Highway Trust Fund
Options for Improving Sustainability and Mechanisms to Manage Solvency Gao ID: GAO-09-845T June 25, 2009The Highway Account within the Highway Trust Fund (HTF) is the principal means for funding federal highway programs. Administered by the Federal Highway Administration (FHWA) within the Department of Transportation (DOT), it channels about $33 billion in highway user excise taxes annually to states for highway and related spending. Estimated outlays from the Highway Account under the Safe, Accountable, Flexible, Efficient Transportation Equity Act--A Legacy for Users (SAFETEA-LU) exceeded estimated receipts throughout the authorization period--fiscal years 2005 through 2009. Furthermore, actual account receipts were lower than had been estimated and the account balance dropped more rapidly than anticipated, approaching zero in August, 2008. Congress subsequently approved legislation in September 2008 to appropriate $8 billion from the General Fund of the Treasury to replenish the account. Agency officials anticipate the account will reach a critical stage again before the end of fiscal year 2009, and estimate that about $15 billion will be needed to ensure account solvency through the end of fiscal year 2010. This statement summarizes GAO's past work on 1) the collection and distribution process for the Highway Account of the HTF, 2) options for improving long-term sustainability of the HTF, and 3) mechanisms to help manage Highway Account solvency.
The collection and distribution of funds through the Highway Account is a complex process. Collection involves Treasury receiving excise taxes from business entities, estimating how much should be allocated to the Highway Account, and adjusting the estimated allocation several months later after actual tax receipts are certified. Distribution begins with a multi-year authorization act that provides contract authority and establishes annual funding levels. DOT apportions the contract authority to the states and divides the funding level among federal highway programs and states. DOT then obligates funds for projects and reimburses states as projects are completed. Improving long-term sustainability is one of GAO's key principles for restructuring existing transportation programs, and GAO has reported on options for improving sustainability: (1) improve the efficiency of current facilities, (2) alter existing sources of revenue, (3) ensure users are paying fully for benefits, and (4) supplement existing revenue sources, such as through enhanced private-sector participation. Each of these options has different merits and challenges, and will likely involve trade-offs among different policy goals. Improving existing mechanisms intended to help maintain Highway Account solvency could help DOT better manage the account balance. For example, statutory mechanisms designed to make annual adjustments to the Highway Account have been so modified over time--particularly through changes in SAFETEA-LU--that they either are no longer relevant or are limited in effectiveness. Furthermore, monitoring indicators that could signal sudden changes in revenues could help DOT better anticipate changes in the account balance and communicate with stakeholders on the account's status. DOT is acting on recommendations GAO made in February, 2009 to help improve solvency mechanisms and communication with stakeholders.
GAO-09-845T, Highway Trust Fund: Options for Improving Sustainability and Mechanisms to Manage Solvency
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Testimony:
Before the Subcommittees on Oversight and Select Revenue Measures,
Committee on Ways and Means, House of Representatives:
United States Government Accountability Office:
GAO:
For Release on Delivery:
Expected at 10:00 a.m. EDT:
June 25, 2009:
Highway Trust Fund:
Options for Improving Sustainability and Mechanisms to Manage Solvency:
Statement of Phillip R. Herr, Director:
Physical Infrastructure Issues:
GAO-09-845T:
GAO Highlights:
Highlights of GAO-09-845T, a testimony before the Subcommittees on
Oversight and Select Revenue Measures; Committee on Ways and Means;
House of Representatives.
Why GAO Did This Study:
The Highway Account within the Highway Trust Fund (HTF) is the
principal means for funding federal highway programs. Administered by
the Federal Highway Administration (FHWA) within the Department of
Transportation (DOT), it channels about $33 billion in highway user
excise taxes annually to states for highway and related spending.
Estimated outlays from the Highway Account under the Safe, Accountable,
Flexible, Efficient Transportation Equity Act”A Legacy for Users
(SAFETEA-LU) exceeded estimated receipts throughout the authorization
period”fiscal years 2005 through 2009. Furthermore, actual account
receipts were lower than had been estimated and the account balance
dropped more rapidly than anticipated, approaching zero in August,
2008. Congress subsequently approved legislation in September 2008 to
appropriate $8 billion from the General Fund of the Treasury to
replenish the account. Agency officials anticipate the account will
reach a critical stage again before the end of fiscal year 2009, and
estimate that about $15 billion will be needed to ensure account
solvency through the end of fiscal year 2010.
This statement summarizes GAO‘s past work on 1) the collection and
distribution process for the Highway Account of the HTF, 2) options for
improving long-term sustainability of the HTF, and 3) mechanisms to
help manage Highway Account solvency.
What GAO Found:
The collection and distribution of funds through the Highway Account is
a complex process. Collection involves Treasury receiving excise taxes
from business entities, estimating how much should be allocated to the
Highway Account, and adjusting the estimated allocation several months
later after actual tax receipts are certified. Distribution begins with
a multi-year authorization act that provides contract authority and
establishes annual funding levels. DOT apportions the contract
authority to the states and divides the funding level among federal
highway programs and states. DOT then obligates funds for projects and
reimburses states as projects are completed.
Improving long-term sustainability is one of GAO‘s key principles for
restructuring existing transportation programs, and GAO has reported on
options for improving sustainability: (1) improve the efficiency of
current facilities, (2) alter existing sources of revenue, (3) ensure
users are paying fully for benefits, and (4) supplement existing
revenue sources, such as through enhanced private-sector participation.
Each of these options has different merits and challenges, and will
likely involve trade-offs among different policy goals.
Improving existing mechanisms intended to help maintain Highway Account
solvency could help DOT better manage the account balance. For example,
statutory mechanisms designed to make annual adjustments to the Highway
Account have been so modified over time”particularly through changes in
SAFETEA-LU”that they either are no longer relevant or are limited in
effectiveness. Furthermore, monitoring indicators that could signal
sudden changes in revenues could help DOT better anticipate changes in
the account balance and communicate with stakeholders on the account‘s
status. DOT is acting on recommendations GAO made in February, 2009 to
help improve solvency mechanisms and communication with stakeholders.
Figure: Highway Account Balance, Fiscal Years 1998 through 2010:
[Refer to PDF for image: line graph]
Fiscal year: 1998;
End of the year balance: $16.5 billion.
Fiscal year: 1999;
End of the year balance: $19.2 billion.
Fiscal year: 2000;
End of the year balance: $22.6 billion.
Fiscal year: 2001;
End of the year balance: $20.4 billion.
Fiscal year: 2002;
End of the year balance: $16.1 billion.
Fiscal year: 2003;
End of the year balance: $13.0 billion.
Fiscal year: 2004;
End of the year balance: $10.8 billion.
Fiscal year: 2005;
End of the year balance: $10.6 billion.
Fiscal year: 2006;
End of the year balance: $9.0 billion.
Fiscal year: 2007;
End of the year balance: $8.1 billion.
Fiscal year: 2008;
End of the year balance: $10.0 billion.
Fiscal year: 2009;
End of the year balance: -$1.08 billion (estimated).
Fiscal year: 2010;
End of the year balance: -$10.6 billion (estimated).
Source: GAO analysis of FHWA data.
[End of figure]
View [hyperlink, http://www.gao.gov/products/GAO-09-845T] or key
components. For more information, contact Phillip R. Herr, 202/512-
2834, herrp@gao.gov.
[End of section]
Messrs. Chairmen, Ranking Members, and Other Subcommittee Members:
We appreciate the opportunity to participate in this hearing to discuss
challenges facing the Department of Transportation (DOT) and Congress
in sustaining the Highway Trust Fund (HTF). Surface transportation
financing has been on our High Risk list for several years.[Footnote 1]
The problem is simple: revenues from motor fuels taxes and truck-
related taxes to support the HTF--the primary source of funds for
highway and transit--are not keeping pace with authorized spending
levels. This problem was made dramatically apparent last summer when
the Highway Account within the trust fund was nearly depleted. Despite
an $8 billion infusion from the General Fund of the Treasury in
September 2008 to replenish the account, we find ourselves in the same
predicament a year later. The solution to this problem, however, is not
simple and will require difficult policy decisions about both the
sources and the uses of HTF revenues.
My statement today addresses (1) the collection and distribution
process for the Highway Account of the HTF, (2) options for improving
long-term sustainability of the HTF, and (3) mechanisms to help manage
Highway Account solvency. It is based on work that we have completed
over the past several years on key principles for surface
transportation reauthorization and issues related to the HTF. (A list
of related GAO products appears at the end of this statement.)
Background:
Congress established the HTF in 1956 to hold and distribute highway
user excise taxes to fund various surface transportation programs. In
1983, the HTF was divided into two accounts: the Highway Account and
the Mass Transit Account. The Highway Account within the HTF is the
principal mechanism for funding federal highway programs. Administered
by the Federal Highway Administration (FHWA) within DOT, it channels
about $33 billion in highway user excise taxes annually to states for
highway and related spending. Funds from the Highway Account sustain 3
DOT agencies: FHWA, the Federal Motor Carrier Safety Administration,
and the National Highway Traffic Safety Administration. Funds from the
Mass Transit Account support the Federal Transit Administration.
The balance of the Highway Account within the HTF has been declining in
recent years because, as designed in the Safe, Accountable, Flexible,
Efficient Transportation Equity Act - A Legacy for Users (SAFETEA-LU),
outlays from the account have exceeded expected receipts over the
authorization period.[Footnote 2] Specifically, when SAFETEA-LU was
passed in 2005, estimated outlays from Highway Account programs
exceeded estimated receipts by about $10.4 billion. Based on these
estimates, the Highway Account balance would have been drawn down from
$10.8 billion to about $0.4 billion over the authorization period. This
left little room for error. Assuming all outlays were spent, a revenue
shortfall of even 1 percent below what SAFETEA-LU had predicted over
the 5-year period would result in a cash shortfall in the account
balance.
In fact, actual Highway Account receipts were lower than estimated,
particularly for fiscal year 2008. Account receipts were lower in
fiscal year 2008 because of a weakening economy and higher motor fuel
prices that affected key sources of HTF revenue. For example, fewer
truck sales, as well as fewer vehicle-miles traveled and
correspondingly lower motor fuel purchases, resulted in lower revenues.
Consequently, the account balance dropped more precipitously than
anticipated and was nearly depleted in August 2008--1 year before the
end of the SAFETEA-LU authorization period. In response, Congress
approved legislation in September 2008 to provide $8 billion to
replenish the account. However, DOT now estimates that the account
would need an additional infusion of funds--about $15 billion,
including $4 billion to ensure sufficient funds for cash management
purposes--to remain solvent through the end of fiscal year 2010. (See
figure 1.)
Figure 1: Highway Account Balance, Fiscal Years 1998 through 2010:
[Refer to PDF for image: line graph]
Fiscal year: 1998;
End of the year balance: $16.5 billion.
Fiscal year: 1999;
End of the year balance: $19.2 billion.
Fiscal year: 2000;
End of the year balance: $22.6 billion.
Fiscal year: 2001;
End of the year balance: $20.4 billion.
Fiscal year: 2002;
End of the year balance: $16.1 billion.
Fiscal year: 2003;
End of the year balance: $13.0 billion.
Fiscal year: 2004;
End of the year balance: $10.8 billion.
Fiscal year: 2005;
End of the year balance: $10.6 billion.
Fiscal year: 2006;
End of the year balance: $9.0 billion.
Fiscal year: 2007;
End of the year balance: $8.1 billion.
Fiscal year: 2008;
End of the year balance: $10.0 billion.
Fiscal year: 2009;
End of the year balance: -$1.08 billion (estimated).
Fiscal year: 2010;
End of the year balance: -$10.6 billion (estimated).
Source: GAO analysis of FHWA data.
[End of figure]
Collection and Distribution of Funds through the Highway Account:
Receipts for the HTF are derived from two main sources: federal excise
taxes on motor fuels (gasoline, diesel, and special fuels) and truck-
related taxes (truck and trailer sales, truck tires, and heavy-vehicle
use). Receipts from the motor fuels tax constitute the single largest
source of HTF revenue (about 88 percent of total receipts for fiscal
years 2005 through 2008); the gasoline tax--a flat rate of 18.4 cents
per gallon--is the same rate as in 1993. Receipts from truck and
trailer sales (about 8 percent of total receipts for fiscal years 2005
through 2008) are the second largest source of revenue for the fund.
(See figure 2.)
Figure 2: Sources of Revenue for the HTF, Fiscal Years 2005 through
2008:
[Refer to PDF for image: pie-chart]
Highway Trust Fund receipts that come from fuel taxes:
Gasoline: 64.0%;
Diesel and special fuels: 24.1%;
Highway Trust Fund receipts that come from sources other than fuel
taxes:
Truck and trailer sales: 7.8%;
Heavy-vehicle use: 3.0%;
Tire tax: 1.2%.
Source: GAO analysis of FHWA data.
[End of figure]
The Highway Account receives the majority of the tax receipts allocated
to the fund. Figure 3 shows the rates for motor fuels and truck-related
taxes levied for the HTF and how receipts from the taxes are allocated
between the Highway and Mass Transit Accounts within the fund.
Figure 3: Federal Highway User Excise Taxes and the Percentage
Allocations to the Highway Account and the Mass Transit Account of the
HTF:
[Refer to PDF for image: table]
Motor fuel taxes:
Type of excise tax: Gasoline;
Tax rate (cents): 18.4 per gallon;
Distribution of tax: Highway Account, Highway Trust Fund: 83.9%;
Distribution of tax: Mass Transit Account, Highway Trust Fund: 15.5%;
Distribution of tax: Leaking Underground Storage Tank Trust Fund: 0.5%.
Type of excise tax: Diesel;
Tax rate (cents): 24.4 per gallon;
Distribution of tax: Highway Account, Highway Trust Fund: 87.9%;
Distribution of tax: Mass Transit Account, Highway Trust Fund: 11.7%;
Distribution of tax: Leaking Underground Storage Tank Trust Fund: 0.4%.
Type of excise tax: Gasohol;
Tax rate (cents): 18.4 per gallon;
Distribution of tax: Highway Account, Highway Trust Fund: 83.9%;
Distribution of tax: Mass Transit Account, Highway Trust Fund: 15.5%;
Distribution of tax: Leaking Underground Storage Tank Trust Fund: 0.5%.
Type of excise tax: Liquefied petroleum gas;
Tax rate (cents): 18.3 per gallon;
Distribution of tax: Highway Account, Highway Trust Fund: 88.4%;
Distribution of tax: Mass Transit Account, Highway Trust Fund: 11.6%;
Distribution of tax: Leaking Underground Storage Tank Trust Fund: 0.0.
Type of excise tax: Liquefied natural gas;
Tax rate (cents): 24.3 per gallon;
Distribution of tax: Highway Account, Highway Trust Fund: 92.3%;
Distribution of tax: Mass Transit Account, Highway Trust Fund: 7.7%;
Distribution of tax: Leaking Underground Storage Tank Trust Fund: 0.0.
Type of excise tax: M85 (from natural gas);
Tax rate (cents): 9.25 per gallon;
Distribution of tax: Highway Account, Highway Trust Fund: 83.5%;
Distribution of tax: Mass Transit Account, Highway Trust Fund: 15.5%;
Distribution of tax: Leaking Underground Storage Tank Trust Fund: 1.1%.
Type of excise tax: Compressed natural gas;
Tax rate (cents): 144.47 per thousand cubic feet;
Distribution of tax: Highway Account, Highway Trust Fund: 93.3%;
Distribution of tax: Mass Transit Account, Highway Trust Fund: 6.7%;
Distribution of tax: Leaking Underground Storage Tank Trust Fund: 0.0.
Truck-related taxes”all proceeds to Highway Account:
Tires:
9.45 cents for each 10 pounds of the maximum rated load capacity over
3,500 pounds.
Heavy-vehicle use:
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.
Truck and trailer sales:
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 figure]
The collection and distribution of taxes through the Highway Account is
a complex process, as shown in figure 4. The collection process
involves Treasury receiving excise taxes from business entities,
estimating how much should be allocated to the Highway Account, and
adjusting the estimated allocation after the Internal Revenue Service
(IRS) certifies the actual amount that should be allocated.[Footnote 3]
The distribution process begins with a multiyear authorization act,
such as SAFETEA-LU. The act provides specific amounts of annual
contract authority[Footnote 4] over the authorization period, and also
specifies annual obligation limitations that establish "guaranteed"
funding levels. These guaranteed funding levels are based on
assumptions about future receipts to the Highway Account and can be
modified in subsequent annual appropriations acts.[Footnote 5]
Annually, DOT apportions (through formula) and allocates to the states
the contract authority provided in the authorization act.[Footnote 6]
DOT also divides the obligation limitations among the federal highway
programs and the states based on a multistep process provided in the
appropriation act. No cash is actually distributed to the states at
this time; instead, states are notified of the amount of federal funds
available for use in that state. DOT then obligates federal funds for
approved projects. An obligation is a legally binding commitment by the
federal government. Once an obligation is made, the federal government
must reimburse the states when they submit a voucher for completed
work, which, depending on how long a project takes, could be months or
years after the obligation is made.[Footnote 7] As phases of the
projects are completed, states submit vouchers to FHWA to be reimbursed
from the Highway Account. Consequently, DOT cannot directly control
outlays--outlays are determined through limitations on obligations.
Figure 4: Process for Collecting and Distributing Highway Account
Receipts:
[Refer to PDF for image: process illustration]
Collection: Into Highway Account:
Taxes paid to Treasury: Semimonthly, businesses pay excise taxes on
motor fuels, truck-related items, and other taxable items.
Initial allocation to Highway Account: Semimonthly, Treasury allocates
an estimated portion of taxes that were collected to the Highway
Account.
Adjustments to allocation: Quarterly, about 4.5 months after the end of
each quarter, Treasury adjusts the amount allocated based on IRS
certifications of actual receipts.
Distribution: From Highway Account:
Multiyear authorization act: Provides budget authority in the form of
contract authority.
Adjustments and other factors affecting distribution: RABA adjustments.
Annual apportionment or allocation to states: No cash is actually
distributed at this time; states are notified that federal funds are
available for use.
Adjustments and other factors affecting distribution: Byrd test
adjustments if applicable.
Together, theses form: Total federal highway aid available to states
for fiscal year.
Adjustments and other factors affecting distribution: Unobligated
balances from prior years.
Obligation of federal funds: Federal government makes commitment to pay
federal share. Occurs when project is approved and agreement is
executed between FHWA and states.
Adjustments and other factors affecting distribution: Annual
limitations on obligations.
States complete project phases: Contractors complete work and send
bills to state. States send electronic vouchers to FHWA requesting
reimbursement.
Reimbursement to states for project phases: Treasury is required to pay
the state promptly after the state pays out its own funds for project-
related purposes.
Annual appropriations act: Provides funds to pay federal obligations.
Source: GAO.
[End of figure]
Two mechanisms are intended to help keep the Highway Account solvent by
making annual adjustments to ensure that it has adequate funds to
reimburse states (through the Byrd test) and aligning outlays with
actual revenues (through Revenue Aligned Budget Authority (RABA)).
* Byrd Test. In 1956, Congress was concerned that the proceeds of the
taxes to be deposited in the HTF might not be sufficient to reimburse
states when the states submitted their claims. To address this concern,
Congress amended the bill under consideration to require DOT to compare
current and projected resources with existing and projected unpaid
authorizations and to adjust the amounts apportioned to the states if
the two were out of balance.[Footnote 8] This comparison was referred
to as the Byrd Amendment or the Byrd Test. Under the Byrd Test, as
modified by SAFETEA-LU, unpaid commitments in excess of amounts
available in the Highway Account at the end of the fiscal year in which
the apportionment is to be made must be less than the revenues
anticipated to be earned in the following 4-year period. If a shortfall
is projected using this test, then all or part of the apportionments to
the states from the Highway Account would be deferred proportionately
until a recalculation shows that some or part of the deferred
apportionments can be released without triggering the Byrd Test.
[Footnote 9] Prior to SAFETEA-LU, estimated unpaid commitments at the
end of the year were required to be less than revenues anticipated to
be earned in the following 24-month period. In the history of the HTF,
the Byrd Test has twice triggered adjustments to apportionments: 1961
and 2004.[Footnote 10]
* RABA. Established in the Transportation Equity Act for the 21st
Century (TEA-21) in 1998 and modified in SAFETEA-LU, RABA was designed
to align Highway Account program levels with actual revenues and help
ensure that the account is used to fund highway programs instead of
accumulating large balances. RABA provisions require DOT, as part of
the annual budget submission process, to compare current revenue
estimates with revenue estimates in the multiyear authorization act,
most recently SAFETEA-LU. Based on these comparisons, DOT is required
to adjust both contract authority and obligation limitations either
upwards when the account has greater revenues than projected or
downwards when revenues do not meet projected levels.[Footnote 11]
However, as revised under SAFETEA-LU, no downward adjustments will be
made in a fiscal year if, as of October 1 of that fiscal year, the
balance in the Highway Account is more than $6 billion. SAFETEA-LU also
modified how the RABA adjustments were calculated in order to smooth
out the effects of the adjustment over 2 fiscal years, and added the
provision concerning the $6 billion balance.
Principles for Restructuring Transportation Programs, Including
Improving Long-term Sustainability of the HTF:
While infusing more money into the HTF would help keep the Highway
Account solvent, such action would not ensure the long-term
sustainability of the HTF nor address the need for improved performance
of our nation's surface transportation programs. We have previously
reported that current surface transportation programs--authorized in
SAFETEA-LU--do not effectively address the transportation challenges
the nation faces. As a result, we have called for a fundamental
reexamination of the nation's surface transportation programs to follow
several key principles: (1) have well-defined goals with direct links
to an identified federal interest and role, (2) establish more
performance-based links between funding and program outcomes to enhance
grantee accountability, (3) institute tools and approaches that
emphasize the return on the federal investment, and (4) ensure fiscal
sustainability and bring revenues and expenditures into balance.
[Footnote 12] Such a reexamination would include reviewing the results
of existing transportation programs, policies, and activities relative
to the national interests and testing their continued relevance and
relative priority.
To address long-term sustainability, we have reported on several
options that could be used to better align revenues and expenditures.
[Footnote 13] Each of these options has different merits and
challenges, and the selection of any option will likely involve trade-
offs among different policy goals.
* Improve the efficiency of current facilities. Better managing
existing system capacity and improving the performance of existing
facilities could minimize the need for additional expenditures. We have
reported that the efficiency of the nation's surface transportation
programs is declining and that the return on investment could be
improved in a number of ways, including creating incentives to better
use existing infrastructure.
* Alter existing sources of revenue. The Highway Account's current
sources of revenue--motor fuels taxes and truck-related taxes--could be
better aligned with actual outlays. According to the Congressional
Budget Office and others, the existing fuels taxes could be altered in
a variety of ways to address the erosion of purchasing power caused by
inflation, including increasing the per-gallon tax rate and indexing
the rates to inflation.
* Ensure users are paying fully for benefits. Revenues can also be
designed to more closely follow the user-pay concept--that is, require
users to pay directly for the cost of the infrastructure they use. This
concept seeks to ensure that those who use and benefit from the
infrastructure are charged commensurately. Although current per-gallon
fuel taxes reflect usage to a certain extent, these taxes are not
aligned closely with usage and do not convey to drivers the full costs
of road use--such as the costs of congestion and pollution. We have
reported that other user-pay mechanisms--for example, charging
according to vehicle-miles traveled, tolling, implementing new freight
fees for trucks, and introducing congestion pricing (pricing that
reflects the greater cost of traveling at peak times)--could more
equitably recoup costs.
* Supplement existing revenue sources. A number of alternative
financing mechanisms--such as enhanced private-sector participation,
bonds, loans, and credit assistance--can be used to help state and
local governments finance surface transportation. These financing
mechanisms, where appropriate, could help meet growing and costly
transportation demands. However, these potential financing sources are
forms of debt that must ultimately be repaid.
Mechanisms to Help Manage Highway Account Solvency:
Improving existing mechanisms that are intended to help maintain
Highway Account solvency could help DOT better monitor and manage the
account balance, and improve the agency's ability to identify the
potential for a funding shortfall. Although the Byrd Test was intended
to help the federal government ensure there were sufficient funds in
the Highway Account when states submitted their claims, under SAFETEA-
LU, the test has no effect. First, SAFETEA-LU expanded the interval
over which future estimated receipts are included in the calculation
from 2 to 4 years, thereby increasing the amount of receipts that would
be compared with unpaid commitments in the coming year. This
modification made it less likely for the test to signal a decline in
the Highway Account balance. According to a DOT analysis of the impact
on the Highway Account had the test remained at 2 years rather than at
4, the account would have failed the Byrd Test annually from fiscal
year 2005 through fiscal year 2008. In other words, the existing
account balance each year plus the amount of receipts anticipated to be
received over the next 2 years would have been insufficient to offset
unpaid commitments in the next year. According to DOT officials, it
would be nearly impossible for the Highway Account to fail the Byrd
Test using a 4-year window under current levels of spending, but
failing a 2-year Byrd Test provides one of the first tangible
indicators that a shortfall is imminent.
Second, even if the Highway Account had failed the Byrd Test, the
resulting adjustment prescribed by the test--deferring the amount of
contract authority apportioned to states--would not have curtailed
future outlays from the account because the guaranteed funding levels
(obligation limitations) for states in SAFETEA-LU are already lower
than the apportioned contract authority. For example, DOT's analysis of
the impact of a 2-year Byrd test on the Highway Account balance showed
that the account would have failed the test in fiscal year 2005 because
the amount of anticipated receipts fell short of anticipated outlays by
$1.2 billion, indicating that $1.2 billion in apportioned contract
authority to states should be deferred. However, because the amount of
contract authority as of fiscal year 2005 exceeded the guaranteed
funding level by more than $1.2 billion, adjusting contract authority
would have not affected the amount that DOT was able to obligate and
states eventually draw from the account.
In contrast, RABA is designed to affect obligation limitations and, if
implemented as originally intended, could help align Highway Account
spending with actual revenues. For example, in 2003, the RABA
calculation called for a negative adjustment in obligation limitations
of about $4.4 billion--from about $27 billion down to about $23
billion--but Congress waived the negative RABA adjustment for that year
as part of a supplemental appropriations act.[Footnote 14] Congress
chose instead to increase the obligation limit to $31.8 billion. We
asked DOT to run a simulation to estimate the Highway Account balance
from fiscal year 2003 through fiscal year 2008, assuming the calculated
downward RABA adjustment in 2003 had not been waived. According to the
simulation, the account balance at the end of fiscal year 2008 would
have been about $6 billion if no other changes had been made.[Footnote
15] Under this scenario, the account balance would have been sufficient
to reimburse states without the $8 billion infusion from the General
Fund of the Treasury.
DOT officials told us that RABA could be an effective mechanism if
obligation limitations were better aligned with outlays and receipts,
but they said that the provision enacted in SAFETEA-LU requiring no
negative adjustments in a fiscal year if the Highway Account balance is
greater than $6 billion as of October 1 of that fiscal year should be
examined because that particular amount may not provide a sufficient
cushion to offset a possible shortfall. For example, a negative RABA
adjustment of about $1 billion for fiscal year 2009--after the $8
billion was appropriated from the General Fund of the Treasury--was not
implemented because the Highway Account balance was greater than $6
billion. According to DOT officials, the RABA adjustment could have
helped delay or reduce the magnitude of a shortfall in fiscal year
2009.
Effective mechanisms to annually evaluate the solvency of the Highway
Account and make appropriate adjustments are important to maintaining
account solvency because DOT has no control over revenues and can
manage outlays only indirectly through annual obligation limitations,
which are determined months or years before states are reimbursed from
the account. Without such mechanisms, the account balance runs the risk
of dropping too low to withstand a sudden drop in revenues. DOT
officials agree that both existing solvency mechanisms have their roles
in helping to maintain Highway Account solvency, although RABA has the
greater potential to affect spending. They also noted that solvency
mechanisms--even with improvements--would be effective only if the
authorization act sets account outlays in proportion to estimated
program receipts, and that neither mechanism is designed to deal with
near-term shortfalls in the Highway Account balance. For example, RABA
adjustments to obligation limitations have the largest impact the year
after the adjustment is made because a significant portion of the
Highway Program outlays are in the year following obligation.
In February 2009, we recommended that DOT identify changes to existing
solvency mechanisms designed to make annual adjustments to the Highway
Account and communicate to Congress the potential benefits and
limitations of these changes. In response, DOT officials told us they
plan to work with Congress to identify improvements to existing
solvency mechanisms.
In addition to modifying these existing mechanisms that are applied
annually, monitoring indicators throughout the year that could signal
sudden changes in Highway Account revenues could help DOT better manage
the account balance and anticipate changes. Monitoring the account
balance is particularly important when the account balance drops low
enough for a sudden decline in revenues or increase in outlays to put
the account at risk of reaching a zero balance. Indicators that DOT
could monitor throughout the year include data from Treasury's monthly
statements and from FHWA on vehicle-miles traveled. Monitoring
additional indicators could also enhance DOT's communication with
stakeholders on the status of the Highway Account. Specifically,
establishing trigger points for key indicators could prompt DOT to
report to stakeholders on potential problems. For example, one
indicator could be the account balance, and the trigger could be when
the balance drops below a certain level.
In February 2009, we recommended that DOT monitor additional indicators
that can impact the account balance throughout the year to better
anticipate sudden changes in the balance, and improve communication
with stakeholders--Congress, state agencies, and others--on the status
of the account balance and action that may be needed to maintain
account solvency. In response, DOT now tracks deposits and cash
withdrawals on a weekly basis to monitor the account balance, and DOT
has determined that at least a $4 billion balance is needed in the
Highway Account to manage cash flows and help avoid shortfalls. DOT
officials have also proactively communicated with Congress about the
anticipated Highway Account shortfall for fiscal year 2009.
Chairmen and Ranking Members, this concludes my prepared statement. I
would be pleased to respond to any questions that you or other Members
of the Subcommittees might have.
GAO Contact and Staff Acknowledgments:
For further information on this statement, please contact Phillip R.
Herr at (202) 512-2834 or herrp@gao.gov. Contact points for our
Congressional Relations and Public Affairs offices may be found on the
last page of this statement. Individuals making key contributions to
this testimony were Sara Vermillion, Assistant Director; Matthew Cook,
Patrick Dudley, Elizabeth Eisenstadt, Carol Henn, Hannah Laufe, and
Maureen Luna-Long.
[End of section]
Related GAO Products:
Transportation Programs: Challenges Facing the Department of
Transportation and Congress. [hyperlink,
http://www.gao.gov/products/GAO-09-435T]. Washington, D.C.: March 10,
2009.
Highway Trust Fund: Improved Solvency Mechanisms and Communication
Needed to Help Avoid Shortfalls in the Highway Account. [hyperlink,
http://www.gao.gov/products/GAO-09-316]. Washington, D.C.: February 6,
2009.
High-Risk Series: An Update. [hyperlink,
http://www.gao.gov/products/GAO-09-271]. Washington, D.C.: January
2009.
Surface Transportation Programs: Proposals Highlight Key Issues and
Challenges in Restructuring the Programs. [hyperlink,
http://www.gao.gov/products/GAO-08-843R]. Washington, D.C.: July 29,
2008.
Physical Infrastructure: Challenges and Investment Options for the
Nation's Infrastructure. [hyperlink,
http://www.gao.gov/products/GAO-08-763T]. Washington, D.C.: May 8,
2008.
Surface Transportation: Restructured Federal Approach Needed for More
Focused, Performance-Based, and Sustainable Programs. [hyperlink,
http://www.gao.gov/products/GAO-08-400]. Washington, D.C.: March 6,
2008.
Highlights of a Forum: Transforming Transportation Policy for the 21st
Century. [hyperlink, http://www.gao.gov/products/GAO-07-1210SP].
Washington, D.C.: September 19, 2007.
Surface Transportation: Strategies Are Available for Making Existing
Road Infrastructure Perform Better. [hyperlink,
http://www.gao.gov/products/GAO-07-920]. Washington, D.C.: July 26,
2007.
Performance and Accountability: Transportation Challenges Facing
Congress and the Department of Transportation. [hyperlink,
http://www.gao.gov/products/GAO-07-545T]. Washington, D.C.: March 6,
2007.
Highway Trust Fund: Overview of Highway Trust Fund Estimates.
[hyperlink, http://www.gao.gov/products/GAO-06-572T]. Washington, D.C.:
April 4, 2006.
[End of section]
Footnotes:
[1] GAO, High-Risk Series: An Update. [hyperlink,
http://www.gao.gov/products/GAO-09-271] (Washington, D.C.: January
2009).
[2] Pub. L. No. 109-59, 119 Stat. 1144 (2005).
[3] When businesses pay excise taxes, they do not specify which excise
tax produced the revenue; that information is provided at the end of
each quarter when the businesses file tax returns with the IRS.
[4] Budget authority is the authority provided by federal law to enter
into financial obligations that will result in immediate or future
outlays involving federal government funds. Contract authority is a
form of budget authority that permits obligations to be incurred in
advance of appropriations. Contract authority is unfunded, and a
subsequent appropriation is needed to liquidate, or pay, the
obligations.
[5] The Transportation Equity Act for the 21st Century (TEA-21), Pub.
L. No. 105-178, 112 Stat. 107 (1998), and SAFETEA-LU, amended the Rules
of the House of Representatives to specify that it is out of order to
consider a bill, joint resolution, amendment, or conference report that
would result in funding at a lower level than the amounts set in the
authorization acts, as adjusted.
[6] In most cases, allocated funds are distributed among the states
according to statutory criteria. In some cases, Congress directs that
allocated funds be used for specific projects. Congress may do this
either in the legislative language or in committee reports accompanying
the legislation. For example, Congress directed SAFETEA-LU funding for
High Priority Projects.
[7] DOT cannot make cash reimbursements to the states until liquidating
cash is appropriated from the Highway Account. If there are no receipts
in the Highway Account, DOT would incur an expenditure in excess of an
appropriation and thus violate the Antideficiency Act. This act
prohibits an officer or employee of the federal government from
incurring an obligation, or making an expenditure, in advance or in
excess of an appropriation. 31 U.S.C. § 1341(a)(1).
[8] DOT typically performs this test four times per year, but the
results of the test are most significant when apportionments are about
to be made, usually at the beginning of the fiscal year.
[9] If the period of availability for obligation of the deferred
apportionments lapses (generally, the period of availability is 4
years) before the apportionments can be released, then the lapsed
amounts are permanently lost.
[10] As a result of triggering the Byrd Test, Interstate System
construction apportionments for fiscal year 1961 were reduced; for
fiscal year 2004, all Highway Account apportionments were reduced.
[11] The adjustment of annual authorizations is called RABA, but this
term is often used to refer to the entire adjustment process.
[12] GAO, Surface Transportation: Restructured Federal Approach Needed
for More Focused, Performance-Based, and Sustainable Programs,
[hyperlink, http://www.gao.gov/products/GAO-08-400] (Washington, D.C.:
Mar. 6, 2008).
[13] [hyperlink, http://www.gao.gov/products/GAO-08-400].
[14] See the 2002 Supplemental Appropriations Act for Further Recovery
From and Response to Terrorist Attacks on the United States, Pub. L.
No. 107-206, § 1402, 116 Stat. 820, 898 (2002).
[15] The $6 billion estimate includes a $2 billion deposit to the
Highway Account from the Treasury on October 8, 2008, but not the $8
billion appropriation from the Treasury's General Fund on September 15,
2008.
[End of section]
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