Could Gas-Tax Bonds Pay For the Next Federal Transportation Bill?

House infrastructure committee chairman Jim Oberstar (D-MN), facing steep political odds in his push to pass a new six-year federal transportation bill this year, has begun to pitch an outside-the-box solution to the financing shortfall that is still stalling congressional action: Treasury bonds.

Oberstar’s proposal would plug the hole in anticipated highway trust fund revenue for the next transport bill with top-rated Treasury debt securities. Those bonds, the Minnesotan explained on Friday, would "be repaid with revenues from the highway trust fund out into the future. And we would delay the repayment for the first perhaps four years, giving the economy time to recover."

In order to repay the Treasury for its up-front bond issue, Congress would ultimately need to raise the gas tax — a step lawmakers have been unwilling to take since 1993, and one that the White House has ruled out for the time being.

"The idea of waiting three or
four years for the economy to recover would be an appealing part of" the idea, Iowa state DOT chief Nancy Richardson told Oberstar when he sought her reaction to the plan at a Friday House hearing. "[That] would allow it to appeal to some of the dissenters in
terms of increasing funding."

Delaying for three or four years, however, also would assume that future Congresses would be more open to voting on a gas-tax hike that few lawmakers are eager to debate, even in rosy economic times. The evidence of success for such kick-the-can-down-the-road moves is few and far between: both parties, for example, have habitually voted to postpone previously scheduled cuts in Medicare reimbursement rates for doctors rather than fix the long-term formula.

In addition, the growing production boom in semi- and fully electric cars casts doubt on the gas tax’s ability to raise sustainable revenue for transportation going forward. Depending on how popular highly fuel-efficient cars become by the time Congress considers a future gas tax change, the cents-per-gallon increase needed to repay the Treasury may be much higher than any current predictions.

The gas-tax bonding plan has a third potential hiccup. Oberstar suggested that $130 billion in Treasury bonds would be sufficient to close the gap between the cost of his six-year transport bill and anticipated gas-tax revenue. Yet that total would not appear to cover the estimated $50 billion that Oberstar’s legislation would set aside for high-speed rail.

Securing sufficient votes from fiscally conservative Democrats and Senate Republicans for deficit spending on high-speed rail would be difficult on its own, and adding the bonding proposal could add complications.

Oberstar spokesman Jim Berard cautioned that the bonding idea is among several "proposals that have been floating around" for financing a new transport bill, adding: "There isn’t a magic bullet out there that seems to have captured everybody’s imagination. So we don’t want to get too far out in front of this thing because we don’t want to give the impression that we’ve found the answer."

  • Ernest M. Fazio

    The gas tax has fallen off dramatically because it is tied to a per gallon assessment instead of a percentage of sale. As we get better and better gas mileage their is less money in the till. A one dollar/gallon increase would actually stabilize gas prices by reducing demand. That tax increase should than be indexed to go higher with the cost of living. This would insure that the highway fund would be solvent.

  • Statsdude

    Several problems with the gas tax. Not indexed for inflation, so has been constant since 1993. to keep up with inflation it would have to go up from 18 cents/gallon to about 45 cents. In order to keep up with construction cost inflation (cost of concrete, asphalt, etc) it would have to be closer to 80 cents per gallon (note: I may be conflating federal with california taxes).

    Top that off with more fuel efficient vehicles, even with a year ver year increase in VMT, you still end up with a deficit.

    Bonds however, also don’t take into account the costs of inflation. It also makes every project a political project, unless you have general bonds to cover all transportation costs (versus specific projects).

  • Larry Littlefield

    He’s got to be kidding. He’s just saying “lets give spend all our future tax revenues right now, while I’m around to take credit for it.”

    It isn’t a new idea. It’s the same idea his generation has been pushing for 30 years: we want more but don’t want to pay, let someone else pay later — with interest.

  • Larry Littlefield

    I mean put the last two posts together. Using money borrowed for 30 years over the next four, with half used for operating expenses. It’s absolutely shameless.

    We are facing financial disaster in this country. Let it happen sooner, when those who created it are around to share it, rather than later, in a future they don’t care about.

  • J:Lai

    Using debt financing to borrow against future revenues is not a bad thing, but only if it is used to fund activity that will grow the productive economy. Municipalities and agencies do this all the time when they issue revenue bonds – debt that has a claim on a specific revenue stream like tolls or other use fees.
    Treasury bonds, however, are general obligation bonds secured only by the full faith and credit of the US government.

    Funding improvements in the rail system, including high-speed rail, with gas tax revenues would be good. Issuing revenue bonds with a secured by gas tax revenue to pay for such improvement would be even better – the govt would be unable to divert the revenue away from debt service without violating the bond indenture and getting sued.

    Using general obligation bonds, however, would be bad – that is borrowing against the future with no dedicated revenue to ever pay back the debt. That leads to constant refinancing, or raising taxes on unrelated activity, or selling off assets . . . any of this sound familiar?

  • Moser

    The idea that we will be awash in electric cars in 5 years is crap. The problem with the gas tax is that it never gets raised, not that gasoline is becoming obsolete. Sure, in time this is a consideration, but the transportation program can live on a properly-set gas tax for a while yet. What has changed is that the VMT trend is no longer masking the long-term decline in purchasing power of the static per-gallon tax. That can be fixed with periodic hikes.

  • J:Lai

    Or just set a floor, via combination of direct tax and market purchases/sales using strategic petroleum reserve . . . a federal reserve for gas just like the one that sets the price of money!

  • Allen Loughman

    When we left the gold standared, people started getting money and spending money they didn’t rightully have. So maybe we should go back to the time where, if you didn’t have it, you didn’t spend it.

    Banks these days let you overdraft on your account even if you don’t have the money, then charging you a fee of thirty dollars or more. It’s terrible when you shouldn’t even be able to withdraw that ammount anyways, simply because you don’t have it. It’s like they want you to get into debt, and of course they do, that’s how the world makes money these days.

    As for the gas tax, it’s exactly what I just stated before, the tressury ‘overdrafted’ and can’t pay the money back. It’s sad.

  • Anandakos

    No! No! No! No! Just raise the tax. No more smoke and mirrors!

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