GAO

United States General Accounting Office

Report to the Committee on 

Transportation and Infrastructure, House 

of Representatives

June 2000 HIGHWAY FUNDING

Problems With 

Highway Trust Fund 

Information Can 

Affect State Highway 

Funds

GAO/RCED/AIMD-00-148

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Contents

Letter 3

Appendixes Appendix I: Relationship Between Highway User Tax Receipts

and Federal Highway Program Funds 16

Appendix II: Treasury’s Process for Allocating Tax Receipts 

to the Highway Account of the Highway Trust

Fund Is Complex and Error Prone 20

Appendix III: Reliability of FHWA’s Attribution Process Has 

Not Been Demonstrated 31

Appendix IV: Problems With Treasury’s and FHWA’s Processes 

Can Affect Fund Distributions to the States 46

Appendix V: Scope and Methodology 52

Appendix VI: Comments From the Internal Revenue Service 53

Appendix VII: GAO Contacts and Staff Acknowledgments 59

Related GAO Products 60

Tables Table 1: Highway User Tax Structure 16

Table 2: Gross Highway User Tax Receipts Credited to

the Highway Account of the Highway Trust Fund, 

Fiscal Year 1999 17

Table 3: Factors for Attributing Highway User Taxes to Highway 

Users in Each State 33

Table 4: Estimated Motor Fuel Usage and Contributions to the

Highway Account of the Highway Trust Fund Attributable

to Highway Users in Each State, Apportionment Cycle 

for Fiscal Year 2000 38

Table 5: Calculation of the Revenue Aligned Budget Authority

Adjustment, Fiscal Years 2000 and 2001 48
Contents

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Abbreviations

DOT Department of Transportation

ExFIRS Excise Files Information Retrieval System

FHWA Federal Highway Administration

GAO General Accounting Office

IRS Internal Revenue Service

ISTEA Intermodal Surface Transportation Efficiency Act of 1991

RABA Revenue Aligned Budget Authority

TEA-21 Transportation Equity Act for the 21st Century
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United States General Accounting Office

Washington, D.C. 20548

Resources, Community, and

Economic Development Division

B-283480 Letr

June 29, 2000

The Honorable Bud Shuster

Chairman

The Honorable James L. Oberstar

Ranking Democratic Member

Committee on Transportation and Infrastructure

House of Representatives

The Transportation Equity Act for the 21st Century (TEA-21)1

 authorized 

$217.9 billion for highway, mass transit, and other surface transportation 

programs for fiscal years 1998 through 2003. TEA-21 continued the use of 

the Highway Trust Fund—which is divided into a Highway Account and a 

Mass Transit Account—as the mechanism to account for federal highway 

user tax receipts that fund various surface transportation programs. 

Highway user taxes include excise taxes on motor fuels (gasoline, gasohol, 

diesel, and special fuels) and truck-related taxes on truck tires, sales of 

trucks and trailers, and the use of heavy vehicles. 

TEA-21 also established mechanisms for ensuring that the level of federal 

highway program funds distributed to the states would be more closely 

linked than before to the highway user tax receipts credited to the Highway 

Account of the Highway Trust Fund.2

 The process for distributing these tax 

receipts has two separate components: (1) the Treasury Department 

determines the overall amount of receipts in the Highway Account and (2) 

the Federal Highway Administration (FHWA) estimates the portion of the 

overall amount that is attributable to each state by using state data on 

motor fuel usage. Under TEA-21, billions of dollars in highway program 

funds—about $13 billion in fiscal year 2000 alone—are distributed to the 

states on the basis of information developed by the Treasury and 

Transportation departments. 

1

P.L. 105-178 (June 9, 1998).

2

The Treasury Department credits most of the highway motor fuel tax receipts and all of the 

truck-related tax receipts to the Highway Trust Fund’s Highway Account. The remaining 

motor fuel tax amounts are credited to the Highway Trust Fund’s Mass Transit Account and 

to three other funds—the Leaking Underground Storage Tank Trust Fund, the Aquatic 

Resources Trust Fund, and the General Fund.
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Given the increased linkage between Highway Account receipts and the 

level of highway program funds distributed to the states—and the 

magnitude of the dollars involved—effective processes for collecting and 

reporting accurate information on such receipts are critical to the effective 

implementation of TEA-21. As agreed with your offices, this report 

discusses (1) the Treasury Department’s process for allocating highway 

user tax receipts to the Highway Account of the Fund, (2) FHWA’s process 

for estimating motor fuel usage and the contributions to the account that 

are attributable to highway users in each state, and (3) the impact of these 

processes on the amount of highway program funds distributed to each 

state. This letter summarizes our findings. A more detailed analysis of each 

of the issues we address is presented in appendixes II through IV.

Background Under TEA-21, the linkage between highway user tax receipts in the Fund’s 

Highway Account and federal highway program funding levels was 

enhanced by (1) guaranteeing specific annual funding levels for most 

highway programs over a 6-year period on the basis of the projected 

receipts in the Highway Account, (2) providing that the guaranteed 

spending level for each fiscal year would be adjusted upward or downward 

if the receipt levels in the Highway Account increased or decreased from 

those projected in TEA-21, and (3) changing some of the formulas for 

distributing highway program funds to the states to more closely reflect 

estimated Highway Account contributions that are attributable to highway 

users in each state. 

Federal highway user taxes include excise taxes on motor fuels (gasoline, 

gasohol, diesel, and special fuels) and truck-related taxes on truck tires, 

sales of trucks and trailers, and the use of heavy vehicles. The motor fuel 

taxes are generally paid by someone other than the consumer. Oil 

companies typically pay a per-gallon tax on the motor fuels at the point 

where their fuel is loaded into tanker trucks or rail cars at a terminal.3

 Tire 

manufacturers pay taxes on truck tires, by weight, and retailers pay taxes 

on the sales price of trucks and trailers. Owners of heavy highway vehicles 

pay taxes on the use of these vehicles, making this the only highway tax 

directly paid by the highway user. The highway user pays the other taxes 

indirectly, since the costs of these taxes become part of the purchase price 

3

A terminal is a fuel storage and distribution facility that receives fuel supplies by pipeline or 

vessel and from which fuel may be disbursed into a truck, rail car, or other means of 

transfer.
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of the products taxed. Thus, the motor fuel taxes are paid by businesses 

rather than by consumers at retail fuel pumps.

The Treasury Department uses a revenue allocation and reporting process 

to distribute the highway user taxes to the Fund’s Highway Account. Twice 

a month, business taxpayers make deposits of excise taxes—including 

highway user taxes—generally through Treasury’s Electronic Federal Tax 

Payment System. Excise taxes are deposited into Treasury’s General Fund 

as received. Treasury uses a complex and lengthy process—involving four 

organizations within the Department—for allocating excise tax receipts to 

the various trust funds, including the Highway Trust Fund. The Department 

uses this process, in part, because it does not obtain data from taxpayers, 

at the time they make semimonthly desposits, on the types of excise taxes 

that these deposits are intended to cover.

Since highway user taxes are generally paid by businesses, rather than 

consumers, most of the federal motor fuel and truck taxes come from only 

the handful of states where those businesses have their corporate 

headquarters and pay their taxes. As a result, the Treasury Department 

does not provide FHWA with state-level data on highway tax receipts, and 

FHWA must therefore estimate these data in order to distribute Highway 

Account funds to the states under various highway programs. FHWA 

estimates state-level contributions through what it refers to as its 

“attribution process.” Through this process, it determines each state’s share 

of highway motor fuel usage on the basis of data provided by the states, 

and it uses that information to estimate the amount of contributions to the 

Highway Account attributable to each state’s highway users. FHWA 

described this process in a June 1985 Federal Register notice and, 

according to FHWA officials, obtained comments on it from the states and 

from congressional staff. The information developed by Treasury and 

FHWA is used to determine the amounts of funds distributed to each state 

under several major highway programs. 

TEA-21 requires that billions of dollars in highway program funds be 

distributed to the states on the basis of Highway Account receipts 

information developed by the Treasury and Transportation departments—

about $13 billion in fiscal year 2000 alone. The $13 billion figure includes 

(1) $11.5 billion in highway program funds that were distributed to the 

states in fiscal year 2000 on the basis of FHWA’s analysis of data on each 

state’s motor fuel usage and (2) a $1.5 billion increase to the fiscal year 

2000 overall highway program funding level originally projected in TEA-21 

on the basis of Treasury’s reports on Highway Account receipts. (See app. I 
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for further information on the linkage between receipts in the Highway 

Account of the Fund and the level of highway program funds distributed to 

the states.)

Results in Brief Given TEA-21’s increased linkage between the receipts in the Highway 

Account of the Highway Trust Fund and the level of highway program 

funds distributed to the states, the quality of information developed by the 

Treasury Department and FHWA is more critical than ever before in 

determining accurate funding amounts to be distributed to the states each 

year. The processes used by Treasury and FHWA to estimate overall 

receipts and the portion of those receipts attributable to highway users in 

individual states are highly complex and susceptible to error, and the 

reliability of the estimates has not been demonstrated. As a result, there is 

little assurance that the actual amounts distributed to the states are 

accurate, although there is no way of knowing the extent of over- or underpayments, if any, to individual states, given the information currently 

available from the two agencies. Although the Treasury Department and 

FHWA are taking actions to review and improve their estimating processes, 

these actions are not sufficient to correct all the weaknesses. For example, 

although Treasury has a number of ongoing efforts aimed at improving its 

revenue allocation and reporting process for trust funds, it does not have a 

comprehensive plan, with time frames, that addresses all of the policy and 

process changes needed to fully implement those efforts. Furthermore, 

FHWA’s efforts to improve the data and methodology used in its attribution 

process do not verify the accuracy of the information resulting from that 

process. This report makes recommendations to the Treasury and 

Transportation departments that are designed to reduce the risk of errors 

and increase the reliability of the information used to distribute federal 

highway program funds to the states. We provided a draft of this report to 

the Treasury Department, the Internal Revenue Service (IRS), and the 

Transportation Department. IRS did not fully address whether or when the 

agency will take actions to implement our recommendations to the 

Secretary of the Treasury. Transportation and FHWA officials agreed with 

our recommendations to the Secretary of Transportation and indicated that 

they would address them as part of the agency’s ongoing efforts to improve 

its attribution process. All agencies, including Treasury, made technical 

clarifications, which we incorporated as appropriate.
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Treasury’s Process for 

Allocating Tax 

Receipts to the 

Highway Account of 

the Highway Trust 

Fund Is Complex and 

Error Prone

The Treasury Department’s process for allocating the appropriate amounts 

of highway user tax receipts to the Highway Account of the Fund is 

complex and lengthy, in part, because the Department does not obtain data 

from the taxpayer on the amounts deposited for highway user taxes at the 

time those deposits are made. Treasury uses a very cumbersome process—

involving four organizations within the Department—to estimate highway 

user tax receipts, credit the estimated amounts to the Fund, and 

subsequently certify the amounts collected and adjust the amounts 

credited by analyzing payment and tax return data.4

 Furthermore, our prior 

reviews have repeatedly identified errors in the information used in 

Treasury’s process.5

 In addition, the process may result in yearly reports on 

Highway Trust Fund receipts that do not contain timely information 

because, for example, the amounts attributable to a particular quarter have 

not been included in the certification for that quarter. Since Treasury’s 

reports on receipts are used to calculate yearly adjustments to the funding 

levels authorized by TEA-21, problems with the accuracy and timeliness of 

the information in these reports can affect the accuracy of the amounts 

distributed to the states. 

Within Treasury, IRS is taking the lead in considering changes aimed at 

improving Treasury’s trust fund revenue allocation and reporting process. 

IRS has undertaken three major efforts in this area. For example, IRS 

recently completed a study that included an assessment of the taxpayer 

burden, potential benefits, and feasibility of requiring taxpayers to report, 

with their semimonthly deposits, a detailed breakdown of the amounts 

deposited for each excise tax, including highway user taxes. The study 

found that while the benefits to the government would be high, imposing 

such a requirement at this time would be potentially burdensome for 

payers of excise taxes and the quality of the data would likely be poor, 

4

In this report, we use the term “allocation” to refer to the processes for transferring 

amounts from the General Fund to the Highway Trust Fund, on the basis of initial estimates 

of highway user tax receipts, and for subsequently adjusting the amounts transferred, on the 

basis of certified collections.

5

See, for example, Financial Audit: IRS’ Fiscal Year 1999 Financial Statements (GAO/AIMD00-76, Feb. 29, 2000), Applying Agreed Upon Procedures: Highway Trust Fund Excise Taxes

(GAO/AIMD-00-82R, Feb. 25, 2000), Internal Revenue Service: Custodial Financial 

Management Weaknesses (GAO/AIMD-99-193, Aug. 4, 1999), Financial Audit: IRS’ Fiscal 

Year 1998 Financial Statements (GAO/AIMD-99-75, Mar. 1, 1999), Agreed-Upon Procedures: 

Highway Trust Fund Excise Taxes (GAO/AIMD-99-71R, Feb. 25, 1999), and Excise Taxes: 

Internal Control Weaknesses Affect Accuracy of Distributions to the Trust Funds 

(GAO/AIMD-99-17, Nov. 9, 1998).
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since companies do not currently have such detailed information at the 

time they make their deposits. The study recommended that IRS (1) 

implement incentives at this time to encourage taxpayers to start providing 

IRS with a detailed tax breakdown with their tax deposits and (2) do 

another study in several years to determine whether taxpayers’ capability 

to provide these detailed data has improved and whether IRS should 

require taxpayers to provide the detailed data at that time. IRS is also 

designing, as part of its modernization efforts, a new payments information 

database that would be capable of recording payment data, by specific tax 

type, if provided by taxpayers with their deposits. Furthermore, IRS is 

planning to design a new method for allocating tax receipts to the excisetax-related trust funds—including the Highway Trust Fund—using the 

taxpayer-supplied data if they become available. If taxpayers do not 

provide the more detailed data, the new allocation method will allocate 

their deposits to the trust funds using estimated tax breakdowns, as 

derived from their past tax returns. 

While these efforts may improve the accuracy and timeliness of Treasury’s 

reporting on the receipts in the Highway Account of the Fund, IRS does not 

have a comprehensive plan, including time frames, for addressing all of the 

policy and process changes needed to implement its efforts, and full 

implementation is still years away. For example, IRS has no formal plan, 

including time frames, for carrying out its study’s recommendations that 

the agency (1) use incentives at this time to encourage taxpayers to provide 

detailed data with their deposits and (2) reexamine, in several years, 

whether taxpayers have the capability to provide these data and whether 

IRS should require them to do so. Furthermore, IRS’ plan for developing 

and implementing the new database and revenue allocation method does 

not address what changes may be needed—as a result of changes being 

planned in the revenue allocation method—in Treasury’s methods for 

certifying and adjusting the amounts allocated to the trust funds on the 

basis of analyses of tax return and payment data. IRS officials told us that 

the agency is tentatively planning to implement the new database and 

revenue allocation method in about 4 years. 

Reliability of FHWA’s 

Attribution Process 

Has Not Been 

Demonstrated

FHWA’s “attribution” process—which estimates each state’s relative 

highway motor fuel usage from state tax data and uses that information to 

estimate the relative contributions to the Highway Account from each 

state’s highway users—also has significant weaknesses that raise concerns 

about its reliability. For example, the state data on motor fuel usage 

submitted to FHWA for use in the attribution process have not been 
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thoroughly and independently reviewed to verify their accuracy, reliability, 

and consistency across all states. Furthermore, FHWA’s methodology for 

analyzing the state motor fuel data is susceptible to error, since it (1) has 

never been fully documented or independently reviewed; (2) is extremely 

complicated, involving nearly 200 formulas that are needed to 

accommodate all of the differences in states’ methods for taxing and 

reporting on motor fuels; and (3) has been repeatedly adjusted over several 

decades in response to changing state tax laws and federal program 

requirements. Finally, the responsibility for collecting, analyzing, and 

evaluating the source data submitted by the states and for carrying out the 

attribution methodology rests with only two officials in FHWA 

headquarters, thus increasing the need for strong oversight. 

FHWA has a number of ongoing efforts to review the quality of the state 

data and improve its attribution process, but these efforts do not fully 

address our concerns. For example, FHWA performs trend analyses of the 

state data to ensure consistency in how they are reported from year to year, 

and it also conducts periodic reviews of each state to review the overall 

methodology used to develop the key motor fuel figures reported to FHWA. 

While we view these as positive efforts to improve reporting by the states, 

these efforts do not verify the accuracy and reliability of the state data 

submitted to FHWA. FHWA is also addressing issues and areas for 

improving the reporting system for state motor fuel data with the help of a 

multiagency committee. The scope of FHWA’s work with this committee, 

which was initially focused on a small percentage of the total data used in 

the attribution process, has evolved to include broader concerns about the 

attribution process. For example, FHWA plans to issue a paper describing 

its attribution methodology to better inform state officials about how their 

state motor fuel data are used in the attribution process, and the agency 

has also conducted outreach efforts to state officials by holding several 

workshops in cities across the country. However, FHWA still needs to 

address additional issues that we have raised about the reliability of the 

state motor fuel data and the attribution methodology. 

In addition to FHWA’s efforts, IRS is developing a data system—known as 

the Excise Files Information Retrieval System (ExFIRS)—that may provide 

information that would be useful for FHWA’s attribution process. 

Specifically, the system may provide data on highway usage of motor fuel 

by federal taxpayers in each state. FHWA could use these data as a tool to 

validate the state motor fuel data currently used in its attribution process. 

Since there are some possible limitations in the reliability of the ExFIRS 
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information, however, FHWA and IRS would need to evaluate the 

information when it becomes available. 

Problems With 

Treasury’s and FHWA’s 

Processes Can Affect 

Fund Distributions to 

the States

Problems with the reliability of Treasury’s and FHWA’s processes for 

estimating the overall level of highway user tax receipts, and the portion of 

those receipts attributable to the highway users in individual states, can 

affect the amounts that are distributed to the states under the following 

two methods. First, Transportation uses Treasury’s revenue reports to 

calculate any changes to the overall amounts of highway program funds 

that go to the states each year, as authorized by TEA-21.6

 Second, FHWA 

distributes funds to the states for several major highway programs using 

formulas that rely to a large extent on state-level estimates of motor fuel 

usage and contributions to the Highway Account developed from FHWA’s 

attribution process. Since the amount of money distributed to the states 

using Treasury’s and FHWA’s information is large—about $13 billion in 

fiscal year 2000 alone—the potential impact of problems with the accuracy 

and timeliness of that information are significant. Given that the reliability 

of the estimates developed by Treasury and FHWA has not been 

demonstrated, there is little assurance that the actual amounts distributed 

to the states are accurate.

Conclusions Given TEA-21’s increased linkage between the receipts in the Highway 

Account of the Fund and the level of highway program funds distributed to 

the states, the quality of the information developed by the Treasury 

Department and FHWA on such receipts is critical to the effective 

implementation of TEA-21. Taken together, the processes used by the 

Treasury Department and FHWA are highly complex and susceptible to 

error, and the reliability of the estimates resulting from those processes has 

not been demonstrated. As a result, there is little assurance that the actual 

amounts distributed to the states are accurate. The actions being taken by 

both the Treasury Department and FHWA to improve their estimating 

processes are not sufficient to correct the weaknesses and reduce the risk 

of errors. Treasury is several years away from implementing its efforts to 

improve its revenue allocation and reporting process, and it has not yet 

6

Transportation’s Office of the Secretary works with the Office of Management and Budget 

to develop this calculation. FHWA executes any distribution or reduction in funding 

resulting from this calculation. 
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developed a comprehensive plan, with time frames, for carrying out those 

efforts. Such a plan is crucial to ensure that the Department places 

adequate priority on examining ways to improve estimates of highway user 

tax receipts, which are used to make allocations to the Highway Trust 

Fund. With regard to FHWA’s attribution process, the state motor fuel data 

and the extremely detailed and complicated methodology used by FHWA to 

analyze those data have not been thoroughly and independently reviewed 

to verify their accuracy, reliability, and consistency across all states. 

Moreover, the methodology is not adequately documented and is the 

responsibility of just two FHWA officials. Finally, given the complexity of 

the activities reviewed in this report, the fact that two major federal 

departments (including four organizations within the Treasury 

Department) share responsibility for addressing the issues we have 

identified, and the magnitude of the dollars involved, the cognizant 

congressional oversight committees need to be annually informed of 

Treasury’s and FHWA’s actions to improve the reliability of the information 

used to distribute federal highway funds to the states.

Recommendations To reduce the risk of errors and increase the reliability of the information 

used to distribute highway program funds to the states, we recommend the 

following:

• The Secretary of the Treasury should place greater emphasis and 

priority on the agency’s efforts to improve its process for allocating 

receipts to the Highway Trust Fund and other excise-tax-related trust 

funds by developing a comprehensive plan that addresses all of the 

policy and process changes that will be needed to fully implement these 

efforts. In particular, the plan should include steps and time frames for

• evaluating and deciding whether to use incentives as a near-term 

method for encouraging taxpayers to provide detailed data—at the 

time of deposit—on the specific types of excise taxes for which 

deposits are made;

• reexamining taxpayer capabilities to provide these detailed data in 

several years and deciding whether to require the data from 

taxpayers at that time, considering the potential burden to taxpayers 

and the potential benefits to the government; and

• determining what changes may be needed—as a result of changes 

being planned in the revenue allocation method—in Treasury’s 
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methods for certifying and adjusting the amounts allocated to the 

trust funds on the basis of analyses of tax return and payment data.

• The Secretary of Transportation should direct the Administrator of 

FHWA to improve the reliability of the attribution process by

• ensuring that detailed, independent verifications of motor fuel data 

are performed for each state, perhaps on a rotational basis over a 

period of years; 

• fully documenting FHWA’s current methodology for analyzing the 

state motor fuel data used in the attribution process to explain its 

contents and rationale and to specify the procedures for carrying it 

out; 

• conducting an independent, comprehensive review of this 

methodology; and 

• evaluating the potential reliability of IRS’ ExFIRS data, once they 

become available, for use as a tool to validate the state motor fuel 

data currently used in the attribution process.

• The secretaries of the Treasury and Transportation should report to the 

cognizant highway-related authorizing committees in Congress—the 

Committee on Transportation and Infrastructure in the House of 

Representatives and the Committee on Environment and Public Works 

in the Senate—within 12 months, and annually thereafter, on their 

progress in implementing our recommendations and on the extent to 

which their processes for collecting and reporting information on 

Highway Account receipts are producing accurate, reliable data for use 

in distributing highway program funds to the states. 

Agency Comments and 

Our Evaluation

We provided the Treasury Department, IRS, and the Transportation 

Department with copies of a draft of this report for their review and 

comment. Treasury officials, including the Director of the Office of Tax 

Analysis, deferred to IRS for a position on our recommendations to the 

Secretary of the Treasury—on the need to develop a comprehensive plan 

for improving Treasury’s trust fund revenue allocation and reporting 

process—because they said that IRS has the lead role in considering 

changes aimed at improving that process. Also, Treasury officials said that 

they are considering our recommendation that the Secretary of the 
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Treasury annually report to the cognizant highway-related authorizing 

committees in the Congress. The officials also provided minor technical 

clarifications, which we incorporated into the report.

The Commissioner of Internal Revenue provided written comments on a 

draft of this report, which, along with our response, appear in appendix VI. 

IRS suggested some clarifications, which we made, in our discussion of the 

agency’s processes for collecting excise taxes and certifying the amounts 

collected. While these changes improved the accuracy of this discussion, 

they did not affect our conclusions and recommendations on Treasury’s 

process for allocating tax receipts to the Highway Trust Fund. IRS also 

stated that initial allocations to the Highway Trust Fund will continue to be 

based on estimates, which will require adjustment on the basis of factual 

data as such data become available. We agree. However, we believe that 

Treasury may have the opportunity to improve the quality of the estimates 

on which initial allocations are based if it obtains tax type information from 

taxpayers when they make their deposits. While IRS did not take exception 

to our recommendations, it did not fully address whether or when the 

agency will take actions to implement them. 

To obtain Transportation’s comments on the draft of this report, we met 

with agency officials, including the Director of FHWA’s Office of Highway 

Policy Information. These officials agreed with our recommendations, 

indicating that they would be addressed as part of FHWA’s overall efforts to 

improve its attribution process. In addition, the officials asserted that 

FHWA uses the best available information provided by the states, along 

with a “reasonable, logical, and consistent process,” to produce what they 

believe are reproducible results and the best possible estimates of federal 

highway taxes attributable to each state. Although we do not dispute 

FHWA’s intent to develop a “reasonable, logical, and consistent” attribution 

process, our review showed that the reliability of that process has not been 

demonstrated and, as a result, there is little assurance that the actual 

amounts of highway program funds distributed to the states are accurate. 

While we recognize that state motor fuel data may be the best available 

information source for estimating the Highway Account receipts 

attributable to highway users in each state, we believe that until FHWA (1) 

performs detailed verifications of each state’s motor fuel data and (2) fully 

documents and assesses the reliability of its attribution methodology, the 

agency cannot ensure that its attribution process yields reliable 

information and the “best possible” estimates for use in distributing 

highway program funds to the states. These officials also made clarifying 

comments, which we incorporated as appropriate.
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The officials also emphasized that FHWA’s attribution process was based 

on the agency’s interpretation of relevant statutes. They noted that the 

process was reviewed through a Federal Register notice in 1985, which 

allowed for broad public comment. They also said that, when TEA-21 was 

enacted, they recognized the need to review the attribution process, 

address any concerns from the states, and provide any necessary 

improvements. The FHWA officials also believe—on the basis of the results 

of a series of outreach sessions they held with the states—that the states 

have few specific concerns with the overall accuracy of the attribution 

process. Finally, these officials told us that they have identified a number of 

ways that the process could be improved and are continuing their efforts 

with the states to identify and implement any necessary modifications to 

the attribution process. Since our report already recognized that FHWA 

obtained comments on its attribution process and is working with the 

states to improve the process, we did not revise the report further. 

In addition, the officials stated that their confidence in the results of their 

attribution analysis is reinforced by its relationship with an “available, 

independently derived, alternative method for assessing highway use.” 

According to FHWA officials, this alternative method involved comparing 

state-level data on “vehicle miles traveled” and motor fuel usage. However, 

the data on vehicle miles traveled have limitations as a tool for assessing 

the reliability of the motor fuel data currently used in the attribution 

process, and the comparison does not address our concern that the 

reliability of the attribution data and methodology has not been 

demonstrated. Therefore, we did not make changes to the report. 

Our work was performed at several offices within the Treasury and 

Transportation departments. (See app. V for a detailed description of our 

scope and methodology.) We conducted our work from August 1999 

through June 2000 in accordance with generally accepted government 

auditing standards.

We are sending copies of this report to the Honorable Rodney E. Slater, 

Secretary of Transportation; the Honorable Kenneth R. Wykle, 

Administrator, Federal Highway Administration; the Honorable Lawrence 

H. Summers, Secretary of the Treasury; the Honorable Charles O. Rossotti, 

Commissioner of Internal Revenue; and the Honorable Jacob Lew, Director, 

Office of Management and Budget. We will make copies available to others 

on request. If you have any questions about this report, please call me at 
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(202) 512-3650 or Gregory D. Kutz at (202) 512-3406. GAO contacts and staff 

acknowledgements are listed in appendix VII.

Phyllis F. Scheinberg

Associate Director,

Transportation Issues
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Appendix I

Relationship Between Highway User Tax Apendxies

Receipts and Federal Highway Program FundsApendxiI

The Transportation Equity Act for the 21st Century (TEA-21) continued the 

use of the Highway Trust Fund as the mechanism for accounting for federal 

highway user tax receipts that fund various surface transportation 

programs. Established in 1956, the Fund has been divided since 1983 into 

two accounts: a Highway Account and a Mass Transit account. Receipts 

from the Highway Account are used to fund highway programs, through 

which billions of dollars are distributed to the states annually for the 

construction and repair of highways and related activities. 

Financing for the Fund is derived from a variety of federal highway user 

taxes including excise taxes on motor fuels (gasoline, gasohol, diesel, and 

special fuels) and truck-related taxes on truck tires, sales of trucks and 

trailers, and the use of heavy vehicles. The motor fuel taxes are generally 

paid by someone other than the consumer. Oil companies pay a per-gallon 

tax on motor fuels at the point where it is loaded into tanker trucks or rail 

cars at a terminal.1

 Tire manufacturers pay taxes on truck tires, by weight, 

and retailers pay taxes on the sales price of trucks and trailers. Owners of 

heavy highway vehicles pay a tax annually on the use of these vehicles, 

making this the only highway tax directly paid by the highway user. The 

highway user pays the other taxes indirectly, since the costs of these taxes 

become part of the purchase price of the products taxed. Table 1 provides 

further details on the highway user tax structure and the rates currently in 

effect, as described by the Federal Highway Administration (FHWA).

Table 1: Highway User Tax Structure

1

A terminal is a fuel storage and distribution facility that receives fuel supplies by pipeline or 

vessel and from which fuel may be disbursed into a truck, rail car, or other means of 

transfer.

Tax type Tax rate (as of Aug. 1999)

Gasoline 18.4 cents per gallon

Diesel 24.4 cents per gallon

Gasohol (10 percent ethanol)a 13 cents per gallon

Special fuels

 General rate

 Liquefied petroleum gas

 Liquefied natural gas

 M85 (from natural gas) 

 Compressed natural gas

18.4 cents per gallon

13.6 cents per gallon

11.9 cents per gallon

 9.25 cents per gallon

48.54 cents per thousand cubic feet
Appendix I

Relationship Between Highway User Tax 

Receipts and Federal Highway Program 

Funds

Page 17 GAO/RCED/AIMD-00-148 Problems With Highway Trust Fund Information

a

Other rates apply to gasohol blends containing less than 10 percent ethanol or blends made with 

methanol.

Source: FHWA.

The Treasury Department credits most motor fuel tax receipts and all 

truck-related tax receipts to the Highway Account of the Highway Trust 

Fund.2

 The Department of Transportation relies on Treasury to allocate 

highway user tax receipts to the Fund and report on the amounts credited. 

Transportation uses Treasury’s reports on the Fund’s overall Highway 

Account receipts in determining the levels of funding to be distributed to 

the states through several major highway programs. Table 2 shows receipts 

of these taxes credited by Treasury to the Highway Account of the Fund in 

fiscal year 1999.

Table 2: Gross Highway User Tax Receipts Credited to the Highway Account of the 

Highway Trust Fund, Fiscal Year 1999

Tires: 

 0 − 40 pounds

 Over 40 pounds to 70 pounds

 Over 70 pounds to 90 pounds

 Over 90 pounds

No tax

15 cents per pound in excess of 40 pounds

$4.50 plus 30 cents per pound in excess of 70 pounds

$10.50 plus 50 cents per pound in excess of 90

pounds

Truck and trailer sales 12 percent of retailer’s sales price for tractors and

trucks over 33,000 pounds gross vehicle weight (GVW)

and trailers over 26,000 pounds GVW.

Heavy vehicle use Annual tax applied to trucks 55,000 pounds and over

GVW. Tax equals $100 plus $22 for each 1,000 pounds

(or fraction thereof) in excess of 55,000 pounds.

Maximum tax of $550.

2

Some of the motor fuel tax amounts are credited to the Mass Transit Account of the 

Highway Trust Fund, the Leaking Underground Storage Tank Trust Fund, the Aquatic 

Resources Trust Fund, and the General Fund.

Dollars in millions

Type of tax

Amount of

taxes

Percentage of

total taxes

Gasoline $21,373.1 61

Gasohol 1,310.7 4

Diesel 8,388.3 24

(Continued From Previous Page)

Tax type Tax rate (as of Aug. 1999)
Appendix I

Relationship Between Highway User Tax 

Receipts and Federal Highway Program 

Funds

Page 18 GAO/RCED/AIMD-00-148 Problems With Highway Trust Fund Information

a

An additional $6.7 million in fines and penalties for motor carrier safety violations was credited to the 

Fund in 1999.

Source: GAO’s presentation of data from Treasury’s financial statements for the Highway Trust Fund 

for fiscal year 1999.

As shown in table 2, in fiscal year 1999, these taxes generated about $35.1 

billion in gross receipts for the Fund. About 89 percent of the total receipts 

were derived from the excise taxes on motor fuels, and the remaining 

receipts came from the truck-related taxes. The total tax collections ($35.1 

billion), however, were subject to certain refunds, credits, and transfers3

totaling about $1.3 billion; thus, net taxes totaled about $33.8 billion in 

fiscal year 1999. 

TEA-21 established guaranteed spending levels for certain highway and 

transit programs. Prior to TEA-21, these programs competed for budgetary 

resources through the annual appropriations process with most other 

domestic programs. In a major change to federal budget rules, TEA-21 

guaranteed a minimum level of spending for these programs. New budget 

categories were established for highway and transit spending, effectively 

establishing a budgetary “firewall” between those programs and other 

domestic discretionary spending programs. Of the $217.9 billion authorized 

for surface transportation programs over the 6-year life of TEA-21, about 

$198 billion is protected by the budgetary firewall—about $162 billion for 

highway programs and $36 billion for transit programs.

Under TEA-21, the amount of highway program funds distributed to the 

states is tied to the amount of tax receipts credited to the Highway Account 

of the Highway Trust Fund. As part of the budgetary firewall, TEA-21 

Subtotal−all motor fuels $31,072.1 89

Truck tires 416.0 1

Truck and trailer sales 2,809.9 8

Heavy Vehicle Use 813.7 2

Subtotal−all truck-related taxes $4,039.6 11

Total−gross highway user taxesa $35,111.7 100

3

Refunds and credits reflect amounts returned to taxpayers because the motor fuel was 

ultimately used for a tax-exempt purpose. Transfers reflect amounts transferred from the 

Highway Trust Fund to other trust funds as required by law.

(Continued From Previous Page)

Dollars in millions

Type of tax

Amount of

taxes

Percentage of

total taxes
Appendix I

Relationship Between Highway User Tax 

Receipts and Federal Highway Program 

Funds

Page 19 GAO/RCED/AIMD-00-148 Problems With Highway Trust Fund Information

guaranteed specific levels of funding for highway programs from fiscal year 

1999 through fiscal 2003, on the basis of projected receipts of the Highway 

Account. Specifically, TEA-21 set a minimum amount to be available for 

obligation each year for the federal-aid highway program as well as several 

highway safety programs. The federal-aid highway program—administered 

by FHWA—is the umbrella term used to describe various separate highway 

programs or activities, such as Interstate Maintenance, the National 

Highway System, Surface Transportation, and others. 

TEA-21 also provided that beginning in fiscal year 2000, this guaranteed 

funding level for each fiscal year would be adjusted upward or downward if 

the levels of Highway Account receipts increased or decreased from those 

projected in TEA-21. The Treasury Department provides information on 

Highway Account receipt levels used in calculating the amount of this 

adjustment, called Revenue Aligned Budget Authority (RABA). Any higher 

funding levels resulting from the RABA calculation are then distributed to 

the states for certain highway programs.4

 Thus, the RABA adjustment 

ensures that highway program funding levels will change as Highway 

Account receipt levels change.

Highway account receipts are also used as a factor in distributing, or 

“apportioning,”5

 funds to each state under several major programs included 

in the federal-aid highway program. TEA-21 significantly changed some of 

the formulas used to apportion funds to the states. The formulas were 

changed to more closely reflect factors related to the use of motor fuel and 

Highway Account contributions that are attributed to each state’s highway 

users. For example, estimated Highway Account contributions are 

significant factors in the apportionment formulas for three of the major 

highway programs—the Interstate Maintenance, Minimum Guarantee, and 

Surface Transportation programs. In addition, data on the highway use of 

diesel fuel—one of the factors used to estimate contributions to the 

Highway Account that are attributed to highway users in each state—is 

used in the formula for apportioning funds for the National Highway 

System program.

4

If this RABA adjustment lowers the guaranteed funding level for a given fiscal year, TEA-21 

requires that the Department of Transportation reduce proportionately the amount of 

funding authorized for the next fiscal year. 

5

Apportioning is the distributing of funds using a formula provided in law.
Page 20 GAO/RCED/AIMD-00-148 Problems With Highway Trust Fund Information

Appendix II

Treasury’s Process for Allocating Tax Receipts 

to the Highway Account of the Highway Trust 

Fund Is Complex and Error Prone ApendxiI

The Treasury Department uses a very complex and lengthy process for 

allocating highway user excise taxes to the Highway Account of the 

Highway Trust Fund, in part, because the Department does not obtain data 

from taxpayers, as they make semimonthly deposits, on the specific types 

of excise taxes for which deposits are made. Taxpayers make semimonthly 

deposits of estimated excise taxes but do not provide a breakdown of the 

amounts owed, by tax type, until they file their quarterly tax returns. 

Treasury uses a process—involving four separate bureaus and offices—for 

making initial estimates of highway user tax receipts, allocating these 

amounts to the Fund, and subsequently adjusting the amounts allocated 

after analyzing payment and tax return data. Our previous reviews of this 

process have found that it is cumbersome and prone to error. In addition, 

the process may result in yearly reports on Highway Trust Fund receipts 

that do not contain timely information, for example, because the amounts 

attributable to a particular quarter have not been included in the 

certification for that quarter. The Internal Revenue Service (IRS) is 

considering changes aimed at improving its revenue allocation and 

reporting process for trust funds. Specifically, IRS has studied the taxpayer 

burden, potential benefits, and feasibility of obtaining more detailed excise 

tax payment data from taxpayers as deposits are made. IRS is also planning 

to develop a new database that would allow the agency to record and 

process more detailed tax payment data as well as a new revenue 

allocation method to utilize the detailed tax payment data if they become 

available. However, IRS’ plans for the development of the new database 

and revenue allocation method are not comprehensive in that they do not 

address policy changes needed to fully implement them, such as the 

actions that IRS would need to take to obtain the detailed payment data 

from taxpayers, if it decides to do so.

Treasury Uses a 

Complex and Lengthy 

Process to Allocate Tax 

Receipts to the Fund

Four different bureaus and offices within Treasury—IRS, the Office of Tax 

Analysis, the Financial Management Service, and the Bureau of Public 

Debt—share responsibility for allocating excise tax receipts1

 to the 

Highway Account of the Highway Trust Fund. This process is highly 

complex and lengthy, in part, because IRS does not obtain data from 

taxpayers, as they make semimonthly deposits, on the types of excise taxes 

for which the deposits are made. 

1

For the purpose of this discussion, the term receipts refers to semimonthly deposits by 

taxpayers for estimated tax liabilities as well as any additional amounts subsequently 

received for each quarter.
Appendix II

Treasury’s Process for Allocating Tax 

Receipts to the Highway Account of the 

Highway Trust Fund Is Complex and Error 

Prone

Page 21 GAO/RCED/AIMD-00-148 Problems With Highway Trust Fund Information

Payers of highway user excise taxes on motor fuels, truck tires, and trucks 

and trailers make semimonthly deposits to cover their estimated excise tax 

liabilities, generally through Treasury’s Electronic Federal Tax Payment 

System.2

 Businesses that make these deposits do not specify which types of 

excise taxes they are paying with each semimonthly deposit. They are 

required to report the amounts owed for each specific excise tax on a 

quarterly tax return due 1 to 2 months after the end of each quarter. When 

filing the return, the taxpayer is required to make a final payment to make 

up the difference between the total of semimonthly deposits and the 

reported total amount owed for the quarter, if the latter amount is greater. 

Payers of the heavy vehicle use tax generally file returns annually and make 

payments directly to IRS. These payments may be made with the annual 

returns or in up to four installments.

Excise taxes received are deposited into Treasury’s General Fund. Because 

data are not available to determine the amounts of these receipts that 

represent highway user taxes, Treasury uses estimates of highway user tax 

receipts prepared by its Office of Tax Analysis to make initial allocations 

from the Treasury General Fund to the Highway Trust Fund each month.3

After this initial allocation, IRS certifies quarterly the amounts collected for 

highway user taxes that should have been allocated to the Fund on the 

basis of tax returns and payment data. However, IRS does not certify 

collections for each quarter until about 6 months after the quarter ends. IRS 

needs this amount of time to allow for the submission and processing of 

returns as well as recording, reviewing, and analyzing payment and liability 

data. Following certification, Treasury adjusts the amount initially 

allocated to the Highway Trust Fund for that quarter. In fiscal years 1998 

and 1999, these quarterly adjustments, which can be downward or upward, 

ranged from a decrease of $711 million (which changed the initial 

allocation by 9 percent) to an increase of $917 million (which changed the 

initial allocation by 11 percent).

2

The Electronic Federal Tax Payment System allows taxpayers to make tax deposits 

electronically. All business taxpayers that have an annual federal tax liability exceeding 

$50,000 are required to use this system for making tax deposits.

3

In preparing these estimates of monthly tax receipts, the Office of Tax Analysis uses 

estimated fiscal year tax receipts published in the President’s budget each February and in a 

subsequent review and update of the budget each July. The Office develops overall fiscal 

year estimates using economic models and then develops monthly estimates by using 

additional models to spread the fiscal year receipt estimates over a 12-month period.
Appendix II

Treasury’s Process for Allocating Tax 

Receipts to the Highway Account of the 

Highway Trust Fund Is Complex and Error 

Prone

Page 22 GAO/RCED/AIMD-00-148 Problems With Highway Trust Fund Information

Treasury’s Financial Management Service and Bureau of Public Debt share 

responsibility for making the initial allocations to the Highway Trust Fund, 

on the basis of the Office of Tax Analysis’ estimates, and subsequent 

adjustments to these amounts, on the basis of IRS’ certifications. The 

Financial Management Service prepares vouchers for these allocations and 

adjustments. The Bureau of Public Debt, which maintains accounting 

records for the Fund, uses these vouchers to record and process the 

allocations and adjustments.

Following the close of each fiscal year, the Bureau of Public Debt prepares 

a report on the amount of tax receipts that were allocated to the Fund 

during that fiscal year. The Bureau issued final versions of its fiscal year 

1998 and 1999 reports in January 1999 and January 2000, respectively. The 

Department of Transportation and the Office of Management and Budget 

use the Highway Account receipts figures in these reports to determine the 

amounts of highway program funds to be distributed to the states. 

Revenue Allocation 

and Reporting 

Processes Are Not 

Timely and Are Error 

Prone

A number of our reports have cited significant weaknesses in Treasury’s 

process for allocating and reporting on excise tax receipts to various trust 

funds, including the Highway Trust Fund. Specifically, under the current 

process, IRS does not certify quarterly receipts that should be credited to 

the Highway Trust Fund until about 6 months after the end of the quarter, 

and this process is cumbersome and prone to error. Since Treasury’s 

reports on Highway Trust Fund receipts are based on IRS’ certified 

collections, problems with the timeliness and accuracy of IRS’ certification 

process may result in misstatements of receipts in the Fund for a given 

fiscal year. 

We have reported instances in which the amounts attributable to a quarter 

have not been included in the certification for that quarter.4

 For example, 

the amount that IRS certified to the Highway Trust Fund for the third 

quarter of fiscal year 1998 included approximately $590 million that was 

related to the previous quarter. We continued to find such instances in 

fiscal year 1999. For example, the amount that IRS certified to the Highway 

Trust Fund for the second quarter of fiscal year 1999 included nearly $700 

million from previous quarters. There are a number of reasons why the 

4

IRS’ certified collection figures represent those receipts that IRS classifies as highway user 

tax receipts for each quarter on the basis of processed tax returns, rather than actual 

receipts of these taxes in that quarter.
Appendix II

Treasury’s Process for Allocating Tax 

Receipts to the Highway Account of the 

Highway Trust Fund Is Complex and Error 

Prone

Page 23 GAO/RCED/AIMD-00-148 Problems With Highway Trust Fund Information

amounts attributable to a given quarter may not be included in the 

certification for that quarter, but rather in a subsequent quarter’s 

certifications. These reasons include (1) delays in IRS’ processing of tax 

returns; (2) the late filing of returns by taxpayers; and (3) subsequent 

activities, such as amended returns submitted by taxpayers or IRS 

examinations resulting in adjustment or reclassification. IRS has recently 

implemented new procedures to address the problems of processing delays 

and late-filed returns. These procedures include new processes for 

expediting the processing and recording of high-dollar tax returns and for 

identifying and contacting taxpayers who have not filed by the due date in 

an attempt to obtain returns in time to include associated collections in the 

certification for the quarter. 

Instances in which the amounts from a given quarter are certified as 

collections in a subsequent quarter sometimes result in large adjustments 

to initial allocations to the Highway Trust Fund. Such instances, 

particularly those that occur in the latter part of the fiscal year, could affect 

the amounts distributed to the states for that fiscal year because the 

certification would not be reflected in Treasury’s report on the receipts in 

the Fund for that fiscal year. In such cases, these amounts would be 

included in Treasury’s report on receipts in the Fund for the next fiscal 

year. 

We have also reported that ineffective controls over the certification 

process—such as a lack of written procedures and ineffective supervisory 

reviews—have resulted in misstatements of the amounts certified. 

Although IRS implemented improvements in its certification process in 

response to our previous reports, we found, in reviewing certifications for 

fiscal year 1999 and the underlying data, that similar errors have continued. 

These included (1) taxpayers’ errors on excise tax returns that IRS did not 

identify when processing the returns, (2) errors made by IRS when 

processing excise tax information, and (3) errors made in IRS’ preparation 

of excise tax certifications.
Appendix II

Treasury’s Process for Allocating Tax 

Receipts to the Highway Account of the 

Highway Trust Fund Is Complex and Error 

Prone

Page 24 GAO/RCED/AIMD-00-148 Problems With Highway Trust Fund Information

IRS Has Not Developed 

a Comprehensive Plan 

With Milestones for 

Improving Its Revenue 

Allocation and 

Reporting Process

IRS has a number of efforts aimed at improving Treasury’s trust fund 

revenue allocation and reporting process, but it has not yet developed a 

comprehensive plan with milestones for carrying out all of those efforts. 

For example, IRS recently completed a study that included an assessment 

of the taxpayer burden, potential benefits, and feasibility of requiring 

taxpayers to report a detailed breakdown of all excise taxes—including 

highway user taxes—when they make deposits of these taxes. IRS is also 

designing a new payment information database that would be able to 

record payment data, by specific tax type, if provided by taxpayers with 

their deposits. Furthermore, IRS is planning to design a new method for 

making initial allocations of tax receipts to the excise-tax-related trust 

funds—including the Highway Trust Fund—using the taxpayer-supplied 

data if they become available. If taxpayers do not provide the more detailed 

data, the new method will allocate their deposits to the trust funds using 

estimated tax breakdowns derived from their past returns. While these 

changes, if implemented, may improve the accuracy and timeliness of 

Treasury’s reporting on Highway Trust Fund receipts, IRS has not 

addressed all of the policy and process changes needed to fully implement 

its efforts, and full implementation is still years away. The effectiveness of 

these changes largely depends on IRS’ obtaining data from taxpayers, at the 

time of deposit, on the associated excise taxes. However, IRS has not yet 

determined whether or how to seek this information from taxpayers. IRS is 

preparing a plan for developing and implementing the new database and 

revenue allocation method. This plan includes milestones for completing 

the various steps involved and focuses on changes to be made in IRS’ 

information systems but does not address all of the policy and process 

changes needed to fully implement the new database and revenue 

allocation method. 
Appendix II

Treasury’s Process for Allocating Tax 

Receipts to the Highway Account of the 

Highway Trust Fund Is Complex and Error 

Prone

Page 25 GAO/RCED/AIMD-00-148 Problems With Highway Trust Fund Information

IRS Has Not Prepared a Plan 

With Time Frames for 

Evaluating Whether or How 

to Obtain Detailed Excise 

Tax Data From Taxpayers at 

Time of Deposit

We have raised concerns about IRS’ inability to identify revenue received 

for each excise-tax-related trust fund, including the Highway Trust Fund, at 

the time taxpayers make deposits of these taxes.5

 Obtaining this 

information could improve the quality of estimates used to make initial 

allocations to the trust funds and could reduce the likelihood of significant 

adjustments. In response to our concerns, IRS completed a study in 

January 1999 to determine the taxpayer burden, potential benefits, and 

feasibility of requiring taxpayers to provide detailed tax breakdowns at the 

time of deposit.6

 The study found that while the perceived benefits to the 

government would be high for excise taxes7

, imposing such a requirement 

at this time would be potentially burdensome for payers of these taxes, 

especially companies with large operations and that the quality of these 

data would likely be poor. In particular, large companies said they do not 

currently have this information available at the time of deposit and they 

would have to collect it from multiple plants in various states to comply 

with a new requirement. These companies generally make semimonthly 

deposits using estimates of the amounts owed, as of the previous quarter, 

and report actual amounts owed for each tax type on their quarterly tax 

returns. Although the companies interviewed for the IRS study reported 

that it would be difficult to comply with a new reporting requirement at this 

time, they indicated that they are improving their information systems and 

may be able to provide a detailed tax breakdown at the time of deposit in 

several years. 

5

See Financial Audit: IRS’ Fiscal Year 1999 Financial Statements (GAO/AIMD-00-76, Feb. 29, 

2000), Internal Revenue Service: Custodial Financial Management Weaknesses (GAO/AIMD99-193, Aug. 4, 1999), and Financial Audit: IRS’ Fiscal Year 1998 Financial Statements

(GAO/AIMD-99-75, Mar. 1, 1999).

6

Tax Type/Fee Code Study−Final Report (prepared for the IRS by Integration Support 

Contract, Fairfax, Va., Jan. 1999). 

7

For example, the study reported that Federal Highway Administration officials said that the 

detailed data would likely increase the predictability of the excise tax revenue stream and 

reduce the number of adjustments made to the data.
Appendix II

Treasury’s Process for Allocating Tax 

Receipts to the Highway Account of the 

Highway Trust Fund Is Complex and Error 

Prone

Page 26 GAO/RCED/AIMD-00-148 Problems With Highway Trust Fund Information

The American Petroleum Institute officials we interviewed also expressed 

concerns about imposing a new requirement on oil companies to provide 

the detailed excise tax data at this time. They explained that oil companies 

generally use an estimate—one-sixth of their actual total excise tax liability 

in the prior quarter8

—to determine the amount of their semimonthly excise 

tax deposits. They use this method, which allows them to fulfill IRS’ 

deposit requirements, because they do not have detailed tax breakdown 

information on a semimonthly basis. 

Given the concerns about imposing a new reporting requirement at this 

time, the IRS study recommended that the agency implement incentives, 

such as a small rebate, at this time to encourage taxpayers to start 

providing a detailed tax breakdown with their deposits by using Treasury’s 

Electronic Federal Tax Payment System. This system, which most excise 

taxpayers use to pay their taxes, allows the taxpayer to provide a detailed 

tax breakdown with their deposits. The study noted that the use of this 

system has increased rapidly in the past several years and that an 

increasing number of companies could develop the capability to provide 

this detailed information through the system if IRS provides some 

encouragement, such as financial incentives, for them to do so. In order for 

IRS to develop such incentives, the study noted that the agency should 

undertake a study, as soon as possible, of state incentive programs for 

business taxpayers that are already in place, such as those in Pennsylvania 

and Virginia. 

8

During any given quarterly period, taxpayers make a total of 6 semimonthly excise tax 

payments.
Appendix II

Treasury’s Process for Allocating Tax 

Receipts to the Highway Account of the 

Highway Trust Fund Is Complex and Error 

Prone

Page 27 GAO/RCED/AIMD-00-148 Problems With Highway Trust Fund Information

The study also recommended that IRS do another study in 2002 or 2003 to 

determine whether taxpayers’ capability to provide these detailed data has 

improved and whether IRS should require taxpayers to provide this 

information with their deposits. IRS officials told us that the agency intends 

to reevaluate taxpayers’ ability to provide these detailed tax breakdown 

data with their deposits, as recommended, but that the agency would prefer 

to use incentives, rather than a requirement, if it decides to obtain this 

information. They explained that business and taxpayer organizations are 

sensitive to IRS’ mandating additional information from taxpayers and that 

the agency’s goal would be to get most taxpayers to provide the needed 

information through an incentive system. They noted that if IRS could get 

large oil companies to provide information through an incentive system, it 

could get detailed information for a high proportion of Highway Trust Fund 

tax receipts. However, these officials stated that it is not possible to 

determine, at this point, whether or when incentives could be implemented 

because IRS must first determine what incentives could be offered. 9

IRS officials acknowledged that the agency currently has no formal plans, 

including time frames, for (1) carrying out the study’s recommendation that 

IRS examine, as soon as possible, existing state tax incentive programs to 

identify possible incentives that IRS could offer to taxpayers or (2) 

determining whether to implement incentives to obtain these detailed data 

from taxpayers. They also acknowledged that IRS has no formal plans, 

including time frames, for reexamining in several years taxpayers’ 

capabilities for providing these detailed data and determining whether IRS 

should require the data from taxpayers at that time, considering the 

potential burden on taxpayers and the potential benefits to the 

government. 

9

We have not considered whether IRS would be authorized to provide taxpayers with 

financial incentives to report detailed data by tax type at the time of deposit or whether IRS 

would require additional statutory authority to implement such a program.
Appendix II

Treasury’s Process for Allocating Tax 

Receipts to the Highway Account of the 

Highway Trust Fund Is Complex and Error 

Prone

Page 28 GAO/RCED/AIMD-00-148 Problems With Highway Trust Fund Information

IRS’ Plans for Improving Its 

Revenue Allocation Process 

for Trust Funds Do Not 

Address All Changes 

Needed for Full 

Implementation

IRS is pursuing two related initiatives—including the development of a 

payments information database and a revised revenue allocation method—

for improving its process for allocating excise tax receipts to the Highway 

Trust Fund as well as other trust funds. Both the payment information 

database and the new revenue allocation method are part of an IRS 

modernization project, called the Custodial Accounting Project, which is 

aimed at developing a new integrated IRS financial information system.10

The first initiative—which IRS started planning in October 1998 as part of a 

broad effort to modernize its information systems—involves establishing a 

database that can record and process the detailed tax breakdown data 

discussed above, should taxpayers provide that information with their 

deposits. According to IRS officials, the database will be capable of 

recording such detailed tax data and will serve as a repository for all IRS 

payment data.11 Although the Electronic Federal Tax Payment System 

allows taxpayers to provide detailed tax breakdowns with their deposits, 

IRS’ information systems are not currently capable of accepting these data.

The other initiative—which IRS started planning in response to a 

recommendation in its January 1999 study—involves revising the method 

used to make initial allocations of tax receipts to the trust funds to 

incorporate the more detailed tax payment information in the database or 

in taxpayers’ historical records. This new method would make initial 

allocations automatically, shortly after the time of deposit, on the basis of a 

detailed tax breakdown provided by the taxpayer, if that information is 

10Since 1995, the Congress and GAO have raised concerns about IRS’ capability to 

effectively build modernized systems. While IRS has taken actions aimed at addressing 

these concerns, we have recently reported that IRS continues to lack this capability and that 

substantial challenges remain to establishing it. See, for example, Tax Systems 

Modernization: Results of Review of IRS’ March 7, 2000, Expenditure Plan (GAO/AIMD-00-

175, May 24, 2000), IRS Modernization: Long-term Effort Under Way, but Significant 

Challenges Remain (GAO/T-GGD/AIMD-00-154, May 3, 2000), IRS Modernization: Business 

Practice, Performance Management, and Information Technology Challenges (GAO/TGGD/AIMD-00-144, Apr. 10, 2000), Tax Systems Modernization: Results of Review of IRS’ 

Initial Expenditure Plan (GAO/AIMD/GGD-99-206, June 15, 1999), Tax Systems 

Modernization: Blueprint Is a Good Start But Not Yet Sufficiently Complete to Build or 

Acquire Systems (GAO/AIMD/GGD-98-54, Feb. 24, 1998), Tax Systems Modernization: 

Actions Underway, but IRS Has Not Yet Corrected Management and Technical Weaknesses 

(GAO/AIMD-96-106, June 7, 1996), and Tax Systems Modernization: Management and 

Technical Weaknesses Must Be Corrected if Modernization Is to Succeed (GAO/AIMD-95-

156, July 26, 1995).

11These payments include taxes, penalties, fees, and other remittances.
Appendix II

Treasury’s Process for Allocating Tax 

Receipts to the Highway Account of the 

Highway Trust Fund Is Complex and Error 

Prone

Page 29 GAO/RCED/AIMD-00-148 Problems With Highway Trust Fund Information

available. If that information is not available, this new method would 

automatically allocate deposits to the trust funds using estimated tax 

breakdowns derived from each taxpayer’s past tax returns. IRS is 

developing this new revenue allocation method in coordination with the 

Office of Tax Analysis, the Financial Management Service, and the Bureau 

of Public Debt. 

IRS officials explained that the goal of this new revenue allocation method 

is to improve the accuracy and timeliness of allocations to the trust funds. 

For example, Treasury officials expect that the new initial allocation 

method will be more precise than the current method because it will be 

based on taxpayers’ actual deposit amounts12 rather than overall estimates 

of tax receipts, by tax type, prepared by Treasury’s Office of Tax Analysis. 

Furthermore, IRS officials explained that—although IRS would still need to 

certify the amounts due to the trust funds and make adjustments to initial 

allocations that are based on tax returns—the certification and adjustment 

methods used could be improved as a result of the development of the new 

revenue allocation method and the integrated financial information system. 

They explained that the current certification and adjustment methods, 

which are performed quarterly through a combination of manual 

procedures and computer programs, could be replaced by an automated 

method that occurs more frequently. However, it is not yet clear exactly 

how these methods would change, and IRS officials noted that any changes 

would need to be determined jointly by responsible Treasury organizations. 

Furthermore, the changes being considered do not address all of the 

control weaknesses identified in our prior reports, such as taxpayers’ 

errors on excise tax returns that IRS does not identify when processing the 

returns and errors made by IRS when processing excise tax return 

information.

IRS’ plan for the development and implementation of the new database and 

revenue allocation method is still in the early stages and does not address 

all of the factors that will need to be considered to implement these two 

initiatives. IRS officials told us that, on the basis of tentative milestones in 

this plan, they expect to start implementing the new database and 

allocation method in 2004. Although the plan contains specific tasks and 

associated time frames, IRS officials acknowledged that the plan focuses 

on the technical changes needed in IRS’ information systems and does not 

12These amounts will be broken down by tax type on the basis of information provided by 

the taxpayer (if available) or in IRS’ historical taxpayer account records.
Appendix II

Treasury’s Process for Allocating Tax 

Receipts to the Highway Account of the 

Highway Trust Fund Is Complex and Error 

Prone

Page 30 GAO/RCED/AIMD-00-148 Problems With Highway Trust Fund Information

address all of the policy and process changes needed to fully implement the 

new database and revenue allocation method. In particular, the plan does 

not include time frames for examining, in the near-term, possible incentives 

for encouraging taxpayers to provide these data and determining whether 

to implement incentives. Also, the plan does not include time frames for 

reexamining, in several years, taxpayers’ capabilities for providing these 

detailed data, and determining whether IRS should require the data from 

taxpayers at that time. Finally, the plan does not address the need for, or 

include time frames for, determining what changes may be needed in 

Treasury’s methods for certifying the amounts due to the trust funds and 

adjusting initial allocations on the basis of these certifications.
Page 31 GAO/RCED/AIMD-00-148 Problems With Highway Trust Fund Information

Appendix III

Reliability of FHWA’s Attribution Process Has 

Not Been Demonstrated ApendxiI

While Treasury reports on the overall amounts of highway user taxes 

credited to the Highway Account of the Fund, FHWA must estimate the 

portion of the overall amounts that are attributable to each state—

information that is ultimately used in distributing funds to the states 

through the apportionment process used in several major highway 

programs. FHWA estimates the amounts attributable to each state through 

its “attribution” process. The underlying premise of this process is that 

federal highway user tax payments to the Highway Account are received 

from highway users in each state in proportion to the highway use of motor 

fuel in that state relative to total highway use of motor fuel in all states. 

Under this process, FHWA goes through a two-fold process to (1) collect 

and analyze state motor fuel information to develop a uniform database 

across all states and determine the portion of motor fuel that was used on 

highways in each state and (2) use the resulting analyses to estimate the 

amount of Highway Account contributions that are attributable to highway 

users in each state. The steps related to the state motor fuel analysis used 

in the attribution process are complicated, utilizing nearly 200 formulas for 

analyzing the data. In designing these formulas, FHWA’s intent was to 

analyze the state motor fuel data in a manner that ensures equitable 

treatment of all states. The large number of formulas reflect the wide 

variation in the ways that states (1) tax motor fuels and (2) define, capture, 

and report certain data items to FHWA.

Given the complexity of the state motor fuel analysis used in the attribution 

process and the fact that it has been developed over decades without any 

thorough, systematic, or independent review of its accuracy, reliability, or 

consistency, we have concerns about the overall reliability of the process. 

Furthermore, FHWA has identified some specific weaknesses in the motor 

fuel data and attribution methodology, which it is addressing through its 

participation in a multiagency committee aimed at improving the motor 

fuel reporting process. In addition, IRS is developing a system that will 

provide an alternate source of information on motor fuel that may be useful 

as a tool in validating the state motor fuel data currently used in FHWA’s 

attribution process.
Appendix III

Reliability of FHWA’s Attribution Process Has 

Not Been Demonstrated

Page 32 GAO/RCED/AIMD-00-148 Problems With Highway Trust Fund Information

FHWA Attribution 

Process Is Needed 

Because of Limitations 

in Federal Highway 

User Tax Data

FHWA must estimate the contributions to the Highway Account that are 

attributable to each state’s highway users because state-level data on 

federal highway tax receipts are not available. Most of the federal highway 

user taxes are not collected directly from the consumer. For example, all of 

the federal taxes on motor fuels are imposed when the fuel is first removed 

from bulk storage. Thus, the taxes are paid by businesses—typically the 

major oil companies—rather than by consumers at retail fuel pumps.1

 As a 

result, most of the federal motor fuel taxes come from the handful of states 

where the businesses are headquartered. Similarly, the tax on truck tires is 

collected from the manufacturer and, as a result, the truck tire tax receipts 

are concentrated in Ohio, the home of the U.S. tire industry.

FHWA estimates state-level contributions to the Fund through its 

“attribution” process, which is basically a process of determining each 

state’s share of highway motor fuel use from state tax data and using that 

information to estimate the amount of contributions to the Highway 

Account attributable to each state’s highway users. The relative percentage 

of contributions attributed to each state is then used to calculate a portion 

of the amount of federal-aid highway dollars distributed to each state. 

FHWA and its predecessor agencies have been collecting state data on 

motor fuels since 1919 to determine the highway use of motor fuel and to 

identify how states tax motor fuel. FHWA publishes statistics on motor fuel 

usage and other highway topics in an annual report.2

 FHWA first began 

using that information to estimate Fund payments during the 1970s as part 

of an analysis of issues related to so-called “donor/donee” states3

. Since 

fiscal year 1984, FHWA has used state-reported data on motor fuel, 

supplemented with information from other sources, to attribute federal tax 

payments to the Fund to highway users in each state for the purpose of 

apportioning highway program funds. FHWA also uses statistical methods 

to estimate missing or unreported state data used in the state motor fuel 

1

These taxes become part of the price of the product and are ultimately paid by the highway 

user.

2

For example, see Highway Statistics ‘98, U.S. Department of Transportation, Federal 

Highway Administration (1999).

3

In some states, known as “donor” states, highway users pay more in highway user taxes 

than those states receive in federal highway funds. Conversely, in states known as “donee” 

states, highway users pay less in highway user taxes than those states receive in highway 

funds.
Appendix III

Reliability of FHWA’s Attribution Process Has 

Not Been Demonstrated

Page 33 GAO/RCED/AIMD-00-148 Problems With Highway Trust Fund Information

data analysis portion of the attribution process. FHWA informed the states 

of its proposed attribution methodology in 1983 and solicited their 

comments on it. FHWA finalized the methodology and published a 

description of it in a June 1985 Federal Register notice. According to FHWA 

officials, the methodology has generally been supported by the states since 

that time.

In the attribution process, FHWA calculates ratios of the highway use of 

motor fuel in each state to the highway use of motor fuel in all states. As 

shown in table 3, FHWA prepares a separate attribution analysis for each 

type of motor fuel tax (gasoline, gasohol, and diesel and special fuels), and 

it attributes the truck-related taxes (tires, truck and trailer sales, and heavy 

vehicle use) to the states using data on the highway use of diesel and 

special fuels.

Table 3: Factors for Attributing Highway User Taxes to Highway Users in Each State

Source: FHWA.

The factors shown in table 3 are used by FHWA to attribute Highway 

Account receipts to the states, and that information is incorporated, in 

turn, in the apportionment formulas used for distributing certain federalaid highway program funds back to the states. 

Type of tax Attribution factor

Gasoline Ratio of highway use of gasoline in each 

state to highway use of gasoline in all 

states.

Gasohol Ratio of highway use of gasohol in each 

state to highway use of gasohol in all states.

Diesel and special fuels Ratio of highway use of diesel and special 

fuels in each state to highway use of diesel 

and special fuels in all states.

Truck-related taxes (truck tires, truck and 

trailer sales, heavy vehicle use)

Ratio of highway use of diesel and special 

fuels in each state to highway use of diesel 

and special fuels in all states.
Appendix III

Reliability of FHWA’s Attribution Process Has 

Not Been Demonstrated

Page 34 GAO/RCED/AIMD-00-148 Problems With Highway Trust Fund Information

FHWA Performs 

Detailed and 

Complicated Analyses 

of State Motor Fuel 

Data to Estimate StateLevel Motor Fuel 

Usage and 

Contributions to the 

Highway Account

In its attribution process, FHWA first performs complicated and lengthy 

steps to collect information from the states on the gallons of motor fuels 

consumed and to analyze that information in a consistent format for the 

purpose of determining each state’s share of the highway use of motor fuel. 

FHWA’s intent is to analyze the state motor fuel data in a manner that 

ensures equitable treatment of all states. Once this is done, FHWA uses the 

results of the analysis to estimate the relative contributions to the Fund 

from each state’s highway users. The following is a summary of the key 

steps involved in the attribution process and their associated time frames 

for the process culminating in the apportionment of funds in fiscal year 

2000.

States Submit Monthly Data 

on Motor Fuel Usage to 

FHWA 

The attribution process begins with the collecting and reporting of 

information on the use of motor fuels by each state. To do this, each state 

submits a monthly report on the volume of motor fuels used within that 

state (FHWA Form 551M, entitled “Monthly Motor Fuel Consumption”). 

The report is designed to capture and report many details about the motor 

fuel, including the (1) type of fuel used (e.g., gasoline, gasohol, and diesel 

and other special fuels4

), (2) tax status of the fuel (e.g., amounts that are 

fully taxed at the state’s prevailing rate, taxed at some other rate, or subject 

to exemptions or refunds), (3) reason for tax exemption (e.g., loss or 

shrinkage of fuel, federal government use), and (4) reason for tax refund 

(e.g., specific classes of nonhighway use of fuel, such as agriculture, 

aviation, industrial and commercial, construction, and marine).

States have 60 days from the end of the month to submit the Form 551M for 

that month to FHWA. While each state’s transportation department 

generally takes the lead in providing FHWA with the motor fuel data, the 

source data come from the state’s revenue department or agency. FHWA 

provides the states with detailed instructions for reporting the motor fuel 

data in chapter 2 of its publication, A Guide to Reporting Highway 

Statistics.

4

Special fuels include liquefied petroleum gases, compressed natural gas, and other fuels.
Appendix III

Reliability of FHWA’s Attribution Process Has 

Not Been Demonstrated

Page 35 GAO/RCED/AIMD-00-148 Problems With Highway Trust Fund Information

FHWA Prepares an Annual 

Summary of State Motor 

Fuel Data and Analyzes the 

Data to Identify Highway 

Usage of Motor Fuel and to 

Reconcile Inconsistent Data 

After the states have submitted all of the monthly reports for a given 

calendar year, FHWA prepares a summary version of Form 551M for each 

state; the summary version contains data for the preceding 12-month 

calendar period. FHWA then performs a quality check that involves (1) 

estimating state tax receipts by using the summary data on motor fuel 

gallons and information about each state’s motor fuel tax rates and (2) 

comparing the estimated receipts with actual state tax receipts reported to 

FHWA on another form.5

FHWA must analyze the monthly motor fuel data submitted by the states to 

determine the portion of the motor fuel that was used on the highways and 

to develop a uniform database across all states. State data on motor fuel 

usage are derived primarily from information from their tax agency, and 

there is significant variation among states in the ways that various motor 

fuels are taxed and the ways that certain data items are defined, captured, 

and reported to FHWA. Generally, state motor fuel taxes are levied on road 

users, and exemptions to the tax or refunds of the taxes paid are given for 

nonhighway use of the motor fuel. However, not all states offer the same 

exemptions or refunds for all classes of nonhighway use, and not all 

refunds are actually claimed. Thus, the net volume of motor fuels taxed in a 

state is not always the same as the volume consumed on the highways. 

Typically, state revenue departments have data on motor fuels that are 

exempted, refunded, or taxed at multiple rates. From this information, 

FHWA attempts to identify the use of the fuel and thus its place in the 

attribution process. To do this, FHWA maintains records on about 90 

subcategories in which these data are reported by the states and uses this 

information to estimate highway versus nonhighway use of motor fuels and 

reconcile any data that were inconsistently reported by the states. FHWA’s 

methodology for analyzing the motor fuel data submitted by the states has 

evolved over several decades and is very complex—involving nearly 200 

formulas that analyze the subcategories of motor fuel data. 

In many cases, sufficient data do not exist at the state level to determine 

the highway versus nonhighway use of the various motor fuels and, in other 

cases, FHWA considers some of the motor fuel data submitted by the states 

to be inconsistently developed. As a result, FHWA estimates some 

components of motor fuel usage—including the government use of 

5

FHWA Form 556 entitled “State Motor Fuel Tax Receipts And Initial Distribution By 

Collection Agencies.”
Appendix III

Reliability of FHWA’s Attribution Process Has 

Not Been Demonstrated

Page 36 GAO/RCED/AIMD-00-148 Problems With Highway Trust Fund Information

gasoline, nonhighway use of gasoline, and highway use of gasohol—using 

statistical models and federal data sources. When FHWA’s estimates and 

the state-submitted data are both available, FHWA makes a judgment about 

the relative quality of the data and selects one or the other or some 

combination of the two data sets. The end result of FHWA’s analyses is a 

summary of each state’s relative share (and actual gallons) of the highway 

use of motor fuel, by fuel type. 

FHWA completes its detailed analyses and compiles the first draft of the 

summary about 8 months after the end of the calendar year—about 90 days 

after all of the states have submitted their motor fuel usage and receipts 

data. Thus, FHWA completed its initial analysis of the data on motor fuel 

usage for calendar year 1997 during the summer of 1998. According to 

FHWA officials, the results of this analysis are then reviewed and modified, 

in consultation with the states, where necessary, over the following year. 

For example, FHWA performs trend analyses of the data for each state to 

identify any significant or unusual changes from prior years’ data and, if 

necessary, visits states to clarify any discrepancies and adjust the data 

results. FHWA finalizes its analysis of each state’s relative highway use of 

motor fuels about 1 year later. Thus, the agency’s analysis of motor fuel 

data for 1997 was finalized in August 1999. Given the time required for 

obtaining and analyzing the state data, the data on motor fuel usage for 

1997 were the most recent data available for use in the apportionment for 

fiscal year 2000, effective on October 1, 1999. 

FHWA Uses Results of the 

Motor Fuel Analysis to 

Estimate Contributions to 

the Highway Account of the 

Highway Trust Fund That 

Are Attributable to Each 

State

To estimate state-level contributions to the Fund’s Highway Account, 

FHWA computes each state’s relative share of fuel gallons used on the 

highways and multiplies this computation by the amount of highway user 

tax receipts allocated to the account (as determined by Treasury’s revenue 

reports). To do this, FHWA first calculates three main data elements on 

motor fuel gallons used on highways for each state: (1) total motor fuel 

gallons, (2) total diesel and special fuels gallons, and (3) total gasoline and 

gasohol gallons. FHWA then computes each state’s relative share of 

highway gallons by calculating the ratio of the gallons used in the state to 

the total gallons used in all states. 

In general, the ratio for a given fuel type is used to attribute tax receipts for 

that particular fuel type (e.g., the ratio for gasoline and gasohol use is used 

to attribute gasoline and gasohol tax payments). The one exception 

pertains to the truck-related taxes (truck and trailer sales, truck tires, and 
Appendix III

Reliability of FHWA’s Attribution Process Has 

Not Been Demonstrated

Page 37 GAO/RCED/AIMD-00-148 Problems With Highway Trust Fund Information

heavy vehicle use), which are attributed to states on the basis of highway 

use of diesel and special fuels—a factor that FHWA considers to be the best 

available proxy measure for truck use in each state.

For each of the fuel types, the resulting percent share of gallons used in 

each state is then multiplied by the amount of highway user tax receipts 

allocated to the Fund’s Highway Account, as reported by the Treasury 

Department. FHWA generally receives reports on Highway Account 

receipts from Treasury about 9 to 10 months prior to the effective date of 

the apportionment of funds to the states. For the fiscal year 2000 

apportionment cycle, for example, FHWA used a report on Highway 

Account receipts for fiscal year 1998 that it received from the Treasury 

Department in January 1999. The end result of this analysis is a table 

showing estimated contributions to the Highway Account of the Fund 

attributed to each state for each of the fuel types. 

FHWA finalizes its estimate of state-level data on contributions to the 

Highway Account of the Fund about a month before the effective date of 

the apportionment. For example, it prepared the estimates for the 

apportionment for fiscal year 2000—which became effective on October 1, 

1999—in August 1999, using the state data on motor fuel usage for calendar 

year 1997 and the Treasury report on Highway Account receipts for fiscal 

year 1998. 

In total, FHWA’s overall attribution process takes about 19 months from the 

time that states submit their final reports on motor fuel usage for a given 

calendar year to the time that FHWA apportions funds to the states on the 

basis of its state-level analysis of estimated contributions to the Fund. The 

lengthy time period associated with the process is largely due to the 

amount of time (about 17 months6

) that FHWA, in consultation with the 

states, devotes to analyzing the state motor fuel data. For the fiscal year 

2000 apportionment cycle, for example, FHWA received the state motor 

fuel data in March 1998, obtained Treasury’s revenue reports in January 

1999, and apportioned the highway program funds to the states in October 

1999. Table 4 contains the results of FHWA’s attribution process for the 

fiscal year 2000 apportionment cycle.

6

FHWA obtained and analyzed the 1997 state motor fuel data from March 1998 through 

August 1999—a period of about 17 months.
Appendix III

Reliability of FHWA’s Attribution Process Has 

Not Been Demonstrated

Page 38 GAO/RCED/AIMD-00-148 Problems With Highway Trust Fund Information

Table 4: Estimated Motor Fuel Usage and Contributions to the Highway Account of the Highway Trust Fund Attributable to 

Highway Users in Each State, Apportionment Cycle for Fiscal Year 2000

Dollars in thousands

1997 highway motor fuel 

usage (percent share) 1998 Highway Account receipts attributable to states

State Gasoline Gasohol

Diesel

and

other

special

fuels Gasoline Gasohol

Diesel and

other

special fuels

Truckrelated

taxesa Total taxes

Percentage

of total

Highway

Account

receipts

Alabama 2.11 0.27 2.28 $372,290 $2,508 $143,192 $75,154 $593,144 2.10

Alaska 0.16 0.60 0.17 28,938 5,602 10,497 5,509 50,546 0.18

Arizona 1.62 2.65 2.04 285,473 24,885 128,512 67,450 506,320 1.80

Arkansas 1.28 - 1.84 225,559 - 116,034 60,901 402,494 1.43

California 11.09 16.37 7.92 1,958,176 153,742 498,637 261,711 2,872,266 10.19

Colorado 0.97 5.93 1.22 170,854 55,700 76,695 40,254 343,503 1.22

Connecticut 1.21 0.23 0.84 213,058 2,194 53,144 27,893 296,289 1.05

Delaware 0.33 - 0.22 58,294 - 13,786 7,235 79,315 0.28

District of 

Columbia

0.16 - 0.07 27,548 - 4,704 2,470 34,725 0.12

Florida 6.22 0.09 3.92 1,098,028 866 246,515 129,385 1,474,794 5.23

Georgia 3.94 - 4.11 695,181 - 258,727 135,793 1,089,701 3.87

Hawaii 0.36 - 0.10 63,116 - 6,249 3,280 72,645 0.26

Idaho 0.55 - 0.76 96,686 - 47,940 25,161 169,787 0.60

Illinois 2.49 12.25 3.73 439,445 115,024 234,721 123,193 912,383 3.24

Indiana 2.08 4.08 3.34 367,562 38,297 210,102 110,272 726,233 2.58

Iowa 0.75 3.79 1.59 132,997 35,556 99,835 52,398 320,786 1.14

Kansas 1.14 0.18 1.31 200,680 1,714 82,673 43,391 328,458 1.17

Kentucky 1.85 0.43 2.29 327,269 4,018 144,259 75,714 551,260 1.96

Louisiana 1.78 0.05 1.82 314,806 474 114,741 60,223 490,244 1.74

Maine 0.62 - 0.48 109,152 - 30,224 15,864 155,240 0.55

Maryland 2.05 0.3 1.44 362,064 2,784 90,718 47,613 503,179 1.78

Massachusetts2.38 - 1.22 419,402 - 76,558 40,181 536,141 1.90

Michigan 4.07 1.76 2.82 718,977 16,492 177,277 93,044 1,005,790 3.57

Minnesota 0.33 13.61 1.73 58,241 127,853 109,178 57,303 352,575 1.25

Mississippi 1.36 - 1.5 240,142 - 94,342 49,515 383,999 1.36

Missouri 2.63 0.45 3.04 463,773 4,209 191,323 100,416 759,721 2.69

Montana 0.42 - 0.61 74,864 - 38,135 20,015 133,014 0.47
Appendix III

Reliability of FHWA’s Attribution Process Has 

Not Been Demonstrated

Page 39 GAO/RCED/AIMD-00-148 Problems With Highway Trust Fund Information

Nebraska 0.55 1.28 1.10 96,911 12,048 69,081 36,258 214,298 0.76

Nevada 0.60 1.47 0.77 105,465 13,842 48,479 25,444 193,230 0.69

New 

Hampshire

0.57 - 0.40 100,253 - 25,259 13,258 138,770 0.49

New Jersey 3.31 1.30 2.35 584,691 12,190 148,121 77,742 822,744 2.92

New Mexico 0.64 1.31 1.18 112,655 12,270 74,421 39,059 238,405 0.85

New York 4.83 1.91 3.13 853,127 17,947 197,153 103,476 1,171,703 4.16

North 

Carolina

3.19 2.28 2.93 562,521 21,369 184,523 96,848 865,261 3.07

North 

Dakota

0.27 0.32 0.48 47,991 2,996 30,098 15,797 96,882 0.34

Ohio 2.98 9.87 4.71 526,217 92,663 296,654 155,699 1,071,233 3.80

Oklahoma 1.62 - 1.94 286,445 - 122,233 64,154 472,832 1.68

Oregon 1.29 - 1.38 228,199 - 86,956 45,639 360,794 1.28

Pennsylvania3.85 4.57 4.28 679,942 42,897 269,324 141,355 1,133,518 4.02

Rhode 

Island

0.36 - 0.15 63,298 - 9,470 4,971 77,739 0.28

South 

Carolina

1.92 - 1.8 338,738 - 113,324 59,478 511,540 1.81

South 

Dakota

0.21 1.07 0.49 37,235 10,065 30,738 16,132 94,170 0.33

Tennessee 2.55 0.02 2.68 450,456 176 168,842 88,617 708,091 2.51

Texas 8.71 2.79 8.04 1,537,578 26,229 505,829 265,486 2,335,122 8.28

Utah 0.85 - 1.02 150,225 - 64,025 33,604 247,854 0.88

Vermont 0.29 - 0.27 52,057 - 16,896 8,868 77,821 0.28

Virginia 2.85 2.30 2.88 502,635 21,566 181,540 95,282 801,023 2.84

Washington 2.08 2.34 1.62 367,961 21,968 101,858 53,460 545,247 1.93

West 

Virginia

0.77 0.01 0.87 135,323 115 54,933 28,832 219,203 0.78

Wisconsin 1.50 4.14 2.19 265,232 38,904 137,821 72,335 514,292 1.82

Wyoming 0.28 0.01 0.90 49,162 82 56,452 29,629 135,325 0.48

Total 100.00 100.00 100.00 $17,656,892 $939,245 $6,292,751 $3,302,761 $28,191,649 100.00

(Continued From Previous Page)

Dollars in thousands

1997 highway motor fuel 

usage (percent share) 1998 Highway Account receipts attributable to states

State Gasoline Gasohol

Diesel

and

other

special

fuels Gasoline Gasohol

Diesel and

other

special fuels

Truckrelated

taxesa Total taxes

Percentage

of total

Highway

Account

receipts
Appendix III

Reliability of FHWA’s Attribution Process Has 

Not Been Demonstrated

Page 40 GAO/RCED/AIMD-00-148 Problems With Highway Trust Fund Information

a

The truck-related taxes are attributed to each state’s highway users on the basis of the highway use of 

diesel and other special fuels in each state.

Source:GAO’s presentation of data from FHWA.

Reliability of FHWA’s 

Attribution Data and 

Process Has Not Been 

Demonstrated

On the basis of our review and recent work by FHWA, we have a number of 

concerns regarding both the motor fuel data submitted by the states and 

FHWA’s methodology for analyzing those data for use in its attribution 

process. Some of these concerns involve the overall reliability of the state 

data and FHWA’s methodology, and FHWA’s efforts to improve its 

attribution process only partly address these concerns. Other concerns 

relate to specific weaknesses in certain aspects of the state data and 

FHWA’s methodology, and FHWA has formed a committee that is helping 

the agency take actions to address these concerns. 

FHWA Has Not Fully 

Addressed Concerns About 

the Overall Reliability of the 

Attribution Data and 

Methodology 

The state motor fuel data submitted to FHWA have not been thoroughly 

and independently reviewed to test and verify their accuracy, reliability, 

and consistency across all states, which raises questions about the overall 

reliability of the state data and FHWA’s attribution methodology. Although 

the original source data on motor fuel tax receipts prepared by the state 

revenue agencies may be audited by the states, according to FHWA 

officials, FHWA does not trace the individual data elements submitted on 

Form 551M to their supporting documentation to verify the underlying 

support. Since the source data provided by the state revenue agencies must 

be reformatted and analyzed by officials in the state transportation 

agencies and by FHWA, there are significant opportunities for errors to 

occur. Given the wide variation in state tax methods and data, FHWA would 

probably have to review and verify each state’s summary tax records. While 

the potential magnitude of any errors that would be identified as a result of 

such detailed reviews is unknown, conducting such reviews would provide 

an indication of the scope of any inaccuracies or assurance that the motor 

fuel data submitted by the states are sound. At the same time, we recognize 

that since the costs involved with conducting such reviews may be high, 

FHWA would have to consider various options for doing them. One option 

might be for FHWA to conduct the reviews on a rotational basis over a 

period of years. 

Another concern about the reliability of FHWA’s attribution process 

pertains to the complexity of FHWA’s methodology, the way it has been 

developed, and the fact that it has never been fully documented or 

independently reviewed. Because of the wide variation in the ways that 
Appendix III

Reliability of FHWA’s Attribution Process Has 

Not Been Demonstrated

Page 41 GAO/RCED/AIMD-00-148 Problems With Highway Trust Fund Information

states tax motor fuels—and the ways that certain data items are defined, 

captured, and reported to FHWA—FHWA’s methodology for analyzing the 

motor fuel data submitted by the states is extremely complicated. The 

methodology involves a spreadsheet program that has nearly 200 separate 

formulas needed to analyze the state data in a manner that is consistent 

across all states. Furthermore, the methodology has been repeatedly 

adjusted over several decades in response to changing state tax laws and 

federal program requirements. Moreover, the methodology has never been 

fully documented to explain the content and rationale for the formulas it 

contains and to specify the procedures for carrying it out. The methodology 

now contains some factors that are not used because FHWA officials 

consider them unreliable. Finally, the attribution methodology has never 

been subject to a comprehensive, independent review to validate its 

reliability and provide assurance that the information resulting from the 

methodology is accurate.

In addition, FHWA considers some of the motor fuel data submitted by the 

states to be inconsistent with that provided by other states—such as data 

on the gallons consumed by various industries for nonhighway purposes—

so it estimates those gallons using other federal data sources. FHWA 

officials told us that they use their judgment in deciding which figure to use 

in the attribution process—sometimes they choose to use the statesubmitted data, sometimes they choose to use FHWA’s own estimates, and 

sometimes they use a figure that combines both data sources. According to 

FHWA officials, once FHWA decides how it will handle a particular state’s 

data, it makes note of that decision and follows it consistently from year to 

year until it makes a judgment that further changes are warranted.

Finally, all of the responsibility for collecting, analyzing, and evaluating the 

motor fuel data—which are submitted by 50 states and the District of 

Columbia—rests with only two officials in FHWA headquarters. Each state 

submits hundreds of data elements for review by these two officials, thus 

increasing the risk that errors could occur during the attribution process. 

Moreover, since the attribution methodology has never been clearly 

documented, FHWA management does not have an adequate basis for 

providing oversight of the attribution process or delegating the 

responsibility for this process to other individuals in the event that the two 

officials depart or are otherwise no longer available to handle this 

responsibility. 

FHWA’s efforts to validate the state motor fuel data and its own 

methodology only partially address questions about the overall reliability of 
Appendix III

Reliability of FHWA’s Attribution Process Has 

Not Been Demonstrated

Page 42 GAO/RCED/AIMD-00-148 Problems With Highway Trust Fund Information

the agency’s attribution process. First, FHWA performs trend analyses to 

compare each state’s data submission with comparable data submitted in 

earlier years and identify any major discrepancies. It then works with the 

state to determine the cause of the discrepancy and make any needed 

adjustments. This is a helpful quality control technique to ensure 

consistency from year to year, but it does not verify the accuracy of the 

underlying data submitted by the states.

Second, FHWA has a policy to conduct motor fuel reviews in each state 

every 3 years. These reviews are designed to identify and review the overall 

methodology used by the states to develop the key motor fuel figures 

reported to FHWA. Officials in FHWA’s division offices in the states 

conduct these reviews, using guidance from FHWA headquarters. FHWA 

renewed its efforts to conduct these reviews in June 1997, and as a result, 

about 83 percent of the states have undergone a motor fuel review during 

the past 3 years. We view this as a positive effort to improve state reporting, 

but it does not verify the accuracy and ensure the reliability of the state 

data submitted to FHWA. To accomplish a detailed verification, FHWA 

would need to trace the figures on the Form 551M submitted by the states 

to the supporting documentation prepared by the state transportation and 

revenue agencies, and the agency would have to verify the accuracy of the 

underlying support.

FHWA Has Established a 

Multiagency Committee to 

Help the Agency Address 

Specific Weaknesses in the 

Attribution Data and 

Methodology 

FHWA has identified a number of weaknesses in the state motor fuel 

analysis portion of its attribution process, which the agency is discussing 

with the Motor Fuel Reporting Information Committee. This committee—

which includes representatives from FHWA, state revenue and 

transportation agencies, the American Association of State Highway and 

Transportation Officials, and the Federation of Tax Administrators—was 

established by FHWA in September 1998 to address issues and areas for 

improving the reporting system for state motor fuel data and FHWA’s 

attribution methodology. 

FHWA has identified and is addressing a number of specific weaknesses in 

the data and methodology used in the attribution process, including 

problems with the reporting on government entities’ use of fuel, fuel loss 

allowances, and gasohol usage. FHWA officials told us that the impact of 

these problems is relatively small—representing only 2 to 3 percent of the 

total state motor fuel data. Nonetheless, FHWA believes the problems are 

significant enough to require discussion with the committee and action by 

the agency. Although the scope of FHWA’s work with this committee was 
Appendix III

Reliability of FHWA’s Attribution Process Has 

Not Been Demonstrated

Page 43 GAO/RCED/AIMD-00-148 Problems With Highway Trust Fund Information

initially focused on these limited areas, it has evolved to include broader 

concerns about the attribution process. For example, FHWA also plans to 

issue a paper describing its attribution methodology to better inform state 

officials about how the motor fuel data are used to estimate contributions 

to the Highway Account of the Fund that are attributable to each state. 

Furthermore, FHWA has conducted significant outreach efforts to state 

officials through this committee by holding workshops in Washington, D.C.; 

Atlanta, Georgia; Philadelphia, Pennsylvania; and Denver, Colorado to 

discuss issues related to state motor fuel reporting and other aspects of the 

attribution process.

Three of the weaknesses—involving problems with FHWA’s treatment of 

motor fuel usage by government versus private and commercial vehicles—

are relatively significant. The first weakness is that the state data on diesel 

fuel usage may not be accurate because states have a problem identifying 

and quantifying the amount of diesel fuel that is used by private and 

commercial entities versus government entities. FHWA guidance directs 

states to submit data on only the private and commercial use of diesel fuel 

because many states are unable to provide information on government use 

of such fuel. However, many states cannot split out the government uses 

from the private and commercial uses, so they incorrectly include 

government use in their data submission for diesel fuel. This, in turn, 

affects the accuracy of FHWA’s attribution of contributions to the Highway 

Account of the Fund associated with the use of diesel fuel—a factor used to 

apportion funds for the Interstate Maintenance and National Highway 

System programs. 

The second weakness involves an inconsistency in the way FHWA 

attributes government entities’ use of gasoline versus diesel fuel to the 

states for the purpose of estimating contributions to the Highway Account 

of the Fund. FHWA’s attribution methodology includes government use of 

gasoline fuel but excludes government use of diesel fuel in attributing 

motor fuel usage to each state. FHWA decided to exclude government use 

of diesel from its motor fuel data collection because many states were 

unable to provide this information. FHWA officials stated that this 

inconsistency in FHWA’s attribution methodology has caused considerable 

confusion in state reporting; for example, many states include the wrong 

numbers on the Form 551M or provide unnecessary and confusing 

information to FHWA.

The third weakness is that FHWA’s use of diesel fuel as a factor in 

apportioning funds for one of the major highway programs—the National 
Appendix III

Reliability of FHWA’s Attribution Process Has 

Not Been Demonstrated

Page 44 GAO/RCED/AIMD-00-148 Problems With Highway Trust Fund Information

Highway System program—is not consistent with TEA-21’s requirements. 

TEA-21 identifies total highway use of diesel fuel as a factor for 

apportioning the National Highway System funds. In practice, however, 

FHWA excludes government use of diesel fuel and calculates the 

apportionment factor using only private and commercial vehicle use of 

diesel fuel. Current FHWA reporting procedures instruct states to exclude 

government use of diesel fuel—that is, use by federal, state, and local 

government entities—in their reports to FHWA. Again, FHWA decided to 

exclude government use of diesel fuel from its motor fuel data collection 

because many states were unable to provide this information. FHWA is 

exploring alternative solutions to this problem, which include requiring 

states to develop the information or developing estimates at FHWA by 

using modeling techniques. 

FHWA is exploring ways of addressing all of the weaknesses it has 

identified, and it will develop an action plan—in consultation with the 

committee—with a schedule for implementing the corrective actions. 

FHWA plans to publish the proposed implementation schedule in a Federal 

Register notice, solicit comments, and finalize the schedule in December 

2000. During 2001 and beyond, FHWA plans to revise its guidance to the 

states on compiling motor fuel data, to conduct training sessions on motor 

fuel data requirements for officials in state transportation and revenue 

agencies and FHWA division offices, and to take other actions that are 

included in its plan.

IRS Is Developing 

Information That May 

Be Useful for FHWA’s 

Attribution Process

IRS—in partnership with the states, industry representatives, and FHWA—

is developing a fuel-tracking system that will monitor the movement of 

motor fuel through the distribution chain to determine if the proper federal 

tax is being paid. This system—known as the Excise Files Information 

Retrieval System (ExFIRS)—will include data on the gallons of motor fuel, 

by type, that are sold to retailers and wholesalers in each state. The ExFIRS 

data project is being jointly administered by IRS and the Department of 

Transportation through a Memorandum of Understanding. 
Appendix III

Reliability of FHWA’s Attribution Process Has 

Not Been Demonstrated

Page 45 GAO/RCED/AIMD-00-148 Problems With Highway Trust Fund Information

According to IRS officials responsible for ExFIRS, the data will provide 

details that could be used to analyze highway versus nonhighway use of 

motor fuels in each state. Specifically, ExFIRS will provide data on the final 

destination state for motor fuel when it is removed from bulk storage tanks 

at the terminal.7

 Thus, the ExFIRS data could be used as a tool in validating 

the state motor fuel data currently used in FHWA’s attribution process. 

One potential limitation with using the ExFIRS data in the attribution 

process—that would need to be evaluated by FHWA and IRS—is that the 

data on the destination state come from the terminal owner, as reported by 

the truckers or rail carriers, and are not independently verified by IRS. This 

raises the possibility that, in some cases, the truckers or rail carriers may 

divert the gasoline to a state other than the “destination state” that they 

reported to the terminal operator in an attempt to evade the higher motor 

fuel taxes imposed by the true destination state where the fuel was actually 

sold. However, such diversions would also affect the state-reported data on 

motor fuels currently used by FHWA in its attribution process. Moreover, 

IRS is developing a compliance technique that may reduce the likelihood 

that this type of evasion will occur. This technique, known as “fuel 

fingerprinting”, is designed to identify the terminal source for fuel that is 

sampled from a retail or wholesale establishment. According to the IRS 

official responsible for ExFIRS, this technique, when fully developed, will 

probably be useful for determining whether the fuel sampled came from an 

in-state terminal source or was diverted across state lines.

IRS is developing the requirements and procedures for ExFIRS, and, 

according to the officials responsible for the system, the agency can begin 

implementing it by October 2000. Once the system is implemented, 

taxpayers will start reporting data to IRS. According to those officials, if the 

agency meets all of its current milestones for implementing ExFIRS, IRS 

will be able to report on a full year’s worth of motor fuel data (i.e., fiscal 

year 2001) by November 2001.

7

The federal motor fuel taxes are imposed at the terminal rack, the facility where fuel from 

bulk storage tanks is loaded into tanker trucks or rail cars for delivery to retail stations or to 

bulk users. Bulk users include the power companies, hospitals, and farmers who use the 

fuel for nonhighway purposes, and wholesalers who place the fuel into intermediate 

storage, according to an IRS official.
Page 46 GAO/RCED/AIMD-00-148 Problems With Highway Trust Fund Information

Appendix IV

Problems With Treasury’s and FHWA’s 

Processes Can Affect Fund Distributions to 

the States ApendxiIV

Problems with the reliability of the processes used by the Treasury 

Department and FHWA for estimating highway user tax information can 

affect (1) the calculation of any changes to the overall amounts of highway 

program funds that go to the states each year, as authorized by TEA-21, and 

(2) the amounts that are apportioned to individual states under several 

major programs. FHWA uses Treasury’s revenue reports and the results of 

its attribution process to distribute highway program funds to the states in 

two ways. First, FHWA distributes any additional funds (or fund 

reductions) called Revenue Aligned Budget Authority (RABA). The 

amounts of these additions to or reductions in funds are determined by 

analyzing changes in receipts in the Fund on the basis of information 

provided by the Treasury Department. Second, FHWA apportions funds to 

the states for several major highway programs by using formulas that rely 

to a large extent on the state-level estimates of motor fuel usage and 

contributions to the Highway Account of the Fund developed during the 

attribution process. The amount distributed to the states on the basis of 

information developed by the Treasury Department and FHWA is large—

totaling about $13 billion in fiscal year 2000 alone—so the potential impact 

of problems with the accuracy and timeliness of that information are 

significant. Although we have concerns about the reliability of the 

estimates developed by Treasury and FHWA, there is no way of knowing 

the extent of over- or under-payments, if any, to individual states, given the 

information currently available from the two agencies.

Problems With 

Treasury’s Revenue 

Reporting Can Affect 

the RABA Calculation

The yearly adjustment to the highway program’s funding levels authorized 

in TEA-21, called RABA, is based on available Treasury Department 

information on Highway Account receipts. Problems with the accuracy and 

timeliness of the information in Treasury’s reports on Highway Account 

receipts can thus affect the amounts distributed to the states under the 

RABA provision. As discussed in appendix II, Treasury’s reporting on these 

receipts has contained errors and is not timely. In response to concerns 

raised by the Transportation Department, Treasury revised its fiscal year 

1998 and 1999 revenue reports to incorporate the most recent information 

available on Highway Account receipts. Nonetheless, this action does not 

fully address our concerns about the accuracy and timeliness of Treasury’s 

reporting on those receipts, which could potentially affect the RABA 

calculations.
Appendix IV

Problems With Treasury’s and FHWA’s 

Processes Can Affect Fund Distributions to 

the States

Page 47 GAO/RCED/AIMD-00-148 Problems With Highway Trust Fund Information

The RABA adjustment is based on a comparison between currently 

available information on Highway Account receipts and projections of 

those receipts contained in TEA-21. TEA-21 used projections of Highway 

Account receipts to develop guaranteed highway funding levels for fiscal 

years 1999 through 2003. Beginning in fiscal year 2000, these guaranteed 

levels were to be adjusted upward or downward each year on the basis of 

actual Highway Account receipts and new projections of these receipts.1

The RABA adjustment to the funding levels authorized in TEA-21 is based 

on actual receipts from 2 years prior to the fiscal year, as reported by 

Treasury, plus revised Treasury receipt projections for the fiscal year in 

question. For example, for fiscal year 2000, TEA-21 requires that this 

adjustment be calculated by comparing (1) actual Highway Account 

receipts for fiscal year 1998 with the TEA-21 projection of these receipts 

and (2) revised projections of Highway Account receipts for fiscal year 

2000 with the TEA-21 projection of these receipts. The sum of these 

differences becomes the RABA funding level. Table 5 shows how this 

adjustment was calculated for fiscal years 2000 and 2001. As shown, for 

fiscal year 2000, the RABA adjustment, included in the President’s budget, 

added $1.5 billion to the $28.1 billion estimate of Highway Account receipts 

in TEA-21. For fiscal year 2001, the adjustment added $3.1 billion to the 

$28.5 billion estimate of Highway Account receipts. FHWA apportions any 

additional RABA funds to the states on October 15 of each fiscal year—

about 2 weeks after apportioning the amount of highway program funds for 

the fiscal year that was authorized in TEA-21. This RABA adjustment 

ensures, for the first time, that highway program funding levels will change 

as Highway Account receipt levels change.

1

If this RABA adjustment lowers the guaranteed funding level for a given fiscal year, TEA-21 

requires that the Department of Transportation reduce the amount of funding authorized on 

October 1 of the next fiscal year.
Appendix IV

Problems With Treasury’s and FHWA’s 

Processes Can Affect Fund Distributions to 

the States

Page 48 GAO/RCED/AIMD-00-148 Problems With Highway Trust Fund Information

Table 5: Calculation of the Revenue Aligned Budget Authority Adjustment, Fiscal Years 2000 and 2001

Legend

FY = fiscal year

Note: Actual Highway Account receipts are net receipts (excluding fines and penalties) after the 

deduction of transfers and refunds.

Source: Department of Transportation.

To include the amount of the RABA adjustment for the next fiscal year in 

the President’s budget for that fiscal year, the Office of Management and 

Budget and the Office of the Secretary in the Department of Transportation 

rely on information on Highway Account receipts supplied by the Treasury 

Department. The Bureau of Public Debt provides them with the prior fiscal 

year’s Highway Account receipts in a report on Highway Trust Fund 

receipts for the fiscal year, and the Office of Tax Analysis provides them 

with a projection of Highway Account receipts for the next fiscal year. 

Problems with the accuracy and timeliness of information in Treasury’s 

reports on Highway Account receipts can affect the amounts distributed to 

the states, since these reports are used in calculating the RABA adjustment. 

In developing the RABA calculations for fiscal years 2000 and 2001, the 

Department of Transportation raised concerns with the Treasury 

Department regarding its reporting on Highway Account receipts. In its 

Dollars in millions

Fiscal year 

that funds 

are made 

available

Comparison of actual Highway

Account receipts from 2 years prior

to the fiscal year with TEA-21 projection 

of these receipts

Comparison of revised projection 

of Highway Account receipts for 

the fiscal year with TEA-21 

projection of these receipts

Revenue Aligned

Budget Authority

adjustment

FY 2000 FY 1998 actual Highway 

Account receipts $23,135

TEA-21 projection of FY1998 

Highway Account receipts 22,164

Difference $971

Revised projection of FY 2000

Highway Account receipts $28,551

TEA-21 projection of FY 2000

Highway Account receipts 28,066

Difference $485

$971 + $485 = $1,456

FY 2001 FY 1999 actual Highway 

Account receipts $33,815

TEA-21 projection of FY1999 

Highway Account receipts 32,619

Difference $1,196

Revised projection of FY 2001

Highway Account receipts $30,368

TEA-21 projection of FY 2001

Highway Account receipts 28,506

Difference $1,862

$1,196 + $1,862 = $3,058
Appendix IV

Problems With Treasury’s and FHWA’s 

Processes Can Affect Fund Distributions to 

the States

Page 49 GAO/RCED/AIMD-00-148 Problems With Highway Trust Fund Information

yearly reports on Highway Trust Fund receipts, the Bureau of Public Debt 

has generally used estimates of these Highway Account receipts, rather 

than certified figures, for the third and fourth quarters of the fiscal year 

because of the 6-month lag in IRS’ certification of quarterly collections. The 

Bureau has generally finalized its reports on Highway Trust Fund receipts 

for each fiscal year by December—about the time that IRS issues its thirdquarter certification. Transportation requested that the Bureau incorporate 

the third-quarter certification in its fiscal year 1998 and 1999 reports, so 

that the RABA calculation could be based on the most recently available 

information. In the case of the report for fiscal year 1998, Transportation 

was particularly concerned because the third-quarter certified collection 

amount for that fiscal year was unusually large. As noted in appendix II, 

this certified amount included approximately $590 million that was related 

to the previous quarter. 

In response to the Transportation Department’s concerns and considering 

applicable accounting standards, the Bureau of Public Debt revised its 

reporting on the Highway Account receipts for fiscal years 1998 and 1999 to 

reflect the third-quarter certifications. While this action helped ensure that 

the most recent available information was used in the calculation of the 

RABA adjustments for fiscal years 2000 and 2001, it did not address the 

underlying issues discussed earlier in this report regarding the accuracy 

and timeliness of Treasury’s reporting on Highway Trust Fund receipts. For 

example, in the future, if significant amounts attributable to the third or 

fourth quarter of a given fiscal year are certified as collections in 

subsequent quarters, the RABA calculation for that fiscal year would be 

affected because those amounts would not be reflected in Treasury’s report 

on Highway Trust Fund receipts for that fiscal year. The amounts would be 

reflected in the report for the following fiscal year. Therefore, although we 

do not have information on the extent of over- or under-payments to the 

states, if any, it is evident that problems with the accuracy and timeliness of 

information in Treasury’s revenue reports could affect the accuracy of the 

amounts distributed for a particular fiscal year.
Appendix IV

Problems With Treasury’s and FHWA’s 

Processes Can Affect Fund Distributions to 

the States

Page 50 GAO/RCED/AIMD-00-148 Problems With Highway Trust Fund Information

Problems With 

Information Generated 

by FHWA’s Attribution 

Process Can Affect the 

Amounts of Highway 

Program Funds 

Apportioned to 

Individual States

Given the concerns about the reliability of the data and methodology used 

in FHWA’s attribution process, the reliability of the estimates resulting from 

that process has not been demonstrated, and there is little assurance that 

the actual amounts distributed to individual states are accurate. FHWA 

uses the information developed in its attribution process to apportion large 

amounts to states—about $11.5 billion in fiscal year 2000 alone. Although 

we have concerns about the accuracy of the relative amounts apportioned 

to individual states, there is no way of knowing the extent of over- or underpayments, if any, to individual states because FHWA has not systematically 

verified the accuracy of the state motor fuel data or its own methodology 

used in the attribution process. 

Under TEA-21, the state motor fuel data used in FHWA’s attribution process 

has considerably greater importance in apportioning highway program 

funds than under the predecessor legislation known as ISTEA.2

 For 

example, under TEA-21’s formulas for the three programs and the 

“Minimum Guarantee” provision discussed below, state motor fuel data 

directly affected the apportionment of about $11.5 billion in federal 

highway program funds in fiscal year 2000.3

 In contrast, under ISTEA, an 

average of about $1.2 billion of highway program funds was apportioned 

each year on the basis of state motor fuel data during the fiscal year 1992 

through fiscal 1997 period, according to FHWA officials.

On October 1 of each fiscal year, FHWA’s Office of Budget and Finance 

apportions funds for several major highway programs to each state on the 

basis of various formulas. These formulas, established by TEA-21, involve 

an array of data and factors combined into a series of mathematical 

calculations that are applied to the highway programs’ funding levels 

authorized in TEA-21.4

 While the apportionment factors influence the 

relative funding that is distributed to each state, those factors do not 

influence each year’s overall funding levels for the highway programs 

2

Intermodal Surface Transportation Efficiency Act of 1991 (P.L. 102-240).

3

The $11.5 billion included about $1.3 billion of the Interstate Maintenance funds, $2 billion 

of the Surface Transportation Program funds, $1.4 billion of the National Highway System 

funds, and $6.8 billion in “Minimum Guarantee” funds.

4

In addition to motor fuel usage and estimated state-level contributions to the Highway 

Account, TEA-21’s apportionment formulas include such factors as vehicle miles traveled, 

population, and highway lane miles.
Appendix IV

Problems With Treasury’s and FHWA’s 

Processes Can Affect Fund Distributions to 

the States

Page 51 GAO/RCED/AIMD-00-148 Problems With Highway Trust Fund Information

which are estimated in TEA-21 and then annually adjusted through the 

RABA calculation on the basis of Highway Account receipts information. 

The attribution data on each state’s estimated motor fuel usage and 

contributions to the Highway Account of the Highway Trust Fund are used 

for apportionment purposes in three major highway programs—the 

Interstate Maintenance, Surface Transportation, and National Highway 

System programs. In addition, the data on attributed contributions are used 

to implement the “Minimum Guarantee” provision of TEA-21. The 

attribution data for each state are applied to the apportionment formulas in 

the following ways:

• Commercial vehicle contributions are used as a factor in distributing 

33.3 percent of Interstate Maintenance program funds to the states. This 

factor is defined as the sum of contributions from the motor fuel taxes 

on diesel and other special fuels and the truck-related taxes on tires, 

truck and trailer sales, and heavy vehicle use. 

• Highway Account contributions are used as a factor in distributing 35 

percent of the Surface Transportation Program’s funds. This factor is 

defined as the sum of contributions from all motor fuel and truckrelated taxes.

• Total diesel fuel used on highways is a factor in distributing 30 percent 

of the National Highway System program’s funds. FHWA excludes the 

public use of diesel fuel and calculates this apportionment factor using 

only private and commercial vehicle use of diesel fuel. 

• Highway Account contributions are used as a factor in calculating the 

“Minimum Guarantee” provision in TEA-21, which states that each state 

is guaranteed that its share of apportionments will be at least 90.5 

percent of its percent share of contributions to the Highway Account. 

FHWA uses the results of its motor fuel attribution analysis to calculate 

each state’s relative share of motor fuel consumed on highways. It then 

multiplies the resulting percent share of gallons by the amount of highway 

tax receipts allocated to the Fund’s Highway Account to estimate each 

state’s attributed contributions to the Fund.
Page 52 GAO/RCED/AIMD-00-148 Problems With Highway Trust Fund Information

Appendix V

Scope and Methodology ApendxiV

Our approach in reviewing Treasury's and FHWA's processes, and the 

impact of those processes on the level of highway program funds 

distributed to the states, was to (1) document the major steps in these 

processes and the times when these steps occur; (2) identify and evaluate 

any issues regarding the accuracy, timeliness, or reliability of the data and 

the methodologies used in Treasury's and FHWA's processes; and (3) 

describe and assess any efforts by those agencies to improve their data or 

processes. To do this, we reviewed pertinent agency documentation and 

interviewed knowledgeable agency officials at several offices within the 

Treasury and Transportation departments. Within Treasury, our work was 

performed at IRS, the Office of Tax Analysis, the Bureau of Public Debt, 

and the Financial Management Service. Within Transportation, our work 

was performed at several offices in FHWA and at the Office of the 

Secretary. 

With regard to our work on Treasury's revenue allocation process, we 

incorporated the results of our prior work addressing Treasury's processes 

for allocating tax receipts to federal excise-tax-related trust funds, 

including the Highway Trust Fund. With regard to our work on FHWA's 

attribution process, we reviewed the ongoing efforts of the Motor Fuel 

Reporting Information Committee—an organization of officials in FHWA 

and state transportation and revenue agencies that is identifying issues and 

improvements needed in the motor-fuel reporting system. Additionally, we 

visited FHWA field offices and state revenue and transportation agencies in 

two states—Florida and North Carolina—to develop an understanding of 

states' role in providing data used in estimating states' contributions to the 

Fund. We chose these two states because they are members of the Motor 

Fuel Reporting Information Committee. Also, an FHWA official responsible 

for the attribution process told us that officials in these two states were 

very knowledgeable about the motor-fuel reporting process and thus their 

insights would be useful to our work. We conducted our work from August 

1999 through June 2000 in accordance with generally accepted government 

auditing standards.
Page 53 GAO/RCED/AIMD-00-148 Problems With Highway Trust Fund Information

Appendix VI

Comments From the Internal Revenue ServiceApendxiVI

See comment 1.

Note: GAO comments 

supplementing those in the 

report text appear at the end 

of this appendix.
Appendix VI

Comments From the Internal Revenue 

Service

Page 54 GAO/RCED/AIMD-00-148 Problems With Highway Trust Fund Information

See comment 2.

See comment 3.
Appendix VI

Comments From the Internal Revenue 

Service

Page 55 GAO/RCED/AIMD-00-148 Problems With Highway Trust Fund Information

See comment 4.

See comment 5.
Appendix VI

Comments From the Internal Revenue 

Service

Page 56 GAO/RCED/AIMD-00-148 Problems With Highway Trust Fund Information

See comment 6.

See comment 7.
Appendix VI

Comments From the Internal Revenue 

Service

Page 57 GAO/RCED/AIMD-00-148 Problems With Highway Trust Fund Information

The following are GAO's comments on the Internal Revenue Service's letter 

dated June 16, 2000.

GAO's Comments 1. We agree that “payment” and “deposit” are separate terms since 

semimonthly deposits are based on estimates of tax liability, while final 

payments are due with the quarterly return on the return due date. We 

have revised the report language as appropriate.

2. We agree that initial allocations to the trust funds are and will continue 

to be estimates. As stated in our report, once the new method for 

making initial allocations to the trust funds is in place, IRS will still 

need to certify the amounts due to the trust funds and make 

adjustments to initial allocations on the basis of tax returns. We also 

made revisions to the report to clarify that we are not implying that IRS 

certify collections of highway user tax receipts on the basis of deposits. 

While these changes improved our description of the allocation 

process, we believe that opportunities exist for improving the quality of 

the estimates on which initial allocations to the Highway Trust Fund 

and other excise-tax-related trust funds are based. Our report points 

out that obtaining more detailed data from taxpayers at the time they 

make tax deposits could improve these estimates.

3. We agree that there are a number of reasons why the amounts 

attributable to a given quarter are certified as collections in a 

subsequent quarter. To clarify this point, we have revised our 

description of such instances and our explanation of the reasons they 

occur. As stated in our report, such instances can affect Treasury's 

yearly reports on Fund receipts and consequently the amounts 

distributed to the states, particularly those that occur in the latter part 

of the fiscal year. 

4. IRS did not fully address our recommendation that Treasury develop a 

comprehensive plan for implementing its efforts to improve the process 

for allocating receipts to the excise-tax-related trust funds. While IRS 

indicated that it will develop comprehensive plans for the Custodial 

Accounting Project—which includes these efforts—it did not provide 

information on when these plans will be developed. 

5. IRS did not fully address our recommendation that this comprehensive 

plan include milestones for evaluating, as a near-term measure, the use 

of incentives for encouraging taxpayers to start providing a detailed 
Appendix VI

Comments From the Internal Revenue 

Service

Page 58 GAO/RCED/AIMD-00-148 Problems With Highway Trust Fund Information

excise tax breakdown with their deposits. We believe that waiting until 

mid-2003 to study incentives will not allow enough time for the agency 

to implement an incentives program, if it decides to do so, prior to the 

planned deployment of its new payment information database which, 

according to IRS, will have the capability to record this detailed data. 

Therefore, we did not change the report's recommendation. 

6. IRS did not fully address our recommendation that the comprehensive 

plan include milestones for reexamining taxpayer capabilities to 

provide detailed data in several years and deciding whether to require 

the data from taxpayers. While IRS indicated that it intends to perform 

these tasks in four years, we believe that the agency needs to perform 

these tasks before the deployment of its new payment information 

database and revenue allocation method, planned for 2004, in order to 

ensure that IRS will be ready to fully implement these efforts. 

Furthermore, these tasks, with appropriate milestones, should be 

included in IRS' comprehensive plan for its database and revenue 

allocation efforts. Therefore, we did not change the report's 

recommendation.

7. IRS did not fully address our recommendation that the comprehensive 

plan include a milestone for determining what changes may be 

needed—as a result of changes being planned in the revenue allocation 

method—in Treasury's methods for certifying and adjusting the 

amounts allocated to the trust funds on the basis of analyses of tax 

return and payment data. While IRS' letter states that the Secretary of 

the Treasury is considering this issue, we continue to emphasize that 

this milestone should be included in IRS' comprehensive plan for its 

database and revenue allocation efforts. Therefore, we did not change 

the report's recommendation.
Page 59 GAO/RCED/AIMD-00-148 Problems With Highway Trust Fund Information

Appendix VII

GAO Contacts and Staff Acknowledgments ApendxiVI

GAO Contacts Phyllis F. Scheinberg (202) 512-3650

Gregory D. Kutz (202) 512-3406

Acknowledgments In addition to the individuals named above, Paul Caban, Rita A. Grieco, 

Judy L. Guilliams-Tapia, Ted Hu, Anne T. McLeod, Sara Ann Moessbauer, 

Steven J. Sebastian, and Ronald E. Stouffer made key contributions to this 

report.
Page 60 GAO/RCED/AIMD-00-148 Problems With Highway Trust Fund Information

Related GAO Products

Department of 

Transportation

Highway Trust Fund: Financial Condition as of September 30, 1997

(GAO/RCED-98-171R, Apr. 24, 1998).

Highway Trust Fund: Possible Impact if It Had Financed All Highway 

Expenditures (GAO/RCED-98-78R, Feb. 6, 1998).

Federal Highway Programs: Status of Federal Highway Programs in the 

Absence of Reauthorization (GAO/T-RCED-98-38, Nov. 4, 1997).

Highway Funding: The Federal Highway Administration’s Funding 

Apportionment Model (GAO/RCED-97-159, June 5, 1997).

Highway Trust Fund: Financial Status and Outlook (GAO/T-RCED-96-169, 

May 16, 1996).

Highway Funding: Alternatives for Distributing Federal Funds

(GAO/RCED-96-6, Nov. 28, 1995).

Department of the 

Treasury

Tax Systems Modernization: Results of Review of IRS’ March 7, 2000, 

Expenditure Plan (GAO/AIMD-00-175, May 24, 2000).

IRS Modernization: Long-term Effort Under Way, But Significant 

Challenges Remain (GAO/T-GGD/AIMD-00-154, May 3, 2000).

IRS Modernization: Business Practice, Performance Management, and 

Information Technology Challenges (GAO/T-GGD/AIMD-00-144, Apr. 10, 

2000).

Internal Revenue Service: Results of Fiscal Year 1999 Financial Statement 

Audit (GAO/T-AIMD-00-104, Feb. 29, 2000).

Financial Audit: IRS’ Fiscal Year 1999 Financial Statements (GAO/AIMD-00-

76, Feb. 29, 2000).

Applying Agreed-Upon Procedures: Highway Trust Fund Excise Taxes

(GAO/AIMD-00-82R, Feb. 25, 2000).

Internal Revenue Service: Custodial Financial Management Weaknesses

(GAO/AIMD-99-193, Aug. 4, 1999).
Related GAO Products

Page 61 GAO/RCED/AIMD-00-148 Problems With Highway Trust Fund Information

Tax Systems Modernization: Results of Review of IRS’ Initial Expenditure 

Plan (GAO/AIMD/GGD-99-206, June 15, 1999).

Financial Audit: IRS’ Fiscal Year 1998 Financial Statements (GAO/AIMD-99-

75, Mar. 1, 1999).

Agreed-Upon Procedures: Highway Trust Fund Excise Taxes (GAO/AIMD99-71R, Feb. 25, 1999).

Excise Taxes: Internal Control Weaknesses Affect Accuracy of 

Distributions to the Trust Funds (GAO/AIMD-99-17, Nov. 9, 1998).

Internal Revenue Service: Immediate and Long-Term Actions Needed to 

Improve Financial Management (GAO/AIMD-99-16, Oct. 30, 1998).

Internal Revenue Service: Remaining Challenges to Achieve Lasting 

Financial Management Improvements (GAO/T-AIMD/GGD-98-138, Apr. 15, 

1998).

Financial Audit: Examination of IRS’ Fiscal Year 1997 Custodial Financial 

Statements (GAO/AIMD-98-77, Feb. 26, 1998).

Agreed-Upon Procedures: Excise Taxes (GAO/AIMD-98-78R, Feb. 26, 1998).

Tax Systems Modernization: Blueprint Is a Good Start But Not Yet 

Sufficiently Complete to Build or Acquire Systems (GAO/AIMD/GGD-98-54, 

Feb. 24, 1998).

Corrections to the Federal Highway Trust Fund (B-275490, Dec. 5, 1996).

Tax Systems Modernization: Actions Underway But IRS Has Not Yet 

Corrected Management and Technical Weaknesses (GAO/AIMD-96-106, 

June 7, 1996).

Tax Administration: Diesel Fuel Excise Tax Change (GAO/GGD-96-53, Jan. 

16, 1996).

Tax Systems Modernization: Management and Technical Weaknesses Must 

Be Corrected If Modernization Is To Succeed (GAO/AIMD-95-156, July 26, 

1995).
Related GAO Products

Page 62 GAO/RCED/AIMD-00-148 Problems With Highway Trust Fund Information

Financial Management: Important IRS Revenue Information Is Unavailable 

or Unreliable (GAO/AIMD-94-22, Dec. 21, 1993).

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