Federal Highway Trust Fund Reauthorization: Contract Authority and Transit Financing

In 1993, the federal gas tax was set at 18.4 cents per gallon. More than three decades later, that figure remains unchanged, even as the purchasing power of those cents has eroded by more than half. This static revenue stream feeds the Highway Trust Fund (HTF), the financial engine that powers the United States' surface transportation network.

Every five years, Congress must reauthorize the programs that draw from this fund, dictating how billions of dollars flow to state and local governments for roads, bridges, and transit systems. The current authorization, established under the 2021 Infrastructure Investment and Jobs Act (IIJA), is scheduled to expire on September 30, 2026. The legislative process to replace it is already underway, anchored by proposals like the BUILD America 250 Act, a $580 billion framework advanced by the House Transportation and Infrastructure Committee.[1][3]

The Highway Trust Fund operates through two primary accounts: the Highway Account, which supports road and bridge construction, and the Mass Transit Account, which funds capital expenditures for buses, subways, and railways. Revenue is generated primarily through excise taxes on motor fuels, alongside supplemental taxes on heavy trucks and tires. Because transportation projects are capital-intensive and span multiple years, the HTF relies on a mechanism known as "contract authority."

This form of mandatory budget authority allows state departments of transportation to commit to long-term projects and sign contracts before the federal funds are fully appropriated by Congress. The federal government typically accounts for about one-quarter of all public spending on roads and highways, with the remaining three-quarters financed by state and local governments, making federal matching funds a critical catalyst for major infrastructure development.[1][2]

The core challenge facing any reauthorization effort is the HTF's structural deficit. Since 2008, the fund has required over $270 billion in general revenue transfers from the U.S. Treasury to remain solvent. The gap between dedicated tax receipts and authorized spending continues to widen, driven by inflation, increased vehicle fuel efficiency, and the rising market share of electric vehicles (EVs) that do not pay the federal gas tax.

The Congressional Budget Office projects that without intervention, the HTF will be depleted by 2028. To address this shortfall, recent legislative frameworks have proposed new revenue mechanisms. The BUILD America 250 Act, for instance, introduces a federal registration fee for electric and plug-in hybrid vehicles, aiming to ensure all roadway users contribute to the HTF. While this approach seeks to capture revenue from non-combustion vehicles, it faces opposition from lawmakers and environmental advocates who argue it disincentivizes the transition to cleaner transportation.[1][3]

Beyond revenue collection, reauthorization dictates how federal funds are distributed across the country. Historically, the federal government allocates the vast majority of surface transportation funding through formula grants. These programs distribute money to states based on statutory criteria, such as population, highway lane-miles, and historical funding shares. Formula funding provides states with predictable, guaranteed revenue streams and the autonomy to prioritize local needs, whether that means expanding highway capacity or repairing existing infrastructure.

In contrast, discretionary or competitive grants allow the Department of Transportation to direct funds toward specific national priorities, such as environmental resilience, major freight corridors, or advanced technology deployment. The balance between formula and discretionary funding is a central tension in reauthorization debates. Proposals like the BUILD America 250 Act lean heavily toward formula funding, increasing the share of dollars managed directly by state agencies and reducing the scope of federal discretionary programs.[3]

A significant component of the current reauthorization debate focuses on the nation's aging bridge infrastructure. The Federal Highway Administration and industry groups estimate a substantial backlog of deferred maintenance across the country's bridges. Recent legislative frameworks propose expanding bridge-specific formula programs to address this backlog directly. A key mechanism within these proposals is the adjustment of set-asides for "off-system" bridges—those located on local public roads rather than the federal-aid highway network.

By increasing the mandatory funding allocation for off-system bridges, federal policy aims to direct more resources to county and municipal governments, which own and maintain a large portion of the country's most vulnerable infrastructure. This shift represents a structural effort to bypass state-level bottlenecks and ensure federal dollars reach local public works departments.[3]

The treatment of public transit and passenger rail also hinges entirely on the reauthorization structure. Under the IIJA, Congress utilized "advance appropriations" to guarantee multi-year funding for passenger rail, placing it on a more equal footing with highway programs and allowing agencies like Amtrak to plan long-term capital upgrades. However, newer legislative proposals suggest returning passenger rail to the annual appropriations process.

This shift introduces greater funding uncertainty, as rail projects would have to compete for budget allocations each fiscal year rather than relying on guaranteed contract authority. Transit formula programs, which fund the purchase of new buses and the maintenance of subway systems, generally retain their dedicated funding streams, but the overall ratio of highway-to-transit spending remains a heavily negotiated metric in every reauthorization cycle.[3]

Federal surface transportation bills function as massive policy vehicles, establishing safety standards and environmental priorities alongside funding allocations. Reauthorization legislation typically includes mandates for commercial driver regulations, work zone protections, and hazardous materials transport. The debate often centers on whether to mandate climate-focused investments—such as dedicated funding for emissions reduction and alternative fueling infrastructure—or to grant states the flexibility to use those funds for traditional capacity expansion.

Furthermore, reauthorization bills frequently incorporate permitting reforms designed to accelerate project delivery. Proposals currently under consideration seek to streamline the National Environmental Policy Act (NEPA) review process for transportation projects, aiming to reduce the time and cost required to move infrastructure improvements from the planning phase to active construction.[3]

The path to a final reauthorization bill is invariably complex, requiring alignment across multiple committees in both the House and the Senate. Disagreements over EV fees, transit funding levels, and environmental mandates must be reconciled before the expiration of current authorities. If a comprehensive five-year package is not enacted before the September 2026 deadline, Congress typically relies on short-term extensions of existing law.

While these extensions prevent an immediate lapse in funding, they disrupt long-term planning for state and local transportation agencies, which hesitate to sign multi-year construction contracts without guaranteed federal backing. Ultimately, surface transportation reauthorization is more than a fiscal exercise; it is the blueprint for the nation's physical mobility. The mechanics of how revenue is collected and distributed will determine the resilience, efficiency, and safety of the American infrastructure network for the next decade.[3]