Highway Trust Fund: Financial Status and Outlook (Testimony, 05/16/96,
GAO/T-RCED-96-169).

GAO discussed the Highway Trust Fund's financial condition and outlook.
GAO noted that: (1) the Federal Highway Administration (FHwA) estimated
that the highway account would have a balance of $14.1 billion at the
end of fiscal year (FY) 1997 and $44.6 billion in current unpaid
commitments; (2) projected 1998 and 1999 revenues are sufficient to
cover all current commitments if no new commitments are made; (3) the
Federal Transit Administration estimated that the transit account would
have a balance of $9.8 billion at the end of FY 1997 and $5.9 billion in
current unpaid commitments; (4) if no new commitments are made, the
transit account would have an uncommitted balance of $11.2 in FY 1999;
and (5) recommended safety cushions would reduce the highway and transit
account balances to $13.7 billion and $10.7 billion, respectively, to
support new authorizations for highway and transit programs.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  T-RCED-96-169
     TITLE:  Highway Trust Fund: Financial Status and Outlook
      DATE:  05/16/96
   SUBJECT:  Federal aid for highways
             Ground transportation operations
             Mass transit funding
             Mass transit operations
             Future budget projections
             Trust revolving funds
             Excise taxes
             Special fund accounts
             Unobligated budget balances
             Budget obligations
IDENTIFIER:  Highway Trust Fund
             FHwA Federal-Aid Highway Program
             
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Cover
================================================================ COVER


Before the Subcommittee on Surface Transportation,
Committee on Transportation and Infrastructure,
House of Representatives

For Release
on Delivery
Expected at
9:30 a.m.  EDT
Thursday
May 16, 1996

HIGHWAY TRUST FUND - FINANCIAL
STATUS AND OUTLOOK

Statement of Phyllis F.  Scheinberg, Associate Director,
Transportation and Telecommunications Issues,
Resources, Community, and Economic
Development Division

GAO/T-RCED-96-169

GAO/RCED-96-169T


(342920)


Abbreviations
=============================================================== ABBREV


============================================================ Chapter 0

Mr.  Chairman and Members of the Subcommittee: 

We appreciate this opportunity to testify on the financial condition
and outlook for the Highway Trust Fund.  We hope to contribute to a
better understanding of the Highway Trust Fund and its ability to
support surface transportation infrastructure needs in the future. 

My testimony today is based on work GAO has conducted over the past
several years, and updated information on the Highway Trust Fund.\1 I
will focus on how the Highway Trust Fund operates and its ability to
meet existing and future funding needs. 


--------------------
\1 Highway Trust Fund:  Condition and Outlook for the Highway Account
(GAO/RCED-89-136, May 1989); Highway Trust Fund:  Revenue Sources,
Uses, and Spending Controls (GAO/RCED-92-48FS, Oct.  1991); Highway
Trust Fund:  Strategies for Safeguarding Highway Financing
(GAO/RCED-92-245, Sept.  1992); Transportation Trust Funds
(GAO/AIMD-95-95R, Mar.  1995). 


   THE HIGHWAY TRUST FUND
---------------------------------------------------------- Chapter 0:1

The federal Highway Trust Fund was established in 1956 essentially as
an accounting mechanism to finance the federal-aid highway program. 
In 1982, the fund was divided into a highway account and a mass
transit account.  Programs funded through the highway account are
generally administered by the Federal Highway Administration (FHWA),
with the Federal Transit Administration (FTA) administering those
funded through the transit account. 

Financing for the fund is derived from a variety of highway user
taxes.  Currently, these federal taxes include fuel taxes of
18.3-cents per gallon of gasoline, a 24.3-cents per gallon tax on
diesel fuel, a graduated tax on certain tires, and a heavy vehicle
use tax imposed on large trucks. 

During fiscal year 1995, these taxes generated about $23.7 billion
for the Highway Trust Fund,\2 with 60 percent of these revenues
coming from the gasoline tax.  (See Appendix I for a listing of the
receipts generated by various highway user taxes in fiscal year
1995).  The total tax collections, however, were subject to certain
tax refunds, credits, and transfers, such as a tax rebate for diesel
powered vehicles, totaling about $1.1 billion, thus net taxes
generated totaled approximately $22.6 billion in fiscal year 1995. 

When revenues credited to the fund exceed the amount required for
current expenditures, an account balance exists.  This balance is
invested in public debt securities, and interest earned on these
securities is considered revenue to the fund.  In fiscal year 1995,
interest earned totaled approximately $1.2 billion. 

Although the majority of highway user tax revenues are credited to
either the highway or mass transit accounts, there is a noteworthy
exception.  The exception is that 4.3 cents per gallon of fuel taxes
are credited to the General Fund of the U.  S.  Treasury for deficit
reduction purposes. 

For example, figure 1 shows what happens to the funds from the
federal tax on one gallon of gasoline.  The federal tax per gallon
for other types of motor fuels generally follow a similar breakdown
pattern, with 4.3 cents from other fuel sources going to the General
Fund of the U.  S.  Treasury. 

   Figure 1:  Gasoline User Fee
   Breakdown Per Gallon of
   Gasoline

   (See figure in printed
   edition.)

Source:  Based on a modified FHWA graph. 

Revenues in the trust fund are used to reimburse state governments
and mass transit authorities for money spent on surface
transportation programs including the federal-aid highway system
projects and for transit projects.  The federal government generally
pays 80 percent of a project's cost, although for some projects, such
as Interstate projects, the federal share may reach as high as 90
percent, or 100 percent for federal land projects.  Once the federal
government approves a project, the federal share is considered
"obligated."\3 At that point, a state or transit authority is able to
start work, and when the state or transit authority incurs costs for
this work, it pays the bills and seeks reimbursement of the federal
share.  When this reimbursement occurs, the federal funds are
actually "outlayed" or "expended." The outlays for a project are
generally spread over a number of years, as they reflect the time lag
between the start and completion of a project. 

The Congress periodically reauthorizes the funding of federal surface
transportation programs, with the most recent reauthorization
occurring in 1991 through the Intermodal Surface Transportation
Efficiency Act of 1991 (ISTEA).  This legislation authorized a total
of approximately $155 billion for surface transportation programs for
fiscal years 1992 through 1997, with about $140 billion of the funds
coming from the Highway Trust Fund and about $15 billion from the
General Fund.  Of the approximately $140 billion, about $122 billion
were for highways and related programs and about $18 billion for mass
transit programs. 

However, not all of the funds authorized for a given year may be
available in that year for states' or transit authorities' use.  The
Congress may impose an obligation limitation on funds authorized as
part of an overall effort to control federal spending.  A limitation
on obligations acts as a ceiling on the sum of all obligations within
a specified time period, usually a fiscal year.  The limitation does
not reduce the amount of funds already distributed (apportioned) to
the states;\4 it only slows the rate of obligations.\5 The funds that
are distributed annually for highway and mass transit programs are
generally based on prescribed formulas in surface transportation
legislation. 


--------------------
\2 Represents total excise tax receipts prior to any refunds or tax
credits. 

\3 A two-step process implements most federal programs.  The initial
step is the congressional passage of authorizations that sets an
upper limit on program funding.  But the program may start, only
after passage of a second piece of legislation, the appropriations
act.  In an appropriations act, the Congress appropriates an amount
that can actually be used for the program.  However, many federal
highway and mass transit programs do not require this two-step
process to commit or obligate federal funds.  Through what is termed
"contract authority" (a special kind of budgetary authority), sums
authorized for many highway and mass transit programs are made
available for obligation without an appropriations action. 

\4 For transit, the limitation on obligations sets the amount of
funds apportioned to transit authorities. 

\5 The Congress could, but rarely does, rescind previously authorized
funds.  In that case, the amounts rescinded, or eliminated, are not
available in the future for the federal-aid highway or transit
programs. 


   THE HIGHWAY ACCOUNT RECOGNIZES
   FUTURE INCOME
---------------------------------------------------------- Chapter 0:2

Current projections by FHWA estimate an end of fiscal year 1997
balance of $14.1 billion in the highway account.  The balance exists
because more money will have been taken into the trust fund than
spent at that time. 

The trust fund balance, however, has often been misunderstood, with
many believing that the balance represents excess cash.  How the
trust fund functions becomes clearer when it is compared with an
individual's charge account.  For discussion purposes, assume an
individual has cash on-hand but not enough to pay his or her total
monthly charges.  In this case, the cash cannot be considered excess
because it is needed to pay the incoming charges.  On the other hand,
the individual is also not in a deficit situation because at the end
of the month his or her monthly income will be available to help pay
the outstanding charges.  Thus, the cash the individual has on-hand
plus future income helps to ensure that there will be sufficient
funds to pay all outstanding charges. 

Similarly, the fiscal year 1997 estimated highway account balance of
$14.1 billion will be needed to cover outstanding authorizations but
is not sufficient to cover all of ISTEA's authorizations.  FHWA
estimates that the authorized amounts outstanding, or commitments,
will total about $44.6 billion in fiscal year l997.\6

This apparent shortfall, however, needs to be viewed in relation to
the financial design of the Highway Trust Fund.  When the Congress
established the Fund in 1956, it also established a safety mechanism,
referred to as the Byrd Amendment, to ensure that sufficient funds
would be available to liquidate commitments at the end of each fiscal
year.  As revised by the Surface Transportation Assistance Act in
1982, the Byrd Amendment permits the total of projected unpaid
commitments against the trust fund at the close of any fiscal year to
exceed the end-of-year balance, as long as projected income for the
following 2 fiscal years will be sufficient to cover the commitments. 
If the balance plus projected income does not cover outstanding
commitments, proportionate reductions to the amounts apportioned to
all programs must be made. 

Thus, if it is assumed for purposes of analysis that the federal-aid
highway program will not be extended and that no new commitments will
be authorized beyond fiscal year 1997, the highway account is
designed so that revenue will continue to be credited to the account
through fiscal year 1999.\7 Given this infusion of revenue for fiscal
years 1998 and 1999, there would be sufficient revenue to pay off all
commitments and leave an estimated balance of $16.7 billion. 

This estimated balance of $16.7 billion could be used to support
future authorizations.  However, because revenue forecasts can and do
change because of changes in economic assumptions and conditions,
FHWA recommends that a safety cushion of up to $3 billion be provided
for, thus reducing the projected beginning balance available for
future authorizations to $13.7 billion. 


--------------------
\6 Includes funds constrained from state spending through obligation
ceilings. 

\7 Estimated revenue in fiscal year 1998 and 1999 is approximately
$23.2 billion and $24 billion respectively, thus bringing the revenue
total during the 2-year period to about $47.2 billion. 


   THE MASS TRANSIT ACCOUNT
   RECOGNIZES FUTURE REVENUES
---------------------------------------------------------- Chapter 0:3

As mentioned earlier, the Highway Trust Fund also includes a transit
account, which is funded through a share of the federal motor fuel
taxes.  The Federal Transit Administration (FTA) estimates that the
transit account will have a balance of $9.8 billion at the end of
fiscal year 1997.  But once again, this ending balance is not the end
of the financing story for the transit account, because like its
highway counterpart, outstanding commitments will remain to be
paid.\8 Nonetheless, even after all unpaid commitments are
considered, the revised uncommitted balance is estimated to total
approximately $4.0 billion at the end of fiscal year 1997. 

However, because both the highway and mass transit accounts are
designed to recognize future revenues, a future revenue stream will
increase the funds available for reauthorization.  Similar to the
Byrd Amendment, which provides the highway account with 2 years' of
future revenues, the "Rostenkowski Amendment" provides the transit
account with one future year's revenues to apply against outstanding
commitments.  Because the transit account is expected to have a
balance of approximately $4.0 billion after providing for all
outstanding commitments, the additional income (taxes plus interest)
projected for fiscal year 1998 would increase the funds expected to
be available to $7.6 billion. 

However, if it is assumed for purposes of analysis that the mass
transit programs funded through the Highway Trust Fund are not
extended and that no new commitments will be authorized beyond fiscal
year 1997, the mass transit account will continue to have revenues
credited to the account through fiscal year 1999, one year beyond
what the Roskenkowski Amendment provides for.  Thus, the uncommitted
balance of approximately $7.6 billion, plus additional income (taxes
plus interest) projected at about $3.6 billion for fiscal year 1999
would increase the funds expected to be available to $11.2 billion. 
The $11.2 billion is the amount estimated to be left after all ISTEA
authorizations have been considered.  In other words, the amount
could be used to support future authorizations.  But, a senior
Department of Transportation budget analyst recommended a safety
cushion of $.5 billion to guard against revenue fluctuations, thus
reducing the estimated starting balance of funds available to support
a new authorization for transit programs to $10.7 billion. 


--------------------
\8 These unpaid commitments are estimated to total approximately $5.9
billion in fiscal year 1997. 


-------------------------------------------------------- Chapter 0:3.1

This concludes my prepared statement.  I will be happy to respond to
any questions that you or members of the Subcommittee might have. 


FEDERAL HIGHWAY USER TAX RECEIPTS
FOR THE HIGHWAY TRUST FUND FISCAL
YEAR ENDED SEPTEMBER 30, 1995
=========================================================== Appendix I

                         (Dollars in millions)

                                                         Percentage of
Type of Tax                             Receipts\a      Total Receipts
------------------------------  ------------------  ------------------
Gasoline                                   $14,172                  60
Gasohol                                        758                   3
Diesel                                       5,669                  24
Special motor fuels                             37                  --
Tires                                          395                   2
Trucks and trailers                          2,009                   8
Use tax on heavy vehicles                      682                   3
Fines and Penalties                             11                   
======================================================================
Total                                       23,733                 100
----------------------------------------------------------------------
\a Represents total excise tax receipts prior to any refunds or tax
credits or transfers, which in fiscal year 1995 totaled about $1.1
billion.  In addition, the receipts include approximately $1.59
billion that was actually collected in fiscal year 1994 but not
credited to the Fund by the Treasury Department until fiscal year
1995. 

Source:  FHWA

*** End of document. ***