U.S. highway fund crushed by cutback in driving
As drivers cut back on gas, The Department of Transportation says its Highway Trust Fund will be depleted and needs an $8 billion emergency infusion.
NEW YORK (CNNMoney.com) -- An unprecedented decline in driving will deplete the federal Highway Trust Fund by the end of September and prompted the Bush administration on Friday to ask Congress for an $8 billion emergency infusion.
Gasoline sales are crucial to maintaining the nation's highway infrastructure. About 90% of the fund's total revenues comes from taxes on motor fuels, according to a July report from the Congressional Budget Office.
Without the additional money, the Department of Transportation will not be able to fully reimburse states for their highway investments. Officials are projecting that in September the department will collect $4.4 billion in funding requests but collect only $2.7 billion in revenues.
If Congress doesn't act, the department will start reimbursing states on a pro-rated basis as soon as next week, U.S. Transportation Secretary Mary Peters said.
"We can't write checks if we don't have money in the account," Peters said.
Partial reimbursements would throw state infrastructure projects into chaos, said John Horsley, executive director for the American Association of State Highway and Transportation Officials. States already have many programs underway and are used to submitting receipts daily to the Transportation Department to receive reimbursements for contractors.
"Either the states would have to borrow money to close the gap, divert money from elsewhere or stiff the contractors," Horsley said. "None of it is good. This is the first time in 50 years that we've seen the cash flow get to the point where they can't honor their commitments."
Peters said the Administration favors a bill put forth by Rep. Charles Rangel, D-N.Y., that would transfer $8 billion from the General Fund to the Highway Trust Fund. The bill passed the House before it recessed for summer break.
Support for this bill is a reversal for the Bush administration, which had threatened to veto the legislation.
The crunch comes as Americans have drastically cut back on their driving amidst record high gas prices. The number of miles driven has dropped by 53.2 billion miles since last November, the first time it has topped 50 billion, officials said.
The 18.4-cent tax per gallon on gas and gas-ethanol blends accounts for two-thirds of the trust fund's revenues. Another quarter comes from the 24.3-cent tax on diesel fuels.
"The less Americans drive, the less gas tax revenue is collected," Peters said.
In 2007, the Highway Trust Fund took in about $38.8 billion in revenue. It started the 2008 fiscal year last October with a balance of $8.1 billion but has blown through that cushion as revenue slowed. It expects to start its 2009 fiscal year on Oct. 1 with a zero balance.
The fund has become an election issue since Republican nominee John McCain favored eliminating the 18.4-cent gas tax this summer to alleviate some of the pressure Americans are feeling from the higher gas prices. Critics said this would endanger the trust fund.