[House Hearing, 109 Congress]
[From the U.S. Government Publishing Office]


 
          RELIABILITY OF HIGHWAY TRUST FUND REVENUE ESTIMATES

=======================================================================

                                (109-64)

                                HEARING

                               BEFORE THE

                            SUBCOMMITTEE ON
                    HIGHWAYS, TRANSIT AND PIPELINES

                                 OF THE

                              COMMITTEE ON
                   TRANSPORTATION AND INFRASTRUCTURE
                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED NINTH CONGRESS

                             SECOND SESSION

                               __________

                             APRIL 4, 2006

                               __________

                       Printed for the use of the
             Committee on Transportation and Infrastructure

                                   ____

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             COMMITTEE ON TRANSPORTATION AND INFRASTRUCTURE

                      DON YOUNG, Alaska, Chairman

THOMAS E. PETRI, Wisconsin, Vice-    JAMES L. OBERSTAR, Minnesota
Chair                                NICK J. RAHALL, II, West Virginia
SHERWOOD L. BOEHLERT, New York       PETER A. DeFAZIO, Oregon
HOWARD COBLE, North Carolina         JERRY F. COSTELLO, Illinois
JOHN J. DUNCAN, Jr., Tennessee       ELEANOR HOLMES NORTON, District of 
WAYNE T. GILCHREST, Maryland         Columbia
JOHN L. MICA, Florida                JERROLD NADLER, New York
PETER HOEKSTRA, Michigan             CORRINE BROWN, Florida
VERNON J. EHLERS, Michigan           BOB FILNER, California
SPENCER BACHUS, Alabama              EDDIE BERNICE JOHNSON, Texas
STEVEN C. LaTOURETTE, Ohio           GENE TAYLOR, Mississippi
SUE W. KELLY, New York               JUANITA MILLENDER-McDONALD, 
RICHARD H. BAKER, Louisiana          California
ROBERT W. NEY, Ohio                  ELIJAH E. CUMMINGS, Maryland
FRANK A. LoBIONDO, New Jersey        EARL BLUMENAUER, Oregon
JERRY MORAN, Kansas                  ELLEN O. TAUSCHER, California
GARY G. MILLER, California           BILL PASCRELL, Jr., New Jersey
ROBIN HAYES, North Carolina          LEONARD L. BOSWELL, Iowa
ROB SIMMONS, Connecticut             TIM HOLDEN, Pennsylvania
HENRY E. BROWN, Jr., South Carolina  BRIAN BAIRD, Washington
TIMOTHY V. JOHNSON, Illinois         SHELLEY BERKLEY, Nevada
TODD RUSSELL PLATTS, Pennsylvania    JIM MATHESON, Utah
SAM GRAVES, Missouri                 MICHAEL M. HONDA, California
MARK R. KENNEDY, Minnesota           RICK LARSEN, Washington
BILL SHUSTER, Pennsylvania           MICHAEL E. CAPUANO, Massachusetts
JOHN BOOZMAN, Arkansas               ANTHONY D. WEINER, New York
JIM GERLACH, Pennsylvania            JULIA CARSON, Indiana
MARIO DIAZ-BALART, Florida           TIMOTHY H. BISHOP, New York
JON C. PORTER, Nevada                MICHAEL H. MICHAUD, Maine
TOM OSBORNE, Nebraska                LINCOLN DAVIS, Tennessee
KENNY MARCHANT, Texas                BEN CHANDLER, Kentucky
MICHAEL E. SODREL, Indiana           BRIAN HIGGINS, New York
CHARLES W. DENT, Pennsylvania        RUSS CARNAHAN, Missouri
TED POE, Texas                       ALLYSON Y. SCHWARTZ, Pennsylvania
DAVID G. REICHERT, Washington        JOHN T. SALAZAR, Colorado
CONNIE MACK, Florida                 JOHN BARROW, Georgia
JOHN R. `RANDY' KUHL, Jr., New York
LUIS G. FORTUNO, Puerto Rico
LYNN A. WESTMORELAND, Georgia
CHARLES W. BOUSTANY, Jr., Louisiana
JEAN SCHMIDT, Ohio

                                  (ii)

?

            SUBCOMMITTEE ON HIGHWAYS, TRANSIT AND PIPELINES

                  THOMAS E. PETRI, Wisconsin, Chairman

SHERWOOD L. BOEHLERT, New York       PETER A. DeFAZIO, Oregon
HOWARD COBLE, North Carolina         NICK J. RAHALL II, West Virginia
JOHN J. DUNCAN, Jr., Tennessee       JERROLD NADLER, New York
JOHN L. MICA, Florida                GENE TAYLOR, Mississippi
PETER HOEKSTRA, Michigan             JUANITA MILLENDER-McDONALD, 
SPENCER BACHUS, Alabama              California
STEVEN C. LaTOURETTE, Ohio           ELIJAH E. CUMMINGS, Maryland
SUE W. KELLY, New York               EARL BLUMENAUER, Oregon
RICHARD H. BAKER, Louisiana          ELLEN O. TAUSCHER, California
ROBERT W. NEY, Ohio                  BILL PASCRELL, JR., New Jersey
FRANK A. LoBIONDO, New Jersey        TIM HOLDEN, Pennsylvania
JERRY MORAN, Kansas                  BRIAN BAIRD, Washington
GARY G. MILLER, California, Vice-    SHELLEY BERKLEY, Nevada
Chair                                JIM MATHESON, Utah
ROBIN HAYES, North Carolina          MICHAEL M. HONDA, California
ROB SIMMONS, Connecticut             RICK LARSEN, Washington
HENRY E. BROWN, Jr., South Carolina  MICHAEL E. CAPUANO, Massachusetts
TIMOTHY V. JOHNSON, Illinois         ANTHONY D. WEINER, New York
TODD RUSSELL PLATTS, Pennsylvania    JULIA CARSON, Indiana
SAM GRAVES, Missouri                 TIMOTHY H. BISHOP, New York
MARK R. KENNEDY, Minnesota           MICHAEL H. MICHAUD, Maine
BILL SHUSTER, Pennsylvania           LINCOLN DAVIS, Tennessee
JOHN BOOZMAN, Arkansas               BEN CHANDLER, Kentucky
MARIO DIAZ-BALART, Florida           BRIAN HIGGINS, New York
JON C. PORTER, Nevada                RUSS CARNAHAN, Missouri
TOM OSBORNE, Nebraska                ALLYSON Y. SCHWARTZ, Pennsylvania
KENNY MARCHANT, Texas                JAMES L. OBERSTAR, Minnesota
MICHAEL E. SODREL, Indiana             (Ex Officio)
DAVID G. REICHERT, Washington
JEAN SCHMIDT, Ohio
DON YOUNG, Alaska
  (Ex Officio)

                                 (iii)

                                CONTENTS

                               TESTIMONY

                                                                   Page
 Carroll, Robert, Deputy Assistant Secretary for Tax Analysis, 
  U.S. Department of Treasury....................................     3
 Marron, Donald, Acting Director, Congressional Budget Office....     3
Siggerud, Katherine, Director, Physical Infrastructure Issues, 
  U.S. Government Accountability Office..........................     3

          PREPARED STATEMENT SUBMITTED BY A MEMBER OF CONGRESS

Carnahan, Hon. Russ, of Missouri.................................    23

                PREPARED STATEMENTS SUBMITTED WITNESSES

 Carroll, Robert.................................................    24
 Marron, Donald..................................................    35
Siggerud, Katherine..............................................    52


           RELIABILITY OF HIGHWAY TRUST FUND REVENUE ESTIMATES

                              ----------                              


                             April 4, 2006,

        Committee on Transportation and Infrastructure, 
            Subcommittee on Highways, Transit and 
            Pipelines, Washington, D.C.
    The committee met, pursuant to call, at 2:00 p.m., in Room 
2167, Rayburn House Office Building, Hon. Thomas E. Petri 
[Chairman of the committee] presiding.
    Mr. Petri. The Subcommittee will come to order.
    I would like to welcome our members and our witnesses to 
today's hearing on the Reliability of Highway Trust Fund 
Revenue Estimates. This hearing is a follow-up to a hearing 
that this Subcommittee held in February on the status of the 
Highway Trust Fund and the President's fiscal year 2007 budget. 
During that hearing, the Department of Transportation's 
Assistant Secretary for Budget and Policy, Phyllis Scheinberg, 
testified on how the President's budget request would affect 
the implementation of SAFETEA-LU.
    Unfortunately, scheduling conflicts prevented the Treasury 
witness from testifying at that hearing. As a result, we 
rescheduled today's hearing and have invited Treasury and CBO 
to discuss their Highway Trust Fund revenue estimates. We have 
also invited GAO to provide an analysis of the two sets of 
revenue estimates.
    The President's 2007 budget, using Treasury's revenue 
estimates, shows a negative balance of $2.3 billion in the 
highway account of the Highway Trust Fund at the end of 2009. 
The Congressional Budget Office's current revenue estimates for 
the highway account do not show a negative balance until 2010.
    When Congress passed SAFETEA-LU last summer, it was done 
with the expectation that the guaranteed funding levels 
prescribed in the bill would be fulfilled for budget year 2005 
through 2009. One of the purposes of this hearing is to 
determine whether or not the differences between Treasury and 
CBO's estimates are unusual. The hearing will also explore the 
accuracy of revenue estimates four and five years into the 
future. The reliability of revenue estimates is an important 
issue for this Committee, as projected negative balances in the 
Highway Trust Fund may impact guaranteed funding levels 
authorized in SAFETEA-LU.
    Robert Carroll, the Deputy Assistant Secretary for Treasury 
Analysis, with the Treasury Department, is with us today. Mr. 
Carroll will describe the methodology that underlies Treasury's 
revenue forecasts as well as recent trends in the highway-
related excise taxes.
    Donald Marron, the Acting Director of the Congressional 
Budget Office, will provide a description of the economic model 
that CBO uses to project revenue and deposit it into the 
Highway Trust Fund. Mr. Marron will also address why CBO is 
projecting higher levels of revenue for the Highway Trust Fund 
and the Treasury Department.
    Katherine Siggerud, the Director of Physical Infrastructure 
Issues for the U.S. Government Accountability Office, will 
provide a basic overview of the Highway Trust Fund. She will 
also compare and contrast the models that Treasury and CBO use 
for estimating highway trust fund revenues and compare Treasury 
and CBO's estimated receipts to actual receipts for recent 
years.
    We look forward to your testimony and I would now yield to 
Mr. Blumenauer for any opening statement he may have.
    Mr. Blumenauer. Thank you, Mr. Chairman. I look forward to 
hearing from our witnesses. I think it is important for us to 
get a handle on the range of resources. It seems clear to me 
that the guaranteed funding levels will in fact be impacted.
    But more important, it sorts of sets the stage, I think, 
for all of us to deal with reality, whether it is 2008, 2009, 
2010. We have a real problem in terms of financing 
infrastructure in this Country. The more that we can help 
people understand the nature of the problem, how we're in a 
downward spiral, how we're going to have to deal not just, in 
my judgment, indexing for inflation, but to find alternative 
sources of revenue that deal with the level of infrastructure 
investment that we want to make, not just tied to fuel taxes, 
is important.
    I think this conversation today is an important start on 
that. I look forward to hearing from our witnesses.
    Mr. Petri. Thank you. Any other opening statements. Mr. 
Mica?
    Mr. Mica. Mr. Chairman, I just want to say thank you for 
conducting this important hearing. It is critical that we have 
the reliable Highway Trust Fund revenue estimates. Some of the 
information that we are getting today shows that we not only 
have a crisis in funding transportation, and particularly our 
highway and transit systems, but we may be bankrupt by the year 
2009 in our Highway Trust Fund.
    We have conflicting estimates as to how much money we will 
actually have during this important period. It is absolutely 
critical that we find what the accurate amounts were and be 
able to have a reliable fund and funding sources for building 
our Nation's infrastructure.
    So this is a very important hearing, not to mention the 
challenge that we faced in finding a means of funding over the 
short and long term our highway transit, transportation and 
infrastructure projects, which we also have right now serious 
problem in the current structure and level of funding and means 
of raising funds. I thank you for conducting this hearing. I 
look forward to the testimony and yield back.
    Mr. Petri. Thank you.
    Mr. Boozman, any comments?
    Mr. Boozman. I appreciate you, Mr. Chairman, for having the 
hearing. I would just echo the other two opening statements 
that this is certainly very timely and that we certainly need 
to understand these projections.
    Also, I think one of the real challenges that the Committee 
is going to have, and I know we are going to show leadership in 
this area, is trying to figure out how we come up with 
alternative means of funding in the future.
    Thank you.
    Mr. Petri. Thank you.
    We will begin now with our witnesses and we will start with 
Mr. Carroll, the Deputy Assistant Secretary for Tax Analysis, 
U.S. Department of Treasury.

TESTIMONY OF ROBERT CARROLL, DEPUTY ASSISTANT SECRETARY FOR TAX 
ANALYSIS, UNITED STATES DEPARTMENT OF TREASURY; DONALD MARRON, 
    ACTING DIRECTOR, CONGRESSIONAL BUDGET OFFICE; KATHERINE 
  SIGGERUD, DIRECTOR, PHYSICAL INFRASTRUCTURE ISSUES, UNITED 
            STATES GOVERNMENT ACCOUNTABILITY OFFICE

    Mr. Carroll. Thank you very much, Mr. Chairman and 
distinguished members of the Subcommittee. I appreciate the 
opportunity to discuss with you today the Administration's 
forecast of highway related excise taxes. My testimony today 
focuses on recent trends in these taxes, describes the 
methodology that underlies our forecast and relates our 
forecasts over the past several years to actual receipts. This 
testimony also compares our forecast for the fiscal year 2007 
budget to the forecast prepared by the Congressional Budget 
Office.
    I would like to spend a few moments summarizing the major 
points. First, the Administration's forecast of highway related 
excise taxes for the fiscal year 2007 budget is somewhat higher 
than the forecast for the fiscal year 2006 mid-session review 
even after excluding the effects of the SAFETEA-LU legislation 
enacted last summer. Indeed, excluding the effects of SAFETEA-
LU, our forecast is about $2.3 billion higher than previously 
forecast for the period of fiscal year 2005 through fiscal year 
2009, with more than one half of this increase falling into 
2005.
    Treasury estimates indicate that the Highway Bill enacted 
last summer will increase the level of receipts dedicated to 
the Highway Trust Fund by nearly $1.1 billion through fiscal 
year 2009, an amount similar to the Joint Committee on 
Taxation's estimates for this legislation.
    Second, the changes between the fiscal year 2006 mid-
session review and the fiscal year 2007 budget are within what 
might be called a typical range when viewed in the context of 
historical differences between forecast highway related excise 
tax receipts and actual receipts. Differences arise from a 
number of reasons, including changes in economic conditions, 
energy prices and the underlying relationships between taxes 
collected and these macroeconomic variables.
    Third, the Administration's forecast and CBO's forecast are 
not dissimilar when viewed from the perspective of historical 
differences between forecast highway related excise tax 
receipts and actual receipts. To be sure, the Office of Tax 
Analysis and the Congressional Budget Office rely on different 
economic assumptions, use their own models and make their own 
judgments. OTA relies on a quarterly model while CBO's model is 
based on annual data. OTA uses reconciled data on excise tax 
liability in their models, while CBO relies more heavily on 
data from the IRS certifications. OTA's models tend to be more 
sensitive to changes in oil prices, while CBO's models tend to 
be more dependent on changes in economic growth.
    Nevertheless, the assumptions in models used remain broadly 
similar and produce similar forecasts. Again, when viewed 
against the backdrop of the differences between OTA's forecasts 
and actual receipts spanning more than a decade, the current 
difference between the Administration's and CBO's forecasts are 
not statistically important.
    Moreover, both the Administration and CBO project that the 
highway account will be exhausted at roughly the same time, 
towards the end of 2009. While these are our best estimates, 
the data of exhaustion is somewhat uncertain and depends not 
only on the receipts that flow into the highway account, but 
also depend crucially on disbursements from the highway 
account. I understand this is an issue that the Department of 
Transportation addressed in their testimony to the Subcommittee 
in February.
    Fourth, I want to emphasize that the Congressional Budget 
Office and the Office of Tax Analysis work very closely 
together on receipts forecasts generally, across all tax 
sources, including the various excise taxes. There is an open 
and ready dialogue and a variety of modeling issues for data 
and other technical issues, and a broad array of information is 
routinely shared.
    Looking ahead, both organizations will learn a great deal 
about how consumption patterns respond to energy prices. Price 
sensitivity is an important aspect of estimating the taxes 
associated with all revenue sources. What future energy prices 
imply for future energy consumption, and excise tax receipts 
are something that both the Administration and I am sure the 
CBO will be paying very close attention to. Over time, we can 
expect individuals and businesses to use energy more 
efficiently.
    There were also a number of compliance provisions in the 
SAFETEA-LU legislation. As of yet, we have not seen the full 
effect of these provisions, but we look forward to learning how 
effective these provisions will be toward improving compliance 
and will reevaluate their effects once the relevant data 
becomes available.
    Thank you.
    Mr. Petri. Thank you.
    Mr. Marron.
    Mr. Marron. Thank you, Mr. Chairman, members of the 
Subcommittee. It is a pleasure to be here this afternoon to 
discuss CBO's revenue projections for the Highway Trust Fund 
and in particular, its highway account.
    My testimony will cover three main points. The first is 
that CBO projects that revenues to the highway account will 
fall short of outlays over the next few years, four or five 
years. As a result, balances in the account will decline and 
may be exhausted either in 2009 or 2010, depending on what 
assumptions you make about spending.
    Second, the revenue projections that go into those 
estimates depend on a variety of economic and technical factors 
about which there is significant uncertainty. Given that 
uncertainty, exhaustion of the highway account balances may 
come either sooner or later than our baseline projections would 
indicate.
    Third, the current differences between the Administration's 
revenue projections and CBO's revenue projections are within 
kind of a typical range of error that you would see within 
CBO's own projections. So from our point of view, the revenue 
projections aren't that far apart, given the levels of 
uncertainty that exist in projecting these kinds of revenues.
    Let me elaborate on each of those three points quickly 
here. In its current baseline, CBO projects that revenues to 
the highway account will total about $146 billion over the next 
four years, 2006 through 2009. Future spending from the highway 
account will of course depend on decisions made by the Congress 
and the Administration regarding both whether to spend at the 
levels that are specified in the obligation limitations and 
whether or not to implement many of the scheduled RABA 
adjustments. Assuming, as the Administration does, that a RABA 
adjustment would be made for 2007, CBO projects that the 
balances in the highway account would be exhausted some time in 
2010.
    In our written testimony, we also do a scenario in which we 
assume the RABA adjustments would also happen in 2008 and 2009. 
In that case, the level of outlays would be higher, and the 
highway account would be exhausted in 2009.
    I will describe our revenue projections in just a little 
more detail. As you know, the Highway Trust Fund receives 
revenues from a variety of taxes on motor fuels, new truck and 
tire purchases, and truck usage. To estimate future revenues 
from gasoline and related fuels, CBO projects future purchases 
of those fuels and then multiplies the number of gallons by the 
tax rate.
    CBO models the growth in fuel purchases over time as 
depending on the pace of economic growth, changes in fuel 
prices and changes in fuel efficiency. Economic growth leads to 
higher fuel purchases, not surprisingly, and tax revenues, 
whereas higher fuel prices and higher fuel economy lead to both 
lower fuel purchases and lower revenues.
    As we look out over the next few years, what we see is a 
pattern in which gasoline tax revenues, the growth of them, 
will slow down as time passes. The primary reason for that is 
that in CBO's economic forecast, we project that the growth 
rate of the economy is going to slow. We are still a little bit 
recovering from the cyclical downturn we had at the beginning 
of this decade, and then in addition, as we get into future 
years, labor force growth is going to slow, and therefore the 
growth rate of the economy will slow, and therefore revenues 
from gasoline taxes will slow.
    To estimate revenue from diesel fuel taxes, CBO similarly 
projects purchases of diesel fuel and multiplies by the diesel 
tax rate. To estimate diesel purchases, CBO relies on their 
historical relationships to real economic activity. Over a long 
period of time, the number of gallons of diesel fuel consumed 
has grown at a slightly faster rate than the economy as a 
whole. CBO expects that relationship to continue into the next 
10 years. So we use that as the basis for projecting diesel 
fuel revenues. Those again grow at a declining rate as we go 
out into future years, again because the growth rate of the 
economy is expected to slow.
    Finally, CBO also projects truck related sources of trust 
fund revenue based on their relationship to overall economic 
activity. Those revenues are expected to grow slightly more 
slowly than real GDP on average, as they have done in recent 
years, and again, their growth rate will slow as we go forward.
    As this description of the projection process suggests, 
there are several important sources of uncertainty in the 
revenue projects that CBO puts out. First, there are 
uncertainties related to the key economic variables, CBO's 
economic forecast of GDP of oil prices. To the extent those 
differ from what we expect, revenues from the Trust Fund will 
deviate.
    Second, there are uncertainties about the key technical 
assumptions that relate economic activity to revenues. How much 
do people respond to changes in fuel prices, how fast do fuel 
purchases changes as the economy grows. There is uncertainty 
about those variables and therefore, again, there is 
uncertainty about our revenue projections.
    We have analyzed our revenue projections going back to 
about 1991. We found that as you look out several years in the 
future, it would be typical to have an error, a miss, that is 
somewhere in the neighborhood of about 4 to 6 percent. So if 
you are thinking about a program in which annual revenues are 
in the $40 billion range, an annual miss of somewhere between 
$2 billion and $3 billion would not be surprising.
    As Bob has described, the Administration has somewhat lower 
projections than we do. We have worked together to try to 
analyze why we differ. We identified the same reasons that Bob 
identified, somewhat different technical assumptions about how 
purchases respond to changes in the size of the economy and 
fuel prices. If you look at the difference between our two 
forecasts, we are about 3 percent apart. So again, from our 
point of view, that is a typical range of error that you would 
see in these kinds of projections, and therefore, shouldn't 
view the projections as being that far apart.
    With that, thank you.
    Mr. Petri. Thank you.
    Ms. Siggerud?
    Ms. Siggerud. Thank you, Mr. Chairman, members of the 
Subcommittee. I do have a few slides that we will be showing 
her as we start.
    Let me say that I appreciate the invitation to testify on 
important Highway Trust Fund issues. Six weeks ago, your DOT 
budget hearing focused on the future declining balance that has 
been predicted for the Highway Trust Fund. You asked us then to 
undertake work about how these balances are estimated.
    My statement today will cover three points: first, the role 
of estimates in calculating the receipts to and disbursements 
from the Trust Fund; second, how the most recent Highway Trust 
Fund estimates made by the Department of Treasury and the CBO 
compare; and third, how Treasury's and CBO's estimates compare 
with actual tax receipts in recent years.
    First, a little background. Receipts from the Federal 
gasoline tax constitute the largest source of revenue to the 
Trust Fund, but other fuels are also taxed. These receipts are 
allocated as shown between the highway and the mass transit 
accounts. Taxes related to large trucks, such as on truck and 
tire sales, are also an important source of revenue. These are 
deposited only in the highway account.
    Estimates are used for several purposes, as receipts are 
obtained and Federal aid is distributed to the States. This 
chart illustrates the process. Excise taxes are paid by 
businesses semi-monthly. For example, oil companies typically 
pay a per gallon tax when their fuel is loaded into tanker 
trucks or rail cars for delivery. Because these and other 
excise taxes are paid to the Treasury without identifying the 
type of tax, Treasury must estimate based on past tax receipts 
the amount to deposit into the Highway Trust Fund.
    At the end of each quarter, businesses file tax forms that 
identify the amount and type of taxes they paid, and IRS 
certifies this information. On this basis, Treasury adjusts the 
initial transfer to the Trust Fund about six months after the 
end of each quarter. The annual RABA calculation is also 
influenced by estimates of tax receipts. While OMB and DOT make 
the RABA calculation, CBO's and Treasury's estimates are part 
of the formula.
    Finally, because consumers generally do not pay these taxes 
directly, DOT must annually estimate the amount to be 
distributed to each State based on such data as fuel 
consumption. Of course, one of the most important uses of the 
estimates is to predict future tax revenues, so Congress can 
make decisions about appropriate levels of authorization and 
appropriation.
    Turning now to the Trust Fund balance, both CBO's estimates 
from January of this year and Treasury's estimates as reflected 
in the President's budget show similar trends over the next fie 
years. As you can see, both show a negative balance occurring 
during that time. To derive these balances, CBO predicts both 
receipts and outlays, while the President's budget combines 
estimates of tax receipts from Treasury with outlay estimates 
from DOT.
    The main difference between these forecasts of the Trust 
Fund is their estimates of tax receipts. As these graphs show, 
CBO estimated somewhat higher levels of receipts from the six 
year period than Treasury did. Projections of outlays are 
generally similar, although CBO has just estimated new outlay 
levels that are higher.
    We view these differences as minor, but there are several 
reasons for them. First, CBO and Treasury both use assumptions 
about the economy, fuel prices and other factors, but these 
assumptions can differ. Second, there differences in the way 
these models are constructed. As these models are used for 
estimates further into the future, even small differences 
between them tend to move the estimates farther apart.
    The reason that both CBO and the President's budget project 
a negative balance in the highway account is straightforward. 
Estimated outlays are greater than estimated receipts for each 
year. CBO and Treasury predict that the annual tax receipts 
will grow on average between 2 and 3 percent annually over this 
period. At the same time, outlays are expected to grow an 
average over 4 percent annually.
    We looked at the historical accuracy of these estimates 
over a seven year period and found their accuracy is similar. 
Either an agency is consistently closer, Treasury's estimates 
have been closer to actual receipts in some instances, and 
CBO's in others. We compared Treasury's and CBO's estimates 
with actual Highway Trust Fund receipts, and forecasting 
estimates of what will occur within a year or two are generally 
more accurate than estimates of what will occur several years 
later. Because the longer the period involved, the greater the 
opportunity for missions to change in unexpected ways.
    Therefore, we focused our analysis on Treasury's and CBO's 
one and two year estimates, for example, what the Agency has 
projected in 2002 as their expected Highway Trust Fund receipts 
in 2003 and 2004. On average, the two agencies were nearly 
identical in the degree to which their one year estimates 
predicted actual results, and Treasury's two year estimates 
were slightly closer than CBO's. This chart shows that both 
Treasury's and CBO's one year estimates differ from actual 
receipts by an average of about 5.7 percent. This translates to 
an average difference between estimates and actual receipts of 
about $1.99 in each year.
    For the two year period, Treasury's estimates differed from 
actual receipts on average by about 6.8 percent, while CBO's 
estimates differed by about 7.6 percent.
    In conclusion, while CBO's and Treasury's estimates of 
future Trust Fund balances are different, the trend they 
identify is similar. We view these differences as minor. While 
events during the next five years could result in changes in 
the economy and consumer behavior, it is clear that the trend 
of Trust Fund outlay as exceeding receipts is a significant one 
that is likely to lead to dwindling Trust Fund balances.
    Thank you.
    Mr. Petri. Thank you. Thank you all for the testimony. I 
would like to thank any associates you had at your agencies in 
helping to prepare the written testimony and graphs and so on. 
We appreciate it.
    Any questions? Mr. Blumenauer?
    Mr. Blumenauer. I was curious if you have the capacity to 
go back into the 1970s when we had more aggressive energy price 
spikes and supply problems, to be able to get a sense of what 
the potential disruption can be in modifying behavior.
    Mr. Marron. In trying to assess some of the technical 
factors I mentioned, such as how people respond to changes in 
energy prices, we do indeed go back to that time period to try 
to get a sense. Clearly today is different from then, but we do 
our best to learn from that episode.
    Mr. Blumenauer. Do you have sufficient data that you can 
extrapolate from it?
    Mr. Marron. In terms of overall consumption of gasoline, we 
observed changes in prices, yes.
    Mr. Blumenauer. How is it different, how do you posit it 
being different today despite what it appeared to be, more 
erratic swings, not insignificant amount in fuel prices? Do you 
have a sense of any differences?
    Mr. Carroll. There is empirical literature in the economics 
research on the relationship between changes in energy prices, 
gas prices, and consumption of gasoline. Typically what is 
found is the responsiveness of gasoline consumption, fuel 
consumption to prices in the short term is fairly small, it is 
fairly price insensitive in the short run. In the longer run, 
it is much more price sensitive.
    So the changes we are seeing right now in prices at the 
pumps are not really being reflected in large swings and 
consumption patterns. It takes a fair amount of time for that 
response to occur, as individuals and businesses change their 
behavior, change their modes of production and seek out more 
efficient use of energy in the decisions that they are making.
    Mr. Blumenauer. To what extent do either of your models in 
the short term deal with changes in technology, your 
anticipating a shift to more energy efficient vehicles or 
alternative uses of fuel?
    Mr. Marron. In our longer run estimates those certainly 
account for what we have observed in the past history of what 
kinds of technological changes that people have adopted. So to 
the extent that past is prologue, we attempt to build those 
into our projections of how people respond to fuel price 
changes.
    In addition, we also specifically try to incorporate 
technological changes that may come from regulatory changes. 
The Administration, for example, has just recently released 
fuel economy standards for light trucks. As we go into the 
summer, when we construct our baseline projections this summer, 
we will do our best to incorporate those and the implications 
of those for the mix of light trucks and their impact on fuel 
consumption.
    Mr. Blumenauer. Okay. Any thoughts about impact that our 
moving to having a negative account balance, I am just curious 
what impact that has on projects, what impact if any that would 
have on projects already under construction?
    Ms. Siggerud. Perhaps I can address that, Mr. Blumenauer. 
To the extent that the Congress responds to a negative balance 
by decreasing, making it policy to decrease outlays in some 
way, I guess, I am sure you are aware that States do plan five 
and six year transportation programs based on anticipated 
Federal aid revenue. They also do bonds based on anticipated 
Federal aid revenues.
    So to the extent that that were a change in policy, some 
States might see an effect on some current and definitely some 
future projects.
    Mr. Blumenauer. Thank you, Mr. Chairman.
    Mr. Petri. Mr. Brown, any questions?
    Mr. Blumenauer. Excuse me--
    Mr. Petri. Yes, sir.
    Mr. Blumenauer. If I could just make one comment, I see Mr. 
Mica is not here. But his notion about the Trust Fund going 
bankrupt in four or five years, I don't hear anything from the 
testimony that any of you have given that suggests that the 
Trust Fund goes bankrupt. It may move to a negative balance, 
but there is a huge flow of money that is still going through.
    Do any of you feel--am I missing something? Do you feel 
that we are on the verge of bankruptcy in the Trust Fund?
    Mr. Marron. I will take a stab at that. Sir, the situation 
is that outlays are above revenues now, and would be likely to 
persist in that regard. I won't take a position on whether or 
not to characterize it as bankrupt. But the account balance 
would go negative under these projections.
    But your point that there is a significant stream of money 
beyond that moment is absolutely true.
    Mr. Blumenauer. Thank you, Mr. Chairman.
    Mr. Petri. Mr. Brown.
    Mr. Brown. Thank you, Mr. Chairman, and I apologize to the 
panel for not being here during the testimony. I hope this 
question has not been resolved so far.
    Let me just give you this question, to Mr. Carroll if I 
might, and anybody else that might want to respond. After 
Hurricanes Rita and Katrina disrupted al the gas production in 
the Gulf, there was a significant spike in fuel prices this 
fall. Many analysts predicted that the high cost of fuel would 
cause people to drive less and would result in a decrease in 
revenue to the Trust Fund. In reality, the revenue estimates 
actually increased between this past summer and the release of 
the President's budget in February.
    What does this tell us about the effect of gas prices and 
demand of gas? Is there any correlation between price and 
demand?
    Mr. Carroll. Let me take a stab at that. The increase in 
highway-related tax receipts that we saw in 2005 really 
reflected a strengthening of the overall economy. Also, the 
summer driving season, which is a period when gasoline revenues 
tend to be fairly strong, was pretty much over by the time the 
hurricanes arrived.
    Moreover, the hurricanes and their effect on energy prices 
really represented a short term shock to the price of gasoline. 
What we tend to see in the literature is that in the short run, 
gasoline consumption tends to be fairly insensitive to price, 
so we wouldn't really expect a substantial response in terms of 
gasoline consumption.
    Over the longer term, if there's a sustained period of 
elevated fuel prices, we would expect a much more substantial 
response in terms of gasoline consumption.
    Mr. Marron. I just agree with what Bob said.
    Mr. Brown. So when do you see the consumption starting to 
ease off? Is it $3 a gallon or $3.25 or $4? Where do you see 
the sensitivity line actually starting to click in?
    Mr. Carroll. I think it is, where we will see the 
sensitivity is that there is a prolonged period of elevated 
gasoline prices over a prolonged period of time as opposed to 
more of a short term, a temporary shock.
    Mr. Brown. Thank you, Mr. Chairman.
    Mr. Petri. Thank you.
    Mr. Davis, any questions?
    Mr. Davis. Mr. Chairman and Ranking Member, in 1980, I 
decided that I would run for the Tennessee State legislature. 
Unfortunately or fortunately, whatever the situation may be, I 
was elected. When I went to Nashville, I left being mayor of a 
small town. We had pretty dire need for development of our 
roads, potholes every place. We had an 8 cent, 7 cent gasoline 
tax, and I think a 1 cent probably service tax per gallon of 
gasoline. A lot of things changed in 1981 through about 1986 in 
Tennessee and throughout this Nation.
    We saw a receding of the consumption of gasoline in our tax 
based on per gallon usage rather than on actual per dollar 
usage, as you see a consumption tax in most cases is based on 
what you spend, rather than the number of items that you 
consume. It's the cost of the item.
    When I look at the predictions of the 2007 budget and 
realize that there is an expectation in the outer years of $2 
billion or $3 billion or more deficit in the Trust Fund, it 
kind of puzzles me as how in four or five or six months we 
could see this dramatic change, almost like overnight. I do 
understand that as prices go up, as they did in the 1970s, as 
consumption recedes then revenue streams obviously will recede 
with those. But there were several adjustments made in the 
1980s on the Federal level and the State level.
    The question I want to ask you is, Mr. Carroll, you are 
with the Treasury Department. You are the tax experts. How 
would you handle the situation? What do you recommend that 
Congress does to be sure that this deficit doesn't occur?
    Mr. Carroll. As the other witnesses have indicated, the 
long-term imbalance in the Trust Funds is really related to the 
issue of the growth rate in outlays exceeding the growth rate 
in revenues. That is an issue that I think the Congress will 
need to deal with.
    My function at the Treasury Department at the Office of Tax 
Analysis is really to focus on the receipts estimates, 
estimates of highway related excise tax receipts and making the 
deposits into the Trust Funds. An important piece of the puzzle 
is what happens on the outlay side and disbursements from the 
Trust Funds. That is really something that the Department of 
Transportation would need to speak to.
    Mr. Davis. I realize this as being a Congressman from one 
of the extremely rural areas, one of the fourth most rural 
residences of a Congressional district in America, that without 
a good education, which provides a liberating influence for an 
individual in a rural area or urban as well, without good 
roads, then the foundation for America's economy, I think, is 
undermined.
    Again what I am asking you is, I don't sense that I get a 
response that would be the Administration's position of how we 
resolve this issue if we starting having a shortfall in our 
Highway Trust Fund. How do we resolve that? Do we cut dollars 
for roads that provide the safety net and the foundation for 
economic growth? What do we do?
    Mr. Carroll. I think the balance of the Trust Funds really 
does again depend on the relationship of outlays to receipts. 
Outlays are outpacing receipts, as the other two witnesses have 
indicated. In 2009, according to our estimates of receipts 
combined with the Department of Transportation's estimates of 
outlays, the highway account will be exhausted in 2009.
    The extent to which it is exhausted is about $2.3 billion. 
That is, in the context of the errors that we have had in 
estimates in the past, it is not a large amount. Nevertheless, 
that is our best estimate given the information we have 
available to us.
    Mr. Davis. That seems to conform to the budgetary 
principles of this Congress the last few years, and this 
Administration. So I guess deficits is what you are saying we 
are going to look forward to in the Highway Trust Fund as well.
    I yield back the rest of my time.
    Mr. Petri. Mr. Shuster?
    Mr. Shuster. Are we on statements or questions?
    Mr. Petri. Questions.
    Mr. Shuster. Thank you, Mr. Chairman. I know the Chairman 
has been very involved in trying to figure out new ways, new 
revenue streams. I think it is something we are going to have 
to obviously deal with in the future, in the near future, 
whether we look at equity investments or bonds or other things. 
I don't think that there is the will up here on the Hill at 
this point to raise the user fee or the gas tax.
    A couple of questions I have. First, I just wanted to know, 
how long does it take the Treasury Department to certify 
projections versus what we have actually taken in into the 
Treasury with the gas tax?
    Mr. Carroll. The taxpayers file returns quarterly, they 
file their excise tax returns quarterly. Those returns are due 
one month after the end of the quarter. It takes about five 
months for the IRS to process--
    Mr. Shuster. How long?
    Mr. Carroll. It takes the IRS about five months from that 
point in time to process the returns and certify the amounts.
    Mr. Shuster. Is there anything we can do to modernize?
    Mr. Carroll. We have had a dialogue with the IRS to see how 
they might streamline and perhaps improve that. One of the 
issues is some taxpayers do file past the due date, if they 
have--they are given waivers if they have a reasonable cause 
for, can show reasonable cause for filing beyond the due date. 
So there is an issue of how easy it would be for taxpayers to 
comply with perhaps stricter guidelines on insuring that they 
file by the due date.
    Mr. Shuster. And with technology, is there any technology 
we can employ that we are not using?
    Mr. Carroll. There are about 4,000 or 5,000 excise tax 
returns that are filed. It is a fairly small group of 
taxpayers. We have had some discussions along those lines in 
the past. There is I think a question that the Congress and 
others would need to face, whether balancing the potential 
taxpayer, increasing potential taxpayer burdens by requiring 
more electronic filing.
    Mr. Shuster. Could one or all three of you comment on your 
thoughts on issuing bonds versus equity financing? I believe it 
was Indiana and I think Illinois or around the City of Chicago 
recently sold or are in the process of selling a stretch of 
road to some investors. Is that something you have taken a look 
at? Is that a viable way, from your perspective, to raising the 
funds to build new infrastructure?
    Mr. Carroll. That's not something I myself have looked at. 
I know others at Treasury have, who have dealt in the tax-
exempt bond financing area have been focused on issues related 
to that. We would be happy to get back to you on that.
    Mr. Shuster. Okay. Would either of the other two of you 
care to comment?
    Mr. Marron. CBO has done some research in the past on 
alternative ways of doing tax exempt financing, in general, if 
it is transportation, as one possible application. The takeaway 
there being that the use of tax credit bonds instead of tax 
exempt bonds might be on the one hand a more efficient way of 
essentially providing subsidy of the projects and get them 
going. But on the other hand, the way they are currently 
structured tends to be more expensive, the way tax credit bonds 
have traditionally been done, the Federal Government in essence 
picks up the whole interest cost rather than just a piece.
    But at least in principle, there is a way to marry those 
two and have something that could potentially be a more 
efficient way of encouraging those kinds of projects. To the 
best of my knowledge, we haven't done anything recently on the 
equity financing part. We would be happy to look at that for 
you.
    Mr. Shuster. How old is that information?
    Mr. Marron. Since I testified before Ways and Means 
Subcommittee on it about a couple of months ago.
    Mr. Shuster. So it is relatively new information?
    Mr. Marron. Yes.
    Ms. Siggerud. GAO also testified on the relative cost to 
the Government of tax credit and tax exempt bonds a few years 
ago, Mr. Shuster. That is certainly some information I can 
provide to you or your staff, if that is useful.
    Mr. Shuster. I would appreciate any and all that 
information. What about equity financing? Have any of you 
looked at any of that? Basically you said you were dealing with 
bonds.
    Ms. Siggerud. Right.
    Mr. Carroll. Right.
    Mr. Shuster. Okay. And tolls, allowing more tolling? Is 
that something anybody has looked at?
    Ms. Siggerud. In the work that GAO did last year, in what 
we call the 21st Century Challenges work, we looked at the 
transportation sector, we encouraged the use of tolls, both as 
a possibility at the Federal and at the State and local level, 
as an alternative way of financing infrastructure. We also have 
some ongoing work that we report out later this year on that 
topic.
    Mr. Shuster. Okay. The CBO has not looked at it?
    Mr. Marron. There is nothing I have seen at CBO recently on 
the tolling issue. It is definitely worth consideration, but 
not something we have worked on.
    Mr. Shuster. Okay. I see that my time has expired. Funding 
for highways is going to be a problem for us into the future. I 
see that some projections here say that by, I guess it is CBO, 
that by 2010 we are going to be in a negative balance. My guess 
is it is going to be sooner than that. I don't know how much 
you have factored in cars that are more fuel efficient or the 
use of hybrids and those types of things.
    But my guess is it will be sooner than 2010. That is 
something that, as I said, I know the Chairman has looked at 
and something we have to deal with very seriously here in the 
next couple of years, or we are going to find ourselves in--
excuse the pun, but a bigger pothole than we already see out 
there.
    So I thank you for testifying and I yield back--I don't 
have any time left, I guess.
    Mr. Petri. Mr. Baird.
    Mr. Baird. I thank the Chair and I thank the panelists.
    My recollection is before the most recent Highway Bill, we 
actually came in with much higher estimates after several years 
of hearings for the need, what the projected need for 
transportation would be, that estimates were much higher than 
the actual bill. How should we approach that? [Remarks off 
microphone.]
    Mr. Carroll. It is really, again, I can only speak to the 
receipt side of the equation, being from the Treasury 
Department. It is really an issue that I would have to defer to 
my colleagues over at the Department of Transportation, in 
terms of how they would handle the disbursement side if and 
when the highway account and the mass transit account are fully 
exhausted.
    Ms. Siggerud. My understanding is that DOT officials have 
said that one solution would be to reduce the obligation 
limitation going into the future to try to cut back on the 
outlay side of the equation. The effect on that obviously would 
be to reduce funding to some of the core Federal aid highway 
programs, and therefore would affect States in their ability to 
plan and how to finance projects.
    Mr. Baird. Would this presumably apply, as you know, under 
this last bill, some projects are ready for funding very 
quickly. Others would receive their funding down the road in 
the cycle. Would we presumably see those that were funded early 
in the cycle get full funding that was allocated and then later 
on, a reduction so those that are later in the queue just in 
terms of when they might be ready might be actually funded at a 
lower level?
    Ms. Siggerud. I haven't actually done that analysis, but I 
think that is probably an accurate assumption.
    Mr. Baird. So one of the questions I would have is, if we 
have already got, back to the original premise I started with, 
if we have already got a bill that is funded at less than at 
least some of our hearings led us to believe it should have 
been funded at, as you know, the House mark was a good bit 
higher originally, would that not follow that that is just 
further exacerbating an infrastructure deficit in terms of 
projects not completed?
    Ms. Siggerud. Again, I haven't done that analysis exactly. 
But it is clear that as States plan their highway projects, 
they count on Federal aid as they put the financing packages 
together for those projects. This would clearly have an impact 
on the ability to get those started as quickly or to complete 
them as quickly.
    Mr. Baird. Have you given any thought or have any of you 
given any thought to, I am thinking out loud with you a little 
bit, but if we needed to amend in some way the revenue 
structure based on the gas tax, what that might look like and 
when it might happen? It seems like the alternatives are 
either, change that portion of where we get revenue or transfer 
some from the general fund into that, which we tend to try to 
avoid.
    Any thoughts about that choice and what it might look like?
    Ms. Siggerud. We have not done that analysis or run those 
scenarios. We would be happy to work with the Subcommittee if 
that makes sense.
    Mr. Baird. I guess one of my questions is at what point 
would we need to take an action like that? In other words, 
given some of the uncertainties you have identified, and given 
the somewhat lag time in terms of when we actually have a sense 
of how much money we get in, and parenthetically, I have to say 
this, I'm on the Budget Committee and this is just a marvel to 
me that the Federal Government gets pools of money and they 
don't know where they come from. Then down the road a way, they 
look backward and say, hey, where did all this money come from? 
We ought to address that.
    But it seems like we face that in transportation funding as 
well. But at what point would we know, if we don't act by point 
X, then down the road soon, with some reliable level of 
confidence, we are going to need more money? In other words, 
that we could take some action. Can you give us an estimate of 
that, a date by which we had better be looking at this again 
and see what we need to do?
    Ms. Siggerud. I would ask to defer to my colleagues on 
this, if they have a view. GAO has not done that estimate.
    Mr. Marron. I will chime in at this moment. The first 
observation I would make, to try to figure out the nicest way 
to say this, as I understand it, the current financing and 
outlay structure for the highway account, in particular, was 
structured in such a way that running out the balances was 
inevitable. There was just simply an issue of roughly, would 
that be 2010, 2009.
    To be honest, there hasn't been that much change from where 
we sit today relative to where we were last summer when this 
was negotiated. So I don't think there is actually that much 
news in the numbers we are bringing. But since it has moved 
slightly toward there possibly being, running out sooner, I 
just kind of highlight the issue that this was built in 
inevitably as it was.
    From CBO's point of view, we are not really in a position 
to provide guidance on how one might address that. Our role is 
to sort of help you, you give us the ideas, we help you 
understand what the implications would be. I can't really do 
much better, except to repeat what my colleagues have said, 
that clearly there is an issue of either ratcheting down 
outlays from the highway account, increasing revenues or, if 
you are focused on highways, there are other portions of the 
Highway Trust Fund. In principle, you could reach over there. I 
understand politically that might--
    Mr. Baird. Can I ask one more brief on this? Let's suppose 
that the numbers of the shortfall you estimated are accurate. 
And as we approach that shortfall, it looks like, yes, indeed, 
this is coming up. How much would we have to change the gas 
tax, for example, if we were to solely look at gas tax in order 
to make up that revenue and fully fund? Did you do that 
calculation? I haven't had a chance to look at it. I'm sorry.
    Mr. Marron. We haven't done that calculation. We would be 
happy to crack at it on the back of the envelope and respond.
    Mr. Baird. That would be really helpful to us as we look 
ahead, and people are trying to make business plans, et cetera. 
We make a mistake, if we see these things coming down the pike 
and then we jus drop it on somebody, versus looking ahead and 
saying, look, several years out we project we may fall short. 
You need to prepare for the possibility of X adjustment in 
whatever program it is, so people can make business plans 
according to that or personal plans. So maybe we could work 
together, Mr. Chairman, to look at that on this Committee.
    Thank you very much.
    Mr. Petri. Mr. Larsen, any questions?
    Mr. Larsen. Thank you, Mr. Chairman. Sorry for being late, 
and I don't want to repeat what anyone has said.
    Mr. Marron, I don't want to misinterpret what you said, but 
when you said there's not much news in these numbers, I guess 
perhaps what Mr. Baird was getting at and what I would get at, 
and this isn't just from a Washington State perspective, but 
probably from other members as well. If you were to go talk to 
City A in my district or the State DOT or whoever, it is enough 
news to them that it is causing them a lot of concern about 
planning for the future. So I guess maybe just a note of 
caution about making comments that could be construed as not 
attaching as much concern to it as perhaps we are hearing from 
people that we represent. I'm great for advice, that's about as 
much as I can give.
    I wasn't here earlier and I haven't had a chance to go 
through the testimony, but I look forward to that. I don't want 
to have too much repetition, but can you all give me a synopsis 
of why there are differences in estimates?
    Mr. Carroll. Sir, the content of our testimony has been 
largely that the estimates are not very large. First, I would 
point out that--
    Mr. Larsen. The differences aren't that large?
    Mr. Carroll. The differences between the Congressional 
Budget Office, CBO's estimates and OTA's estimates are not very 
large in the context of the errors that, the pattern of errors 
or the differences between our level of forecasted receipts 
over the last 10 years or so and the actual receipts that have 
come into the Highway Trust Fund. The current difference 
between CBO's projects and OTA's or the Administration's 
forecasts are not very large from that vantage point.
    The other thing I would point out is relative to the mid-
session review, moving from the mid-session review to the 
January budget, the Administration's, at least on the receipt 
side, has actually forecast a higher level of receipts for the 
Highway Trust Fund.
    Mr. Larsen. Just some quick math, in my mind, highway cash 
balance at the end of the year 2009 is the $2.3 billion 
shortfall. That is still larger than any difference, though, 
isn't it? Whether using Treasury's or CBO's, there would still 
be a negative cash balance?
    Mr. Carroll. Yes, as I understand Donald's comments, they 
are fairly consistent with our own. Both CBO and the 
Administration projections indicate that toward the end of 
2009, it is likely, based on our best estimates today that the 
highway account will be fully exhausted.
    Mr. Marron. If I could elaborate on that--
    Mr. Larsen. I'm sorry, not just fully exhausted but we will 
be looking for money to help pay commitments. Fully exhausted 
just makes it sound like we are just going to bring it down to 
zero. But either we will be looking for money to make 
commitments, or as Mr. Baird said, we will be telling people 
that we won't be building things.
    Mr. Carroll. As I understand it, once they become fully 
exhausted, then on the outlay side, the disbursement side, the 
Department of Transportation would need to perhaps make 
adjustments.
    Mr. Marron. In comparing our analyses projections, there is 
obviously the revenue component and then the outlay component. 
On the outlay side, a key issue is to what extent you want to 
build in the future RABA adjustments. So we have the obligation 
limitations, both of us take those as written. Both of us in 
our analyses take the Administration's 2007 RABA request and 
build that in.
    If you just ran out kind of the mechanisms, those would 
imply additional RABA adjustments upwards and outlays in 2008 
and 2009. In that scenario, which we cover in our written 
testimony, we do indeed have a negative balance arising in 
2009. If to do kind of apples to apples to what the 
Administration has you just do 2007 RABA alone and not the 
future ones, we do actually have a positive balance at the end 
of 2009 and then it goes negative in 2010.
    It is a small--in a program with $150 billion of revenue, 
the difference is just a few billion dollars over that period. 
But it does affect the timing.
    Mr. Larsen. With regard to CBO analysis, are you required 
to incorporate the RABA adjustments or not? Usually when you're 
at CBO, it is whatever the current policy is, we play that out. 
So it seems to me there's only one analysis. But you are 
telling me you can do more than one analysis?
    Mr. Marron. This is one of the challenges of being the 
Acting CBO Director, is I periodically have to explain what it 
is we do. You are right, for our baseline budget projections, 
we go through one particular exercise, which to be honest, in 
certain cases, bears not as much relation to reality as one 
might like. This is one of those cases.
    So in our baseline we do something completely different, 
which I won't explain, because it would just confuse things.
    Mr. Larsen. I understand.
    Mr. Marron. Then for purposes, when people ask us 
specifically questions about the trust funds, what we do is we 
do a separate standalone analysis, not bound by those rules, 
where the key inputs are. The revenue projections are the same, 
I should emphasize, between our baseline and these analyses.
    Mr. Larsen. But the outlays will change?
    Mr. Marron. But the outlays will change, depending on what 
we are asked to assume about obligations and about RABA.
    Mr. Larsen. Thank you.
    Mr. Petri. I don't know if any of you, you are all 
experienced in dealing with this data in this corner of the 
world. How soon do you think the people of the Department of 
Transportation or OMB will need to start adjusting downward 
contract authority or the program in order to take this into 
account so that we don't run into a kind of a cliff or 
disruption? You would think there would have to be a paring 
back of a program at some point earlier than you run into a 
negative balance. They need a certain working balance above 
zero anyway.
    Do you have any ideas? You were talking about 2009, 2010 
negative balance. But we are talking about 2007, 2008, if you 
have a built-in factor, as a cushion. And then if you need a 
glide path, you have to start making adjustments before you run 
into that negative balance, don't you? So we are talking about 
starting to pare back construction below what was planned in 
the TEA-LU, maybe not in the current budget, in the next year's 
budget. Am I wrong? Tell me if that's right.
    Ms. Siggerud. My understanding is that if Congress does not 
choose to address the revenue side of this equation that in 
addressing the contract authority side, that moving sooner is 
better than moving later, because as contract authority is 
spent out over a number of years, and therefore an action 
sooner is able to have an effect on outlays that is lower, a 
stronger effect on outlays.
    Mr. Petri. Well, and isn't it, if you are running a State 
program, if you are alert and you see this coming, you say 
suddenly they are going to cut this down and maybe we had 
better get ahead of the queue and accelerate as best we can and 
get as much of this in our State as possible, so you are going 
to get a run toward the exits like a run on a bank if we are 
not careful. Then that would make the problem even worse. 
Because they will try to front load their programs in order to 
avoid being caught in the cutbacks a little later. If they have 
any kind of flexibility like that, I suppose it varies a lot, 
depending on where it is.
    Now, just kind of standing back from all this, a friend of 
mine mentioned that when Eisenhower set up the Federal 
interstate program, and that kind of got settled on during his 
administration, about a nickel a gallon Federal gas tax, if 
they had indexed that back in 1956 or thereabouts, the Federal 
gas tax would be about 25 cents a gallon today instead of the 
18.3. If that is at all close to true, we have as a Federal 
Government been actually financing a smaller and smaller 
portion of the Federal transportation needs over a number of 
years.
    But the Country and the economy is going to require some 
kind of transportation investment. If politically we don't have 
the will at the national level or we are having problems doing 
it for one reason or another, don't you think--it is sort of 
rhetorical--but don't you think we have some kind of obligation 
to at least get out of the way, so if a particular State or 
region wants to invest in its infrastructure, they are not 
constrained by the Federal Government? In other words, 
shouldn't we loosen up? Logically, if we are not willing to 
maintain the investment at the national level, and if the 
economy requires it to be efficient, we are really not going to 
save any money by not investing, because we will have less 
revenue because of inefficiency if we don't make the 
investment.
    It is not as though it is a zero sum game, in other words. 
If we have no roads, no one will have any income so there will 
be no Government tax revenue. If you look at development in 
India or anywhere in the world, it is not money in, it is the 
ability to produce money in the economy. They come out way 
ahead investing in infrastructure than they do giving tax 
breaks and things like that. Because people are willing to pay 
taxes if they can make money. They can't make money if they 
don't have infrastructure.
    So we are not talking about as though in a vacuum, we are 
talking about trying to have a productive and competitive 
economy here in the United States. China is building as many 
roads, they have built 17,000 miles of interstate in the last 
10 or 15 years, and it is not, people are not going to thank us 
or this Congress or future Congresses if we do not maintain. 
They are planning on doubling that in the next 15 years. That 
is going to pay off in terms of their productivity.
    If we under-invest as a country, it will hurt us in terms 
of our productivity. UPS and FedEx, people like this are 
already running into the weekend with their deliveries because 
of capacity constraints in our economy.
    So all I am saying is, if we think at the Federal level 
that we are helping our economy by under-investing in 
transportation, I think we are sorely mistaken. At the very 
least, don't you think we ought to help encourage regions and 
States to invest more if they want to through bonding, selling 
it to foreigners, tolling, new kinds of electronic based taxes 
and all the rest? Or do you think that gosh, this is a waste, 
this is a deficit, this is terrible, let's cut out, we should 
then cut the tax? Why 18 cents? Why not 5 cents? Why not spend 
nothing? We will just make it a wonderful world.
    My theory is that we are going to have to spend money one 
way or another. We are going to spend money on repairs, delays, 
inefficiencies, or we spend money up front and we get something 
in terms of greater efficiency in the overall economy from that 
investment. Some of this analysis is a little sort of two-
dimensional from my point of view and does not take into 
account the benefits of making this sort of investment.
    So I don't know if you have any reaction to that, but it is 
clear if we stand back from this and look at it narrowly, oh, 
we have to do this or that at the Federal level, if we aren't 
going to, and if the history of the last 40 years is that 
despite occasional gas tax increases, the Federal investment in 
transportation infrastructure has actually declined, shouldn't 
our strategy then to be maybe we figure out how to pare back 
the Federal role and free up the State and local economies to 
do the investment that's required?
    Mr. Marron. If I could pick up on just one portion of what 
you mentioned, without casting an opinion whether it would be a 
good idea or bad idea, the potential role of tolling as a way 
to help finance new roads and also to in essence influence 
their usage to the extent that there's congestion problems, 
something that economists have long believed is worth further 
study, further experiments and may be beneficial.
    One particular benefit is the extent to which you can get 
roads that are partly or fully financed by potential tolling 
revenue, that is an indication that the road in question is one 
that is of value to the economy. The linkage between the 
gasoline tax and the projects that are ultimately built, it is 
a user fee in some sense, but that is a relatively weak link. 
Whereas the link between tolling and similar mechanisms and the 
use of particular constructed roads is much tighter. Things 
along that line therefore offer the potential at least of 
efficiency advantages about identifying projects that are 
particularly worthy of construction.
    Ms. Siggerud. Mr. Petri, you raised the important question 
of the Federal role in financing highway infrastructure. You 
are correct that the Federal investment as a percent of overall 
State spending has decreased over time. I would hope that the 
commissions that you created in SAFETEA-LU will consider what 
the future role of the Federal Government is in terms of 
advancing the national interest in highway building as part of 
the work that they do.
    GAO has also been on record that to the extent that the 
Federal contribution is declining in terms of State investment 
in highways that encouraging States to use innovative 
financing, tolling and other approaches makes some sense.
    Mr. Petri. One other, when we did this bill, there was a 
lot of discussion and talk and a certain amount of money that 
was anticipated to be achieved for the Trust Fund through 
eliminating waste, fraud and abuse, and tax evasion and so on. 
Is there any indication in any of your analysis that that has 
produced any revenue?
    Mr. Carroll. I think at this stage it is still a little 
early to say. I expect that some time in the next several years 
we will be getting the data and information that we would need 
to begin to evaluate the effectiveness on the compliance side 
of the SAFETEA-LU provisions.
    Mr. Petri. Mr. Blumenauer?
    Mr. Blumenauer. Mr. Chairman, I appreciate the gist of your 
comments a moment ago in terms of more for us than for our 
witnesses, who appropriately are saying, you guys deal with 
policy, we will talk numbers. But I do think that what you are 
doing with this hearing and helping members of this Committee 
look at the big picture is pretty important. Because even 
though it sounds like a long time frame it is the twinkling of 
the eye in terms of Government budgeting and if we are going to 
be making any substantive changes in policy, either to replace 
revenues or ramp things down, that is going to take several 
years.
    So I think this is the time for us to get on with those 
questions. I would welcome if the Subcommittee would be able to 
entertain witnesses from some of the more substantive policy 
making arms to talk about the implications. I would welcome it. 
I think this helps set the table, and it extraordinarily 
helpful.
    And I sympathize with your comments, Mr. Chairman. I think 
if we don't do a good job with the Federal investment, we 
shortchange everybody. And I think it has a pretty dramatic 
ripple effect. I have two questions that I don't need answers 
to now, but I would direct to our witnesses. One, I have been 
under the impression that we are spending roughly $2 trillion a 
year on transportation infrastructure in this Country, 
transportation infrastructure. Only 10 percent of that is 
Government expenditure and maybe 3 percent of that is Federal.
    Could you, through your various good offices help us with 
what those ballpark figures are? I think you each in your own 
way have access to information. I think it would be useful for 
me and perhaps for other members of the Committee to sort of 
get in mind what we are talking about in terms of overall 
transportation expenditures on an annual basis in the economy, 
the amount that is Government, the amount that is Federal.
    The second is, I am sorry our colleague Mr. Baird left, he 
was asking about ways that potentially we could close the gaps, 
what it would take. I had been reviewing in anticipation of 
this hearing a document I saw, I think it was several months 
ago, from the National Chamber Foundation, there was a study 
that was prepared by Cambridge System Metrics. I wondered if 
you folks could offer up a critique about the accuracy of the 
projections in terms of the revenue fixes that they talk about, 
in terms of indexing, for instance, the gas tax back at various 
points in time, and the amount of the gap that is filled either 
in terms of maintaining the existing program or for the 
projections that are made in terms of what it would take to 
actually improve the transportation system.
    If is it possible, to critique that methodology and 
conclusion. Again, I am not talking about the policy. But if 
CBO or GAO, perhaps the Department of Treasury if they are 
interested, could just give us a reality check as to, and this 
was done some months ago, so there may be modest adjustments. 
But that would be useful, I think, in terms of getting at what 
Mr. Baird was talking about and giving us a running start about 
just what the range of choices might be.
    Thank you, Mr. Chairman.
    Mr. Petri. Thank you.
    We tend to focus on what is in front of us, and that is 
expenditures. You don't really measure your effectiveness or 
whether you are accomplishing something by how much you are 
spending, it is by how much you are getting done at the end of 
the day. There are lots of ways, I suppose, of increase the 
efficiency of the system or improving its throughputs, other 
than just adding lanes or investing money. We may be doing that 
quite well as a society and it may be under-investing is 
forcing us to find other ways and make the system more 
efficient that will serve us better in the long run. I don't 
know if that is true or not.
    I do know that companies like Schneider, in my region, and 
Hunt and these UPSs and FedExs that are more and more into 
logistics argue that the percentage of our GNP that is consumed 
by logistics expenses, transportation expenses, dropped from 
about, I may get the numbers slightly wrong, but something in 
the neighborhood of 16 percent down to about 8 percent, almost 
identically how much of the pie has grown in health care.
    So we have actually paid for the increase in health care as 
a society, something has to go, it has to total 100 percent. So 
if health care has gone up to 15 percent, what has gone down? 
Transportation.
    It is not just because we are spending a smaller percentage 
of the pie on transportation, but we are. With the whole 
manufacturing resolution and just in time and cutting out a lot 
of storage and delay in the system and making the whole 
logistics system more efficient, we have reduced the amount of 
capital and money that needs to be tied up in that system. It 
has made us more productive. But there have to a lot of further 
opportunities for efficiency and standing back and looking at 
how to move more by rail, for example, if it can be done 
efficiently, rather than on highways.
    Instead of just looking at, well, we've tolled this road 
and therefore it will reduce the use, maybe if you could move 
things off the road onto, maybe that will help do it, if you 
raise tolls, move to other modes or whatever. We clearly can't 
just ignore it and under-finance it. If we are going to cut 
back or not increase funding, we had better increase our 
thinking about it in ways of marshaling resources, if not 
financial, then I don't know what, planning, computing, other 
ways of doing things. Because the economy is going to have to 
move goods and people somehow. And at increasing rates, if it 
is going to continue to grow.
    So we appreciate your preparing these statements and 
talking to us. We are trying to figure out how to do our job 
with the next reauthorization and really adjusting for the 
current one. If you have any closing comments, we would be 
eager to hear them.
    Ms. Siggerud. Mr. Petri, I just wanted to agree with a 
couple of things that you said that we have highlighted in some 
recent GAO work. We feel it is extremely important to know more 
about the importance of the transportation system in the United 
States. The performance measures that we have are often about 
the condition of the pavement, things like that, that don't 
really tell us about the mobility, how well people and freight 
are moving in the United States.
    So focusing on that problem, I think, will help enormously 
in the reauthorization as well as making the case for whether 
increasing transportation investment makes sense.
    I also wanted to focus on the point that you raised about 
doing more modal tradeoffs. Clearly the structure of these 
programs makes it very difficult to do that, moving in that 
direction, having more flexibility there I think is also 
extremely important in the goals that you outlined.
    Mr. Petri. Thank you all. This hearing is adjourned.
    [Whereupon, at 3:16 p.m., the subcommittee was adjourned.]

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