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28–279 PDF 2006

RELIABILITY OF HIGHWAY TRUST

FUND REVENUE ESTIMATES

(109–64)

HEARING

BEFORE THE

SUBCOMMITTEE ON

HIGHWAYS, TRANSIT AND PIPELINES

OF THE

COMMITTEE ON

TRANSPORTATION AND

INFRASTRUCTURE

HOUSE OF REPRESENTATIVES

ONE HUNDRED NINTH CONGRESS

SECOND SESSION

APRIL 4, 2006

Printed for the use of the

Committee on Transportation and Infrastructure

(
COMMITTEE ON TRANSPORTATION AND INFRASTRUCTURE

DON YOUNG, Alaska, Chairman

THOMAS E. PETRI, Wisconsin, Vice-Chair

SHERWOOD L. BOEHLERT, New York

HOWARD COBLE, North Carolina

JOHN J. DUNCAN, JR., Tennessee

WAYNE T. GILCHREST, Maryland

JOHN L. MICA, Florida

PETER HOEKSTRA, Michigan

VERNON J. EHLERS, Michigan

SPENCER BACHUS, Alabama

STEVEN C. LATOURETTE, Ohio

SUE W. KELLY, New York

RICHARD H. BAKER, Louisiana

ROBERT W. NEY, Ohio

FRANK A. LOBIONDO, New Jersey

JERRY MORAN, Kansas

GARY G. MILLER, California

ROBIN HAYES, North Carolina

ROB SIMMONS, Connecticut

HENRY E. BROWN, JR., South Carolina

TIMOTHY V. JOHNSON, Illinois

TODD RUSSELL PLATTS, Pennsylvania

SAM GRAVES, Missouri

MARK R. KENNEDY, Minnesota

BILL SHUSTER, Pennsylvania

JOHN BOOZMAN, Arkansas

JIM GERLACH, Pennsylvania

MARIO DIAZ-BALART, Florida

JON C. PORTER, Nevada

TOM OSBORNE, Nebraska

KENNY MARCHANT, Texas

MICHAEL E. SODREL, Indiana

CHARLES W. DENT, Pennsylvania

TED POE, Texas

DAVID G. REICHERT, Washington

CONNIE MACK, Florida

JOHN R. ‘RANDY’ KUHL, JR., New York

LUIS G. FORTUN ̃ O, Puerto Rico

LYNN A. WESTMORELAND, Georgia

CHARLES W. BOUSTANY, JR., Louisiana

JEAN SCHMIDT, Ohio

JAMES L. OBERSTAR, Minnesota

NICK J. RAHALL, II, West Virginia

PETER A. DEFAZIO, Oregon

JERRY F. COSTELLO, Illinois

ELEANOR HOLMES NORTON, District of

Columbia

JERROLD NADLER, New York

CORRINE BROWN, Florida

BOB FILNER, California

EDDIE BERNICE JOHNSON, Texas

GENE TAYLOR, Mississippi

JUANITA MILLENDER-MCDONALD,

California

ELIJAH E. CUMMINGS, Maryland

EARL BLUMENAUER, Oregon

ELLEN O. TAUSCHER, California

BILL PASCRELL, JR., New Jersey

LEONARD L. BOSWELL, Iowa

TIM HOLDEN, Pennsylvania

BRIAN BAIRD, Washington

SHELLEY BERKLEY, Nevada

JIM MATHESON, Utah

MICHAEL M. HONDA, California

RICK LARSEN, Washington

MICHAEL E. CAPUANO, Massachusetts

ANTHONY D. WEINER, New York

JULIA CARSON, Indiana

TIMOTHY H. BISHOP, New York

MICHAEL H. MICHAUD, Maine

LINCOLN DAVIS, Tennessee

BEN CHANDLER, Kentucky

BRIAN HIGGINS, New York

RUSS CARNAHAN, Missouri

ALLYSON Y. SCHWARTZ, Pennsylvania

JOHN T. SALAZAR, Colorado

JOHN BARROW, Georgia

(II)
SUBCOMMITTEE ON HIGHWAYS, TRANSIT AND PIPELINES

THOMAS E. PETRI, Wisconsin, Chairman

SHERWOOD L. BOEHLERT, New York

HOWARD COBLE, North Carolina

JOHN J. DUNCAN, JR., Tennessee

JOHN L. MICA, Florida

PETER HOEKSTRA, Michigan

SPENCER BACHUS, Alabama

STEVEN C. LATOURETTE, Ohio

SUE W. KELLY, New York

RICHARD H. BAKER, Louisiana

ROBERT W. NEY, Ohio

FRANK A. LOBIONDO, New Jersey

JERRY MORAN, Kansas

GARY G. MILLER, California, Vice-Chair

ROBIN HAYES, North Carolina

ROB SIMMONS, Connecticut

HENRY E. BROWN, JR., South Carolina

TIMOTHY V. JOHNSON, Illinois

TODD RUSSELL PLATTS, Pennsylvania

SAM GRAVES, Missouri

MARK R. KENNEDY, Minnesota

BILL SHUSTER, Pennsylvania

JOHN BOOZMAN, Arkansas

MARIO DIAZ-BALART, Florida

JON C. PORTER, Nevada

TOM OSBORNE, Nebraska

KENNY MARCHANT, Texas

MICHAEL E. SODREL, Indiana

DAVID G. REICHERT, Washington

JEAN SCHMIDT, Ohio

DON YOUNG, Alaska

(Ex Officio)

PETER A. DEFAZIO, Oregon

NICK J. RAHALL II, West Virginia

JERROLD NADLER, New York

GENE TAYLOR, Mississippi

JUANITA MILLENDER-MCDONALD,

California

ELIJAH E. CUMMINGS, Maryland

EARL BLUMENAUER, Oregon

ELLEN O. TAUSCHER, California

BILL PASCRELL, JR., New Jersey

TIM HOLDEN, Pennsylvania

BRIAN BAIRD, Washington

SHELLEY BERKLEY, Nevada

JIM MATHESON, Utah

MICHAEL M. HONDA, California

RICK LARSEN, Washington

MICHAEL E. CAPUANO, Massachusetts

ANTHONY D. WEINER, New York

JULIA CARSON, Indiana

TIMOTHY H. BISHOP, New York

MICHAEL H. MICHAUD, Maine

LINCOLN DAVIS, Tennessee

BEN CHANDLER, Kentucky

BRIAN HIGGINS, New York

RUSS CARNAHAN, Missouri

ALLYSON Y. SCHWARTZ, Pennsylvania

JAMES L. OBERSTAR, Minnesota

(Ex Officio)

(III)

(V)

CONTENTS

TESTIMONY

Page

Carroll, Robert, Deputy Assistant Secretary for Tax Analysis, U.S. Department of Treasury .................................................................................................. 3

Marron, Donald, Acting Director, Congressional Budget Office .......................... 3

Siggerud, Katherine, Director, Physical Infrastructure Issues, U.S. Government Accountability Office .................................................................................. 3

PREPARED STATEMENT SUBMITTED BY A MEMBER OF CONGRESS

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

PREPARED STATEMENTS SUBMITTED WITNESSES

Carroll, Robert ......................................................................................................... 24

Marron, Donald ........................................................................................................ 35

Siggerud, Katherine ................................................................................................ 52

(1)

RELIABILITY OF HIGHWAY TRUST FUND

REVENUE ESTIMATES

April 4, 2006,

COMMITTEE ON TRANSPORTATION AND INFRASTRUCTURE,

SUBCOMMITTEE ON HIGHWAYS, TRANSIT AND PIPELINES, WASHINGTON, D.C.

The committee met, pursuant to call, at 2:00 p.m., in Room 2167,

Rayburn House Office Building, Hon. Thomas E. Petri [Chairman

of the committee] presiding.

Mr. PETRI. The Subcommittee will come to order.

I would like to welcome our members and our witnesses to today’s hearing on the Reliability of Highway Trust Fund Revenue

Estimates. This hearing is a follow-up to a hearing that this Subcommittee held in February on the status of the Highway Trust

Fund and the President’s fiscal year 2007 budget. During that

hearing, the Department of Transportation’s Assistant Secretary

for Budget and Policy, Phyllis Scheinberg, testified on how the

President’s budget request would affect the implementation of

SAFETEA-LU.

Unfortunately, scheduling conflicts prevented the Treasury witness from testifying at that hearing. As a result, we rescheduled

today’s hearing and have invited Treasury and CBO to discuss

their Highway Trust Fund revenue estimates. We have also invited

GAO to provide an analysis of the two sets of revenue estimates.

The President’s 2007 budget, using Treasury’s revenue estimates, shows a negative balance of $2.3 billion in the highway account of

the Highway Trust Fund at the end of 2009. The Congressional

Budget Office’s current revenue estimates for the highway account

do not show a negative balance until 2010.

When Congress passed SAFETEA-LU last summer, it was done

with the expectation that the guaranteed funding levels prescribed

in the bill would be fulfilled for budget year 2005 through 2009.

One of the purposes of this hearing is to determine whether or not

the differences between Treasury and CBO’s estimates are unusual. The hearing will also explore the accuracy of revenue estimates four and five years into the future. The reliability of revenue

estimates is an important issue for this Committee, as projected

negative balances in the Highway Trust Fund may impact guaranteed funding levels authorized in SAFETEA-LU.

Robert Carroll, the Deputy Assistant Secretary for Treasury

Analysis, with the Treasury Department, is with us today. Mr. Carroll will describe the methodology that underlies Treasury’s revenue forecasts as well as recent trends in the highway-related excise

taxes.
2

Donald Marron, the Acting Director of the Congressional Budget

Office, will provide a description of the economic model that CBO

uses to project revenue and deposit it into the Highway Trust

Fund. Mr. Marron will also address why CBO is projecting higher

levels of revenue for the Highway Trust Fund and the Treasury

Department.

Katherine Siggerud, the Director of Physical Infrastructure

Issues for the U.S. Government Accountability Office, will provide

a basic overview of the Highway Trust Fund. She will also compare

and contrast the models that Treasury and CBO use for estimating

highway trust fund revenues and compare Treasury and CBO’s estimated receipts to actual receipts for recent years.

We look forward to your testimony and I would now yield to Mr.

Blumenauer for any opening statement he may have.

Mr. BLUMENAUER. Thank you, Mr. Chairman. I look forward to

hearing from our witnesses. I think it is important for us to get a

handle on the range of resources. It seems clear to me that the

guaranteed funding levels will in fact be impacted.

But more important, it sorts of sets the stage, I think, for all of

us to deal with reality, whether it is 2008, 2009, 2010. We have a

real problem in terms of financing infrastructure in this Country.

The more that we can help people understand the nature of the

problem, how we’re in a downward spiral, how we’re going to have

to deal not just, in my judgment, indexing for inflation, but to find

alternative sources of revenue that deal with the level of infrastructure investment that we want to make, not just tied to fuel taxes,

is important.

I think this conversation today is an important start on that. I

look forward to hearing from our witnesses.

Mr. PETRI. Thank you. Any other opening statements. Mr. Mica?

Mr. MICA. Mr. Chairman, I just want to say thank you for conducting this important hearing. It is critical that we have the reliable Highway Trust Fund revenue estimates. Some of the information that we are getting today shows that we not only have a crisis

in funding transportation, and particularly our highway and transit systems, but we may be bankrupt by the year 2009 in our Highway Trust Fund.

We have conflicting estimates as to how much money we will actually have during this important period. It is absolutely critical

that we find what the accurate amounts were and be able to have

a reliable fund and funding sources for building our Nation’s infrastructure.

So this is a very important hearing, not to mention the challenge

that we faced in finding a means of funding over the short and long

term our highway transit, transportation and infrastructure

projects, which we also have right now serious problem in the current structure and level of funding and means of raising funds. I

thank you for conducting this hearing. I look forward to the testimony and yield back.

Mr. PETRI. Thank you.

Mr. Boozman, any comments?

Mr. BOOZMAN. I appreciate you, Mr. Chairman, for having the

hearing. I would just echo the other two opening statements that
3

this is certainly very timely and that we certainly need to understand these projections.

Also, I think one of the real challenges that the Committee is

going to have, and I know we are going to show leadership in this

area, is trying to figure out how we come up with alternative

means of funding in the future.

Thank you.

Mr. PETRI. Thank you.

We will begin now with our witnesses and we will start with Mr.

Carroll, the Deputy Assistant Secretary for Tax Analysis, U.S. Department of Treasury.

TESTIMONY OF ROBERT CARROLL, DEPUTY ASSISTANT SECRETARY FOR TAX ANALYSIS, UNITED STATES DEPARTMENT

OF TREASURY; DONALD MARRON, ACTING DIRECTOR, CONGRESSIONAL BUDGET OFFICE; KATHERINE SIGGERUD, DIRECTOR, PHYSICAL INFRASTRUCTURE ISSUES, UNITED

STATES GOVERNMENT ACCOUNTABILITY OFFICE

Mr. CARROLL. Thank you very much, Mr. Chairman and distinguished members of the Subcommittee. I appreciate the opportunity to discuss with you today the Administration’s forecast of

highway related excise taxes. My testimony today focuses on recent

trends in these taxes, describes the methodology that underlies our

forecast and relates our forecasts over the past several years to actual receipts. This testimony also compares our forecast for the fiscal year 2007 budget to the forecast prepared by the Congressional

Budget Office.

I would like to spend a few moments summarizing the major

points. First, the Administration’s forecast of highway related excise taxes for the fiscal year 2007 budget is somewhat higher than

the forecast for the fiscal year 2006 mid-session review even after

excluding the effects of the SAFETEA-LU legislation enacted last

summer. Indeed, excluding the effects of SAFETEA-LU, our forecast is about $2.3 billion higher than previously forecast for the period of fiscal year 2005 through fiscal year 2009, with more than

one half of this increase falling into 2005.

Treasury estimates indicate that the Highway Bill enacted last

summer will increase the level of receipts dedicated to the Highway

Trust Fund by nearly $1.1 billion through fiscal year 2009, an

amount similar to the Joint Committee on Taxation’s estimates for

this legislation.

Second, the changes between the fiscal year 2006 mid-session review and the fiscal year 2007 budget are within what might be

called a typical range when viewed in the context of historical differences between forecast highway related excise tax receipts and

actual receipts. Differences arise from a number of reasons, including changes in economic conditions, energy prices and the underlying relationships between taxes collected and these macroeconomic

variables.

Third, the Administration’s forecast and CBO’s forecast are not

dissimilar when viewed from the perspective of historical differences between forecast highway related excise tax receipts and

actual receipts. To be sure, the Office of Tax Analysis and the Congressional Budget Office rely on different economic assumptions,
4

use their own models and make their own judgments. OTA relies

on a quarterly model while CBO’s model is based on annual data.

OTA uses reconciled data on excise tax liability in their models,

while CBO relies more heavily on data from the IRS certifications.

OTA’s models tend to be more sensitive to changes in oil prices,

while CBO’s models tend to be more dependent on changes in economic growth.

Nevertheless, the assumptions in models used remain broadly

similar and produce similar forecasts. Again, when viewed against

the backdrop of the differences between OTA’s forecasts and actual

receipts spanning more than a decade, the current difference between the Administration’s and CBO’s forecasts are not statistically important.

Moreover, both the Administration and CBO project that the

highway account will be exhausted at roughly the same time, towards the end of 2009. While these are our best estimates, the data

of exhaustion is somewhat uncertain and depends not only on the

receipts that flow into the highway account, but also depend crucially on disbursements from the highway account. I understand

this is an issue that the Department of Transportation addressed

in their testimony to the Subcommittee in February.

Fourth, I want to emphasize that the Congressional Budget Office and the Office of Tax Analysis work very closely together on

receipts forecasts generally, across all tax sources, including the

various excise taxes. There is an open and ready dialogue and a variety of modeling issues for data and other technical issues, and a

broad array of information is routinely shared.

Looking ahead, both organizations will learn a great deal about

how consumption patterns respond to energy prices. Price sensitivity is an important aspect of estimating the taxes associated with

all revenue sources. What future energy prices imply for future energy consumption, and excise tax receipts are something that both

the Administration and I am sure the CBO will be paying very

close attention to. Over time, we can expect individuals and businesses to use energy more efficiently.

There were also a number of compliance provisions in the

SAFETEA-LU legislation. As of yet, we have not seen the full effect

of these provisions, but we look forward to learning how effective

these provisions will be toward improving compliance and will reevaluate their effects once the relevant data becomes available.

Thank you.

Mr. PETRI. Thank you.

Mr. Marron.

Mr. MARRON. Thank you, Mr. Chairman, members of the Subcommittee. It is a pleasure to be here this afternoon to discuss

CBO’s revenue projections for the Highway Trust Fund and in particular, its highway account.

My testimony will cover three main points. The first is that CBO

projects that revenues to the highway account will fall short of outlays over the next few years, four or five years. As a result, balances in the account will decline and may be exhausted either in

2009 or 2010, depending on what assumptions you make about

spending.
5

Second, the revenue projections that go into those estimates depend on a variety of economic and technical factors about which

there is significant uncertainty. Given that uncertainty, exhaustion

of the highway account balances may come either sooner or later

than our baseline projections would indicate.

Third, the current differences between the Administration’s revenue projections and CBO’s revenue projections are within kind of

a typical range of error that you would see within CBO’s own projections. So from our point of view, the revenue projections aren’t

that far apart, given the levels of uncertainty that exist in projecting these kinds of revenues.

Let me elaborate on each of those three points quickly here. In

its current baseline, CBO projects that revenues to the highway account will total about $146 billion over the next four years, 2006

through 2009. Future spending from the highway account will of

course depend on decisions made by the Congress and the Administration regarding both whether to spend at the levels that are specified in the obligation limitations and whether or not to implement

many of the scheduled RABA adjustments. Assuming, as the Administration does, that a RABA adjustment would be made for

2007, CBO projects that the balances in the highway account would

be exhausted some time in 2010.

In our written testimony, we also do a scenario in which we assume the RABA adjustments would also happen in 2008 and 2009.

In that case, the level of outlays would be higher, and the highway

account would be exhausted in 2009.

I will describe our revenue projections in just a little more detail.

As you know, the Highway Trust Fund receives revenues from a

variety of taxes on motor fuels, new truck and tire purchases, and

truck usage. To estimate future revenues from gasoline and related

fuels, CBO projects future purchases of those fuels and then multiplies the number of gallons by the tax rate.

CBO models the growth in fuel purchases over time as depending

on the pace of economic growth, changes in fuel prices and changes

in fuel efficiency. Economic growth leads to higher fuel purchases,

not surprisingly, and tax revenues, whereas higher fuel prices and

higher fuel economy lead to both lower fuel purchases and lower

revenues.

As we look out over the next few years, what we see is a pattern

in which gasoline tax revenues, the growth of them, will slow down

as time passes. The primary reason for that is that in CBO’s economic forecast, we project that the growth rate of the economy is

going to slow. We are still a little bit recovering from the cyclical

downturn we had at the beginning of this decade, and then in addition, as we get into future years, labor force growth is going to

slow, and therefore the growth rate of the economy will slow, and

therefore revenues from gasoline taxes will slow.

To estimate revenue from diesel fuel taxes, CBO similarly

projects purchases of diesel fuel and multiplies by the diesel tax

rate. To estimate diesel purchases, CBO relies on their historical

relationships to real economic activity. Over a long period of time,

the number of gallons of diesel fuel consumed has grown at a

slightly faster rate than the economy as a whole. CBO expects that

relationship to continue into the next 10 years. So we use that as
6

the basis for projecting diesel fuel revenues. Those again grow at

a declining rate as we go out into future years, again because the

growth rate of the economy is expected to slow.

Finally, CBO also projects truck related sources of trust fund

revenue based on their relationship to overall economic activity.

Those revenues are expected to grow slightly more slowly than real

GDP on average, as they have done in recent years, and again,

their growth rate will slow as we go forward.

As this description of the projection process suggests, there are

several important sources of uncertainty in the revenue projects

that CBO puts out. First, there are uncertainties related to the key

economic variables, CBO’s economic forecast of GDP of oil prices.

To the extent those differ from what we expect, revenues from the

Trust Fund will deviate.

Second, there are uncertainties about the key technical assumptions that relate economic activity to revenues. How much do people respond to changes in fuel prices, how fast do fuel purchases

changes as the economy grows. There is uncertainty about those

variables and therefore, again, there is uncertainty about our revenue projections.

We have analyzed our revenue projections going back to about

1991. We found that as you look out several years in the future,

it would be typical to have an error, a miss, that is somewhere in

the neighborhood of about 4 to 6 percent. So if you are thinking

about a program in which annual revenues are in the $40 billion

range, an annual miss of somewhere between $2 billion and $3 billion would not be surprising.

As Bob has described, the Administration has somewhat lower

projections than we do. We have worked together to try to analyze

why we differ. We identified the same reasons that Bob identified,

somewhat different technical assumptions about how purchases respond to changes in the size of the economy and fuel prices. If you

look at the difference between our two forecasts, we are about 3

percent apart. So again, from our point of view, that is a typical

range of error that you would see in these kinds of projections, and

therefore, shouldn’t view the projections as being that far apart.

With that, thank you.

Mr. PETRI. Thank you.

Ms. Siggerud?

Ms. SIGGERUD. Thank you, Mr. Chairman, members of the Subcommittee. I do have a few slides that we will be showing her as

we start.

Let me say that I appreciate the invitation to testify on important Highway Trust Fund issues. Six weeks ago, your DOT budget

hearing focused on the future declining balance that has been predicted for the Highway Trust Fund. You asked us then to undertake work about how these balances are estimated.

My statement today will cover three points: first, the role of estimates in calculating the receipts to and disbursements from the

Trust Fund; second, how the most recent Highway Trust Fund estimates made by the Department of Treasury and the CBO compare;

and third, how Treasury’s and CBO’s estimates compare with actual tax receipts in recent years.
7

First, a little background. Receipts from the Federal gasoline tax

constitute the largest source of revenue to the Trust Fund, but

other fuels are also taxed. These receipts are allocated as shown

between the highway and the mass transit accounts. Taxes related

to large trucks, such as on truck and tire sales, are also an important source of revenue. These are deposited only in the highway account.

Estimates are used for several purposes, as receipts are obtained

and Federal aid is distributed to the States. This chart illustrates

the process. Excise taxes are paid by businesses semi-monthly. For

example, oil companies typically pay a per gallon tax when their

fuel is loaded into tanker trucks or rail cars for delivery. Because

these and other excise taxes are paid to the Treasury without identifying the type of tax, Treasury must estimate based on past tax

receipts the amount to deposit into the Highway Trust Fund.

At the end of each quarter, businesses file tax forms that identify

the amount and type of taxes they paid, and IRS certifies this information. On this basis, Treasury adjusts the initial transfer to

the Trust Fund about six months after the end of each quarter. The

annual RABA calculation is also influenced by estimates of tax receipts. While OMB and DOT make the RABA calculation, CBO’s

and Treasury’s estimates are part of the formula.

Finally, because consumers generally do not pay these taxes directly, DOT must annually estimate the amount to be distributed

to each State based on such data as fuel consumption. Of course,

one of the most important uses of the estimates is to predict future

tax revenues, so Congress can make decisions about appropriate

levels of authorization and appropriation.

Turning now to the Trust Fund balance, both CBO’s estimates

from January of this year and Treasury’s estimates as reflected in

the President’s budget show similar trends over the next fie years.

As you can see, both show a negative balance occurring during that

time. To derive these balances, CBO predicts both receipts and outlays, while the President’s budget combines estimates of tax receipts from Treasury with outlay estimates from DOT.

The main difference between these forecasts of the Trust Fund

is their estimates of tax receipts. As these graphs show, CBO estimated somewhat higher levels of receipts from the six year period

than Treasury did. Projections of outlays are generally similar, although CBO has just estimated new outlay levels that are higher.

We view these differences as minor, but there are several reasons

for them. First, CBO and Treasury both use assumptions about the

economy, fuel prices and other factors, but these assumptions can

differ. Second, there differences in the way these models are constructed. As these models are used for estimates further into the

future, even small differences between them tend to move the estimates farther apart.

The reason that both CBO and the President’s budget project a

negative balance in the highway account is straightforward. Estimated outlays are greater than estimated receipts for each year.

CBO and Treasury predict that the annual tax receipts will grow

on average between 2 and 3 percent annually over this period. At

the same time, outlays are expected to grow an average over 4 percent annually.
8

We looked at the historical accuracy of these estimates over a

seven year period and found their accuracy is similar. Either an

agency is consistently closer, Treasury’s estimates have been closer

to actual receipts in some instances, and CBO’s in others. We compared Treasury’s and CBO’s estimates with actual Highway Trust

Fund receipts, and forecasting estimates of what will occur within

a year or two are generally more accurate than estimates of what

will occur several years later. Because the longer the period involved, the greater the opportunity for missions to change in unexpected ways.

Therefore, we focused our analysis on Treasury’s and CBO’s one

and two year estimates, for example, what the Agency has projected in 2002 as their expected Highway Trust Fund receipts in

2003 and 2004. On average, the two agencies were nearly identical

in the degree to which their one year estimates predicted actual results, and Treasury’s two year estimates were slightly closer than

CBO’s. This chart shows that both Treasury’s and CBO’s one year

estimates differ from actual receipts by an average of about 5.7

percent. This translates to an average difference between estimates

and actual receipts of about $1.99 in each year.

For the two year period, Treasury’s estimates differed from actual receipts on average by about 6.8 percent, while CBO’s estimates differed by about 7.6 percent.

In conclusion, while CBO’s and Treasury’s estimates of future

Trust Fund balances are different, the trend they identify is similar. We view these differences as minor. While events during the

next five years could result in changes in the economy and consumer behavior, it is clear that the trend of Trust Fund outlay as

exceeding receipts is a significant one that is likely to lead to dwindling Trust Fund balances.

Thank you.

Mr. PETRI. Thank you. Thank you all for the testimony. I would

like to thank any associates you had at your agencies in helping

to prepare the written testimony and graphs and so on. We appreciate it.

Any questions? Mr. Blumenauer?

Mr. BLUMENAUER. I was curious if you have the capacity to go

back into the 1970s when we had more aggressive energy price

spikes and supply problems, to be able to get a sense of what the

potential disruption can be in modifying behavior.

Mr. MARRON. In trying to assess some of the technical factors I

mentioned, such as how people respond to changes in energy

prices, we do indeed go back to that time period to try to get a

sense. Clearly today is different from then, but we do our best to

learn from that episode.

Mr. BLUMENAUER. Do you have sufficient data that you can extrapolate from it?

Mr. MARRON. In terms of overall consumption of gasoline, we observed changes in prices, yes.

Mr. BLUMENAUER. How is it different, how do you posit it being

different today despite what it appeared to be, more erratic swings,

not insignificant amount in fuel prices? Do you have a sense of any

differences?
9

Mr. CARROLL. There is empirical literature in the economics research on the relationship between changes in energy prices, gas

prices, and consumption of gasoline. Typically what is found is the

responsiveness of gasoline consumption, fuel consumption to prices

in the short term is fairly small, it is fairly price insensitive in the

short run. In the longer run, it is much more price sensitive.

So the changes we are seeing right now in prices at the pumps

are not really being reflected in large swings and consumption patterns. It takes a fair amount of time for that response to occur, as

individuals and businesses change their behavior, change their

modes of production and seek out more efficient use of energy in

the decisions that they are making.

Mr. BLUMENAUER. To what extent do either of your models in the

short term deal with changes in technology, your anticipating a

shift to more energy efficient vehicles or alternative uses of fuel?

Mr. MARRON. In our longer run estimates those certainly account

for what we have observed in the past history of what kinds of

technological changes that people have adopted. So to the extent

that past is prologue, we attempt to build those into our projections

of how people respond to fuel price changes.

In addition, we also specifically try to incorporate technological

changes that may come from regulatory changes. The Administration, for example, has just recently released fuel economy standards for light trucks. As we go into the summer, when we construct

our baseline projections this summer, we will do our best to incorporate those and the implications of those for the mix of light

trucks and their impact on fuel consumption.

Mr. BLUMENAUER. Okay. Any thoughts about impact that our

moving to having a negative account balance, I am just curious

what impact that has on projects, what impact if any that would

have on projects already under construction?

Ms. SIGGERUD. Perhaps I can address that, Mr. Blumenauer. To

the extent that the Congress responds to a negative balance by decreasing, making it policy to decrease outlays in some way, I guess,

I am sure you are aware that States do plan five and six year

transportation programs based on anticipated Federal aid revenue.

They also do bonds based on anticipated Federal aid revenues.

So to the extent that that were a change in policy, some States

might see an effect on some current and definitely some future

projects.

Mr. BLUMENAUER. Thank you, Mr. Chairman.

Mr. PETRI. Mr. Brown, any questions?

Mr. BLUMENAUER. Excuse me—

Mr. PETRI. Yes, sir.

Mr. BLUMENAUER. If I could just make one comment, I see Mr.

Mica is not here. But his notion about the Trust Fund going bankrupt in four or five years, I don’t hear anything from the testimony

that any of you have given that suggests that the Trust Fund goes

bankrupt. It may move to a negative balance, but there is a huge

flow of money that is still going through.

Do any of you feel—am I missing something? Do you feel that we

are on the verge of bankruptcy in the Trust Fund?

Mr. MARRON. I will take a stab at that. Sir, the situation is that

outlays are above revenues now, and would be likely to persist in
10

that regard. I won’t take a position on whether or not to characterize it as bankrupt. But the account balance would go negative

under these projections.

But your point that there is a significant stream of money beyond that moment is absolutely true.

Mr. BLUMENAUER. Thank you, Mr. Chairman.

Mr. PETRI. Mr. Brown.

Mr. BROWN. Thank you, Mr. Chairman, and I apologize to the

panel for not being here during the testimony. I hope this question

has not been resolved so far.

Let me just give you this question, to Mr. Carroll if I might, and

anybody else that might want to respond. After Hurricanes Rita

and Katrina disrupted al the gas production in the Gulf, there was

a significant spike in fuel prices this fall. Many analysts predicted

that the high cost of fuel would cause people to drive less and

would result in a decrease in revenue to the Trust Fund. In reality,

the revenue estimates actually increased between this past summer and the release of the President’s budget in February.

What does this tell us about the effect of gas prices and demand

of gas? Is there any correlation between price and demand?

Mr. CARROLL. Let me take a stab at that. The increase in highway-related tax receipts that we saw in 2005 really reflected a

strengthening of the overall economy. Also, the summer driving

season, which is a period when gasoline revenues tend to be fairly

strong, was pretty much over by the time the hurricanes arrived.

Moreover, the hurricanes and their effect on energy prices really

represented a short term shock to the price of gasoline. What we

tend to see in the literature is that in the short run, gasoline consumption tends to be fairly insensitive to price, so we wouldn’t really expect a substantial response in terms of gasoline consumption.

Over the longer term, if there’s a sustained period of elevated

fuel prices, we would expect a much more substantial response in

terms of gasoline consumption.

Mr. MARRON. I just agree with what Bob said.

Mr. BROWN. So when do you see the consumption starting to ease

off? Is it $3 a gallon or $3.25 or $4? Where do you see the sensitivity line actually starting to click in?

Mr. CARROLL. I think it is, where we will see the sensitivity is

that there is a prolonged period of elevated gasoline prices over a

prolonged period of time as opposed to more of a short term, a temporary shock.

Mr. BROWN. Thank you, Mr. Chairman.

Mr. PETRI. Thank you.

Mr. Davis, any questions?

Mr. DAVIS. Mr. Chairman and Ranking Member, in 1980, I decided that I would run for the Tennessee State legislature. Unfortunately or fortunately, whatever the situation may be, I was elected. When I went to Nashville, I left being mayor of a small town.

We had pretty dire need for development of our roads, potholes

every place. We had an 8 cent, 7 cent gasoline tax, and I think a

1 cent probably service tax per gallon of gasoline. A lot of things

changed in 1981 through about 1986 in Tennessee and throughout

this Nation.
11

We saw a receding of the consumption of gasoline in our tax

based on per gallon usage rather than on actual per dollar usage,

as you see a consumption tax in most cases is based on what you

spend, rather than the number of items that you consume. It’s the

cost of the item.

When I look at the predictions of the 2007 budget and realize

that there is an expectation in the outer years of $2 billion or $3

billion or more deficit in the Trust Fund, it kind of puzzles me as

how in four or five or six months we could see this dramatic

change, almost like overnight. I do understand that as prices go up,

as they did in the 1970s, as consumption recedes then revenue

streams obviously will recede with those. But there were several

adjustments made in the 1980s on the Federal level and the State

level.

The question I want to ask you is, Mr. Carroll, you are with the

Treasury Department. You are the tax experts. How would you

handle the situation? What do you recommend that Congress does

to be sure that this deficit doesn’t occur?

Mr. CARROLL. As the other witnesses have indicated, the longterm imbalance in the Trust Funds is really related to the issue of

the growth rate in outlays exceeding the growth rate in revenues.

That is an issue that I think the Congress will need to deal with.

My function at the Treasury Department at the Office of Tax

Analysis is really to focus on the receipts estimates, estimates of

highway related excise tax receipts and making the deposits into

the Trust Funds. An important piece of the puzzle is what happens

on the outlay side and disbursements from the Trust Funds. That

is really something that the Department of Transportation would

need to speak to.

Mr. DAVIS. I realize this as being a Congressman from one of the

extremely rural areas, one of the fourth most rural residences of

a Congressional district in America, that without a good education,

which provides a liberating influence for an individual in a rural

area or urban as well, without good roads, then the foundation for

America’s economy, I think, is undermined.

Again what I am asking you is, I don’t sense that I get a response that would be the Administration’s position of how we resolve this issue if we starting having a shortfall in our Highway

Trust Fund. How do we resolve that? Do we cut dollars for roads

that provide the safety net and the foundation for economic

growth? What do we do?

Mr. CARROLL. I think the balance of the Trust Funds really does

again depend on the relationship of outlays to receipts. Outlays are

outpacing receipts, as the other two witnesses have indicated. In

2009, according to our estimates of receipts combined with the Department of Transportation’s estimates of outlays, the highway account will be exhausted in 2009.

The extent to which it is exhausted is about $2.3 billion. That is,

in the context of the errors that we have had in estimates in the

past, it is not a large amount. Nevertheless, that is our best estimate given the information we have available to us.

Mr. DAVIS. That seems to conform to the budgetary principles of

this Congress the last few years, and this Administration. So I
12

guess deficits is what you are saying we are going to look forward

to in the Highway Trust Fund as well.

I yield back the rest of my time.

Mr. PETRI. Mr. Shuster?

Mr. SHUSTER. Are we on statements or questions?

Mr. PETRI. Questions.

Mr. SHUSTER. Thank you, Mr. Chairman. I know the Chairman

has been very involved in trying to figure out new ways, new revenue streams. I think it is something we are going to have to obviously deal with in the future, in the near future, whether we look

at equity investments or bonds or other things. I don’t think that

there is the will up here on the Hill at this point to raise the user

fee or the gas tax.

A couple of questions I have. First, I just wanted to know, how

long does it take the Treasury Department to certify projections

versus what we have actually taken in into the Treasury with the

gas tax?

Mr. CARROLL. The taxpayers file returns quarterly, they file their

excise tax returns quarterly. Those returns are due one month

after the end of the quarter. It takes about five months for the IRS

to process—

Mr. SHUSTER. How long?

Mr. CARROLL. It takes the IRS about five months from that point

in time to process the returns and certify the amounts.

Mr. SHUSTER. Is there anything we can do to modernize?

Mr. CARROLL. We have had a dialogue with the IRS to see how

they might streamline and perhaps improve that. One of the issues

is some taxpayers do file past the due date, if they have—they are

given waivers if they have a reasonable cause for, can show reasonable cause for filing beyond the due date. So there is an issue of

how easy it would be for taxpayers to comply with perhaps stricter

guidelines on insuring that they file by the due date.

Mr. SHUSTER. And with technology, is there any technology we

can employ that we are not using?

Mr. CARROLL. There are about 4,000 or 5,000 excise tax returns

that are filed. It is a fairly small group of taxpayers. We have had

some discussions along those lines in the past. There is I think a

question that the Congress and others would need to face, whether

balancing the potential taxpayer, increasing potential taxpayer

burdens by requiring more electronic filing.

Mr. SHUSTER. Could one or all three of you comment on your

thoughts on issuing bonds versus equity financing? I believe it was

Indiana and I think Illinois or around the City of Chicago recently

sold or are in the process of selling a stretch of road to some investors. Is that something you have taken a look at? Is that a viable

way, from your perspective, to raising the funds to build new infrastructure?

Mr. CARROLL. That’s not something I myself have looked at. I

know others at Treasury have, who have dealt in the tax-exempt

bond financing area have been focused on issues related to that.

We would be happy to get back to you on that.

Mr. SHUSTER. Okay. Would either of the other two of you care

to comment?
13

Mr. MARRON. CBO has done some research in the past on alternative ways of doing tax exempt financing, in general, if it is transportation, as one possible application. The takeaway there being

that the use of tax credit bonds instead of tax exempt bonds might

be on the one hand a more efficient way of essentially providing

subsidy of the projects and get them going. But on the other hand,

the way they are currently structured tends to be more expensive,

the way tax credit bonds have traditionally been done, the Federal

Government in essence picks up the whole interest cost rather than

just a piece.

But at least in principle, there is a way to marry those two and

have something that could potentially be a more efficient way of

encouraging those kinds of projects. To the best of my knowledge,

we haven’t done anything recently on the equity financing part. We

would be happy to look at that for you.

Mr. SHUSTER. How old is that information?

Mr. MARRON. Since I testified before Ways and Means Subcommittee on it about a couple of months ago.

Mr. SHUSTER. So it is relatively new information?

Mr. MARRON. Yes.

Ms. SIGGERUD. GAO also testified on the relative cost to the Government of tax credit and tax exempt bonds a few years ago, Mr.

Shuster. That is certainly some information I can provide to you or

your staff, if that is useful.

Mr. SHUSTER. I would appreciate any and all that information.

What about equity financing? Have any of you looked at any of

that? Basically you said you were dealing with bonds.

Ms. SIGGERUD. Right.

Mr. CARROLL. Right.

Mr. SHUSTER. Okay. And tolls, allowing more tolling? Is that

something anybody has looked at?

Ms. SIGGERUD. In the work that GAO did last year, in what we

call the 21st Century Challenges work, we looked at the transportation sector, we encouraged the use of tolls, both as a possibility

at the Federal and at the State and local level, as an alternative

way of financing infrastructure. We also have some ongoing work

that we report out later this year on that topic.

Mr. SHUSTER. Okay. The CBO has not looked at it?

Mr. MARRON. There is nothing I have seen at CBO recently on

the tolling issue. It is definitely worth consideration, but not something we have worked on.

Mr. SHUSTER. Okay. I see that my time has expired. Funding for

highways is going to be a problem for us into the future. I see that

some projections here say that by, I guess it is CBO, that by 2010

we are going to be in a negative balance. My guess is it is going

to be sooner than that. I don’t know how much you have factored

in cars that are more fuel efficient or the use of hybrids and those

types of things.

But my guess is it will be sooner than 2010. That is something

that, as I said, I know the Chairman has looked at and something

we have to deal with very seriously here in the next couple of

years, or we are going to find ourselves in—excuse the pun, but a

bigger pothole than we already see out there.
14

So I thank you for testifying and I yield back—I don’t have any

time left, I guess.

Mr. PETRI. Mr. Baird.

Mr. BAIRD. I thank the Chair and I thank the panelists.

My recollection is before the most recent Highway Bill, we actually came in with much higher estimates after several years of

hearings for the need, what the projected need for transportation

would be, that estimates were much higher than the actual bill.

How should we approach that? [Remarks off microphone.]

Mr. CARROLL. It is really, again, I can only speak to the receipt

side of the equation, being from the Treasury Department. It is

really an issue that I would have to defer to my colleagues over at

the Department of Transportation, in terms of how they would

handle the disbursement side if and when the highway account and

the mass transit account are fully exhausted.

Ms. SIGGERUD. My understanding is that DOT officials have said

that one solution would be to reduce the obligation limitation going

into the future to try to cut back on the outlay side of the equation.

The effect on that obviously would be to reduce funding to some of

the core Federal aid highway programs, and therefore would affect

States in their ability to plan and how to finance projects.

Mr. BAIRD. Would this presumably apply, as you know, under

this last bill, some projects are ready for funding very quickly. Others would receive their funding down the road in the cycle. Would

we presumably see those that were funded early in the cycle get

full funding that was allocated and then later on, a reduction so

those that are later in the queue just in terms of when they might

be ready might be actually funded at a lower level?

Ms. SIGGERUD. I haven’t actually done that analysis, but I think

that is probably an accurate assumption.

Mr. BAIRD. So one of the questions I would have is, if we have

already got, back to the original premise I started with, if we have

already got a bill that is funded at less than at least some of our

hearings led us to believe it should have been funded at, as you

know, the House mark was a good bit higher originally, would that

not follow that that is just further exacerbating an infrastructure

deficit in terms of projects not completed?

Ms. SIGGERUD. Again, I haven’t done that analysis exactly. But

it is clear that as States plan their highway projects, they count on

Federal aid as they put the financing packages together for those

projects. This would clearly have an impact on the ability to get

those started as quickly or to complete them as quickly.

Mr. BAIRD. Have you given any thought or have any of you given

any thought to, I am thinking out loud with you a little bit, but

if we needed to amend in some way the revenue structure based

on the gas tax, what that might look like and when it might happen? It seems like the alternatives are either, change that portion

of where we get revenue or transfer some from the general fund

into that, which we tend to try to avoid.

Any thoughts about that choice and what it might look like?

Ms. SIGGERUD. We have not done that analysis or run those scenarios. We would be happy to work with the Subcommittee if that

makes sense.
15

Mr. BAIRD. I guess one of my questions is at what point would

we need to take an action like that? In other words, given some of

the uncertainties you have identified, and given the somewhat lag

time in terms of when we actually have a sense of how much

money we get in, and parenthetically, I have to say this, I’m on the

Budget Committee and this is just a marvel to me that the Federal

Government gets pools of money and they don’t know where they

come from. Then down the road a way, they look backward and

say, hey, where did all this money come from? We ought to address

that.

But it seems like we face that in transportation funding as well.

But at what point would we know, if we don’t act by point X, then

down the road soon, with some reliable level of confidence, we are

going to need more money? In other words, that we could take

some action. Can you give us an estimate of that, a date by which

we had better be looking at this again and see what we need to

do?

Ms. SIGGERUD. I would ask to defer to my colleagues on this, if

they have a view. GAO has not done that estimate.

Mr. MARRON. I will chime in at this moment. The first observation I would make, to try to figure out the nicest way to say this,

as I understand it, the current financing and outlay structure for

the highway account, in particular, was structured in such a way

that running out the balances was inevitable. There was just simply an issue of roughly, would that be 2010, 2009.

To be honest, there hasn’t been that much change from where we

sit today relative to where we were last summer when this was negotiated. So I don’t think there is actually that much news in the

numbers we are bringing. But since it has moved slightly toward

there possibly being, running out sooner, I just kind of highlight

the issue that this was built in inevitably as it was.

From CBO’s point of view, we are not really in a position to provide guidance on how one might address that. Our role is to sort

of help you, you give us the ideas, we help you understand what

the implications would be. I can’t really do much better, except to

repeat what my colleagues have said, that clearly there is an issue

of either ratcheting down outlays from the highway account, increasing revenues or, if you are focused on highways, there are

other portions of the Highway Trust Fund. In principle, you could

reach over there. I understand politically that might—

Mr. BAIRD. Can I ask one more brief on this? Let’s suppose that

the numbers of the shortfall you estimated are accurate. And as we

approach that shortfall, it looks like, yes, indeed, this is coming up.

How much would we have to change the gas tax, for example, if

we were to solely look at gas tax in order to make up that revenue

and fully fund? Did you do that calculation? I haven’t had a chance

to look at it. I’m sorry.

Mr. MARRON. We haven’t done that calculation. We would be

happy to crack at it on the back of the envelope and respond.

Mr. BAIRD. That would be really helpful to us as we look ahead,

and people are trying to make business plans, et cetera. We make

a mistake, if we see these things coming down the pike and then

we jus drop it on somebody, versus looking ahead and saying, look,

several years out we project we may fall short. You need to prepare
16

for the possibility of X adjustment in whatever program it is, so

people can make business plans according to that or personal

plans. So maybe we could work together, Mr. Chairman, to look at

that on this Committee.

Thank you very much.

Mr. PETRI. Mr. Larsen, any questions?

Mr. LARSEN. Thank you, Mr. Chairman. Sorry for being late, and

I don’t want to repeat what anyone has said.

Mr. Marron, I don’t want to misinterpret what you said, but

when you said there’s not much news in these numbers, I guess

perhaps what Mr. Baird was getting at and what I would get at,

and this isn’t just from a Washington State perspective, but probably from other members as well. If you were to go talk to City A

in my district or the State DOT or whoever, it is enough news to

them that it is causing them a lot of concern about planning for

the future. So I guess maybe just a note of caution about making

comments that could be construed as not attaching as much concern to it as perhaps we are hearing from people that we represent.

I’m great for advice, that’s about as much as I can give.

I wasn’t here earlier and I haven’t had a chance to go through

the testimony, but I look forward to that. I don’t want to have too

much repetition, but can you all give me a synopsis of why there

are differences in estimates?

Mr. CARROLL. Sir, the content of our testimony has been largely

that the estimates are not very large. First, I would point out

that—

Mr. LARSEN. The differences aren’t that large?

Mr. CARROLL. The differences between the Congressional Budget

Office, CBO’s estimates and OTA’s estimates are not very large in

the context of the errors that, the pattern of errors or the differences between our level of forecasted receipts over the last 10

years or so and the actual receipts that have come into the Highway Trust Fund. The current difference between CBO’s projects

and OTA’s or the Administration’s forecasts are not very large from

that vantage point.

The other thing I would point out is relative to the mid-session

review, moving from the mid-session review to the January budget,

the Administration’s, at least on the receipt side, has actually forecast a higher level of receipts for the Highway Trust Fund.

Mr. LARSEN. Just some quick math, in my mind, highway cash

balance at the end of the year 2009 is the $2.3 billion shortfall.

That is still larger than any difference, though, isn’t it? Whether

using Treasury’s or CBO’s, there would still be a negative cash balance?

Mr. CARROLL. Yes, as I understand Donald’s comments, they are

fairly consistent with our own. Both CBO and the Administration

projections indicate that toward the end of 2009, it is likely, based

on our best estimates today that the highway account will be fully

exhausted.

Mr. MARRON. If I could elaborate on that—

Mr. LARSEN. I’m sorry, not just fully exhausted but we will be

looking for money to help pay commitments. Fully exhausted just

makes it sound like we are just going to bring it down to zero. But

either we will be looking for money to make commitments, or as
17

Mr. Baird said, we will be telling people that we won’t be building

things.

Mr. CARROLL. As I understand it, once they become fully exhausted, then on the outlay side, the disbursement side, the Department of Transportation would need to perhaps make adjustments.

Mr. MARRON. In comparing our analyses projections, there is obviously the revenue component and then the outlay component. On

the outlay side, a key issue is to what extent you want to build in

the future RABA adjustments. So we have the obligation limitations, both of us take those as written. Both of us in our analyses

take the Administration’s 2007 RABA request and build that in.

If you just ran out kind of the mechanisms, those would imply

additional RABA adjustments upwards and outlays in 2008 and

2009. In that scenario, which we cover in our written testimony, we

do indeed have a negative balance arising in 2009. If to do kind of

apples to apples to what the Administration has you just do 2007

RABA alone and not the future ones, we do actually have a positive

balance at the end of 2009 and then it goes negative in 2010. It is a small—in a program with $150 billion of revenue, the difference is just a few billion dollars over that period. But it does affect the timing.

Mr. LARSEN. With regard to CBO analysis, are you required to

incorporate the RABA adjustments or not? Usually when you’re at

CBO, it is whatever the current policy is, we play that out. So it

seems to me there’s only one analysis. But you are telling me you

can do more than one analysis?

Mr. MARRON. This is one of the challenges of being the Acting

CBO Director, is I periodically have to explain what it is we do.

You are right, for our baseline budget projections, we go through

one particular exercise, which to be honest, in certain cases, bears

not as much relation to reality as one might like. This is one of

those cases.

So in our baseline we do something completely different, which

I won’t explain, because it would just confuse things.

Mr. LARSEN. I understand.

Mr. MARRON. Then for purposes, when people ask us specifically

questions about the trust funds, what we do is we do a separate

standalone analysis, not bound by those rules, where the key inputs are. The revenue projections are the same, I should emphasize, between our baseline and these analyses.

Mr. LARSEN. But the outlays will change?

Mr. MARRON. But the outlays will change, depending on what we

are asked to assume about obligations and about RABA.

Mr. LARSEN. Thank you.

Mr. PETRI. I don’t know if any of you, you are all experienced in

dealing with this data in this corner of the world. How soon do you

think the people of the Department of Transportation or OMB will

need to start adjusting downward contract authority or the program in order to take this into account so that we don’t run into

a kind of a cliff or disruption? You would think there would have

to be a paring back of a program at some point earlier than you

run into a negative balance. They need a certain working balance

above zero anyway.
18

Do you have any ideas? You were talking about 2009, 2010 negative balance. But we are talking about 2007, 2008, if you have a

built-in factor, as a cushion. And then if you need a glide path, you

have to start making adjustments before you run into that negative

balance, don’t you? So we are talking about starting to pare back

construction below what was planned in the TEA-LU, maybe not

in the current budget, in the next year’s budget. Am I wrong? Tell

me if that’s right.

Ms. SIGGERUD. My understanding is that if Congress does not

choose to address the revenue side of this equation that in addressing the contract authority side, that moving sooner is better than

moving later, because as contract authority is spent out over a

number of years, and therefore an action sooner is able to have an

effect on outlays that is lower, a stronger effect on outlays.

Mr. PETRI. Well, and isn’t it, if you are running a State program,

if you are alert and you see this coming, you say suddenly they are

going to cut this down and maybe we had better get ahead of the

queue and accelerate as best we can and get as much of this in our

State as possible, so you are going to get a run toward the exits

like a run on a bank if we are not careful. Then that would make

the problem even worse. Because they will try to front load their

programs in order to avoid being caught in the cutbacks a little

later. If they have any kind of flexibility like that, I suppose it varies a lot, depending on where it is.

Now, just kind of standing back from all this, a friend of mine

mentioned that when Eisenhower set up the Federal interstate program, and that kind of got settled on during his administration,

about a nickel a gallon Federal gas tax, if they had indexed that

back in 1956 or thereabouts, the Federal gas tax would be about

25 cents a gallon today instead of the 18.3. If that is at all close

to true, we have as a Federal Government been actually financing

a smaller and smaller portion of the Federal transportation needs

over a number of years.

But the Country and the economy is going to require some kind

of transportation investment. If politically we don’t have the will at

the national level or we are having problems doing it for one reason or another, don’t you think—it is sort of rhetorical—but don’t

you think we have some kind of obligation to at least get out of the

way, so if a particular State or region wants to invest in its infrastructure, they are not constrained by the Federal Government? In

other words, shouldn’t we loosen up? Logically, if we are not willing

to maintain the investment at the national level, and if the economy requires it to be efficient, we are really not going to save any

money by not investing, because we will have less revenue because

of inefficiency if we don’t make the investment.

It is not as though it is a zero sum game, in other words. If we

have no roads, no one will have any income so there will be no Government tax revenue. If you look at development in India or anywhere in the world, it is not money in, it is the ability to produce

money in the economy. They come out way ahead investing in infrastructure than they do giving tax breaks and things like that.

Because people are willing to pay taxes if they can make money.

They can’t make money if they don’t have infrastructure.
19

So we are not talking about as though in a vacuum, we are talking about trying to have a productive and competitive economy

here in the United States. China is building as many roads, they

have built 17,000 miles of interstate in the last 10 or 15 years, and

it is not, people are not going to thank us or this Congress or future Congresses if we do not maintain. They are planning on doubling that in the next 15 years. That is going to pay off in terms

of their productivity.

If we under-invest as a country, it will hurt us in terms of our

productivity. UPS and FedEx, people like this are already running

into the weekend with their deliveries because of capacity constraints in our economy.

So all I am saying is, if we think at the Federal level that we

are helping our economy by under-investing in transportation, I

think we are sorely mistaken. At the very least, don’t you think we

ought to help encourage regions and States to invest more if they

want to through bonding, selling it to foreigners, tolling, new kinds

of electronic based taxes and all the rest? Or do you think that

gosh, this is a waste, this is a deficit, this is terrible, let’s cut out,

we should then cut the tax? Why 18 cents? Why not 5 cents? Why

not spend nothing? We will just make it a wonderful world.

My theory is that we are going to have to spend money one way

or another. We are going to spend money on repairs, delays, inefficiencies, or we spend money up front and we get something in

terms of greater efficiency in the overall economy from that investment. Some of this analysis is a little sort of two-dimensional from

my point of view and does not take into account the benefits of

making this sort of investment.

So I don’t know if you have any reaction to that, but it is clear

if we stand back from this and look at it narrowly, oh, we have to

do this or that at the Federal level, if we aren’t going to, and if the

history of the last 40 years is that despite occasional gas tax increases, the Federal investment in transportation infrastructure

has actually declined, shouldn’t our strategy then to be maybe we

figure out how to pare back the Federal role and free up the State

and local economies to do the investment that’s required?

Mr. MARRON. If I could pick up on just one portion of what you

mentioned, without casting an opinion whether it would be a good

idea or bad idea, the potential role of tolling as a way to help finance new roads and also to in essence influence their usage to the

extent that there’s congestion problems, something that economists

have long believed is worth further study, further experiments and

may be beneficial.

One particular benefit is the extent to which you can get roads

that are partly or fully financed by potential tolling revenue, that

is an indication that the road in question is one that is of value

to the economy. The linkage between the gasoline tax and the

projects that are ultimately built, it is a user fee in some sense, but

that is a relatively weak link. Whereas the link between tolling and

similar mechanisms and the use of particular constructed roads is

much tighter. Things along that line therefore offer the potential

at least of efficiency advantages about identifying projects that are

particularly worthy of construction.
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Ms. SIGGERUD. Mr. Petri, you raised the important question of

the Federal role in financing highway infrastructure. You are correct that the Federal investment as a percent of overall State

spending has decreased over time. I would hope that the commissions that you created in SAFETEA-LU will consider what the future role of the Federal Government is in terms of advancing the

national interest in highway building as part of the work that they

do.

GAO has also been on record that to the extent that the Federal

contribution is declining in terms of State investment in highways

that encouraging States to use innovative financing, tolling and

other approaches makes some sense.

Mr. PETRI. One other, when we did this bill, there was a lot of

discussion and talk and a certain amount of money that was anticipated to be achieved for the Trust Fund through eliminating waste,

fraud and abuse, and tax evasion and so on. Is there any indication

in any of your analysis that that has produced any revenue?

Mr. CARROLL. I think at this stage it is still a little early to say.

I expect that some time in the next several years we will be getting

the data and information that we would need to begin to evaluate

the effectiveness on the compliance side of the SAFETEA-LU provisions.

Mr. PETRI. Mr. Blumenauer?

Mr. BLUMENAUER. Mr. Chairman, I appreciate the gist of your

comments a moment ago in terms of more for us than for our witnesses, who appropriately are saying, you guys deal with policy, we

will talk numbers. But I do think that what you are doing with this

hearing and helping members of this Committee look at the big picture is pretty important. Because even though it sounds like a long

time frame it is the twinkling of the eye in terms of Government

budgeting and if we are going to be making any substantive

changes in policy, either to replace revenues or ramp things down,

that is going to take several years.

So I think this is the time for us to get on with those questions.

I would welcome if the Subcommittee would be able to entertain

witnesses from some of the more substantive policy making arms

to talk about the implications. I would welcome it. I think this

helps set the table, and it extraordinarily helpful.

And I sympathize with your comments, Mr. Chairman. I think if

we don’t do a good job with the Federal investment, we shortchange everybody. And I think it has a pretty dramatic ripple effect. I have two questions that I don’t need answers to now, but I

would direct to our witnesses. One, I have been under the impression that we are spending roughly $2 trillion a year on transportation infrastructure in this Country, transportation infrastructure.

Only 10 percent of that is Government expenditure and maybe 3

percent of that is Federal.

Could you, through your various good offices help us with what

those ballpark figures are? I think you each in your own way have

access to information. I think it would be useful for me and perhaps for other members of the Committee to sort of get in mind

what we are talking about in terms of overall transportation expenditures on an annual basis in the economy, the amount that is

Government, the amount that is Federal.
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The second is, I am sorry our colleague Mr. Baird left, he was

asking about ways that potentially we could close the gaps, what

it would take. I had been reviewing in anticipation of this hearing

a document I saw, I think it was several months ago, from the National Chamber Foundation, there was a study that was prepared

by Cambridge System Metrics. I wondered if you folks could offer

up a critique about the accuracy of the projections in terms of the

revenue fixes that they talk about, in terms of indexing, for instance, the gas tax back at various points in time, and the amount

of the gap that is filled either in terms of maintaining the existing

program or for the projections that are made in terms of what it

would take to actually improve the transportation system.

If is it possible, to critique that methodology and conclusion.

Again, I am not talking about the policy. But if CBO or GAO, perhaps the Department of Treasury if they are interested, could just

give us a reality check as to, and this was done some months ago,

so there may be modest adjustments. But that would be useful, I

think, in terms of getting at what Mr. Baird was talking about and

giving us a running start about just what the range of choices

might be.

Thank you, Mr. Chairman.

Mr. PETRI. Thank you.

We tend to focus on what is in front of us, and that is expenditures. You don’t really measure your effectiveness or whether you

are accomplishing something by how much you are spending, it is

by how much you are getting done at the end of the day. There are

lots of ways, I suppose, of increase the efficiency of the system or

improving its throughputs, other than just adding lanes or investing money. We may be doing that quite well as a society and it

may be under-investing is forcing us to find other ways and make

the system more efficient that will serve us better in the long run.

I don’t know if that is true or not.

I do know that companies like Schneider, in my region, and Hunt

and these UPSs and FedExs that are more and more into logistics

argue that the percentage of our GNP that is consumed by logistics

expenses, transportation expenses, dropped from about, I may get

the numbers slightly wrong, but something in the neighborhood of

16 percent down to about 8 percent, almost identically how much

of the pie has grown in health care.

So we have actually paid for the increase in health care as a society, something has to go, it has to total 100 percent. So if health

care has gone up to 15 percent, what has gone down? Transportation.

It is not just because we are spending a smaller percentage of

the pie on transportation, but we are. With the whole manufacturing resolution and just in time and cutting out a lot of storage and

delay in the system and making the whole logistics system more

efficient, we have reduced the amount of capital and money that

needs to be tied up in that system. It has made us more productive.

But there have to a lot of further opportunities for efficiency and

standing back and looking at how to move more by rail, for example, if it can be done efficiently, rather than on highways.

Instead of just looking at, well, we’ve tolled this road and therefore it will reduce the use, maybe if you could move things off the
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road onto, maybe that will help do it, if you raise tolls, move to

other modes or whatever. We clearly can’t just ignore it and underfinance it. If we are going to cut back or not increase funding, we

had better increase our thinking about it in ways of marshaling resources, if not financial, then I don’t know what, planning, computing, other ways of doing things. Because the economy is going to

have to move goods and people somehow. And at increasing rates,

if it is going to continue to grow.

So we appreciate your preparing these statements and talking to

us. We are trying to figure out how to do our job with the next reauthorization and really adjusting for the current one. If you have

any closing comments, we would be eager to hear them.

Ms. SIGGERUD. Mr. Petri, I just wanted to agree with a couple

of things that you said that we have highlighted in some recent

GAO work. We feel it is extremely important to know more about

the importance of the transportation system in the United States.

The performance measures that we have are often about the condition of the pavement, things like that, that don’t really tell us

about the mobility, how well people and freight are moving in the

United States.

So focusing on that problem, I think, will help enormously in the

reauthorization as well as making the case for whether increasing

transportation investment makes sense.

I also wanted to focus on the point that you raised about doing

more modal tradeoffs. Clearly the structure of these programs

makes it very difficult to do that, moving in that direction, having

more flexibility there I think is also extremely important in the

goals that you outlined.

Mr. PETRI. Thank you all. This hearing is adjourned.

[Whereupon, at 3:16 p.m., the subcommittee was adjourned.]
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