Highway Trust Fund: Overview of Highway Trust Fund Estimates	 
(04-APR-06, GAO-06-572T).					 
                                                                 
The Highway Trust Fund is the principal mechanism for funding	 
federal highway and transit programs through receipts from excise
taxes charged to highway users, such as taxes on motor fuels. The
Department of Treasury (Treasury) and the Congressional Budget	 
Office (CBO) each prepare estimates of future receipts for the	 
Highway Trust Fund semiannually. Treasury's receipt estimates are
combined with the Department of Transportation's (DOT) estimates 
of outlays to create an estimate of the Highway Trust Fund	 
balance for the President's Budget; CBO also projects outlays to 
develop an estimate of the fund balance. The agencies' most	 
recent estimates show that the Highway Account within the Highway
Trust Fund could have a negative balance as early as 2009,	 
raising concerns about whether funding for federal highway	 
programs--which were recently authorized by the Safe,		 
Accountable, Flexible, Efficient Transportation Equity Act: A	 
Legacy for Users--will continue to be met. Consequently, Congress
asked us to review and compare recent estimates made by Treasury 
and CBO. This testimony provides information on how (1) estimates
are used to provide key information about the Highway Trust Fund,
(2) the most recent Highway Trust Fund estimates--based on	 
receipt estimates made by Treasury and CBO--compare, and (3)	 
Treasury's and CBO's estimates compare to actual receipts for	 
recent years.							 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-06-572T					        
    ACCNO:   A50757						        
  TITLE:     Highway Trust Fund: Overview of Highway Trust Fund       
Estimates							 
     DATE:   04/04/2006 
  SUBJECT:   Budget outlays					 
	     Federal aid for highways				 
	     Federal funds					 
	     Funds management					 
	     Future budget projections				 
	     Public roads or highways				 
	     Trust funds					 
	     Highway Trust Fund 				 

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GAO-06-572T

     

     * Appendix I: Scope and Methodology
     * Related GAO Products

Testimony

Before the Subcommittee on Highways, Transit, and Pipelines, Committee on
Transportation and Infrastructure, U.S. House of Representatives

United States Government Accountability Office

GAO

For Release on Delivery Expected at 2:00 p.m. EST

Tuesday, April 4, 2006

HIGHWAY TRUST FUND

Overview of Highway Trust Fund Estimates

Statement of Katherine Siggerud, Director Physical Infrastructure Issues

GAO-06-572T

Mr. Chairman and Members of the Subcommittee:

We appreciate the opportunity to testify on important Highway Trust Fund
issues. The Highway Account within the Highway Trust Fund is the principal
mechanism for funding federal highway programs authorized by the Safe,
Accountable, Flexible, Efficient Transportation Equity Act: A Legacy for
Users (SAFETEA-LU). SAFETEA-LU set specific annual funding levels for most
federal highway programs on the basis of projected receipts to the Highway
Trust Fund for fiscal years 2005 through 2009. The Department of the
Treasury (Treasury) and the Congressional Budget Office (CBO) each prepare
estimates of future receipts for the Highway Trust Fund biannually.
Treasury's receipt estimates are combined with the Department of
Transportation's (DOT) estimates of outlays to create an estimate of the
Highway Trust Fund balance for the President's Budget; CBO also projects
outlays to develop an estimate of the Highway Trust Fund balance. The
agencies' most recent estimates show that the Highway Account within the
Highway Trust Fund could have a negative balance as early as 2009, raising
concerns about whether funding for federal highway programs-which were
recently authorized by the Safe, Accountable, Flexible, Efficient
Transportation Equity Act: A Legacy for Users-will continue to be met.

Consequently, the Subcommittee asked us to review and compare recent
estimates made by Treasury and CBO. Accordingly, this testimony provides
information on how (1) estimates are used to provide key information about
the Highway Trust Fund, (2) the most recent Highway Trust Fund
estimates-based on receipt estimates made by Treasury and CBO- compare,
and (3) Treasury's and CBO's estimates compare to actual receipts for
recent years. (All years in this statement are fiscal years. See app. I
for information on our scope and methodology.)

In summary:

           o  Because of the nature of the Highway Trust Fund receipt and
           disbursement processes, estimates are used regularly to determine
           and project the balance of the Highway Trust Fund. Treasury's
           processes for allocating tax receipts to the Highway Trust Fund
           regularly rely on estimates based on historical receipts to
           determine how much should be transferred from the General Fund
           into the Highway Trust Fund, because Treasury does not obtain data
           from business taxpayers on the type of excise tax it collects. DOT
           and the Office of Management and Budget (OMB) also use estimates
           based on future receipts in calculating annual adjustments to
           authorization levels, and DOT uses estimates based on historical
           fuel consumption to determine apportionments from the Highway
           Trust Fund to the states. Because estimates are used to make
           semimonthly receipt transfers into the Highway Trust Fund, to
           calculate adjustments to the Fund, and to identify appropriate
           funding authorization levels for budget planning and
           legislation-like SAFETEA-LU-it is important that estimates be as
           accurate as possible.
           o  The most recent Highway Trust Fund estimates contained in the
           President's Budget and those released by CBO show similar trends,
           with balances estimated to continue to decline into 2011. The
           Highway Trust Fund balance is gradually being depleted because
           estimated outlays of the Highway Account exceed estimated revenues
           each year from 2006 through 2011. Treasury estimates lower
           receipts levels than CBO during this period, and therefore the
           President's Budget contains estimates of negative Highway Trust
           Fund balances occurring one year earlier than CBO is projecting.
           The differences in receipts estimates developed by Treasury and
           CBO are caused, in part, by the use of different economic
           assumptions, such as economic growth and fuel prices.
           o  When compared with actual Highway Trust Fund receipts, the
           accuracy of Treasury's and CBO's Highway Trust Fund estimates are
           not very different from each other. Neither agency's estimates
           have been consistently closer or further away from the actual
           amounts. For example, the estimates of the two agencies are
           closest or furthest from actual receipts in the same years. These
           comparisons of past performance should not be taken as an
           indicator of the future performance of the models.

           The Highway Trust Fund was established in 1956 to provide a
           dedicated source of federal funding for highways. In 1983, the
           Highway Trust Fund was divided into two accounts: the Highway
           Account and the Mass Transit Account. Periodically, Congress
           enacts multiyear legislation, such as SAFETEA-LU, authorizing
           federal spending for the nation's surface transportation
           programs-including highway, transit, highway safety, and motor
           carrier programs-and setting overall funding for these activities.
           Funding for the federal-aid highway program is provided through
           the Highway Trust Fund, a "pay as you go" system that uses
           receipts from highway user excise taxes to fund various surface
           transportation programs.1

           Receipts for the Highway Trust Fund are derived from two main
           sources: federal excise taxes on motor fuels (gasoline, diesel,
           and special fuels taxes) and truck-related taxes (truck and
           trailer sales, truck tires, and heavy-vehicle use taxes). Someone
           other than the consumer generally pays the excise taxes directed
           to the Highway Trust Fund. The highway user pays the other taxes
           indirectly, since these taxes become part of the purchase price.
           Thus, the motor fuels taxes are paid by businesses rather than
           consumers at retail pumps. Oil companies, for example, typically
           pay a per-gallon tax on the motor fuels when their fuel is loaded
           into tanker trucks or rail cars at a terminal. Tire manufacturers
           pay taxes on truck tires, and retailers pay taxes on the sales
           price of new trucks and trailers. Owners of heavy highway
           vehicles-trucks weighing 55,000 pounds and over-pay taxes on the
           use of these vehicles, making this the only highway tax directly
           paid by the highway user.

           Receipts from the gasoline tax constitute the single largest
           source of revenue for the Highway Account, and approximately 84
           percent of the receipts from the gasoline tax go to this account.
           Overall, the Highway Account receives the majority of the tax
           receipts for the Highway Trust Fund, including all receipts from
           truck-related taxes. Table 1 shows the amount of motor fuels and
           truck-related taxes levied for the Highway Trust Fund and how
           receipts from the taxes are allocated between the Highway Account
           and the Mass Transit Account within the fund.

                                   Background

1The federal-aid highways program is funded by contract authority
contained in SAFETEA-LU. Appropriation acts contain an obligation
limitation reflecting the authorized level, including an adjustment based
on revenue. Obligations made against the Highway Trust Fund can exceed the
actual cash balances up to the receipts anticipated to be collected in the
following 2 years.

Table 1: Federal Highway User Excise Taxes and the Percentage Allocations
to the Highway Account and the Mass Transit Account of the Highway Trust
Fund, as of March 1, 2006

Motor fuel taxes                                           
                                                      Distribution of tax
                                                      Highway    Mass Transit 
Type of Excise Tax  Tax rate (cents)               Account         Account 
Gasoline            18.3 per gallon                    84%             16% 
Diesel              24.3 per gallon                    88%             12% 
Gasohol             18.3 per gallon                    84%             16% 
Liquefied petroleum 13.6 per gallon                    84%             16% 
gas                                                        
Liquefied natural   11.9 per gallon                    84%             16% 
gas                                                        
M85 (from natural   9.15 per gallon                    84%             16% 
gas)                                                       
Compressed natural  48.54 per thousand                 80%             20% 
gas                 cubic feet                             
Truck-related Taxes - All proceeds to Highway Account
Tires               9.45 cents for each 10 pounds (so much of the maximum
                       rated load capacity thereof as exceeds 3,500 pounds)
Truck and trailer   12 percent of retailer's sales price for tractors and
sales               trucks over 33,000 pounds Gross Vehicle Weight (GVW)
                       and trailers over 26,000 pounds GVW
Heavy-vehicle use   Annual tax for trucks 55,000 pounds and over GVW: $100
                       plus $22 for each 1,000 pounds (or fraction thereof)
                       in excess of 55,000 pounds. Maximum tax: $550

Source: GAO analysis of FHWA data.

     Estimates Are Integral to Determining Highway Trust Fund Receipts and
                                 Distributions

The nature of the Highway Trust Fund's receipts collection and
disbursement processes is such that estimates are needed not only to
project the fund's future balance but also to determine its current
balance. Changing circumstances-for example, shifts in motor fuel
usage-can affect the accuracy of past estimates of receipts that will flow
into the Highway Trust Fund, rendering it necessary to make regular
adjustments. Treasury's estimates of Highway Trust Fund receipts are used
to make these regular adjustments to the Highway Trust Fund balance, and
DOT uses these estimates in turn to calculate what is called the Revenue
Aligned Budget Authority (RABA) adjustment, which can increase or decrease
the levels of funding enacted by legislation and funded through the
Highway Account.

The process for collecting and distributing Highway Trust Fund moneys is
summarized in figure 1. As it shows, the basic process involves receiving
money from business entities and individual taxpayers, passing it into
Treasury's General Fund and determining how much should be transferred
into the Highway Trust Fund, determining how much is available in the
Highway Trust Fund for disbursement, and then distributing this money to
the states or allocating it to specific projects.

Figure 1: Process for Collecting and Distributing Highway Trust Fund
Receipts

Collection and determination of Highway Trust Fund receipts. The
collection and allocation of the receipts is complex and involves several
organizations. Twice a month, business taxpayers make deposits of excise
taxes-including the highway user excise taxes levied for the Highway Trust
Fund-generally through Treasury's Electronic Federal Tax Payment System.
When these semimonthly deposits are made, Treasury does not obtain data
from business taxpayers on the type of excise taxes (highway user or
otherwise) that these deposits are intended to cover; therefore, the
deposits flow into Treasury's General Fund. On a semimonthly basis,
Treasury's Financial Management Service (FMS) and Bureau of Public Debt
(BPD) use estimates made by the Treasury's Office of Tax Analysis (OTA)
based on historical tax receipts certified by Internal Revenue Service
(IRS) data and actual total current excise tax revenue collections to make
an initial transfer into the Highway Trust Fund. Treasury later adjusts
these initial deposits based on actual tax receipts, which are certified
by IRS on a quarterly basis 6 months after each quarter has ended.2
Information about the actual Highway Trust Fund receipts is therefore
subject to a lag between when the tax is paid to Treasury by the business
entity or taxpayer, when IRS certifies the receipts, and when Treasury
adjusts the Highway Trust Fund accordingly.

Determination of Highway Trust Fund monies available for disbursement. DOT
and OMB are involved in calculating an adjustment to the amounts
authorized and available for obligation based on Highway Trust Fund
receipts; these calculations also depend on estimates. Since fiscal year
2000, DOT and OMB have been responsible for calculating and making the
annual RABA adjustment, which ties highway funding to receipt levels. To
determine the RABA adjustment, DOT and OMB rely on information about past
Highway Account receipts and estimates of future Highway Account receipts
from Treasury. The RABA adjustment, based on a comparison of actual and
estimated receipt data, can increase or decrease the guaranteed levels of
funding enacted by legislation and funded through the Highway Account.

Apportionment to states and allocation to projects. The Federal Highway
Administration (FHWA) of DOT apportions funding to the states on a formula
basis using estimates of each state's relative contribution of taxes to
the Highway Trust Fund. Because businesses, rather than consumers,
generally pay highway user taxes, most of the federal motor fuels and
truck taxes come from the handful of states where those businesses have
their corporate headquarters and pay their taxes. As a result, Treasury
does not provide FHWA with state-level data on highway tax receipts, and
FHWA must therefore estimate these data in order to distribute highway
program funds to the states. FHWA estimates state-level contributions
through what it refers to as its "attribution process." Through this
process, it determines each state's share of highway motor fuels usage on
the basis of data about such things as gas and diesel fuel consumption
from each state's records on the collection of state-imposed fuel taxes.
FHWA uses these data to estimate the Highway Account receipts attributable
to each state's highway users as well as other data to ultimately
determine the apportioned amounts of funding that should flow to a state
for highway programs funded from the Highway Account.

2IRS certifies the Quarterly Federal Excise Tax Return (Form 720) that
taxpayers are required to submit to report their excise tax liability.
Form 720 contains information that ultimately determines how these
receipts should be distributed to government trust funds, including the
Highway Trust Fund.

Because of the extensive use of estimates in determining the Highway Trust
Fund balance, it is not surprising that estimates of amounts that will be
available in future years may be subject to considerable change. While a
future balance of the Highway Trust Fund can be calculated as the
difference between receipts and outlays (spending) over the life of the
fund, a determination of this future balance can change as more up-to-date
information becomes available.3 For example, Treasury's estimates of
Highway Trust Fund receipts for 2005 have changed every year since the
initial estimate was made in 2000. Various factors, economic and
otherwise, can cause them to change.4 Because estimates are used in
determining the initial transfer to the Highway Trust Fund, in calculating
the RABA adjustment, and in identifying appropriate funding authorization
levels for budget planning and legislation, such as SAFETEA-LU, it is
important that estimates be as accurate as possible.

 Recent Highway Trust Fund Estimates Show Similar Trends, Even Though Different
                  Assumptions are Used in Making the Estimates

Highway Trust Fund estimates contained in the President's Fiscal Year 2007
Budget-based on receipts estimates from Treasury and outlay estimates from
DOT-and those released by CBO in January 2006 project different balances,
but the trends are similar. For example, the estimates show that CBO is
projecting higher year-end Highway Trust Fund balances than the
President's Budget for fiscal years 2006 through 2011, but both show
declining balances over that period.5 Both sets of estimates project a
negative Highway Trust Fund balance by the end of fiscal year 2011; but
the President's Budget projects the depletion of the Fund by 2010 and
CBO's estimates show a negative balance occurring in 2011. More
specifically, the Highway Account-which makes up the majority of Highway
Trust Fund receipts-is projected to have a negative balance as early as
2009, because of the growing difference between projected receipts and
outlays. The variation in economic assumptions used by Treasury and CBO,
such as those for gross domestic product and fuel prices, accounts for
part of the difference in Highway Account receipt estimates.6

3Outlays during a fiscal year may be for payment of obligations incurred
in prior years or in the same year. Outlays, therefore, flow in part from
unexpended balances of prior year budgetary resources and in part from
budgetary resources provided for the year in which the money is spent.

4Additionally, estimates do not include RABA adjustments, which also can
have an effect on balances.

5For the purposes of this study we are using Highway Trust Fund year-end
balance estimates released by CBO in January 2006 and by the President's
Fiscal Year 2007 Budget in February 2006 as the current or most recent
estimates.

Estimates Result in Similar Trends, but Diverge over Time

Both the President's Budget and CBO's estimates currently show a
continuing downward trend of cash balances in the Highway Trust Fund, and
both estimates show a negative balance in the Highway Trust Fund by fiscal
year 2011. Differences between the estimates are greater in the later
years because the uncertainty of estimates increases as the projections
extend into the future. As figure 2 shows, CBO estimates higher year-end
balances for every year through 2011, projecting a balance of negative
$2.4 billion at the end of 2011, while the President's Budget estimates
project a negative balance occurring first in 2010 and reaching an
estimated negative $10 billion by 2011. It should be noted, however, that
legislative or economic changes affecting Highway Trust Fund receipts
occurring in the interim could change these projected negative balances.
For example, a number of changes, such as provisions to reduce tax evasion
that provided increased receipts to the Highway Trust Fund, were adopted
in the American Jobs Creation Act of 2004.

6In 2002, in order to help determine the reasonableness of Treasury's
estimates, we compared them with CBO's estimates. This comparison did not
raise any questions about the reasonableness of Treasury's estimates. (See
the list of related GAO products at the end of this testimony.)

Figure 2: Current Highway Trust Fund Year-End Balance Estimates

The Highway Account, which makes up about 84 percent of the Highway Trust
Fund receipts, is projected to have a negative balance by the President's
Budget estimates in 2009 and by CBO in 2010. Projected outlays are
outpacing estimated receipts, which leads to the projected negative
balances in the Highway Account and ultimately the Highway Trust Fund. For
example, for 2006 through 2011, the Highway Account receipts are estimated
to average $35.8 billion by Treasury and $37.4 billion by CBO. For that
same period, average outlays are estimated at $39.6 billion by DOT and
$40.3 billion by CBO. See table 2 for receipt and outlay estimates for
2006 through 2011.

Table 2: Highway Account Receipt and Outlay Estimates for 2006 through
2011, as of March 1, 2006

Estimates Dollars in Billions                                      
                                                                      Average   
                            2006  2007   2008   2009   2010   2011    2006-2011 
Treasury/DOT Receipts    $34.1  $34.6  $35.4  $36.2  $36.9   $37.6     $35.8 
                Outlays     $34.5  $38.2  $39.7  $40.8  $41.8  $42.3      $39.6
                Difference -$0.40 -$3.60 -$4.30 -$4.60 -$4.90 -$4.70     -$3.80
CBO          Receipts    $34.9  $35.9  $36.9  $37.9  $38.8   $39.7     $37.4 
                Outlays     $34.9  $37.9  $40.5  $41.7  $42.7  $43.8      $40.3
                Difference  $0.00 -$1.94 -$3.58 -$3.81 -$3.89 -$4.07     -$2.90

Source: GAO analysis of data provided by DOT and CBO.

In addition to the current estimates, we also reviewed Treasury's and
CBO's annual estimates for 1999 through 2006. These historical estimates
showed that although estimates have been further apart and closer together
at different times, the projected trends have been similar. For example,
in the winter 1998 estimates, both Treasury and CBO projected Highway
Trust Fund receipts to decline over $4 million between 1999 and 2000,
before experiencing a steady increase from 2000 through 2003. These
historical estimates also show that for the last four budget forecasts,
starting with estimates for 2003, CBO has estimated higher Highway Trust
Fund receipts levels than Treasury in each year.

Differences in Estimated Balances Are Largely Due to Differing Assumptions about
Future Receipts

Differences in receipts estimates, that is, the amounts estimated to be
collected through federal excise taxes on fuels and truck-related taxes,
appear to be the driving factor in the difference between the two
estimated balances. (See fig. 3 for current Treasury and CBO receipts
estimates.) Treasury and CBO officials indicated that differences in
receipts estimates are not unusual, given the different economic
assumptions used by each of the models.7 DOT's outlays are based on
currently enacted law, and CBO's are based on historical spending
patterns; however, the resulting estimates are not very different. As
figure 4 illustrates, estimates of outlays track much more closely than do
estimates of receipts over the same period of time.

7How each organization constructs its tax models, generally referred to as
technical differences, are also an important factor in the differences
between Treasury's and CBO's estimates.

Figure 3: Current Treasury and CBO Estimates of Highway Trust Fund
Receipts

Figure 4: Current estimates of Highway Trust Fund outlays

Treasury and CBO develop Highway Trust Fund estimates for different
purposes: Treasury's estimates are used and reported in the President's
Budget, and CBO's estimates aid Congress in formulating budget policy.
Both agencies use models to make Highway Trust Fund estimates twice a
year, once in the summer and once in the winter. Neither model predicts
future regulatory or legislative changes that could affect Highway Trust
Fund receipts. As a result, any changes that affect Highway Trust Fund
receipts will affect the accuracy of the estimates.8 Despite their
differing assumptions about economic policy, the two sets of estimates are
very close. For example, the President's Budget estimates show that the
Highway Trust Fund year-end balance for 2006 will be $16.1 billion, and
CBO estimates it will be $16.6 billion-a difference of about 3 percent.
Treasury and CBO officials told us that, although their models and
assumptions differ, their near-term estimates are generally not that
different. We did not evaluate the models and assumptions used by either
agency.

8Treasury's model generally assumes that the proposals contained in the
President's Budget will be enacted.

A major driver of Highway Trust Fund receipts is the economy and
assumptions about the economy. Both receipts and outlays are affected by
changes in economic conditions. This sensitivity complicates budget
planning because errors in economic assumptions lead to errors in
estimates. Treasury and CBO officials attributed the current differences
in estimates, in part, to the economic assumptions used in the models,
such as economic growth and the relative prices of fuel. For example, at
the time of the 2007 President's Budget, the administration's estimate for
real gross domestic product (GDP) growth-which is used in Treasury's
estimates-is below CBO's for 2006 through 2009; but for 2006 through 2011,
the administration and CBO project similar percent average annual growth
rates (3.2 and 3.3, respectively). (See table 3 for real GDP growth rate
estimates.)

Table 3: Comparison of Real GDP Growth Rate Assumptions between 2007
President's Budget and CBO

Real GDP assumptions 2006 2007 2008 2009 2010 2011 Average 2006-2011 
2007 Budget          3.4% 3.3% 3.3% 3.1% 3.1% 3.1%              3.2% 
CBO                  3.6% 3.4% 3.4% 3.3% 3.0% 2.8%              3.3% 

Source: 2007 President's Budget.

Treasury's estimates incorporate economic assumptions formulated for the
President's Budget by the "Troika," which consists of the Council of
Economic Advisors, OMB, and Treasury. The Troika's economic assumptions
are used in estimates contained throughout the President's Budget and are
not limited to Highway Trust Fund estimates. Several of the
administration's economic assumptions, such as those for the real GDP and
consumer price index, are publicly available. However, most Troika
assumptions are not publicly available. The economic and technical
assumptions on which Treasury's Highway Trust Fund estimates are based
represent estimates of what is most likely to occur if the President's
policies included in the Budget are enacted and implemented. Thus, they
may not match the "actual" data if some of the President's policies are
not enacted and implemented, if an understanding of the effects of
policies or the underlying relationships is less than perfect, or if
unexpected events occur. By comparison, CBO's model projects future
highway excise tax receipts by looking at past and expected changes in
relative fuel prices as well as historical relationships between sources
of Highway Trust Fund receipts and real economic growth and by holding
current law constant. For example, estimates of fuel consumption depend on
estimates of economic growth, relative fuel prices, and average fuel
efficiency, which are then multiplied by the current federal tax rate on
fuel. CBO's estimates of Highway Trust Fund receipts are added to CBO's
estimates of other sources of federal revenues in order to generate
projections of total federal revenues. Both Treasury and CBO continuously
update their models to incorporate legislative, economic, and other
relevant changes-which are then reflected in the next forecasting
exercise.

Accuracy of Treasury's and CBO's Estimates of Receipts Has Been Comparable

When Treasury's and CBO's estimates of receipts are compared with actual
Highway Trust Fund receipts, both agencies' track records, in terms of how
close their estimates come to the actual amounts, are not very different.
Neither agency is consistently closer: Treasury's estimates have been
closer to actual receipts in some instances and CBO's in others. However,
these comparisons should not be taken as an indicator of the future
performance of the models.

Before looking at the results, it is necessary to explain more precisely
what we compared, and how. Each year, Treasury and CBO estimate Highway
Trust Fund receipts for at least the next 6 years. In forecasting,
estimates of what will occur within a year or two are generally more
reliable than estimates of what may occur several years later, because the
longer the period involved, the greater the opportunity for conditions to
change in unexpected ways. We focused our analysis on Treasury's and CBO's
1-year and 2-year estimates-for example, what the two agencies estimated
in 2000 as the Highway Trust Fund receipts in 2001 and 2002. We compared
the annual estimates of receipts made by each agency in 1998 through 2004
to actual Highway Trust Fund receipts that were collected 1 year and 2
years after the estimates were made.9

On average, the two agencies were nearly identical in the degree to which
their 1-year estimates mirrored actual results, and Treasury's estimates
were slightly better in the degree to which 2-year estimates mirrored
actual results. As figure 5 shows, Treasury's 1-year estimates were off by
an average of 5.74 percent, while CBO's were off by 5.77 percent.10 This
translates to an average difference between estimates and actual receipts
of about $1.9 billion each year.11 For 2-year estimates, Treasury's
estimates differed from actual receipts, on average, by about 6.85
percent, while CBO's estimates differed by about 7.61 percent. These
differences translate to about $2.3 billion for Treasury's forecast and
about $2.6 billion for CBO's, on average, each year.

9To make the comparison, we used actual receipt data reported in the
President's Budget. Our comparisons were for the entire Highway Trust
Fund, including both the Highway Account and the Mass Transit Account. We
were unable to assess estimates made for years after 2005 because we did
not have data points of actual results for the analysis.

10The comparison period covered forecasts for fiscal years 1999 through
2005. The percentages are based on the absolute value of the forecast,
which is the difference-regardless of whether it is positive or
negative-between the actual and the forecasted values for each year.

Figure 5: Accuracy of Treasury and CBO Estimates Made in 1998-2004 for
Highway Trust Fund Receipts 1 Year and 2 Years Ahead of the Estimates

A comparison of the results for each year showed that both agencies'
estimates also followed a similar pattern in how far they were off from
actual amounts in any given year, and whether their estimates were too low
or too high. Figure 6 shows the year-to-year results for the 1-year
estimates. While there were some differences, the estimates from both
agencies followed the same general trend. For example, both agencies'
estimates were furthest from actual amounts in the same 2 years-fiscal
years 2001 and 2002. In those years, both agencies' 1-year estimate was
above the actual receipts by 12 percent or more. In those 2 years, a
weakened economy led to a decline in highway excise taxes paid.

11The dollar value represents Mean Absolute Error (MAE,) which is the
average value of the difference between estimated and actual receipts,
regardless of whether it is positive or negative-over the comparison
period.

Figure 6: Accuracy of Annual Treasury and CBO Estimates Made for Highway
Trust Fund Receipts 1 Year Ahead of the Estimates

These comparisons of historical performance, while interesting, should not
be taken as an indicator of the future performance of the two models.
However, the results tend to move in tandem, suggesting that both models
are likely to predict the same kinds of results. We did not collect
detailed information on factors and assumptions used in the models because
some of the information used in Treasury's model is based on economic
assumptions by the administration that are not publicly available. To
evaluate these models, one would need to analyze and test the various
components of each model-something we did not do.

                            Concluding Observations

Treasury's and CBO's estimates of Highway Trust Fund receipts play an
important role not only determining appropriate levels of funding for
transportation programs, but also for distributing the funds to states for
approved highway and transit projects. Even though the estimates from both
agencies have tended to perform similarly, the estimates continue to
change with each forecasting exercise, making it difficult for those
relying on the estimates to anticipate future Highway Trust Fund balances.
However, because changes in economic conditions or legislation are hard to
foresee, there is no easy solution to this problem. While the Highway
Trust Fund may not reach a negative balance within 5 years as current
forecasts project, the trend of declining balances is clear, a trend that
the Congress and the administration have already begun to address through
two commissions charged with reviewing and making recommendations on
issues affecting the Highway Trust Fund.

Mr. Chairman, this concludes my prepared statement. I would be pleased to
respond to any questions that you or the other Members of the Subcommittee
might have.

                     GAO Contacts and Staff Acknowledgement

For further information on this testimony, please contact Katherine
Siggerud at (202) 512-2834 or [email protected]. Individuals making key
contributions to this testimony were Heather MacLeod, Mehrzad Nadji, Stan
Stenersen, Friendly Vang-Johnson, and Sara Vermillion.

Appendix I: Scope and Methodology

To identify why estimates are used to provide key information about the
Highway Trust Fund, we reviewed Department of Transportation (DOT)
documents and prior GAO reports on Highway Trust Fund processes. We also
interviewed officials from Treasury, the Congressional Budget Office
(CBO), and DOT about how estimates are involved in these processes.

To compare Treasury's and CBO's estimates, we analyzed data for fiscal
years 1998 through 2006 from both agencies; Treasury's estimates of
receipts were published annually in the President's Budget (which also
included outlay estimates from DOT), and CBO's estimates of receipts and
outlays were prepared in that time frame each year. Specifically, for the
Highway Trust Fund and the Highway Account within the fund, we examined
the differences in receipt and outlay estimates, the percentage difference
in the estimates, and the overall trends in the forecasts. We also
reviewed information from both agencies on the overall factors and
assumptions that are included in the models used to prepare estimates and
interviewed officials from Treasury and CBO about the factors that were
most likely responsible for any differences in their estimates. We did not
collect detailed information on factors and assumptions used in the models
because some of the information used in Treasury's model is based on
economic assumptions developed by the administration that are not publicly
available. Consequently, we were not able to evaluate the reliability of
Treasury's or CBO's model for preparing Highway Trust Fund estimates.

To compare Treasury's and CBO's estimates to actual Highway Trust Fund
receipts, we analyzed the annual estimates of receipts made by each agency
in each year from fiscal year 1998 through fiscal year 2004 and compared
them to actual Highway Trust Fund receipts, as published annually in the
U.S. Budget Historical Statistics. The comparisons were made for 1- and
2-year estimates for the entire Highway Trust Fund, including both the
Highway Account and the Mass Transit Account. The percentage differences
in estimates and actual receipts were computed on the basis of the
absolute value of the differences regardless of whether the values were
negative or positive. The differences in dollar value represent Mean
Absolute Error (MAE), which is the average value of the difference between
estimated and actual receipts, regardless of whether the value is positive
or negative. These accuracy measures are general and descriptive
statistics, which were not tested for statistical significance because of
the relatively small number of data available.

Related GAO Products

21st Century Challenges: Reexamining the Base of the Federal Government.
GAO-05-325SP . Washington, D.C.: February 1, 2005.

Applying Agreed-Upon Procedures: Highway Trust Fund Excise Taxes.
GAO-04-213R . Washington, D.C.: November 20, 2003.

Applying Agreed-Upon Procedures: Highway Trust Fund Excise Taxes.
GAO-03-360R . Washington, D.C.: January 23, 2003.

Highway Financing: Factors Affecting Highway Trust Fund Revenues.
GAO-02-667T . Washington, D.C.: May 9, 2002.

Highway Trust Fund: Overview of Highway Trust Fund Financing. GAO-02-435T
. Washington, D.C.: February 11, 2002.

Federal Trust and Other Earmarked Funds: Answers to Frequently Asked
Questions. GAO-01-199SP . Washington, D.C.: January 1, 2001.

Highway Funding: Problems With Highway Trust Fund Information Can Affect
State Highway Funds. GAO/RCED/AIMD-00-148 . Washington, D.C.: June 30,
2000.

Budget Issues: Trust Funds in the Budget. GAO/T-AIMD/RCED-99-110 .
Washington, D.C.: March 9, 1999.

Agreed-Upon Procedures: Highway Trust Fund Excise Taxes. GAO/AIMD-99-71R .
Washington, D.C.: February 25, 1999.

Highway Trust Fund: Financial Condition as of September 30, 1997.
GAO/RCED-98-171R . Washington, D.C.: April 24, 1998.

Highway Trust Fund: Possible Impact If It Had Financed All Highway
Expenditures. GAO/RCED-98-78R . Washington, D.C.: February 6, 1998.

Surface Transportation: Regional Distribution of Federal Highway Funds.
GAO/RCED/HEHS-97-167R . Washington, D.C.: May 30, 1997.

Highway Funding: Alternatives for Distributing Federal Funds.
GAO/RCED-96-6 . Washington, D.C.: November 28, 1995.

Highway Fund Audit. GAO/AIMD-97-14R . Washington, D.C.: November 4, 1996.

Highway Planning: Agencies Are Attempting to Expedite Environmental
Reviews, but Barriers Remain. GAO/RCED-94-211 . Washington, D.C.: August
2, 1994.

Surface Transportation: Tight Budget Environment Requires Sound Investment
Strategy. GAO/T-RCED-94-146 . Washington, D.C.: March 8, 1994.

Highway Demonstration Projects. GAO/RCED-93-193R . Washington, D.C.:
August 10, 1993.

Surface Transportation: Funding Limitations and Barriers to Cross-Modal
Decision Making. GAO/T-RCED-93-25 . Washington, D.C.: March 31, 1993.

Transportation Infrastructure: Major Program Revisions Present Challenges.
GAO/T-RCED-92-93 . Washington, D.C.: September 17, 1992.

Highway Trust Fund: Strategies for Safeguarding Highway Financing.
GAO/RCED-92-245 . Washington, D.C.: September 15, 1992.

Highway Trust Fund: Revenue Sources, Uses, and Spending Controls.
GAO/RCED-92-48FS . Washington, D.C.: October 16, 1991.

Transportation Infrastructure: Department of Transportation Highway and
Mass Transit Program Reauthorization Proposals. GAO/T-RCED-91-26 .
Washington, D.C.: April 18, 1991.

Transportation Infrastructure: Federal Highway Administration FY 1992
Budget. GAO/T-RCED-91-12 . Washington, D.C.: March 5, 1991.

Transportation Infrastructure: Flexibility in Federal-Aid Funding
Essential to Highway Program Restructuring. GAO/T-RCED-91-4 . Washington,
D.C.: December 10, 1990.

Operations and Outlook for the Highway Trust Fund. GAO/T-RCED-90-79 .
Washington, D.C.: May 9, 1990.

Operations of and Outlook for the Transportation Trust Funds.
GAO/T-RCED-90-78 . Washington, D.C.: May 8, 1990.

Issues to Be Considered During Deliberations to Reauthorize the
Federal-Aid Highway Program. GAO/T-RCED-90-50 . Washington, D.C.: March
19, 1990.

The Budget Treatment of Trust Funds. GAO/T-AFMD-90-03 . Washington, D.C.:
October 18, 1989.

The Budget Treatment of Trust Funds. GAO/T-AFMD-90-01 . Washington, D.C.:
October 12, 1989.

Transportation Infrastructure: Reshaping the Federal Role Poses
Significant Challenges for Policy Makers. GAO/RCED-90-81A . Washington,
D.C.: December 28, 1989.

Transportation Infrastructure: Panelists' Remarks at New Directions in
Surface Transportation Seminar. GAO/RCED-90-81B . Washington, D.C.:
December 28, 1989.

Transportation Trust Funds. GAO/T-RCED-89-36 . Washington, D.C.: May 11,
1989.

Highway Trust Fund: Condition and Outlook for the Highway Account.
GAO/RCED-89-136 . Washington, D.C.: May 9, 1989.

Budget Issues: Trust Funds and Their Relationship to the Federal Budget.
GAO/AFMD-88-55 . Washington, D.C.: September 30, 1988.

Deteriorating Highways and Lagging Revenues: A Need to Reassess the
Federal Highway Program. GAO/CED-81-42 . Washington, D.C.: March 5, 1981.

Why Urban System Funds Were Seldom Used for Mass Transit. GAO/CED-77-49 .
Washington, D.C.: March 18, 1977.

U.S. Transportation System-Federal Government's Role and Current Policy
Issues. GAO/RED-76-34 . Washington, D.C.: October 22, 1975.

Costs and Problems of Completing the Interstate Highway System.
GAO/RCED-76-19 . Washington, D.C.: September 4, 1975.

(542088)

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www.gao.gov/cgi-bin/getrpt? GAO-06-572T .

To view the full product, including the scope

and methodology, click on the link above.

For more information, contact Katherine Siggerud, (202) 512-2834,
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Highlights of GAO-06-572T , a report to Subcommittee on Highways, Transit,
and Pipelines, Committee on Transportation and Infrastructure, U.S. House
of Representatives

April 4, 2006

HIGHWAY TRUST FUND

Overview of Highway Trust Fund Estimates

The Highway Trust Fund is the principal mechanism for funding federal
highway and transit programs through receipts from excise taxes charged to
highway users, such as taxes on motor fuels. The Department of Treasury
(Treasury) and the Congressional Budget Office (CBO) each prepare
estimates of future receipts for the Highway Trust Fund semiannually.
Treasury's receipt estimates are combined with the Department of
Transportation's (DOT) estimates of outlays to create an estimate of the
Highway Trust Fund balance for the President's Budget; CBO also projects
outlays to develop an estimate of the fund balance. The agencies' most
recent estimates show that the Highway Account within the Highway Trust
Fund could have a negative balance as early as 2009, raising concerns
about whether funding for federal highway programs-which were recently
authorized by the Safe, Accountable, Flexible, Efficient Transportation
Equity Act: A Legacy for Users-will continue to be met. Consequently, the
Subcommittee asked us to review and compare recent estimates made by
Treasury and CBO. This testimony provides information on how (1) estimates
are used to provide key information about the Highway Trust Fund, (2) the
most recent Highway Trust Fund estimates-based on receipt estimates made
by Treasury and CBO-compare, and (3) Treasury's and CBO's estimates
compare to actual receipts for recent years.

Due to the nature of the receiptsand disbursement processesof the Highway
Trust Fund, estimates are used regularly not only to project the Highway
Trust Fund's future balance, but also to determine its current balance.
Treasury's receipts collection processes for the Highway Trust Fund rely
on estimates based on historical receipts to determine how much should be
transferred from the General Fund into the Highway Trust Fund on a
semimonthly basis. DOT and the Office of Management and Budget (OMB) also
use estimates based on future receipts in calculating annual adjustments
to authorization levels, and DOT uses estimates based on historical fuel
consumption to determine apportionments from the Highway Trust Fund to
states. Because estimates are used throughout the process of collecting
and disbursing funds for the Highway Trust Fund, it is important that
estimates be as accurate as possible.

The most recent Highway Trust Fund estimates from the President's Budget
and CBO show similar trends, even though Treasury and CBO use different
assumptions to estimate receipts for the fund. The Highway Trust Fund
balance is projected to steadily decline because estimated outlays of the
Highway Account exceed estimated revenues each year from 2006 through
2011. Treasury projects lower receipts levels than CBO, and therefore the
President's Budget contains estimates of negative Highway Trust Fund
balances occurring one year earlier than CBO is projecting. The
differences in receipts estimates developed by Treasury and CBO are caused
in part by the use of different economic assumptions, such as economic
growth and fuel prices.

When compared with actual Highway Trust Fund receipts, the accuracy of
Treasury's and CBO's Highway Trust Fund estimates are not very different
from each other. Neither agency's estimates have been consistently closer
or further away from the actual amounts. For example, the estimates of the
two agencies are closest or furthest from actual receipts in the same
years. These comparisons of past performance should not be taken as an
indicator of the future performance of the models.

Current Highway Trust Fund Year-End Balance Estimates
*** End of document. ***