Highway Trust Fund
Overview of Highway Trust Fund Estimates Gao ID: GAO-06-572T April 4, 2006The Highway Trust Fund is the principal mechanism for funding federal highway and transit programs through receipts from excise taxes charged to highway users, such as taxes on motor fuels. The Department of Treasury (Treasury) and the Congressional Budget Office (CBO) each prepare estimates of future receipts for the Highway Trust Fund semiannually. Treasury's receipt estimates are combined with the Department of Transportation's (DOT) estimates of outlays to create an estimate of the Highway Trust Fund balance for the President's Budget; CBO also projects outlays to develop an estimate of the fund balance. The agencies' most recent estimates show that the Highway Account within the Highway Trust Fund could have a negative balance as early as 2009, raising concerns about whether funding for federal highway programs--which were recently authorized by the Safe, Accountable, Flexible, Efficient Transportation Equity Act: A Legacy for Users--will continue to be met. Consequently, Congress asked us to review and compare recent estimates made by Treasury and CBO. This testimony provides information on how (1) estimates are used to provide key information about the Highway Trust Fund, (2) the most recent Highway Trust Fund estimates--based on receipt estimates made by Treasury and CBO--compare, and (3) Treasury's and CBO's estimates compare to actual receipts for recent years.
Due to the nature of the receipts and disbursement processes of the Highway Trust Fund, estimates are used regularly not only to project the Highway Trust Fund's future balance, but also to determine its current balance. Treasury's receipts collection processes for the Highway Trust Fund rely on estimates based on historical receipts to determine how much should be transferred from the General Fund into the Highway Trust Fund on a semimonthly basis. DOT and the Office of Management and Budget (OMB) also use estimates based on future receipts in calculating annual adjustments to authorization levels, and DOT uses estimates based on historical fuel consumption to determine apportionments from the Highway Trust Fund to states. Because estimates are used throughout the process of collecting and disbursing funds for the Highway Trust Fund, it is important that estimates be as accurate as possible. The most recent Highway Trust Fund estimates from the President's Budget and CBO show similar trends, even though Treasury and CBO use different assumptions to estimate receipts for the fund. The Highway Trust Fund balance is projected to steadily decline because estimated outlays of the Highway Account exceed estimated revenues each year from 2006 through 2011. Treasury projects lower receipts levels than CBO, and therefore the President's Budget contains estimates of negative Highway Trust Fund balances occurring one year earlier than CBO is projecting. The differences in receipts estimates developed by Treasury and CBO are caused in part by the use of different economic assumptions, such as economic growth and fuel prices. When compared with actual Highway Trust Fund receipts, the accuracy of Treasury's and CBO's Highway Trust Fund estimates are not very different from each other. Neither agency's estimates have been consistently closer or further away from the actual amounts. For example, the estimates of the two agencies are closest or furthest from actual receipts in the same years. These comparisons of past performance should not be taken as an indicator of the future performance of the models.
GAO-06-572T, Highway Trust Fund: Overview of Highway Trust Fund Estimates
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Testimony:
Before the Subcommittee on Highways, Transit, and Pipelines, Committee
on Transportation and Infrastructure, U.S. House of Representatives:
United States Government Accountability Office:
GAO:
For Release on Delivery Expected at 2:00 p.m. EST:
Tuesday, April 4, 2006:
Highway Trust Fund:
Overview of Highway Trust Fund Estimates:
Statement of Katherine Siggerud, Director, Physical Infrastructure
Issues:
GAO-06-572T:
GAO Highlights:
Highlights of GAO-06-572T, a report to Subcommittee on Highways,
Transit, and Pipelines, Committee on Transportation and Infrastructure,
U.S. House of Representatives
Why GAO Did This Study:
The Highway Trust Fund is the principal mechanism for funding federal
highway and transit programs through receipts from excise taxes charged
to highway users, such as taxes on motor fuels. The Department of
Treasury (Treasury) and the Congressional Budget Office (CBO) each
prepare estimates of future receipts for the Highway Trust Fund
semiannually. Treasury's receipt estimates are combined with the
Department of Transportation's (DOT) estimates of outlays to create an
estimate of the Highway Trust Fund balance for the President's Budget;
CBO also projects outlays to develop an estimate of the fund balance.
The agencies‘ most recent estimates show that the Highway Account
within the Highway Trust Fund could have a negative balance as early as
2009, raising concerns about whether funding for federal highway
programs”which were recently authorized by the Safe, Accountable,
Flexible, Efficient Transportation Equity Act: A Legacy for Users”will
continue to be met. Consequently, the Subcommittee asked us to review
and compare recent estimates made by Treasury and CBO. This testimony
provides information on how (1) estimates are used to provide key
information about the Highway Trust Fund, (2) the most recent Highway
Trust Fund estimates”based on receipt estimates made by Treasury and
CBO”compare, and (3) Treasury‘s and CBO‘s estimates compare to actual
receipts for recent years.
What GAO Found:
Due to the nature of the receipts and disbursement processes of the
Highway Trust Fund, estimates are used regularly not only to project
the Highway Trust Fund‘s future balance, but also to determine its
current balance. Treasury‘s receipts collection processes for the
Highway Trust Fund rely on estimates based on historical receipts to
determine how much should be transferred from the General Fund into the
Highway Trust Fund on a semimonthly basis. DOT and the Office of
Management and Budget (OMB) also use estimates based on future receipts
in calculating annual adjustments to authorization levels, and DOT uses
estimates based on historical fuel consumption to determine
apportionments from the Highway Trust Fund to states. Because estimates
are used throughout the process of collecting and disbursing funds for
the Highway Trust Fund, it is important that estimates be as accurate
as possible.
The most recent Highway Trust Fund estimates from the President‘s
Budget and CBO show similar trends, even though Treasury and CBO use
different assumptions to estimate receipts for the fund. The Highway
Trust Fund balance is projected to steadily decline because estimated
outlays of the Highway Account exceed estimated revenues each year from
2006 through 2011. Treasury projects lower receipts levels than CBO,
and therefore the President‘s Budget contains estimates of negative
Highway Trust Fund balances occurring one year earlier than CBO is
projecting. The differences in receipts estimates developed by Treasury
and CBO are caused in part by the use of different economic
assumptions, such as economic growth and fuel prices.
When compared with actual Highway Trust Fund receipts, the accuracy of
Treasury‘s and CBO‘s Highway Trust Fund estimates are not very
different from each other. Neither agency‘s estimates have been
consistently closer or further away from the actual amounts. For
example, the estimates of the two agencies are closest or furthest from
actual receipts in the same years. These comparisons of past
performance should not be taken as an indicator of the future
performance of the models.
Current Highway Trust Fund Year-End Balance Estimates:
[See PDF for image]
[End of figure]
www.gao.gov/cgi-bin/getrpt?GAO-06-572T.
To view the full product, including the scope and methodology, click on
the link above. For more information, contact Katherine Siggerud, (202)
512-2834, siggerudk@gao.gov.
[End of section]
Mr. Chairman and Members of the Subcommittee:
We appreciate the opportunity to testify on important Highway Trust
Fund issues. The Highway Account within the Highway Trust Fund is the
principal mechanism for funding federal highway programs authorized by
the Safe, Accountable, Flexible, Efficient Transportation Equity Act: A
Legacy for Users (SAFETEA-LU). SAFETEA-LU set specific annual funding
levels for most federal highway programs on the basis of projected
receipts to the Highway Trust Fund for fiscal years 2005 through 2009.
The Department of the Treasury (Treasury) and the Congressional Budget
Office (CBO) each prepare estimates of future receipts for the Highway
Trust Fund biannually. Treasury's receipt estimates are combined with
the Department of Transportation's (DOT) estimates of outlays to create
an estimate of the Highway Trust Fund balance for the President's
Budget; CBO also projects outlays to develop an estimate of the Highway
Trust Fund balance. The agencies' most recent estimates show that the
Highway Account within the Highway Trust Fund could have a negative
balance as early as 2009, raising concerns about whether funding for
federal highway programs--which were recently authorized by the Safe,
Accountable, Flexible, Efficient Transportation Equity Act: A Legacy
for Users--will continue to be met.
Consequently, the Subcommittee asked us to review and compare recent
estimates made by Treasury and CBO. Accordingly, this testimony
provides information on how (1) estimates are used to provide key
information about the Highway Trust Fund, (2) the most recent Highway
Trust Fund estimates--based on receipt estimates made by Treasury and
CBO--compare, and (3) Treasury's and CBO's estimates compare to actual
receipts for recent years. (All years in this statement are fiscal
years. See app. I for information on our scope and methodology.)
In summary:
* Because of the nature of the Highway Trust Fund receipt and
disbursement processes, estimates are used regularly to determine and
project the balance of the Highway Trust Fund. Treasury's processes for
allocating tax receipts to the Highway Trust Fund regularly rely on
estimates based on historical receipts to determine how much should be
transferred from the General Fund into the Highway Trust Fund, because
Treasury does not obtain data from business taxpayers on the type of
excise tax it collects. DOT and the Office of Management and Budget
(OMB) also use estimates based on future receipts in calculating annual
adjustments to authorization levels, and DOT uses estimates based on
historical fuel consumption to determine apportionments from the
Highway Trust Fund to the states. Because estimates are used to make
semimonthly receipt transfers into the Highway Trust Fund, to calculate
adjustments to the Fund, and to identify appropriate funding
authorization levels for budget planning and legislation--like SAFETEA-
LU--it is important that estimates be as accurate as possible.
* The most recent Highway Trust Fund estimates contained in the
President's Budget and those released by CBO show similar trends, with
balances estimated to continue to decline into 2011. The Highway Trust
Fund balance is gradually being depleted because estimated outlays of
the Highway Account exceed estimated revenues each year from 2006
through 2011. Treasury estimates lower receipts levels than CBO during
this period, and therefore the President's Budget contains estimates of
negative Highway Trust Fund balances occurring one year earlier than
CBO is projecting. The differences in receipts estimates developed by
Treasury and CBO are caused, in part, by the use of different economic
assumptions, such as economic growth and fuel prices.
* When compared with actual Highway Trust Fund receipts, the accuracy
of Treasury's and CBO's Highway Trust Fund estimates are not very
different from each other. Neither agency's estimates have been
consistently closer or further away from the actual amounts. For
example, the estimates of the two agencies are closest or furthest from
actual receipts in the same years. These comparisons of past
performance should not be taken as an indicator of the future
performance of the models.
Background:
The Highway Trust Fund was established in 1956 to provide a dedicated
source of federal funding for highways. In 1983, the Highway Trust Fund
was divided into two accounts: the Highway Account and the Mass Transit
Account. Periodically, Congress enacts multiyear legislation, such as
SAFETEA-LU, authorizing federal spending for the nation's surface
transportation programs--including highway, transit, highway safety,
and motor carrier programs--and setting overall funding for these
activities. Funding for the federal-aid highway program is provided
through the Highway Trust Fund, a "pay as you go" system that uses
receipts from highway user excise taxes to fund various surface
transportation programs.[Footnote 1]
Receipts for the Highway Trust Fund are derived from two main sources:
federal excise taxes on motor fuels (gasoline, diesel, and special
fuels taxes) and truck-related taxes (truck and trailer sales, truck
tires, and heavy-vehicle use taxes). Someone other than the consumer
generally pays the excise taxes directed to the Highway Trust Fund. The
highway user pays the other taxes indirectly, since these taxes become
part of the purchase price. Thus, the motor fuels taxes are paid by
businesses rather than consumers at retail pumps. Oil companies, for
example, typically pay a per-gallon tax on the motor fuels when their
fuel is loaded into tanker trucks or rail cars at a terminal. Tire
manufacturers pay taxes on truck tires, and retailers pay taxes on the
sales price of new trucks and trailers. Owners of heavy highway
vehicles--trucks weighing 55,000 pounds and over--pay taxes on the use
of these vehicles, making this the only highway tax directly paid by
the highway user.
Receipts from the gasoline tax constitute the single largest source of
revenue for the Highway Account, and approximately 84 percent of the
receipts from the gasoline tax go to this account. Overall, the Highway
Account receives the majority of the tax receipts for the Highway Trust
Fund, including all receipts from truck-related taxes. Table 1 shows
the amount of motor fuels and truck-related taxes levied for the
Highway Trust Fund and how receipts from the taxes are allocated
between the Highway Account and the Mass Transit Account within the
fund.
Table 1: Federal Highway User Excise Taxes and the Percentage
Allocations to the Highway Account and the Mass Transit Account of the
Highway Trust Fund, as of March 1, 2006:
Motor fuel taxes:
Type of Excise Tax: Gasoline;
Tax rate (cents): 18.3 per gallon;
Distribution of tax: Highway Account: 84%;
Distribution of tax: Mass Transit Account: 16%.
Type of Excise Tax: Diesel;
Tax rate (cents): 24.3 per gallon;
Distribution of tax: Highway Account: 88%;
Distribution of tax: Mass Transit Account: 12%.
Type of Excise Tax: Gasohol;
Tax rate (cents): 18.3 per gallon;
Distribution of tax: Highway Account: 84%;
Distribution of tax: Mass Transit Account: 16%.
Type of Excise Tax: Liquefied petroleum gas;
Tax rate (cents): 13.6 per gallon;
Distribution of tax: Highway Account: 84%;
Distribution of tax: Mass Transit Account: 16%.
Type of Excise Tax: Liquefied natural gas;
Tax rate (cents): 11.9 per gallon;
Distribution of tax: Highway Account: 84%;
Distribution of tax: Mass Transit Account: 16%.
Type of Excise Tax: M85 (from natural gas);
Tax rate (cents): 9.15 per gallon;
Distribution of tax: Highway Account: 84%;
Distribution of tax: Mass Transit Account: 16%.
Type of Excise Tax: Compressed natural gas;
Tax rate (cents): 48.54 per thousand cubic feet;
Distribution of tax: Highway Account: 80%;
Distribution of tax: Mass Transit Account: 20%.
Truck-related Taxes - All proceeds to Highway Account:
Type of Excise Tax: Tires;
Tax rate (cents): 9.45 cents for each 10 pounds (so much of the maximum
rated load capacity thereof as exceeds 3,500 pounds).
Type of Excise Tax: Truck and trailer sales;
Tax rate (cents): 12 percent of retailer's sales price for tractors and
trucks over 33,000 pounds Gross Vehicle Weight (GVW) and trailers over
26,000 pounds GVW.
Type of Excise Tax: Heavy-vehicle use;
Tax rate (cents): Annual tax for trucks 55,000 pounds and over GVW:
$100 plus $22 for each 1,000 pounds (or fraction thereof) in excess of
55,000 pounds. Maximum tax: $550.
Source: GAO analysis of FHWA data.
[End of table]
Estimates Are Integral to Determining Highway Trust Fund Receipts and
Distributions:
The nature of the Highway Trust Fund's receipts collection and
disbursement processes is such that estimates are needed not only to
project the fund's future balance but also to determine its current
balance. Changing circumstances--for example, shifts in motor fuel
usage--can affect the accuracy of past estimates of receipts that will
flow into the Highway Trust Fund, rendering it necessary to make
regular adjustments. Treasury's estimates of Highway Trust Fund
receipts are used to make these regular adjustments to the Highway
Trust Fund balance, and DOT uses these estimates in turn to calculate
what is called the Revenue Aligned Budget Authority (RABA) adjustment,
which can increase or decrease the levels of funding enacted by
legislation and funded through the Highway Account.
The process for collecting and distributing Highway Trust Fund moneys
is summarized in figure 1. As it shows, the basic process involves
receiving money from business entities and individual taxpayers,
passing it into Treasury's General Fund and determining how much should
be transferred into the Highway Trust Fund, determining how much is
available in the Highway Trust Fund for disbursement, and then
distributing this money to the states or allocating it to specific
projects.
Figure 1: Process for Collecting and Distributing Highway Trust Fund
Receipts:
[See PDF for image]
[End of figure]
Collection and determination of Highway Trust Fund receipts. The
collection and allocation of the receipts is complex and involves
several organizations. Twice a month, business taxpayers make deposits
of excise taxes--including the highway user excise taxes levied for the
Highway Trust Fund--generally through Treasury's Electronic Federal Tax
Payment System. When these semimonthly deposits are made, Treasury does
not obtain data from business taxpayers on the type of excise taxes
(highway user or otherwise) that these deposits are intended to cover;
therefore, the deposits flow into Treasury's General Fund. On a
semimonthly basis, Treasury's Financial Management Service (FMS) and
Bureau of Public Debt (BPD) use estimates made by the Treasury's Office
of Tax Analysis (OTA) based on historical tax receipts certified by
Internal Revenue Service (IRS) data and actual total current excise tax
revenue collections to make an initial transfer into the Highway Trust
Fund. Treasury later adjusts these initial deposits based on actual tax
receipts, which are certified by IRS on a quarterly basis 6 months
after each quarter has ended.[Footnote 2] Information about the actual
Highway Trust Fund receipts is therefore subject to a lag between when
the tax is paid to Treasury by the business entity or taxpayer, when
IRS certifies the receipts, and when Treasury adjusts the Highway Trust
Fund accordingly.
Determination of Highway Trust Fund monies available for disbursement.
DOT and OMB are involved in calculating an adjustment to the amounts
authorized and available for obligation based on Highway Trust Fund
receipts; these calculations also depend on estimates. Since fiscal
year 2000, DOT and OMB have been responsible for calculating and making
the annual RABA adjustment, which ties highway funding to receipt
levels. To determine the RABA adjustment, DOT and OMB rely on
information about past Highway Account receipts and estimates of future
Highway Account receipts from Treasury. The RABA adjustment, based on a
comparison of actual and estimated receipt data, can increase or
decrease the guaranteed levels of funding enacted by legislation and
funded through the Highway Account.
Apportionment to states and allocation to projects. The Federal Highway
Administration (FHWA) of DOT apportions funding to the states on a
formula basis using estimates of each state's relative contribution of
taxes to the Highway Trust Fund. Because businesses, rather than
consumers, generally pay highway user taxes, most of the federal motor
fuels and truck taxes come from the handful of states where those
businesses have their corporate headquarters and pay their taxes. As a
result, Treasury does not provide FHWA with state-level data on highway
tax receipts, and FHWA must therefore estimate these data in order to
distribute highway program funds to the states. FHWA estimates state-
level contributions through what it refers to as its "attribution
process." Through this process, it determines each state's share of
highway motor fuels usage on the basis of data about such things as gas
and diesel fuel consumption from each state's records on the collection
of state-imposed fuel taxes. FHWA uses these data to estimate the
Highway Account receipts attributable to each state's highway users as
well as other data to ultimately determine the apportioned amounts of
funding that should flow to a state for highway programs funded from
the Highway Account.
Because of the extensive use of estimates in determining the Highway
Trust Fund balance, it is not surprising that estimates of amounts that
will be available in future years may be subject to considerable
change. While a future balance of the Highway Trust Fund can be
calculated as the difference between receipts and outlays (spending)
over the life of the fund, a determination of this future balance can
change as more up-to-date information becomes available.[Footnote 3]
For example, Treasury's estimates of Highway Trust Fund receipts for
2005 have changed every year since the initial estimate was made in
2000. Various factors, economic and otherwise, can cause them to
change.[Footnote 4] Because estimates are used in determining the
initial transfer to the Highway Trust Fund, in calculating the RABA
adjustment, and in identifying appropriate funding authorization levels
for budget planning and legislation, such as SAFETEA-LU, it is
important that estimates be as accurate as possible.
Recent Highway Trust Fund Estimates Show Similar Trends, Even Though
Different Assumptions are Used in Making the Estimates:
Highway Trust Fund estimates contained in the President's Fiscal Year
2007 Budget--based on receipts estimates from Treasury and outlay
estimates from DOT--and those released by CBO in January 2006 project
different balances, but the trends are similar. For example, the
estimates show that CBO is projecting higher year-end Highway Trust
Fund balances than the President's Budget for fiscal years 2006 through
2011, but both show declining balances over that period.[Footnote 5]
Both sets of estimates project a negative Highway Trust Fund balance by
the end of fiscal year 2011; but the President's Budget projects the
depletion of the Fund by 2010 and CBO's estimates show a negative
balance occurring in 2011. More specifically, the Highway Account--
which makes up the majority of Highway Trust Fund receipts--is
projected to have a negative balance as early as 2009, because of the
growing difference between projected receipts and outlays. The
variation in economic assumptions used by Treasury and CBO, such as
those for gross domestic product and fuel prices, accounts for part of
the difference in Highway Account receipt estimates.[Footnote 6]
Estimates Result in Similar Trends, but Diverge over Time:
Both the President's Budget and CBO's estimates currently show a
continuing downward trend of cash balances in the Highway Trust Fund,
and both estimates show a negative balance in the Highway Trust Fund by
fiscal year 2011. Differences between the estimates are greater in the
later years because the uncertainty of estimates increases as the
projections extend into the future. As figure 2 shows, CBO estimates
higher year-end balances for every year through 2011, projecting a
balance of negative $2.4 billion at the end of 2011, while the
President's Budget estimates project a negative balance occurring first
in 2010 and reaching an estimated negative $10 billion by 2011. It
should be noted, however, that legislative or economic changes
affecting Highway Trust Fund receipts occurring in the interim could
change these projected negative balances. For example, a number of
changes, such as provisions to reduce tax evasion that provided
increased receipts to the Highway Trust Fund, were adopted in the
American Jobs Creation Act of 2004.
Figure 2: Current Highway Trust Fund Year-End Balance Estimates:
[See PDF for image]
[End of figure]
The Highway Account, which makes up about 84 percent of the Highway
Trust Fund receipts, is projected to have a negative balance by the
President's Budget estimates in 2009 and by CBO in 2010. Projected
outlays are outpacing estimated receipts, which leads to the projected
negative balances in the Highway Account and ultimately the Highway
Trust Fund. For example, for 2006 through 2011, the Highway Account
receipts are estimated to average $35.8 billion by Treasury and $37.4
billion by CBO. For that same period, average outlays are estimated at
$39.6 billion by DOT and $40.3 billion by CBO. See table 2 for receipt
and outlay estimates for 2006 through 2011.
Table 2: Highway Account Receipt and Outlay Estimates for 2006 through
2011, as of March 1, 2006:
Estimated dollars in billions:
Treasury/DOT:
Receipts;
2006: $34.1;
2007: $34.6;
2008: $35.4;
2009: $36.2;
2010: $36.9;
2011: $37.6;
Average 2006- 2011: $35.8.
Outlays;
2006: $34.5;
2007: $38.2;
2008: $39.7;
2009: $40.8;
2010: $41.8;
2011: $42.3;
Average 2006- 2011: $39.6.
Difference;
2006: -$0.40;
2007: -$3.60;
2008: -$4.30;
2009: -$4.60;
2010: -$4.90;
2011: -$4.70;
Average 2006-2011: -$3.80.
CBO:
Receipts;
2006: $34.9;
2007: $35.9;
2008: $36.9;
2009: $37.9;
2010: $38.8;
2011: $39.7;
Average 2006-2011: $37.4.
Outlays;
2006: $34.9;
2007: $37.9;
2008: $40.5;
2009: $41.7;
2010: $42.7;
2011: $43.8;
Average 2006- 2011: $40.3.
Difference;
2006: $0.00;
2007: -$1.94;
2008: -$3.58;
2009: -$3.81;
2010: -$3.89;
2011: -$4.07;
Average 2006-2011: -$2.90.
Source: GAO analysis of data provided by DOT and CBO.
[End of table]
In addition to the current estimates, we also reviewed Treasury's and
CBO's annual estimates for 1999 through 2006. These historical
estimates showed that although estimates have been further apart and
closer together at different times, the projected trends have been
similar. For example, in the winter 1998 estimates, both Treasury and
CBO projected Highway Trust Fund receipts to decline over $4 million
between 1999 and 2000, before experiencing a steady increase from 2000
through 2003. These historical estimates also show that for the last
four budget forecasts, starting with estimates for 2003, CBO has
estimated higher Highway Trust Fund receipts levels than Treasury in
each year.
Differences in Estimated Balances Are Largely Due to Differing
Assumptions about Future Receipts:
Differences in receipts estimates, that is, the amounts estimated to be
collected through federal excise taxes on fuels and truck-related
taxes, appear to be the driving factor in the difference between the
two estimated balances. (See fig. 3 for current Treasury and CBO
receipts estimates.) Treasury and CBO officials indicated that
differences in receipts estimates are not unusual, given the different
economic assumptions used by each of the models.[Footnote 7] DOT's
outlays are based on currently enacted law, and CBO's are based on
historical spending patterns; however, the resulting estimates are not
very different. As figure 4 illustrates, estimates of outlays track
much more closely than do estimates of receipts over the same period of
time.
Figure 3: Current Treasury and CBO Estimates of Highway Trust Fund
Receipts:
[See PDF for image]
[End of figure]
Figure 4: Current estimates of Highway Trust Fund outlays:
[See PDF for image]
[End of figure]
Treasury and CBO develop Highway Trust Fund estimates for different
purposes: Treasury's estimates are used and reported in the President's
Budget, and CBO's estimates aid Congress in formulating budget policy.
Both agencies use models to make Highway Trust Fund estimates twice a
year, once in the summer and once in the winter. Neither model predicts
future regulatory or legislative changes that could affect Highway
Trust Fund receipts. As a result, any changes that affect Highway Trust
Fund receipts will affect the accuracy of the estimates.[Footnote 8]
Despite their differing assumptions about economic policy, the two sets
of estimates are very close. For example, the President's Budget
estimates show that the Highway Trust Fund year-end balance for 2006
will be $16.1 billion, and CBO estimates it will be $16.6 billion--a
difference of about 3 percent. Treasury and CBO officials told us that,
although their models and assumptions differ, their near-term estimates
are generally not that different. We did not evaluate the models and
assumptions used by either agency.
A major driver of Highway Trust Fund receipts is the economy and
assumptions about the economy. Both receipts and outlays are affected
by changes in economic conditions. This sensitivity complicates budget
planning because errors in economic assumptions lead to errors in
estimates. Treasury and CBO officials attributed the current
differences in estimates, in part, to the economic assumptions used in
the models, such as economic growth and the relative prices of fuel.
For example, at the time of the 2007 President's Budget, the
administration's estimate for real gross domestic product (GDP) growth-
-which is used in Treasury's estimates--is below CBO's for 2006 through
2009; but for 2006 through 2011, the administration and CBO project
similar percent average annual growth rates (3.2 and 3.3,
respectively). (See table 3 for real GDP growth rate estimates.)
Table 3: Comparison of Real GDP Growth Rate Assumptions between 2007
President's Budget and CBO:
Real GDP assumptions: 2007 Budget;
2006: 3.4%;
2007: 3.3%;
2008: 3.3%;
2009: 3.1%;
2010: 3.1%;
2011: 3.1%;
Average 2006-2011: 3.2%.
Real GDP assumptions: CBO;
2006: 3.6%;
2007: 3.4%;
2008: 3.4%;
2009: 3.3%;
2010: 3.0%;
2011: 2.8%;
Average 2006-2011: 3.3%.
Source: 2007 President's Budget.
[End of table]
Treasury's estimates incorporate economic assumptions formulated for
the President's Budget by the "Troika," which consists of the Council
of Economic Advisors, OMB, and Treasury. The Troika's economic
assumptions are used in estimates contained throughout the President's
Budget and are not limited to Highway Trust Fund estimates. Several of
the administration's economic assumptions, such as those for the real
GDP and consumer price index, are publicly available. However, most
Troika assumptions are not publicly available. The economic and
technical assumptions on which Treasury's Highway Trust Fund estimates
are based represent estimates of what is most likely to occur if the
President's policies included in the Budget are enacted and
implemented. Thus, they may not match the "actual" data if some of the
President's policies are not enacted and implemented, if an
understanding of the effects of policies or the underlying
relationships is less than perfect, or if unexpected events occur. By
comparison, CBO's model projects future highway excise tax receipts by
looking at past and expected changes in relative fuel prices as well as
historical relationships between sources of Highway Trust Fund receipts
and real economic growth and by holding current law constant. For
example, estimates of fuel consumption depend on estimates of economic
growth, relative fuel prices, and average fuel efficiency, which are
then multiplied by the current federal tax rate on fuel. CBO's
estimates of Highway Trust Fund receipts are added to CBO's estimates
of other sources of federal revenues in order to generate projections
of total federal revenues. Both Treasury and CBO continuously update
their models to incorporate legislative, economic, and other relevant
changes--which are then reflected in the next forecasting exercise.
Accuracy of Treasury's and CBO's Estimates of Receipts Has Been
Comparable:
When Treasury's and CBO's estimates of receipts are compared with
actual Highway Trust Fund receipts, both agencies' track records, in
terms of how close their estimates come to the actual amounts, are not
very different. Neither agency is consistently closer: Treasury's
estimates have been closer to actual receipts in some instances and
CBO's in others. However, these comparisons should not be taken as an
indicator of the future performance of the models.
Before looking at the results, it is necessary to explain more
precisely what we compared, and how. Each year, Treasury and CBO
estimate Highway Trust Fund receipts for at least the next 6 years. In
forecasting, estimates of what will occur within a year or two are
generally more reliable than estimates of what may occur several years
later, because the longer the period involved, the greater the
opportunity for conditions to change in unexpected ways. We focused our
analysis on Treasury's and CBO's 1-year and 2-year estimates--for
example, what the two agencies estimated in 2000 as the Highway Trust
Fund receipts in 2001 and 2002. We compared the annual estimates of
receipts made by each agency in 1998 through 2004 to actual Highway
Trust Fund receipts that were collected 1 year and 2 years after the
estimates were made.[Footnote 9]
On average, the two agencies were nearly identical in the degree to
which their 1-year estimates mirrored actual results, and Treasury's
estimates were slightly better in the degree to which 2-year estimates
mirrored actual results. As figure 5 shows, Treasury's 1-year estimates
were off by an average of 5.74 percent, while CBO's were off by 5.77
percent.[Footnote 10] This translates to an average difference between
estimates and actual receipts of about $1.9 billion each year.[Footnote
11] For 2-year estimates, Treasury's estimates differed from actual
receipts, on average, by about 6.85 percent, while CBO's estimates
differed by about 7.61 percent. These differences translate to about
$2.3 billion for Treasury's forecast and about $2.6 billion for CBO's,
on average, each year.
Figure 5: Accuracy of Treasury and CBO Estimates Made in 1998-2004 for
Highway Trust Fund Receipts 1 Year and 2 Years Ahead of the Estimates:
[See PDF for image]
[End of figure]
A comparison of the results for each year showed that both agencies'
estimates also followed a similar pattern in how far they were off from
actual amounts in any given year, and whether their estimates were too
low or too high. Figure 6 shows the year-to-year results for the 1-year
estimates. While there were some differences, the estimates from both
agencies followed the same general trend. For example, both agencies'
estimates were furthest from actual amounts in the same 2 years--fiscal
years 2001 and 2002. In those years, both agencies' 1-year estimate was
above the actual receipts by 12 percent or more. In those 2 years, a
weakened economy led to a decline in highway excise taxes paid.
Figure 6: Accuracy of Annual Treasury and CBO Estimates Made for
Highway Trust Fund Receipts 1 Year Ahead of the Estimates:
[See PDF for image]
[End of figure]
These comparisons of historical performance, while interesting, should
not be taken as an indicator of the future performance of the two
models. However, the results tend to move in tandem, suggesting that
both models are likely to predict the same kinds of results. We did not
collect detailed information on factors and assumptions used in the
models because some of the information used in Treasury's model is
based on economic assumptions by the administration that are not
publicly available. To evaluate these models, one would need to analyze
and test the various components of each model--something we did not do.
Concluding Observations:
Treasury's and CBO's estimates of Highway Trust Fund receipts play an
important role not only determining appropriate levels of funding for
transportation programs, but also for distributing the funds to states
for approved highway and transit projects. Even though the estimates
from both agencies have tended to perform similarly, the estimates
continue to change with each forecasting exercise, making it difficult
for those relying on the estimates to anticipate future Highway Trust
Fund balances. However, because changes in economic conditions or
legislation are hard to foresee, there is no easy solution to this
problem. While the Highway Trust Fund may not reach a negative balance
within 5 years as current forecasts project, the trend of declining
balances is clear, a trend that the Congress and the administration
have already begun to address through two commissions charged with
reviewing and making recommendations on issues affecting the Highway
Trust Fund.
Mr. Chairman, this concludes my prepared statement. I would be pleased
to respond to any questions that you or the other Members of the
Subcommittee might have.
GAO Contacts and Staff Acknowledgement:
For further information on this testimony, please contact Katherine
Siggerud at (202) 512-2834 or siggerudk@gao.gov. Individuals making key
contributions to this testimony were Heather MacLeod, Mehrzad Nadji,
Stan Stenersen, Friendly Vang-Johnson, and Sara Vermillion.
[End of section]
Appendix I: Scope and Methodology:
To identify why estimates are used to provide key information about the
Highway Trust Fund, we reviewed Department of Transportation (DOT)
documents and prior GAO reports on Highway Trust Fund processes. We
also interviewed officials from Treasury, the Congressional Budget
Office (CBO), and DOT about how estimates are involved in these
processes.
To compare Treasury's and CBO's estimates, we analyzed data for fiscal
years 1998 through 2006 from both agencies; Treasury's estimates of
receipts were published annually in the President's Budget (which also
included outlay estimates from DOT), and CBO's estimates of receipts
and outlays were prepared in that time frame each year. Specifically,
for the Highway Trust Fund and the Highway Account within the fund, we
examined the differences in receipt and outlay estimates, the
percentage difference in the estimates, and the overall trends in the
forecasts. We also reviewed information from both agencies on the
overall factors and assumptions that are included in the models used to
prepare estimates and interviewed officials from Treasury and CBO about
the factors that were most likely responsible for any differences in
their estimates. We did not collect detailed information on factors and
assumptions used in the models because some of the information used in
Treasury's model is based on economic assumptions developed by the
administration that are not publicly available. Consequently, we were
not able to evaluate the reliability of Treasury's or CBO's model for
preparing Highway Trust Fund estimates.
To compare Treasury's and CBO's estimates to actual Highway Trust Fund
receipts, we analyzed the annual estimates of receipts made by each
agency in each year from fiscal year 1998 through fiscal year 2004 and
compared them to actual Highway Trust Fund receipts, as published
annually in the U.S. Budget Historical Statistics. The comparisons were
made for 1-and 2-year estimates for the entire Highway Trust Fund,
including both the Highway Account and the Mass Transit Account. The
percentage differences in estimates and actual receipts were computed
on the basis of the absolute value of the differences regardless of
whether the values were negative or positive. The differences in dollar
value represent Mean Absolute Error (MAE), which is the average value
of the difference between estimated and actual receipts, regardless of
whether the value is positive or negative. These accuracy measures are
general and descriptive statistics, which were not tested for
statistical significance because of the relatively small number of data
available.
[End of section]
Related GAO Products:
21st Century Challenges: Reexamining the Base of the Federal
Government. GAO-05-325SP. Washington, D.C.: February 1, 2005.
Applying Agreed-Upon Procedures: Highway Trust Fund Excise Taxes. GAO-
04-213R. Washington, D.C.: November 20, 2003.
Applying Agreed-Upon Procedures: Highway Trust Fund Excise Taxes. GAO-
03-360R. Washington, D.C.: January 23, 2003.
Highway Financing: Factors Affecting Highway Trust Fund Revenues. GAO-
02-667T. Washington, D.C.: May 9, 2002.
Highway Trust Fund: Overview of Highway Trust Fund Financing. GAO-02-
435T. Washington, D.C.: February 11, 2002.
Federal Trust and Other Earmarked Funds: Answers to Frequently Asked
Questions. GAO-01-199SP. Washington, D.C.: January 1, 2001.
Highway Funding: Problems With Highway Trust Fund Information Can
Affect State Highway Funds. GAO/RCED/AIMD-00-148. Washington, D.C.:
June 30, 2000.
Budget Issues: Trust Funds in the Budget. GAO/T-AIMD/RCED-99-110.
Washington, D.C.: March 9, 1999.
Agreed-Upon Procedures: Highway Trust Fund Excise Taxes. GAO/AIMD-99-
71R. Washington, D.C.: February 25, 1999.
Highway Trust Fund: Financial Condition as of September 30, 1997.
GAO/RCED-98-171R. Washington, D.C.: April 24, 1998.
Highway Trust Fund: Possible Impact If It Had Financed All Highway
Expenditures. GAO/RCED-98-78R. Washington, D.C.: February 6, 1998.
Surface Transportation: Regional Distribution of Federal Highway Funds.
GAO/RCED/HEHS-97-167R. Washington, D.C.: May 30, 1997.
Highway Funding: Alternatives for Distributing Federal Funds. GAO/RCED-
96-6. Washington, D.C.: November 28, 1995.
Highway Fund Audit. GAO/AIMD-97-14R. Washington, D.C.: November 4,
1996.
Highway Planning: Agencies Are Attempting to Expedite Environmental
Reviews, but Barriers Remain. GAO/RCED-94-211. Washington, D.C.: August
2, 1994.
Surface Transportation: Tight Budget Environment Requires Sound
Investment Strategy. GAO/T-RCED-94-146. Washington, D.C.: March 8,
1994.
Highway Demonstration Projects. GAO/RCED-93-193R. Washington, D.C.:
August 10, 1993.
Surface Transportation: Funding Limitations and Barriers to Cross-Modal
Decision Making. GAO/T-RCED-93-25. Washington, D.C.: March 31, 1993.
Transportation Infrastructure: Major Program Revisions Present
Challenges. GAO/T-RCED-92-93. Washington, D.C.: September 17, 1992.
Highway Trust Fund: Strategies for Safeguarding Highway Financing.
GAO/RCED-92-245. Washington, D.C.: September 15, 1992.
Highway Trust Fund: Revenue Sources, Uses, and Spending Controls.
GAO/RCED-92-48FS. Washington, D.C.: October 16, 1991.
Transportation Infrastructure: Department of Transportation Highway and
Mass Transit Program Reauthorization Proposals. GAO/T-RCED-91-26.
Washington, D.C.: April 18, 1991.
Transportation Infrastructure: Federal Highway Administration FY 1992
Budget. GAO/T-RCED-91-12. Washington, D.C.: March 5, 1991.
Transportation Infrastructure: Flexibility in Federal-Aid Funding
Essential to Highway Program Restructuring. GAO/T-RCED-91-4.
Washington, D.C.: December 10, 1990.
Operations and Outlook for the Highway Trust Fund. GAO/T-RCED-90-79.
Washington, D.C.: May 9, 1990.
Operations of and Outlook for the Transportation Trust Funds. GAO/T-
RCED-90-78. Washington, D.C.: May 8, 1990.
Issues to Be Considered During Deliberations to Reauthorize the Federal-
Aid Highway Program. GAO/T-RCED-90-50. Washington, D.C.: March 19,
1990.
The Budget Treatment of Trust Funds. GAO/T-AFMD-90-03. Washington,
D.C.: October 18, 1989.
The Budget Treatment of Trust Funds. GAO/T-AFMD-90-01. Washington,
D.C.: October 12, 1989.
Transportation Infrastructure: Reshaping the Federal Role Poses
Significant Challenges for Policy Makers. GAO/RCED-90-81A. Washington,
D.C.: December 28, 1989.
Transportation Infrastructure: Panelists' Remarks at New Directions in
Surface Transportation Seminar. GAO/RCED-90-81B. Washington, D.C.:
December 28, 1989.
Transportation Trust Funds. GAO/T-RCED-89-36. Washington, D.C.: May 11,
1989.
Highway Trust Fund: Condition and Outlook for the Highway Account.
GAO/RCED-89-136. Washington, D.C.: May 9, 1989.
Budget Issues: Trust Funds and Their Relationship to the Federal
Budget. GAO/AFMD-88-55. Washington, D.C.: September 30, 1988.
Deteriorating Highways and Lagging Revenues: A Need to Reassess the
Federal Highway Program. GAO/CED-81-42. Washington, D.C.: March 5,
1981.
Why Urban System Funds Were Seldom Used for Mass Transit. GAO/CED-77-
49. Washington, D.C.: March 18, 1977.
U.S. Transportation System--Federal Government's Role and Current
Policy Issues. GAO/RED-76-34. Washington, D.C.: October 22, 1975.
Costs and Problems of Completing the Interstate Highway System.
GAO/RCED-76-19. Washington, D.C.: September 4, 1975.
FOOTNOTES
[1] The federal-aid highways program is funded by contract authority
contained in SAFETEA-LU. Appropriation acts contain an obligation
limitation reflecting the authorized level, including an adjustment
based on revenue. Obligations made against the Highway Trust Fund can
exceed the actual cash balances up to the receipts anticipated to be
collected in the following 2 years.
[2] IRS certifies the Quarterly Federal Excise Tax Return (Form 720)
that taxpayers are required to submit to report their excise tax
liability. Form 720 contains information that ultimately determines how
these receipts should be distributed to government trust funds,
including the Highway Trust Fund.
[3] Outlays during a fiscal year may be for payment of obligations
incurred in prior years or in the same year. Outlays, therefore, flow
in part from unexpended balances of prior year budgetary resources and
in part from budgetary resources provided for the year in which the
money is spent.
[4] Additionally, estimates do not include RABA adjustments, which also
can have an effect on balances.
[5] For the purposes of this study we are using Highway Trust Fund year-
end balance estimates released by CBO in January 2006 and by the
President's Fiscal Year 2007 Budget in February 2006 as the current or
most recent estimates.
[6] In 2002, in order to help determine the reasonableness of
Treasury's estimates, we compared them with CBO's estimates. This
comparison did not raise any questions about the reasonableness of
Treasury's estimates. (See the list of related GAO products at the end
of this testimony.)
[7] How each organization constructs its tax models, generally referred
to as technical differences, are also an important factor in the
differences between Treasury's and CBO's estimates.
[8] Treasury's model generally assumes that the proposals contained in
the President's Budget will be enacted.
[9] To make the comparison, we used actual receipt data reported in the
President's Budget. Our comparisons were for the entire Highway Trust
Fund, including both the Highway Account and the Mass Transit Account.
We were unable to assess estimates made for years after 2005 because we
did not have data points of actual results for the analysis.
[10] The comparison period covered forecasts for fiscal years 1999
through 2005. The percentages are based on the absolute value of the
forecast, which is the difference--regardless of whether it is positive
or negative--between the actual and the forecasted values for each
year.
[11] The dollar value represents Mean Absolute Error (MAE,) which is
the average value of the difference between estimated and actual
receipts, regardless of whether it is positive or negative--over the
comparison period.
