The Highway Trust Fund is anything but trustworthy

Cars sit in miles-long traffic jam on southbound highway 101 near Mill Valley, California.
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Cars sit in miles-long traffic jam on southbound highway 101 near Mill Valley, California.

America's highway system may be a crucial lifeline for interstate commerce as well as an engineering marvel, but we haven't shown much commitment to keeping it in working shape.

Legislators kicked the can down the road for another three months, temporarily renewing authorization for the Highway Trust Fund just ahead of its expiration last Friday. The fund, which reimburses states for billions of dollars of work on roads, bridges and tunnels, has been limping along on short-term extensions and general fund transfers for the better part of a decade.

The fund was intended to support highways by collecting taxes from those who use them the most—primarily through an 18 cent tax on gasoline, but also taxes on diesel, tires and some vehicles. But gasoline usage is declining, and 18 cents today buys you far fewer road workers and less asphalt than it did in 1993, the last time the tax was adjusted.

Of course, politicians can't agree on where to find revenue for the fund, so it's easier to simply plug the funding hole with general fund money when the account comes close to running dry. Leaving the fund forever in a limbo of short-term extensions is unnerving not only for the states that depend on funding for projects that span many years, but also for investors.

Don't panic and dump your stocks

Investors ditch building material and machinery companies every time those extensions expire, according to an analysis by Kensho, a qualitative tool used by hedge funds. Companies like Martin Marietta Materials and Caterpillar tend to underperform the trading day after an expiration date relative to the S&P 500, based on the last six expirations.

Is there a good reason for traders to be worried on those days? Not especially, said Doug Hecox, a spokesman for the Federal Highway Administration (FHWA). Even in the worst case scenario—if Congress fails to reauthorize the FHWA's ability to distribute money from the trust fund—there is no reason to think that construction projects across the country will suddenly grind to a halt. That's because the fund simply reimburses states for ongoing projects, and the government will always follow through on those predetermined obligations one way or another.

"The states will be reimbursed, it's just a question of how soon," said Hecox. "The projects wouldn't stop. We all agree that it's not a good thing, but it's not going to result in a massive tsunami of unemployment."

For California, where the state is in the middle of 600 major transportation projects employing thousands, federal money pays for two thirds of construction projects, said Mark Dinger, spokesman for the California Department of Transportation. If the federal fund dried up, the state fund would also be bankrupt within two months, he said, but it's never come to that, and state engineers trust that the money will flow as promised.

The bigger question may be what a failure to get the fund under control would mean for the future. The same trends that have drained the fund over time—more efficient vehicles and slightly higher construction costs, as well as generally aging infrastructure—are only expected to make the gap wider in the next decade.

"This is the challenge that this Congress and the one before it have had, the recognition that we're entering some shallow water," said Hecox. It's simply not capable of sustaining the states the way it used to long term, without some fundamental change in how it's supported."

Over the last 10 years, the Highway Trust Fund has spent more than $50 billion over what it has collected. Ten years from now, that cumulative gap will be over $150 billion, according to the Congressional Budget Office.

There have been 34 stopgap measures passed in the last six years, according to the Peter G. Peterson Foundation, and it's hard to be optimistic about whether the House will support the six-year bill passed last week by the Senate. Perhaps it is the possibility that politicians will decide to fix their revenue problem by simply investing less in infrastructure in the appropriations stage that is really bothering investors.

Already, current funding for surface transportation at all levels of government are only about half of what is recommended by groups like the American Society of Civil Engineers. Raising funding could be a hard sell if no one knows where the money is coming from.

"Our view on is that while the short term solution keeps the fund solvent, it doesn't do anything to solve the real problem," said Dinger. "The real problem is finding that long term, stable funding solution."

Disclosure: NBCUniversal, parent of CNBC, is a minority investor in Kensho.