Most U.S. transportation infrastructure construction and maintenance is paid for through dedicated user-related taxes and fees.
The major source of funding for federal highway and transit investment is the Highway Trust Fund (HTF). It was created by Congress in 1956 to provide money for construction of the Interstate Highway System and other federal investment in highway improvements.
In 1982, Congress added a Mass Transit Account to finance federal investment in subway and public transportation systems. Taxes paid by highway users are credited to the HTF and are used solely to pay for highway and mass transit improvements.
Current revenue sources include an 18.3-cents-per-gallon federal excise tax on gasoline and gasohol, a 24.3-cents-per-gallon tax on diesel fuel, equivalent taxes on other motor fuels such as compressed natural gas, and three taxes levied on heavy trucks and truck tires.
Revenues from the taxes on motor fuels are divided between the Highway Account and the Mass Transit Account by formula, while all revenues from the taxes on heavy trucks are credited to the Highway Account.
In recent years, revenues have totaled in the range of $36 billion to $41 billion per year, with about $5 billion credited to the Mass Transit Account and the balance to the Highway Account. The Congressional Budget Office expects HTF revenues to remain relatively stagnant for the foreseeable future.
The Federal Highway Administration and the Federal Transit Administration use HTF revenues to pay the federal share of improvements made to highways and public transportation systems. Highway Account revenues can be used to design, construct, improve and preserve Interstate Highways and most other major highways, purchase right of way, conduct environmental mitigation, and make other capital improvements, but they cannot be used for routine maintenance such as filling potholes or removing snow. Mass Transit Account revenues can be used to construct and improve subway, light rail and other mass transit systems, purchase buses and make other capital improvements, but generally not for operating expenses.
There is also a federal Airport and Airways Trust Fund, which finances airport improvements and the air traffic control system. This trust fund is financed by fees on air travelers and taxes on aviation fuels.
State governments finance highway construction and maintenance through a broad set of taxes and fees, most of which are also user-related. Every state imposes taxes on gasoline and diesel fuel, from a low of 8 cents per gallon in Alaska to over 35 cents per gallon in some states. Other revenue sources include vehicle registration fees, driver license fees, sales taxes on motor vehicles, heavy truck use taxes, traffic violation fines, and similar taxes and fees.
State governments have expanded their user fees and use of general revenues to finance highway improvements. Many state governments also borrow money for highway construction by issuing bonds. A few states permit local governments to levy taxes and fees on highway users, but in most states, local highway expenditures are financed out of property tax revenues.
Public-private partnerships (P3) are another funding strategy. Private investors such as pension funds or investment banks finance some or all of the costs of building a highway, then earn a return by charging tolls.