in HTF revenue implies that once expected inflation is factored in, FHWA and FTA would have less contract authority in each year to spend on projects through FY2026. Reducing expenditures would not provide immediate relief from the demands on the HTF. Because transportation projects can take years to complete, both the highway and public transportation programs must make payments in future years pursuant to commitments that have already been incurred. As of FY2019, obligated but unspent contract authority for highway projects in progress is projected to be roughly $62 billion. This does not count another $22 billion in available but unobligated contract authority. For public transportation programs the equivalent figures for FY2019 are projected to be almost $18 billion in unpaid obligations and another $11 billion in unobligated contract authority. The obligated amounts represent legal obligations of the U.S. government and must be paid out of future years' HTF receipts. On February 9, 2018, President Trump signed the Bipartisan Budget Act of 2018 ( P.L.