Highway Trust Fund Threatened by Improvements in Gas Mileage

Highway Trust Fund hobbled by politics, threatened by success.

March 30, 2012, 5:01 PM

April 2, 2012— -- The federal Highway Trust Fund is being hobbled by politics, but it is also threatened by success.

President Obama signed the Surface Transportation Extension Act of 2012 last week, which will ensure 90 more days of cash for the fund.

Democrats and Republicans have been unable to agree on a permanent arrangement for the fund, forcing through a series of temporary measures instead.

But it's long-term survival of the fund that finances much of the country's highway bridge work and is threatened by the country's success in squeezing more mileage out of a gallon of gas.

The Congressional Budget Office estimates that increased fuel efficiency in cars and trucks will cause the fund, which is 90 percent funded by an excise tax on gasoline, to be running on empty by 2014.

The good news for the fund is that the number of vehicle purchases projected for the next few years is higher than had been anticipated. However, CBO analysts expect any potential revenue gained from an increase in the miles Americans drive in the next few years will "be largely offset by improvements in the fuel economy of vehicles, mainly because of increases in the government's fuel economy standards."<

The impact of better fuel efficiency could be quite significant, according to Jesse Toprak, vice president of market intelligence for TrueCar.com.

Average fuel efficiency in new cars sold improved by 1.6 miles per gallon from 21.4 mpg to 23.2 mpg since February of last year, according to TrueCar's analysis.

Toprak assumes that 14 million new cars will be sold per year, each saving 90 gallons of gas per year. That translates into the government losing out on $231.8 million in gas tax revenue per year.

Even less will be collected as cars and trucks comply with federal clean air requirements in coming years.

"If gas efficiency improves dramatically, we're talking 30 miles per gallon on average or better…there is going to be a point where we can safely assume that the consumers in the U.S. will buy less gas for their cars," Toprak said.

"But arguing against gas mileage improvements is like arguing against finding a cure for childhood cancer. Better gas mileage is better for the overall economy…maybe not for this particular fund," he said.

Toprak said it's not just hybrid and more economical cars that are to blame. "It's the overall improvements in every category and every engine class," he said.

The good news, Toprak said, is that car sales are projected to increase in the next few years.

"Increase in new car sales should more than make up for the improvements in gas efficiency…looking at the next three years or so," he said.

The gas tax, 18.4 cents per gallon, has not been changed since 1993 and does not reflect inflation, so the buying power of those 18.4 cents have decreased over the past 19 years. Of course, a move to increase it would be politically unpopular as presidential candidates grapple with this year's early high gas prices.

Congressional Democrats and Republicans now have 90 more days to hammer out legislation that will fund highway and transportation expenditures before the fund runs out of gas.

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