Trends in Federal and State Capital Investment in Highways	 
(18-JUN-03, GAO-03-744R).					 
                                                                 
Amid projections that freight traffic will increase 65 percent by
2020 and that traffic congestion will worsen, many transportation
officials are concerned about the challenge of maintaining and	 
improving the condition and performance of the nation's highway  
infrastructure. In 1998, the Transportation Equity Act for the	 
21st Century increased funding for highways by 27 percent in real
terms over the previous surface transportation authorization	 
act--the Intermodal Surface Transportation Efficiency Act of 1991
(ISTEA). Nevertheless, the Federal Highway Administration	 
estimates that the nation will need to spend about $76		 
billion--or 18 percent more than it spent in 2000--each year	 
through 2020 to maintain the average conditions and performance  
of the nation's highways and bridges, and about $107 billion or  
65 percent more than it spent in 2000 to efficiently improve the 
highway system. These projections raise concerns because both the
federal government and state governments are facing budget	 
deficits in the years ahead, totaling hundreds of billions of	 
dollars. As the Subcommittee on Transportation and		 
Infrastructure, Senate Committee on Environment and Public Works 
prepares to reauthorize TEA-21 and establish funding levels for  
the next several years, it asked us to provide historical	 
information on the nation's investment in its highway		 
infrastructure. In particular, the Subcommittee asked that we (1)
identify overall trends in the nation's capital investment in its
highway system over the past 20 years, particularly since the	 
enactment of TEA-21 in 1998--and compare the trends in federal	 
spending with the trends in state and local government spending; 
(2) determine how these trends in highway capital investment	 
compare with the fiscal capacity of both the nation and 	 
individual states to fund these programs, particularly since the 
enactment of TEA-21 in 1998; and (3) provide information on	 
sources of funds used by states for their highway programs.	 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-03-744R					        
    ACCNO:   A07173						        
  TITLE:     Trends in Federal and State Capital Investment in	      
Highways							 
     DATE:   06/18/2003 
  SUBJECT:   Federal aid for highways				 
	     Fuel taxes 					 
	     Highway planning					 
	     Public roads or highways				 
	     Taxes						 
	     Transportation costs				 

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GAO-03-744R

                                       A

June 18, 2003 Let er t The Honorable Harry Reid

Ranking Member, Subcommittee on Transportation and Infrastructure
Committee on Environment and Public Works United States Senate

Subject: Trends in Federal and State Capital Investment in Highways

Amid projections that freight traffic will increase 65 percent by 2020 and
that traffic congestion will worsen, many transportation officials are
concerned about the challenge of maintaining and improving the condition
and performance of the nation*s highway infrastructure. In 1998, the
Transportation Equity Act for the 21 st Century (TEA- 21) increased
funding for highways by 27 percent in real terms over the previous surface
transportation authorization act-- the Intermodal Surface Transportation
Efficiency Act of 1991 (ISTEA). 1 Nevertheless, the Federal Highway
Administration (FHWA) estimates that the nation will need to spend about
$76 billion* or 18 percent more than it spent in 2000* each year through
2020 to maintain the average conditions and performance of the nation*s
highways and bridges, and about $107 billion or 65 percent more than it

spent in 2000 to efficiently improve the highway system. 2 These
projections raise concerns because both the federal government and state
governments are facing budget deficits in the years ahead, totaling
hundreds of billions of dollars.

As you prepare to reauthorize TEA- 21 and establish funding levels for the
next several years, you asked us to provide historical information on the
nation*s investment in its highway infrastructure. In particular, you
asked that we (1) identify overall trends in the nation*s capital
investment in its highway system over the past 20 years, particularly
since the enactment of TEA- 21 in 1998* and compare the trends in federal
spending with the trends in state and local government spending; (2)
determine how these trends in highway capital investment compare with the
fiscal capacity of both the nation and individual states to fund these
programs, particularly

1 Based on a comparison of authorization levels for Title 1 programs in
ISTEA and TEA- 21 shown in FHWA*s Financing Federal- Aid Highways. We
adjusted the authorizations to 2001 dollars using gross domestic product
(GDP) deflators.

2 FHWA projections are based in 2000 dollars.

since the enactment of TEA- 21 in 1998; and (3) provide information on
sources of funds used by states for their highway programs. On June 10,
2003, we briefed your office on the results of our work. Enclosure I
presents our briefing slides. This report summarizes the briefing, and a
subsequent report will discuss your request to analyze the fiscal effects
of federal highway grants on state and local highway investment. In
addition, a special publication entitled Trends in State Capital
Investment in Highways, providing spending trends by state, is available
on the Internet

at http:// www. gao. gov/ cgi- bin/ getrpt? gao- 03- 915sp. To respond to
your request, we reviewed data from FHWA*s Highway Statistics for the
period from 1982 through 2001, adjusting expenditures to 2001 dollars. We
also compared expenditures with the nation*s gross domestic product (GDP)
and the gross state products (GSP) of individual states 3 and interviewed
transportation officials in 10 states. We performed

our work from August 2002 through May 2003 in accordance with generally
accepted government auditing standards. Our scope and methodology is
discussed in more detail later in this report.

Background Although the states, with support from localities, are
primarily responsible for capital projects on the nation*s highways,
federal funding provides a

significant amount of the financing for these capital investments. Federal
funding is made available to the states through apportionments from FHWA
at the start of each fiscal year, based on formulas provided in law. 4
With

few exceptions, the funds that the federal government provides for
highways must be matched by funds from other sources* usually state and
local governments. The funding requirement for most federal highway
programs is 80 percent federal and 20 percent state funding. In addition
to

3 GDP is a measure of all income earned within the domestic economy,
providing a convenient measure of the nation's aggregate purchasing power,
including the ability to fund public services such as highways. GSP
provides a similar measure of income earned within individual state
economies. In evaluating other "formula- based" programs, GAO has used the
Department of Treasury's Total Taxable Resources (TTR) as a measure of
states*

funding ability because it provides a more comprehensive measure of
potentially taxable income by including both state GSP and income earned
by state residents from out- of- state sources. However, we did not use
Treasury's TTR because it was not consistently available for all the years
in our trend analysis.

4 For highway programs that do not have apportionment formulas, funds are
distributed through allocations to states with qualifying projects.

matching federal funds, states and localities raise funds to invest in
highway capital projects as well as to maintain existing roadways.

Summary The following summarizes our results.

Capital Investment in the Highway System

 The nation*s capital investment in its highway system has more than
doubled in real terms over the past 20 years.

 From 1982 through 2001, federal and state and local government
investment increased 123 percent from $29.6 billion to about $66.0 billion
in 2001 dollars. 5 During the period following enactment of TEA- 21 in
1998, total capital investment increased 19 percent, from $55.5 billion in
1997, the last year under ISTEA, to $66.0 billion in 2001.

 While the nation*s total capital investment more than doubled, state and
local highway capital investment increased at twice the rate of federal
investment over the past 20 years. Specifically, state and local
investment increased 166 percent from $14.1 billion to $37.6 billion in
real terms, whereas the federal investment increased 83 percent from $15.5
billion to $28.3 billion. 6 (See fig. 1).

5 All dollar figures cited in this report are in 2001 dollars unless
otherwise noted. 6 Unless otherwise noted, investment represents outlays
or spending on highway capital investment.

Figure 1: Federal and State and Local Highway Capital Investment, 1982-
2001

 During the period following enactment of TEA- 21 in 1998, federal
investment increased faster than state and local investment. Federal
investment increased 23 percent in real terms from $23.1 billion in 1997,
the last year under ISTEA, to $28.3 billion in 2001, while state

and local investment increased 16 percent from $32.4 billion to $37.6
billion during this time.

 However spending patterns were not consistent over this period. Federal
expenditures declined in 1998 despite the substantial increase in TEA- 21
authorizations because TEA- 21 was enacted in June 1998, and most of the
federal funding authorized under TEA- 21 was not expended until 1999 or
later. As a consequence, federal spending in 2001 was 29 percent higher
than its 1998 level of $21.9 billion. As shown in figure 2, state and
local investment remained relatively constant during this time* increasing
2 percent in real terms from $37.0 billion in 1998 to $37.6 billion in
2001.

Figure 2: Annual Federal and State and Local Highway Capital Investment
during TEA- 21

 The slower rate of increase in state and local investment during recent
years may continue. The National Governors Association and the National
Conference of State Legislatures recently reported that states face
estimated budget shortfalls ranging from $65 billion to $80 billion (in
current dollars) for fiscal year 2004. Transportation officials from most
of our 10 selected states said that their state*s declining financial
condition could result in decreased spending on highways. In addition, a
January 2003 survey done for the National Association of Counties, found
that the local governments are also facing revenue shortfalls. Seventy-
two percent of the 715 counties responding to the survey are experiencing
shortfalls in revenues, and of that 72 percent, one in four are
considering cutbacks in highway

construction spending to address those shortfalls. Highway construction
was cited by more counties as a candidate for budget

reductions than any other category of spending, including health care,
schools, law enforcement, and parks.

Investment Compared to Fiscal Capacity

 Although the nation*s highway investment has increased, the nation*s
*level of effort* on highway capital spending* that is, investment
relative to fiscal capacity, as measured by GDP* has remained relatively
steady.

 This relatively constant level of effort is due to increases in state
and local investment that offset decreases in federal investment per GDP
over the past 20 years. As noted previously, however, during the TEA- 21
period, federal investment increased faster than state and local
investment.  There is considerable variation in the level of effort among
states. During the 1982 to 1986 time period 7 , state and local
governments

spent an average of $2. 96 per $1, 000 of GSP on highways, but individual
state spending ranged from a high of $7.73 to a low of $1. 21, per $1, 000
of GSP. By the 1997 to 2000 time period, the average state and local
government spending increased to $3. 76 per $1, 000 of GSP, while the
range across individual states also widened* to a high of $9.96 and a low
of $1. 11 per $1, 000 of GSP.  In addition, there is wide movement in the
states* relative levels of

effort over time. For example, no state consistently ranks highest in
level of effort over time. The state with the highest level of effort in
terms of state and local funding as related to gross state product in the
1982 to 1986 time period ranked 12 th in the 1997 to 2000 time period. The
changes in states* levels of effort occurred, in part,

because of fluctuations in the funding available for each state*s highway
program. Factors affecting fluctuations in the funding available for
individual state highway programs include rapid changes in revenues
stemming from increases in gas tax rates,

changes in available funds resulting from issuing or retiring debt, and 7
To analyze 50 states over a 19- year period, we broke down the 19 years
from 1982 through 2000 into four time periods. The early part of the time
period covers 1982 through 1986. The most current time period covers 1997
through 2000. This analysis does not include 2001 data because 2001 local
expenditure data are not yet available at the state level.

the beginning or completion of large capital projects. For example, Utah
moved from 28 th place in the 1982 to 1986 time period to 1 st place in
the 1997 to 2000 time period. The funding that the state

invested in its reconstruction of I- 15 for the 2002 Winter Olympics
likely influenced this large increase in level of effort.

 We have begun to examine what factors, including state demographic and
other characteristics and the level of federal grants, may affect states*
levels of effort. For example, our initial analysis comparing state
characteristics to levels of effort indicates that, over roughly the last
20 years, certain characteristics, such as motor fuel tax revenues, may be
generally related to states* levels of effort, while other
characteristics, such as the number of licensed drivers and registered
vehicles, do not appear to be related to states* levels of effort. 8 Our

subsequent report will more closely examine the relationship between
states* levels of effort and selected demographic and other state
characteristics, as well as the fiscal effects of federal grants.

State Sources of Funding for Highways

 Taxes on motor fuels, such as gasoline and diesel, have been the primary
source of state highway funding. In addition to motor fuel taxes, states
use revenues from other sources for highway projects, including vehicle
and motor carrier taxes, tolls, and general fund appropriations. (See fig.
3).

8 See scope and methodology section for a more complete explanation of the
correlation analysis we performed.

Figure 3: Percentage of State Highway Funding by Source - National Totals
Note: Excludes federal grants, bond proceeds, and sinking fund interest
earned.

 Over the past 20 years, state revenues for highways have increased 78
percent from $33.4 billion to $59.4 billion in real terms. State motor
fuel tax revenues increased 75 percent from $16.4 billion in 1982 to $28.7
billion in 2001. Revenues from other funding sources increased at a
greater rate than motor fuel taxes during this period. For example, the
use of general funds for highways increased over 220 percent, from $1.3
billion to $4.1 billion, while toll revenues increased 83 percent, from
$2.6 billion to $4.7 billion over the 20- year period. (See fig. 4). 9

Figure 4: Percentage Increases in Funding Sources for Highways, from 1982
through 2001

Note: Excludes federal grants, bond proceeds, and sinking fund interest
earned.

 Although gas tax rates are not a complete measure of what a state
invests in its highways, these rates illustrate the variation that occurs
over time in a state*s sources of highway funding, as well as in a state*s
highway expenditures. Between 1982 and 2001, gas tax rates for 39 states
increased in real terms, while gas tax rates for 12 states decreased in
real terms* ranging from an increase of 140 percent, to

a decrease of 40 percent. During this time the federal gas tax rate
increased 176 percent* a greater percentage increase than any of the
states* increases. However, this information should be viewed with

caution because results could be different depending on the years
selected. For example, by selecting 1983 instead of 1982 as the first year
of the analysis, the federal gas tax rate increase would be about 28
percent* less than the increases of 14 states* because the federal

9 We did not include debt financing in this figure because bonds are not a
source of additional funds; rather, they are repaid from the sources of
funds shown in this figure.

gas tax rate more than doubled in April 1983. These results should also be
viewed with caution because some states that increased their rates
substantially may have had low gas tax rates in 1982. For example, while
Texas had the largest percentage increase among the states, having more
than doubled its gas tax rate in real terms from 1982 to 2001, Texas also
had the lowest tax rate in 1982.

 Although states primarily pay for highway projects with federal grants
and state revenues, states have increasingly used debt financing to fund
highway projects from 1982 through 2001. The funding for highways
available from bonds increased over 270 percent from about $2.5 billion to
almost $9.4 billion in real terms during this 20- year period.

Scope and To identify trends in highway capital investment for federal,
state, and local

governments, we used data on expenditure and vehicle miles traveled from
Methodology FHWA's Highway Statistics for the period 1982 through 2001, 10
adjusting expenditures to 2001 dollars using the state and local highway
price index estimated by the Bureau of Economic Analysis (BEA) of the
Department of Commerce. The adjusted expenditures using the BEA index will
be slightly different from expenditures calculated by FHWA using its bid-
price index because BEA adjusts the FHWA bid- price index. We used BEA's
index because it uses a 12- quarter phasing pattern that more consistently
captures expenditure patterns for capital highway projects. We assessed

the reliability of the data by electronic testing and by reviewing
documentation and reports. Although transportation officials consider
FHWA*s Highway Statistics as the best available national source of highway
capital expenditure data for statistical purposes, it does have some
reported limitations. For example, according to FHWA officials, states are
required to provide data for their local governments* highway funding
every other year and are encouraged to use sampling in developing reported
data.

Thus local data are estimated to some degree by either states estimating
reported local data or FHWA estimating local data when they are not
reported by the states. In addition, there is not a standard reporting
year. Therefore, states report data for different types of years* for
example,

10 In a few instances, FHWA*s Highway Statistics does not provide capital
expenditure data for state or local governments for certain states and
years. In these instances, we estimated capital expenditures based on the
trend in expenditures over time for those state or local governments.

calendar years and state fiscal years. Finally, the types of projects that
the federal government classifies as capital projects have changed over
time; hence, there may not be consistency in the data. However, we
concluded

that the data were sufficiently reliable for our purposes. Although not a
limitation of the collected data, direct state and local capital
expenditures are not reported separately. We therefore subtracted federal
funding from total capital expenditures to approximate state and local
expenditures. In addition, although we examined investment or expenditure
trends, we did not examine what improvements in the condition or
performance of the highway system resulted from these expenditures.

To compare trends in capital investment with the fiscal capacity of the
nation and individual states, we compared expenditures with GDP and GSP
for 1982 through 2001, adjusting expenditures and GSP as appropriate. We
also used data from the Bureau of the Census on state and local

government finances to compare highway expenditures with other state
expenses. FHWA officials state that the Census Bureau uses a narrower
definition of what is included in highway expenditures than the FHWA.
However, Census data provides a basis for comparing state and local
governments* highway expenditures to their other program expenditures over
time. To obtain examples of how state departments of transportation
determine their highway expenditures levels, we conducted telephone

interviews with officials from 10 state highway transportation offices*
Alaska, California, Illinois, Montana, Nevada, New Mexico, Oklahoma,
Vermont, West Virginia and Wisconsin. We selected these states on the
basis of a variety of factors, including their level of highway capital
expenditures per gross state product, geographic location, population,
vehicle miles traveled, and percentage of federally owned land area.
Furthermore, to identify state characteristics that are linked with levels
of

effort across all states, we performed a correlation analysis that
examined the linear relationship between level of effort and individual
state characteristics in concurrent years. Our analysis considered these
associations singly. However, there may be more complex interactions that
exist when considering the relationships simultaneously.

Finally, to identify state sources of funds used for highway investments
from 1982 through 2001, we reviewed data from FHWA*s Highway Statistics on
sources of revenue and adjusted the revenues to 2001 dollars

using the general GDP index estimated by the BEA of the Department of
Commerce.

We performed our work from August 2002 through May 2003 in accordance with
generally accepted government auditing standards. Agency Comments and

We provided a draft of this report to DOT for its review and comment. DOT
Our Evaluation

officials generally agreed with the information in the report, and they
also provided technical comments, which we incorporated in the report as
appropriate.

This is the first of two reports responding to your request concerning
federal and state and local investment in our nation*s surface
transportation system. We plan to issue a second report in early 2004
addressing your remaining question on how federal funding influences state
and local investment in our nation*s highway system.

As we agreed with your office, unless you publicly announce the contents
of this report earlier, we plan no futher distribution of it until 30 days
from the date of this letter. We will send copies of this report to
cognizant congressional committees; the Secretary of Transportation; and
the FHWA Administrator. The report will also be available on GAO*s home
page at

http:// www. gao. gov. In addition, a special publication entitled Trends
in State Capital Investment in Highways, providing spending trends by
state, is available on the Internet at http:// www. gao. gov/ cgi- bin/
getrpt? gao03- 915sp.

If you or your staff have any questions about this report, please contact
me at heckerj@ gao. gov or Steve Cohen at cohens@ gao. gov. Alternatively,
we can be reached at (202) 512- 2834. Major contributors to this report
were

Jay Cherlow, Catherine Colwell, Gregory Dybalski, Jerry Fastrup, Donald
Kittler, Alexander Lawrence, John Mingus, Sara Ann Moessbauer, and Eric
Tempel i s.

Sincerely yours, JayEtta Z. Hecker Director, Physical Infrastructure
Issues

Enclosure

Enclosure

Federal and State Highway Funding Trends and Levels of Effort

Briefing for the Ranking Member, Senate Committee on Environment and
Public Works, Subcommittee on

Transportation and Infrastructure June 10, 2003

Objectives

* Identify trends in capital investment in the nation*s highway system,
and compare federal trends with state and local trends over the past 20
years, particularly

since the enactment of TEA- 21.  Determine how these trends in highway
capital

investment compare with the fiscal capacity of both the nation and
individual states to fund these programs, particularly since the enactment
of TEA- 21.

 Provide information on sources of funds for state highway programs.

2

Scope and Methodology

 Reviewed federal, state, and local highway capital investments over the
20- year period (1982- 2001).

 Obtained historical expenditure and funding data, primarily from FHWA*s
Highway Statistics, and adjusted data to 2001 dollars.  Obtained other
relevant trend data, including vehicle miles traveled from Highway
Statistics.

 Obtained Census Bureau data on state and local government expenditures,
in order to relate highway expenditures to state and local government
spending.  Interviewed transportation officials from 10 states.

 The selected states are Alaska, California, Illinois, Montana, Nevada,
New Mexico, Oklahoma, Vermont, West Virginia, and Wisconsin.  Factors
used to select these states included their level of highway capital
expenditures relative to gross state product, geographic location,
population, vehicle

miles traveled, and percentage of federally owned land area.  Examined
investment trends, but not the effect of the trends on performance of the

highway system. 3

Summary

 Total highway capital funding in the country has increased over the past
20 years.  States and localities are investing more than the federal
government, although growth in state and local

investment has slowed since TEA- 21 was enacted.  The nation*s level of
effort (highway investment related

to fiscal capacity) has remained relatively steady; however, the levels of
investment by different levels of government and individual states have
varied over time.

4

Investment in Highway Infrastructure by Levels of Government

This section  Summarizes trends in capital investment in the nation*s

highway system, including expenditures and expenditures relative to
vehicle miles traveled over the past 20 years, particularly during the
TEA- 21 period, and

 Compares federal trends with state and local trends over the past 20
years, particularly during the TEA- 21 period.

Total Highway Capital Investment

As shown in the following chart:  The nation has more than doubled its
investment in highways* an

increase of 123 percent or $36.4 billion in real terms over the 20- year
period, from 1982 to 2001.

 While investment has trended upward throughout the 20- year period,
there have been periods of larger increases* during the early 1980s and
the late 1990s.  During the TEA- 21 period, 1998 through 2001, total
highway capital investment increased 19 percent, from $55.5 billion in
1997, the last year of ISTEA to $66. 0 billion in 2001.

Note: The calculation of percent change over the TEA- 21 period is
compared to 1997 expenditures. 6

Total Highway Capital Expenditures by All Levels of Government

7

Highway Capital Expenditures by Levels of Government

As shown in the following chart:  States and localities together are
investing more in highways than the

federal government.  From 1982 though 1986, the federal government spent
more than state

and local governments on highway capital projects; however, state and
local governments* capital spending began to exceed federal spending in
1987.  In real terms, state and local capital spending increased at a
much greater rate (166 percent) than federal capital spending (83 percent)
from 1982 through 2001. State and local capital spending increased

from $14.1 billion to $37.6 billion in real terms, while federal capital
spending increased from $15.5 billion to $28.3 billion in real terms.
Note: The roles and responsibilities of localities for highway capital
investment vary among states, according to the relationship with its
localities. Since localities contribute different levels of funding in
different states, our analyses combine state and local expenditures for
uniformity.

8

Highway Capital Expenditures by Levels of Government

9

Annual Federal and State and Local Highway Capital Investment During TEA-
21

 During the TEA- 21 period (1998- 2001), federal investment increased
faster than state and local investment in real terms.

 During the TEA- 21 period from 1998 through 2001,  Federal investment
increased 23 percent, from $23.1 billion in 1997-- the last year of

ISTEA-- to $28. 3 billion in 2001, while  State and local investment
increased 16 percent from $32.4 billion in 1997 to $37.6

billion in 2001.  However, spending trends have not been consistent since
TEA- 21 was enacted. Federal expenditures decreased from 1997 to1998,
despite the large increase in funding

authorized by TEA- 21. This decrease was likely due to the midyear passage
of TEA- 21 in June 1998 and the amount of time it takes states to obligate
and spend capital project funds.

 As a result, as shown in the following chart,  Federal investment was
29 percent higher in 2001 than its 1998 level of $21.9

billion, while  State and local investment increased 2 percent from its
1998 level. 10

Annual Federal and State and Local Highway Capital Investment during TEA-
21

11

Future Expenditure Trends

 States may face difficulties maintaining their levels of investment,
given poor economic conditions.

 The National Governors Association and the National Conference of State
Legislatures estimate that states will face between $65 billion and $80
billion current dollars in budget shortfalls in fiscal year 2004.

 State transportation officials from 6 of 10 selected states said that
their states* financial condition may result in decreases in their highway
funding levels and their ability to complete highway projects.  A survey
done for the National Association of Counties in 2003

found that local governments are also facing revenue shortfalls. One in
four of the 72 percent of the counties experiencing shortfalls are
considering cutbacks in highway construction spending to address those
shortfalls.

12

Total Highway Capital Expenditures by All Levels of Government, per
Vehicle Miles Traveled

Comparing capital expenditures to vehicle miles traveled (VMT) provides
one possible measure of whether highway capital expenditures are keeping
pace with highway use. As shown in the following chart:

 Highway capital spending by all levels of government in real terms kept
pace with the volume of vehicle traffic nationwide over 20 years and
increased after the passage of TEA- 21.

 In 2001, the nation spent $2.37 on highways for every 100 VMT.  Over
the 20- year period there was over a 27 percent increase.  During the
TEA- 21 period there was a 9 percent increase.

13

Total Highway Capital Spending by All Levels of Government,

per 100 VMT

14

Capital Expenditures for Highways, per VMT, by Level of Government

As shown in the following chart:  States and localities spent more on
highway capital per VMT in real terms than the federal government over
most of the past 20 years.

 Beginning in 1986, federal highway capital expenditures per VMT began to
sharply decline, while state and local spending per VMT increased. In each
year since 1987, states and localities have invested more per VMT than the
federal government.

 Since the passage of TEA- 21, both federal capital spending, and state
and local spending per VMT have trended upwards,  Federal funding per 100
VMT increased 13 percent making up

much of the decline of federal investment per VMT over the 1990s.  State
and local spending per VMT increased at a slower rate* 7 percent.

15

Capital Expenditures for Highways, per 100 VMT

16

Level of Effort by Federal, State, and Local Governments

Another way of measuring governments* contribution to a program is *level
of effort.* Level of effort is defined as expenditures, as related to
taxing capacity. We defined level of effort as expenditures divided by
gross domestic product (GDP) at the national level and gross state product
(GSP) at the state level.

This section:  Summarizes trends of the nation*s capital investment in
its highway system

compared with the nation*s GDP,  Compares federal trends with state and
local trends, and  Compares total state and local highway spending with
other state expenditures.

The Nation*s Level of Effort: Total Highway Capital Expenditures As a
Percentage of GDP

As shown in the following chart:  Highway capital expenditures by all
levels of government

as a percentage of GDP remained relatively steady throughout the 1982
through 2001 period, increasing slightly (7/ 100 ths of 1 percent) as a
percentage of national GDP from 1982 through 2001.

18

The Nation*s Level of Effort: Total Highway Capital Spending As a
Percentage of GDP

19

Level of Effort: State and Local Compared with Federal Capital Highway
Expenditures As a Percentage of GDP

As shown in the following chart:  The state and local levels of effort
have exceeded the

federal level of effort for the last 15 years. The percentage of GDP spent
by state and local governments for highway capital projects surpassed the
federal percentage, beginning in 1987. 20

Level of Effort: State and Local Compared with Federal Capital Highway
Expenditures As a Percentage of GDP

21

Total State and Local Expenditures by Program Category - 2000

The following chart shows:  How total state and local highway
expenditures 1 compared with other competing demands in 2000. 2

 Highway spending made up about 6 percent of state and local outlays
nationwide in 2000.  Expenditures for highways were less than
expenditures for many

programs, including education and public welfare.  Total expenditures for
transportation, including transit and airports,

were less than 9 percent of state and local budgets. 1 Includes capital
and other expenditures, such as maintenance, from Census Bureau data. The
Census Bureau*s classification of highway expenditures excludes some costs
(e. g., some highway law enforcement and safety expenditures) that are
included in total highway expenditures by FHWA. 2 2000 is the most recent
year for which these data were available.

22

Total State and Local Expenditures by Program Category - 2000

23

State and Local Expenditures for Major Program Categories, As a Percentage
of Total Annual Expenditures

As shown in the following chart:  Since 1982, total state and local
expenditures for highways

consistently fell below education and public welfare.  Although state and
local government highway expenditures have been increasing over time,
their share of total state

expenditures has declined from about 7 percent in 1982 to about 6 percent
in 2000. 24

State and Local Expenditures for Major Program Categories, As a Percentage
of Total

Annual Expenditures

25

Individual States* Level of Effort

This section provides information on states* level of effort.  We show
level of effort in terms of state and local funding per $1,000 of GSP

including  changes in state levels of effort over time, and  factors
that may contribute to differences among states. Notes: This section does
not include 2001 data because 2001 local expenditure data are not yet
available at the state level.

The District of Columbia is not included in our state- level analysis
since the federal government has placed unique restrictions on its taxing
authority. Because of these restrictions, GSP does not provide a
comparable measure of the District's ability to fund public services.

Dollars of State and Local Highway Expenditures (State and Local Funding
per $1, 000 GSP)

From 1997 through 2000

From 1997 through 2000, states and localities invested an average of $3.
76 per $1,000 of GSP in capital highway projects in real terms.

The following map  Shows the 25 states above and 25 states below

the national average of $3. 76 per $1,000 of GSP.

27

Dollars of State and Local Highway Expenditures (State and Local Funding
per $1, 000 GSP)

From 1997 through 2000

Notes: The District of Columbia is not included in this state analysis.
Dollars are in 2001 dollars. 28

Change in Dollars of State and Local Highway Expenditures (State and Local
Funding per $1, 000 GSP)

From (1982- 1986) to (1997- 2000)

To analyze trends for the 50 states from 1982 through 2000, we divided
this 19- year time period into four periods * 1982 through 1986 being the
first, and 1997 through 2000 being the last.

The $3.76 per $1,000 of GSP that states and localities invested in capital
highway projects in the recent period, 1997 through 2000, is $0.80 more in
real terms than the $2.96 per $1,000 of GSP they invested in the period
from 1982 through 1986.

The following map shows that although the national level of effort
increased in real terms, changes of effort in individual states varied.
Compared with the average investment for 1982 through1986, the average
investment for 1997 through 2000

 increased by more than the national average of $0.80 for 23 states, 
increased by less than the national average of $0.80 for 8 states, and 
decreased for 19 states.

29

Change in Dollars of State and Local Highway Expenditures (State and Local
Funding per $1,000 GSP)

From (1982- 1986) to (1997- 2000)

Notes: The District of Columbia is not included in this state analysis.
Dollars are in 2001 dollars 30

Level of Effort for Selected States (State and Local Funding per $1, 000
GSP)

For the Period 1982- 1986

There appears to be no clear pattern, e. g., no state consistently ranks
highest in level of effort over time.

The following two charts illustrate changes in levels of effort over time
from a sample of 10 states we selected to represent a cross- section of
states across the country.

 During the 1982 through 1986 time period, Alaska had the highest level
of effort of our 10 sample states, while California had the lowest.

 During the 1997 through 2000 time period, West Virginia had the highest
level of effort of our 10 sample states, while Vermont had the lowest.

31

Level of Effort for Selected States (State and Local Funding per $1, 000
GSP)

For the Period 1982- 1986

32

Level of Effort for Selected States (State and Local Funding per $1,000
GSP)

For the Period 1997- 2000

33

Factors Affecting Changes in States* Levels of Effort

Variations among state programs and within state programs over time can be
affected by changes in a number of factors that influence the size of a
state*s highway program. For example,  An increase in the gas tax rate
may increase a state*s total available funding significantly from the
previous year.  A large issue of bonds may significantly increase a
state*s available

funds for highways for a few years; while retiring bonds may reduce
available funds.  A change in a state legislature*s support for highways,
as compared with other state financial needs, could increase or decrease

available funds for highways.  A change in the size of a state*s highway
construction program for a

given period, e. g., a large construction project such as I- 15 in Utah,
could increase funds spent on highways for a number of years.

34

Factors Affecting Changes in States* Levels of Effort

For example, West Virginia*s level of effort nearly doubled from the 1982
through1986 period to the 1997 through 2000 period. West Virginia
transportation officials discussed many factors that may have affected
that increase including

 a high (25.35 cents per gallon) gas tax rate indexed to inflation, 
strong legislative support for the state*s highway

program, and  bonds issued in the late 1990s.

35

Factors Affecting Changes in States* Levels of Effort

In addition, Oklahoma moved from 23 rd to 14 th place among the 50 states.

 An Oklahoma transportation official said that their state*s increased
level of effort is likely due to a recent *$ 1 billion* construction
program (so far about $860 million has been provided) for projects
identified and supported by the state legislature.  The state DOT
official expects to see a drop in the level

of effort in the future, when the construction program is completed.

36

Level of Effort for Selected States (State and Local Funding per $1,000
GSP)

Comparing (1982- 1986) to (1997- 2000)

Changes in states* levels of effort over time, and the effect of highway
projects on states* levels of effort, are illustrated by four additional
states.

As shown in the following chart:  Arizona and Michigan show the extremes
in the first time period and

how they changed over time. Arizona was the highest ranked state in the
1982 through 1986 period of the 50 states, while Michigan was the lowest.
For 1997 through 2000, Arizona ranked 12 th and Michigan ranked 22 nd .

 In addition, it seems that specific highway projects affected states*
level of effort. For example, the *Big Dig* in Massachusetts and Utah*s I-
15 project for the 2002 Winter Olympics affected state funding in those
states.

37

Level of Effort for Selected States (State and Local Funding per $1,000
GSP)

Comparing (1982- 1986) to (1997- 2000)

38

States* Levels of Effort

 To examine what factors, including state demographic and other
characteristics, may affect states* levels of effort, we compared a number
of state characteristics to level of effort. 1

 Our initial analysis comparing state characteristics to levels of effort
indicates that, over roughly the last 20 years, certain characteristics,
such as motor fuel tax revenues, may be generally related to states*
levels of effort.

 Other characteristics, such as the number of licensed drivers and
registered vehicles, do not appear to be related to states* levels of
effort.

 Our following work will more closely examine the relationship across all
states of states* levels of effort compared with selected demographic and
other state characteristics, as well as the effect of fiscal grants on
levels of effort.

1 To identify state characteristics that are linked with states* levels of
effort across all states, we performed a correlation analysis that
examined the linear relationship between level of effort and individual
state characteristics in concurrent years. Our analysis considered these
associations singly. However, more complex interactions may exist when
considering the relationships simultaneously.

39

State Sources of Funding for Highways

This section addresses changes in  state funding sources for highway
programs,  states* use of long- term debt, and

 state motor fuel tax rates.

State Revenue Sources Used for Highways

(Excludes Bond Proceeds and Sinking Fund Interest Earned) As shown in the
following chart:  Total state revenues for highways (e. g., gas taxes,
tolls, general fund appropriations), in constant 2001 dollars, have

generally increased since 1982. Note: We did not include bonds because
they are repaid out of the sources of funds shown in the chart.

41

State Revenue Sources Used for Highways

(Excludes Bond Proceeds and Sinking Fund Interest Earned) 42

Percentage of State Highway Funding by Source - National Totals

(Excludes Bond Proceeds and Sinking Fund Interest Earned) This chart
depicts state highway funding sources as percentages of total state
highway revenues. As shown in the following chart:

 Motor fuel taxes are the largest source of funds. 43

Percentage of State Highway Funding by Source - National Totals

(Excludes Bond Proceeds and Sinking Fund Interest Earned) 44

Percent Increases in State Funding Sources from 1982 through 2001

As the following chart shows:  Motor fuel taxes increased 75 percent in
real terms, since

1982.  Other funding sources have increased at a greater rate than motor
fuel taxes, since 1982.

 General fund appropriations increased over 220 percent, from 1982
through 2001.  Tolls increased over 80 percent, from 1982 through

2001. 45

Percentage Increases in State Funding Sources For Highways from 1982
through 2001

46

State Bond Proceeds

Debt financing is an increasingly important mechanism used by states to
fund their highway programs. Over this 20- year time period, funds that
states generated for highways through issuing long- term debt increased
273

percent in real terms. As shown in the following chart:

 The amount of funds states raise through bond issues can fluctuate
significantly from year to year.

47

State Bond Proceeds Notes: State bond proceeds do not include bonds issued
to refund existing debt. Dollars are in 2001 dollars. 48

Total State Funding Used for Highways: Debt Service Versus Other Highway
Uses

 The costs to the states of servicing debt, in constant 2001 dollars,
were 61 percent higher in 2001 than in 1982.  However, as the following
chart shows, state funding for highways, from sources other than debt,
increased at a

much faster rate* 90 percent over the same time period. 49

Total State Funding Used for Highways: Debt Service Versus Other Highway
Uses

50

Percentage Change in Gas Tax Rates by State Compared to Federal Rate,
1982- 2001

Although the rate of change in a state*s gas tax rate is not a complete
measure of a state*s level of effort (e. g., not all gas tax revenue goes
toward highways or even toward transportation in all states), it does
provide some interesting information. As this chart shows:

 In real terms, the federal gas tax rate increased by a greater
percentage than any of the states* rates since 1982.

 Thirty- nine states* gas tax rates increased in real terms; gas tax
rates for 12 states decreased in real terms.

Note: The District of Columbia is included in the tax rate analysis. 51

Percentage Change in Gas Tax Rates by State Compared to Federal Rate,
1982- 2001

52

Percentage Change in Gas Tax Rates by State Compared to Federal Rate,
1982- 2001

However, these results should be viewed with caution because  Results
could be different depending on the beginning year (e. g., if we began
with April of 1983, the federal tax rate would have been higher, and the
percent increase between 1983 and 2001 would be about 28 percent).

 A state may have increased its rate by a high percentage, but may still
have a relatively low tax rate when compared with other states. 53

States Above/ Below the Average Gas Tax Rate per Gallon, 1982

As the following chart shows:  In 1982, the weighted average state gas
tax, based on the

net gallons taxed, was about 9 cents per gallon. 1  Texas provides an
example of a state with a low gas tax

rate that experienced a high percentage increase. In 1982, it had the
lowest tax rate in the country but had the highest percentage increase
from 1982 through 2001.

1 The weighted average tax rate is computed by first multiplying each
state*s tax rate by the number of gallons taxed in each state, then adding
these amounts together to get total state tax revenue nationwide, and
finally dividing the total by the gallons taxed by all the states.

54

States Above/ Below the Average Gas Tax Rate per Gallon, 1982

55

States Above/ Below the Average Gas Tax Rate per Gallon, 2001

As the following chart shows:  As of 2001, 32 states had gas tax rates
that were above the weighted average rate of 19 cents per gallon.

 Nineteen states had rates that were below the weighted average.

56

States Above/ Below the Average Gas Tax Rate per Gallon, 2001

57

Percentage Change in Effective Fuel Tax Rates per Gallon, by State, 1982-
2001

As the following chart shows:  The rate of change of effective 1 motor
fuel tax rates from 1982 through

2001 looks similar to the rate of change of gas tax rates, with a few
differences.  Fewer states* 9-- experienced a decrease in their real
effective motor fuel tax rates, compared with the 12 states that had gas
tax rates that decreased in real terms.

 The ranking of some states changed slightly. For example, Texas and the
federal government changed places at the top of the chart, and Alaska and
Georgia changed places at the bottom.

 Some states* ranking changed more substantially. For example, Nevada*s
gas tax rate increased 24 percent in real terms from 1982 through 2001,
while its effective motor fuel tax rate increased 70 percent, increasing
its rank.

1 To provide a slightly broader view of tax rates, we calculated an
effective tax rate for each state by dividing total highway revenues from
motor fuel taxes, including taxes on gas, diesel, etc., by the amount of
gallons sold. 58

Percentage Change in Effective Fuel Tax Rates per Gallon, by State, 1982-
2001

59

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