**Analysis of S.1072, as modified and agreed to by the Senate**

**as an Engrossed Amendment to H.R.3550 on 5/19/04**

**(RTA-000-0699A)**

The following is a six-year apportionment analysis developed by the
FHWA's Office of Legislation and Strategic Planning based on the
Senate-passed version of H.R. 3550, which was nearly identical to S.1072
as passed by the Senate on 2/12/04. (The minor differences between the
Senate's Engrossed Amendment to H.R.3550, and S.1072 did not affect the
State-by-State apportionments. To avoid confusion with the House
version, this bill will be referenced as S.1072 for the remainder of
this analysis.) The analysis is comparable to RTA-000-0530A, FHWA's
previous baseline analysis of S.1072 as passed by the Senate on 2/12,
except that the factors used for computing the apportionments have been
updated, and some technical refinements have been made in the
application of the factors.

This new set of certified factors represent the latest available data as
of May 2004, and would be used by the FHWA for computing the FY 2004
apportionments upon passage of a six-year reauthorization bill.

**[Equity Bonus Provisions]{.underline}**

S. 1072 includes a new "Equity Bonus" program, authorized as "such sums
as are necessary". This Equity Bonus would replace the current law
Minimum Guarantee approach (\$1,000,000 minimum; keep States as close as
possible to an initial set of shares while raising States to a specified
percentage of their share of contributions to the Highway Account of the
Highway Trust Fund (HTF)) with a modified approach that would only
provide funding to States as necessary to bring them up to a specified
percentage of their share of HTF contributions, subject to certain
floors and ceilings. The Equity Bonus program would be calculated
iteratively, to ensure that all basic criteria are met even after
funding for some States has been adjusted.

S.1072 specifies the following thirteen programs would be included in
the Equity Bonus computation (Interstate Maintenance, National Highway
System, Bridge Program, Surface Transportation Program, Congestion
Mitigation and Air Quality, Highway Safety Improvement Program,
Appalachian Development Highway System, Infrastructure Performance and
Maintenance, Recreational Trails, Safe Routes to School, Rail-Highway
Crossings, Metropolitan Planning, and the Equity Bonus itself).

Based on S.1072, a 95% Equity Bonus was applied for all years. However,
a special provision provides that certain States would receive the
greater of 95% of their share of HTF contributions, or their share of
total apportionments over the 6-year period of TEA-21. This would
include States with a population density of less than 20 persons per
square mile, a total population of less than 1 million, or a median
household income of less than \$35,000, based on the decennial census.
Eighteen States would qualify for this provision. (AL-Alabama,
AK-Alaska, AR-Arkansas, DE-Delaware, DC-District of Columbia, ID-Idaho,
KY-Kentucky, LA-Louisiana, MS-Mississippi, MT-Montana, NV-Nevada, NM-New
Mexico, ND-North Dakota, OK-Oklahoma, SD-South Dakota, VT-Vermont,
WV-West Virginia, and WY-Wyoming).

Another special provision requires that in any fiscal year 2004 to 2009,
no State may receive less than 110% of its average annual TEA-21
apportionments. In addition, a percentage ceiling relative to average
annual TEA-21 apportionments was also to be applied at a set level for
each individual year. (These were to be set at the following levels, FY
2004-120%, FY 2005-130%, FY 2006-134%, FY 2007-137%, FY-2008-145%,
FY-2009-250%). The annual growth ceilings were to override all other
provisions, except that no State may receive a negative equity bonus,
and no State may receive less than 90.5 percent of its relative share of
HTF contributions.

**[Technical Notes:]{.underline}**

This analysis was based primarily on apportionment factors representing
the latest available data as of May 2004, except that the Highway Trust
Fund contributions have been modified in the latter years to reflect the
crediting to the Highway Account of two additional increments of
revenues from gasohol taxes (2.5 and 5.2 cents), as described below. The
analysis assumed the 1% Metro Planning takedown would apply only to
those programs that it applies to under current law, and did not extend
the takedown to the five new formula programs. A 2% administrative
takedown was applied to the Safe Roads to Schools program, but no
administrative takedown was applied to any other program. Additional
takedowns set as specific dollar figures were applied, based on bill
language.

H.R.3550 includes provisions that would change the amount of revenue
deposited into the Highway Account of the Highway Trust Fund per gallon
of gasohol. The first increment of 2.5 cents per gallon would be
credited to the Highway Account retroactively, beginning 10/1/03, while
the second increment of 5.2 cents per gallon would be imposed and
credited to the Highway Account beginning 10/1/04. Since Highway Account
contributions are calculated based on revenue and gallonage data from
prior years, there would normally be a lag between the timing of these
tax changes and when they would begin to be reflected in the
apportionment factors. This analysis has been refined to reflect this
data lag, so that the 2.5 cent increment would begin to affect the
apportionments starting in FY 2006, while the 5.2 cent increment would
begin to affect the apportionments starting in FY 2007.

S.1072 adds a new Highway Safety Improvement program, to be distributed
among the States using the same formula as used for STP. Two of the
takedowns applied to this program, for the Safe Routes to Schools
program and the Protective Devices at Rail-Highway Crossings program,
are also apportioned to States using this same STP formula. The bill
also adds a new discretionary program for Infrastructure Performance and
Maintenance (IPAM). Since no distribution formula was provided for IPAM,
these amounts do not factor into the State-by-State apportionments shown
and could not be used in the computation of the Equity Bonus.

S.1072 adds a Border Planning, Operations, Technology, and Capacity
Program, to be apportioned based on average annual weight of all cargo
entering the border State by commercial vehicle across the international
border with Canada or Mexico, the average trade value of all cargo
imported into the border State and all cargo exported from the border
State by commercial vehicle across the international border with Canada
or Mexico, the number of commercial vehicles annually entering the
border State across the international border with Canada or Mexico, and
the number of passenger vehicles annually entering the border State
across the international border with Canada or Mexico. This program is
not included within the Equity Bonus computation.

**[Guide to Tables]{.underline}**

The attached Excel file contains 11 tables. (The following list is based
on the names on the tabs in the Excel spreadsheet, rather than the
titles on the printed output.)

The "Return Summary" page compares 6-year funding for each State under
this scenario with that under TEA-21. This table also includes each
State's relative rate of return on their contributions to the Highway
Trust fund. (This later computation is used in the rate of return floors
and target level, used in the Equity Bonus computation).

The "Aggregate" page contains the 6-year total apportionments by program
and State. This is followed by the "Average" page, which shows average
annual values, and the "2004", "2005", 2006", "2007", "2008" and "2009"
pages, which show the same information for individual years.

The "Share Comp" page shows each State's percentage of the total
apportionments for each individual year under TEA-21, and under S.1072.

The "Annual Comp" page shows each State's total apportionments by year,
and compares them with their average annual apportionment under TEA-21.
(This latter computation is used in the percentage floors and ceilings
set relative to TEA-21 in the Equity Bonus computation).

**[Findings]{.underline}**

Based on the latest available data as of May 2004, and the assumptions
listed above, the required six-year cost of the Equity Bonus would be
\$37.9 billion.

While the target for the relative rate of return on HTF contributions is
95%, the annual percentage ceilings relative to TEA-21 prevent some
States from reaching that level in FY 2004 through FY 2008, and some
States' relative rates of return on HTF contributions remain at the
minimum level allowed of 90.5%. In FY 2009, the percentage ceiling
relative to TEA-21 is set high enough so that all States can receive a
95% relative rate of return on HTF contributions.

+-----+----------+----------+---------+---------+---------+---------+
| ### |          |          |         |         |         |         |
| ### |          |          |         |         |         |         |
| ### |          |          |         |         |         |         |
|  Eq |          |          |         |         |         |         |
| uit |          |          |         |         |         |         |
| y B |          |          |         |         |         |         |
| onu |          |          |         |         |         |         |
| s S |          |          |         |         |         |         |
| umm |          |          |         |         |         |         |
| ary |          |          |         |         |         |         |
+-----+----------+----------+---------+---------+---------+---------+
|     | Assumed  |          |         |         | Cal     |         |
|     | in       |          |         |         | culated |         |
|     | Analysis |          |         |         | in      |         |
|     |          |          |         |         | A       |         |
|     |          |          |         |         | nalysis |         |
+-----+----------+----------+---------+---------+---------+---------+
|     | Floor    | Equity   | Lowest  | Target  | Equity  | Lowest  |
|     | Relative | Bonus    |         |         | Bonus   |         |
|     | to       |          | Rate of | Rate of |         | Rate of |
|     | TEA-21   |          |         |         |         |         |
|     | Average  |          | Return  | Return  |         | Return  |
+-----+----------+----------+---------+---------+---------+---------+
| 2   | 110%     | 120%     | 90.5%   | 95.0%   | \$ 6.4  | 90.5%   |
| 004 |          |          |         |         | bil.    |         |
+-----+----------+----------+---------+---------+---------+---------+
| 2   | 110%     | 130%     | 90.5%   | 95.0%   | \$ 4.5  | 90.5%   |
| 005 |          |          |         |         | bil.    |         |
+-----+----------+----------+---------+---------+---------+---------+
| 2   | 110%     | 134%     | 90.5%   | 95.0%   | \$ 4.4  | 90.5%   |
| 006 |          |          |         |         | bil.    |         |
+-----+----------+----------+---------+---------+---------+---------+
| 2   | 110%     | 137%     | 90.5%   | 95.0%   | \$ 5.0  | 90.5%   |
| 007 |          |          |         |         | bil.    |         |
+-----+----------+----------+---------+---------+---------+---------+
| 2   | 110%     | 145%     | 90.5%   | 95.0%   | \$ 5.3  | 90.5%   |
| 008 |          |          |         |         | bil.    |         |
+-----+----------+----------+---------+---------+---------+---------+
| 2   | 110%     | 250%     | 90.5%   | 95.0%   | \$12.3  | 95.0%   |
| 009 |          |          |         |         | bil.    |         |
+-----+----------+----------+---------+---------+---------+---------+
| **T |          |          |         |         | *       |         |
| ota |          |          |         |         | *\$37.9 |         |
| l** |          |          |         |         | bil.**  |         |
+-----+----------+----------+---------+---------+---------+---------+

The eighteen States (identified above) that are eligible for the greater
of a 95% relative rate of return on their HTF contributions or their
share of total apportionments under TEA-21 can also affected by the
annual percentage ceilings relative to TEA-21. However, in this
analysis, this did not occur; all 18 States grew by at least the
national average percentage of 38.29% relative to TEA-21 (based only on
those programs included in the Equity Bonus computation).

Adding the estimated cost of the Equity Bonus to the authorized program
levels directly identified in S.1072 brings the total amount to be
apportioned to States to \$232.7 billion.

HPLS-30; 7/12/04