BOX 2-1: WHY IS THE HIGHWAY TRUST FUND IMPORTANT?

The current system for federal funding of surface transportation is centered on the High- way Trust Fund—the mechanism by which the federal government provides resources to states and transit agencies for highway and transit investments. Since its creation in 1956, the HTF generally has provided stable, reliable, and substantial highway and transit funding. (See Box 2-1.) In recent years, however, the stability and adequacy of the HTF has diminished. Projections of future federal investment needs and HTF revenues suggest that the situation will continue to deteriorate if nothing is done to boost revenes.

Prior to 1956, federal motor fuel and vehicle taxes were directed to the General Fund of the U.S. Treasury. Federal financial assistance to support highway programs was provided from the General Fund, but with no defined relationship between the funding provided and highway-related taxes collected. Since then, the establishment and ongoing maintenance of the HTF has offered the nation and transportation agencies some important benefits:

•  The HTF helps ensure federal highway user taxes are used for trans- portation purposes through the application of "budgetary firewalls" that prevent the diversion of revenues to non-transportation activities.

•  The HTF enables the use of multi-year "contract authority," which pro- vides states with advance knowledge of future federal highway fund- ing commitments and allows them to conduct meaningful long-range planning and to contract for multi-year projects based on a reasonable degree of year-to-year consistency in federal funding levels.

•  The historical predictability and reliability of annual HTF spending has made federal surface transportation funding a viable means for sup- porting state-level and transit agency debt obligations used to finance long-lived assets.

As the federal motor fuel and vehicle taxes become less sustainable, the benefits of the HTF are diluted. If the HTF is to continue to provide state and local governments with meaningful support for capital planning and programming, its current funding sources must be significantly augmented.