Page 1 GAO-03-744R Trends in Federal and State Highway Investment

United States General Accounting Office

Washington, D.C. 20548

GAO-03-744R Trends in Federal and State Highway Investment

A

June 18, 2003 Lret

The Honorable Harry Reid

Ranking Member, Subcommittee on Transportation 

 and Infrastructure

Committee on Environment and Public Works

United States Senate

Subject: Trends in Federal and State Capital Investment in Highways

Amid projections that freight traffic will increase 65 percent by 2020 and 

that traffic congestion will worsen, many transportation officials are 

concerned about the challenge of maintaining and improving the condition 

and performance of the nation’s highway infrastructure. In 1998, the 

Transportation Equity Act for the 21st Century (TEA-21) increased funding 

for highways by 27 percent in real terms over the previous surface 

transportation authorization act--the Intermodal Surface Transportation 

Efficiency Act of 1991 (ISTEA).1 Nevertheless, the Federal Highway 

Administration (FHWA) estimates that the nation will need to spend about 

$76 billion—or 18 percent more than it spent in 2000—each year through 

2020 to maintain the average conditions and performance of the nation’s 

highways and bridges, and about $107 billion or 65 percent more than it 

spent in 2000 to efficiently improve the highway system.2

 These 

projections raise concerns because both the federal government and state 

governments are facing budget deficits in the years ahead, totaling 

hundreds of billions of dollars.

As you prepare to reauthorize TEA-21 and establish funding levels for the 

next several years, you asked us to provide historical information on the 

nation’s investment in its highway infrastructure. In particular, you asked 

that we (1) identify overall trends in the nation’s capital investment in its 

highway system over the past 20 years, particularly since the enactment of 

TEA-21 in 1998—and compare the trends in federal spending with the 

trends in state and local government spending; (2) determine how these 

trends in highway capital investment compare with the fiscal capacity of 

both the nation and individual states to fund these programs, particularly 

1

Based on a comparison of authorization levels for Title 1 programs in ISTEA and TEA-21 

shown in FHWA’s Financing Federal-Aid Highways. We adjusted the authorizations to 

2001 dollars using gross domestic product (GDP) deflators.

2

FHWA projections are based in 2000 dollars.
Page 2 GAO-03-744R Trends in Federal and State Highway Investment

since the enactment of TEA-21 in 1998; and (3) provide information on 

sources of funds used by states for their highway programs. On June 10, 

2003, we briefed your office on the results of our work. Enclosure I 

presents our briefing slides. This report summarizes the briefing, and a 

subsequent report will discuss your request to analyze the fiscal effects of 

federal highway grants on state and local highway investment. In addition, 

a special publication entitled Trends in State Capital Investment in 

Highways, providing spending trends by state, is available on the Internet 

at http://www.gao.gov/cgi-bin/getrpt?gao-03-915sp.

To respond to your request, we reviewed data from FHWA’s Highway 

Statistics for the period from 1982 through 2001, adjusting expenditures to 

2001 dollars. We also compared expenditures with the nation’s gross 

domestic product (GDP) and the gross state products (GSP) of individual 

states3

 and interviewed transportation officials in 10 states. We performed 

our work from August 2002 through May 2003 in accordance with generally 

accepted government auditing standards. Our scope and methodology is 

discussed in more detail later in this report.

Background Although the states, with support from localities, are primarily responsible 

for capital projects on the nation’s highways, federal funding provides a 

significant amount of the financing for these capital investments. Federal 

funding is made available to the states through apportionments from FHWA 

at the start of each fiscal year, based on formulas provided in law.4

 With 

few exceptions, the funds that the federal government provides for 

highways must be matched by funds from other sources—usually state and 

local governments. The funding requirement for most federal highway 

programs is 80 percent federal and 20 percent state funding. In addition to 

3

GDP is a measure of all income earned within the domestic economy, providing a 

convenient measure of the nation's aggregate purchasing power, including the ability to 

fund public services such as highways. GSP provides a similar measure of income earned 

within individual state economies. In evaluating other "formula-based" programs, GAO has 

used the Department of Treasury's Total Taxable Resources (TTR) as a measure of states’ 

funding ability because it provides a more comprehensive measure of potentially taxable 

income by including both state GSP and income earned by state residents from out-of-state 

sources. However, we did not use Treasury's TTR because it was not consistently available 

for all the years in our trend analysis.

4

For highway programs that do not have apportionment formulas, funds are distributed 

through allocations to states with qualifying projects. 
Page 3 GAO-03-744R Trends in Federal and State Highway Investment

matching federal funds, states and localities raise funds to invest in 

highway capital projects as well as to maintain existing roadways.

Summary The following summarizes our results.

Capital Investment in the Highway System 

• The nation’s capital investment in its highway system has more than 

doubled in real terms over the past 20 years.

• From 1982 through 2001, federal and state and local government 

investment increased 123 percent from $29.6 billion to about $66.0 

billion in 2001 dollars.5

 During the period following enactment of 

TEA-21 in 1998, total capital investment increased 19 percent, from 

$55.5 billion in 1997, the last year under ISTEA, to $66.0 billion in 

2001. 

• While the nation’s total capital investment more than doubled, state 

and local highway capital investment increased at twice the rate of 

federal investment over the past 20 years. Specifically, state and 

local investment increased 166 percent from $14.1 billion to $37.6 

billion in real terms, whereas the federal investment increased 83 

percent from $15.5 billion to $28.3 billion.6

 (See fig. 1).

5

All dollar figures cited in this report are in 2001 dollars unless otherwise noted.

6

Unless otherwise noted, investment represents outlays or spending on highway capital 

investment.
Page 4 GAO-03-744R Trends in Federal and State Highway Investment

Figure 1: Federal and State and Local Highway Capital Investment, 1982-2001

• During the period following enactment of TEA-21 in 1998, federal 

investment increased faster than state and local investment. Federal 

investment increased 23 percent in real terms from $23.1 billion in 

1997, the last year under ISTEA, to $28.3 billion in 2001, while state 

and local investment increased 16 percent from $32.4 billion to $37.6 

billion during this time.

• However spending patterns were not consistent over this period. 

Federal expenditures declined in 1998 despite the substantial 

increase in TEA-21 authorizations because TEA-21 was enacted in 

June 1998, and most of the federal funding authorized under TEA-21 

was not expended until 1999 or later. As a consequence, federal 

spending in 2001 was 29 percent higher than its 1998 level of $21.9 

billion. As shown in figure 2, state and local investment remained 

relatively constant during this time—increasing 2 percent in real 

terms from $37.0 billion in 1998 to $37.6 billion in 2001. 
Page 5 GAO-03-744R Trends in Federal and State Highway Investment

Figure 2: Annual Federal and State and Local Highway Capital Investment during 

TEA-21

• The slower rate of increase in state and local investment during 

recent years may continue. The National Governors Association and 

the National Conference of State Legislatures recently reported that 

states face estimated budget shortfalls ranging from $65 billion to $80 

billion (in current dollars) for fiscal year 2004. Transportation 

officials from most of our 10 selected states said that their state’s 

declining financial condition could result in decreased spending on 

highways. In addition, a January 2003 survey done for the National 

Association of Counties, found that the local governments are also 

facing revenue shortfalls. Seventy-two percent of the 715 counties 

responding to the survey are experiencing shortfalls in revenues, and 

of that 72 percent, one in four are considering cutbacks in highway 

construction spending to address those shortfalls. Highway 

construction was cited by more counties as a candidate for budget 
Page 6 GAO-03-744R Trends in Federal and State Highway Investment

reductions than any other category of spending, including health 

care, schools, law enforcement, and parks.

Investment Compared to Fiscal Capacity

• Although the nation’s highway investment has increased, the nation’s 

“level of effort” on highway capital spending—that is, investment 

relative to fiscal capacity, as measured by GDP—has remained relatively 

steady.

• This relatively constant level of effort is due to increases in state and 

local investment that offset decreases in federal investment per GDP 

over the past 20 years. As noted previously, however, during the 

TEA-21 period, federal investment increased faster than state and 

local investment. 

• There is considerable variation in the level of effort among states. 

During the 1982 to 1986 time period7

, state and local governments 

spent an average of $2.96 per $1,000 of GSP on highways, but 

individual state spending ranged from a high of $7.73 to a low of 

$1.21, per $1,000 of GSP. By the 1997 to 2000 time period, the average 

state and local government spending increased to $3.76 per $1,000 of 

GSP, while the range across individual states also widened—to a high 

of $9.96 and a low of $1.11 per $1,000 of GSP. 

• In addition, there is wide movement in the states’ relative levels of 

effort over time. For example, no state consistently ranks highest in 

level of effort over time. The state with the highest level of effort in 

terms of state and local funding as related to gross state product in 

the 1982 to 1986 time period ranked 12th in the 1997 to 2000 time 

period. The changes in states’ levels of effort occurred, in part, 

because of fluctuations in the funding available for each state’s 

highway program. Factors affecting fluctuations in the funding 

available for individual state highway programs include rapid 

changes in revenues stemming from increases in gas tax rates, 

changes in available funds resulting from issuing or retiring debt, and 

7

To analyze 50 states over a 19-year period, we broke down the 19 years from 1982 through 

2000 into four time periods. The early part of the time period covers 1982 through 1986. The 

most current time period covers 1997 through 2000. This analysis does not include 2001 

data because 2001 local expenditure data are not yet available at the state level.
Page 7 GAO-03-744R Trends in Federal and State Highway Investment

the beginning or completion of large capital projects. For example, 

Utah moved from 28th place in the 1982 to 1986 time period to 1st

place in the 1997 to 2000 time period. The funding that the state 

invested in its reconstruction of I-15 for the 2002 Winter Olympics 

likely influenced this large increase in level of effort. 

• We have begun to examine what factors, including state demographic 

and other characteristics and the level of federal grants, may affect 

states’ levels of effort. For example, our initial analysis comparing 

state characteristics to levels of effort indicates that, over roughly the 

last 20 years, certain characteristics, such as motor fuel tax revenues, 

may be generally related to states’ levels of effort, while other 

characteristics, such as the number of licensed drivers and registered 

vehicles, do not appear to be related to states’ levels of effort.8

 Our 

subsequent report will more closely examine the relationship 

between states’ levels of effort and selected demographic and other 

state characteristics, as well as the fiscal effects of federal grants.

State Sources of Funding for Highways

• Taxes on motor fuels, such as gasoline and diesel, have been the primary 

source of state highway funding. In addition to motor fuel taxes, states 

use revenues from other sources for highway projects, including vehicle 

and motor carrier taxes, tolls, and general fund appropriations. (See fig. 

3). 

8

See scope and methodology section for a more complete explanation of the correlation 

analysis we performed. 
Page 8 GAO-03-744R Trends in Federal and State Highway Investment

Figure 3: Percentage of State Highway Funding by Source - National Totals

Note: Excludes federal grants, bond proceeds, and sinking fund interest earned.

• Over the past 20 years, state revenues for highways have increased 78 

percent from $33.4 billion to $59.4 billion in real terms. State motor 

fuel tax revenues increased 75 percent from $16.4 billion in 1982 to 

$28.7 billion in 2001. Revenues from other funding sources increased 

at a greater rate than motor fuel taxes during this period. For 

example, the use of general funds for highways increased over 220 

percent, from $1.3 billion to $4.1 billion, while toll revenues 

increased 83 percent, from $2.6 billion to $4.7 billion over the 20-year 

period. (See fig. 4).9
Page 9 GAO-03-744R Trends in Federal and State Highway Investment

Figure 4: Percentage Increases in Funding Sources for Highways, from 1982 

through 2001

Note: Excludes federal grants, bond proceeds, and sinking fund interest earned.

• Although gas tax rates are not a complete measure of what a state 

invests in its highways, these rates illustrate the variation that occurs 

over time in a state’s sources of highway funding, as well as in a 

state’s highway expenditures. Between 1982 and 2001, gas tax rates 

for 39 states increased in real terms, while gas tax rates for 12 states 

decreased in real terms—ranging from an increase of 140 percent, to 

a decrease of 40 percent. During this time the federal gas tax rate 

increased 176 percent—a greater percentage increase than any of the 

states’ increases. However, this information should be viewed with 

caution because results could be different depending on the years 

selected. For example, by selecting 1983 instead of 1982 as the first 

year of the analysis, the federal gas tax rate increase would be about 

28 percent—less than the increases of 14 states—because the federal 

9

We did not include debt financing in this figure because bonds are not a source of 

additional funds; rather, they are repaid from the sources of funds shown in this figure.
Page 10 GAO-03-744R Trends in Federal and State Highway Investment

gas tax rate more than doubled in April 1983. These results should 

also be viewed with caution because some states that increased their 

rates substantially may have had low gas tax rates in 1982. For 

example, while Texas had the largest percentage increase among the 

states, having more than doubled its gas tax rate in real terms from 

1982 to 2001, Texas also had the lowest tax rate in 1982.

• Although states primarily pay for highway projects with federal 

grants and state revenues, states have increasingly used debt 

financing to fund highway projects from 1982 through 2001. The 

funding for highways available from bonds increased over 270 

percent from about $2.5 billion to almost $9.4 billion in real terms 

during this 20-year period. 

Scope and 

Methodology

To identify trends in highway capital investment for federal, state, and local 

governments, we used data on expenditure and vehicle miles traveled from 

FHWA's Highway Statistics for the period 1982 through 2001,10 adjusting 

expenditures to 2001 dollars using the state and local highway price index 

estimated by the Bureau of Economic Analysis (BEA) of the Department of 

Commerce. The adjusted expenditures using the BEA index will be slightly 

different from expenditures calculated by FHWA using its bid-price index 

because BEA adjusts the FHWA bid-price index. We used BEA's index 

because it uses a 12-quarter phasing pattern that more consistently 

captures expenditure patterns for capital highway projects. We assessed 

the reliability of the data by electronic testing and by reviewing 

documentation and reports. Although transportation officials consider 

FHWA’s Highway Statistics as the best available national source of highway 

capital expenditure data for statistical purposes, it does have some 

reported limitations. For example, according to FHWA officials, states are 

required to provide data for their local governments’ highway funding every 

other year and are encouraged to use sampling in developing reported data. 

Thus local data are estimated to some degree by either states estimating 

reported local data or FHWA estimating local data when they are not 

reported by the states. In addition, there is not a standard reporting year. 

Therefore, states report data for different types of years—for example, 

10In a few instances, FHWA’s Highway Statistics does not provide capital expenditure data 

for state or local governments for certain states and years. In these instances, we estimated 

capital expenditures based on the trend in expenditures over time for those state or local 

governments.
Page 11 GAO-03-744R Trends in Federal and State Highway Investment

calendar years and state fiscal years. Finally, the types of projects that the 

federal government classifies as capital projects have changed over time; 

hence, there may not be consistency in the data. However, we concluded 

that the data were sufficiently reliable for our purposes. Although not a 

limitation of the collected data, direct state and local capital expenditures 

are not reported separately. We therefore subtracted federal funding from 

total capital expenditures to approximate state and local expenditures. In 

addition, although we examined investment or expenditure trends, we did 

not examine what improvements in the condition or performance of the 

highway system resulted from these expenditures.

To compare trends in capital investment with the fiscal capacity of the 

nation and individual states, we compared expenditures with GDP and GSP 

for 1982 through 2001, adjusting expenditures and GSP as appropriate. We 

also used data from the Bureau of the Census on state and local 

government finances to compare highway expenditures with other state 

expenses. FHWA officials state that the Census Bureau uses a narrower 

definition of what is included in highway expenditures than the FHWA. 

However, Census data provides a basis for comparing state and local 

governments’ highway expenditures to their other program expenditures 

over time. To obtain examples of how state departments of transportation 

determine their highway expenditures levels, we conducted telephone 

interviews with officials from 10 state highway transportation offices—

Alaska, California, Illinois, Montana, Nevada, New Mexico, Oklahoma, 

Vermont, West Virginia and Wisconsin. We selected these states on the 

basis of a variety of factors, including their level of highway capital 

expenditures per gross state product, geographic location, population, 

vehicle miles traveled, and percentage of federally owned land area. 

Furthermore, to identify state characteristics that are linked with levels of 

effort across all states, we performed a correlation analysis that examined 

the linear relationship between level of effort and individual state 

characteristics in concurrent years. Our analysis considered these 

associations singly. However, there may be more complex interactions that 

exist when considering the relationships simultaneously.

Finally, to identify state sources of funds used for highway investments 

from 1982 through 2001, we reviewed data from FHWA’s Highway 

Statistics on sources of revenue and adjusted the revenues to 2001 dollars 

using the general GDP index estimated by the BEA of the Department of 

Commerce. 
Page 12 GAO-03-744R Trends in Federal and State Highway Investment

We performed our work from August 2002 through May 2003 in accordance 

with generally accepted government auditing standards.

Agency Comments and 

Our Evaluation

We provided a draft of this report to DOT for its review and comment. DOT 

officials generally agreed with the information in the report, and they also 

provided technical comments, which we incorporated in the report as 

appropriate.

This is the first of two reports responding to your request concerning 

federal and state and local investment in our nation’s surface 

transportation system. We plan to issue a second report in early 2004 

addressing your remaining question on how federal funding influences 

state and local investment in our nation’s highway system.

As we agreed with your office, unless you publicly announce the contents 

of this report earlier, we plan no futher distribution of it until 30 days from 

the date of this letter. We will send copies of this report to cognizant 

congressional committees; the Secretary of Transportation; and the FHWA 

Administrator. The report will also be available on GAO’s home page at 

http://www.gao.gov. In addition, a special publication entitled Trends in 

State Capital Investment in Highways, providing spending trends by 

state, is available on the Internet at http://www.gao.gov/cgi-bin/getrpt?gao03-915sp.

If you or your staff have any questions about this report, please contact me 

at heckerj@gao.gov or Steve Cohen at cohens@gao.gov. Alternatively, we 

can be reached at (202) 512-2834. Major contributors to this report were
Page 13 GAO-03-744R Trends in Federal and State Highway Investment

Jay Cherlow, Catherine Colwell, Gregory Dybalski, Jerry Fastrup, Donald 

Kittler, Alexander Lawrence, John Mingus, Sara Ann Moessbauer, and Eric 

Tempelis.

Sincerely yours,

JayEtta Z. Hecker

Director, Physical Infrastructure Issues

Enclosure
Page 14 GAO-03-744R Trends in Federal and State Highway Investment

Enclosure

Federal and State Highway Funding 

Trends and Levels of Effort

Briefing for the Ranking Member,

Senate Committee on Environment 

and Public Works, Subcommittee on

Transportation and Infrastructure

June 10, 2003
Page 15 GAO-03-744R Trends in Federal and State Highway Investment

2

Objectives

• Identify trends in capital investment in the nation’s 

highway system, and compare federal trends with state 

and local trends over the past 20 years, particularly 

since the enactment of TEA-21.

• Determine how these trends in highway capital 

investment compare with the fiscal capacity of both the 

nation and individual states to fund these programs, 

particularly since the enactment of TEA-21.

• Provide information on sources of funds for state 

highway programs.
Page 16 GAO-03-744R Trends in Federal and State Highway Investment

3

Scope and Methodology

• Reviewed federal, state, and local highway capital investments over the 20-year period 

(1982-2001).

• Obtained historical expenditure and funding data, primarily from FHWA’s Highway 

Statistics, and adjusted data to 2001 dollars.

• Obtained other relevant trend data, including vehicle miles traveled from Highway 

Statistics.

• Obtained Census Bureau data on state and local government expenditures, in order 

to relate highway expenditures to state and local government spending.

• Interviewed transportation officials from 10 states.

• The selected states are Alaska, California, Illinois, Montana, Nevada, New Mexico, 

Oklahoma, Vermont, West Virginia, and Wisconsin.

• Factors used to select these states included their level of highway capital 

expenditures relative to gross state product, geographic location, population, vehicle 

miles traveled, and percentage of federally owned land area.

• Examined investment trends, but not the effect of the trends on performance of the 

highway system.
Page 17 GAO-03-744R Trends in Federal and State Highway Investment

4

Summary

• Total highway capital funding in the country has 

increased over the past 20 years.

• States and localities are investing more than the 

federal government, although growth in state and local 

investment has slowed since TEA-21 was enacted. 

• The nation’s level of effort (highway investment related 

to fiscal capacity) has remained relatively steady; 

however, the levels of investment by different levels of 

government and individual states have varied over 

time. 
Page 18 GAO-03-744R Trends in Federal and State Highway Investment

Investment in Highway Infrastructure 

by Levels of Government

This section

• Summarizes trends in capital investment in the nation’s 

highway system, including expenditures and expenditures 

relative to vehicle miles traveled over the past 20 years, 

particularly during the TEA-21 period, and 

• Compares federal trends with state and local trends over 

the past 20 years, particularly during the TEA-21 period.
Page 19 GAO-03-744R Trends in Federal and State Highway Investment

6

Total Highway Capital Investment

As shown in the following chart:

• The nation has more than doubled its investment in highways—an 

increase of 123 percent or $36.4 billion in real terms over the 20-

year period, from 1982 to 2001. 

• While investment has trended upward throughout the 20-year 

period, there have been periods of larger increases—during the 

early 1980s and the late 1990s. 

• During the TEA-21 period, 1998 through 2001, total highway capital 

investment increased 19 percent, from $55.5 billion in 1997, the last 

year of ISTEA to $66.0 billion in 2001.

Note: The calculation of percent change over the TEA-21 period is compared to 

1997 expenditures.
Page 20 GAO-03-744R Trends in Federal and State Highway Investment

7

Total Highway Capital Expenditures 

by All Levels of Government 
Page 21 GAO-03-744R Trends in Federal and State Highway Investment

8

Highway Capital Expenditures 

by Levels of Government

As shown in the following chart:

• States and localities together are investing more in highways than the 

federal government.

• From 1982 though 1986, the federal government spent more than state 

and local governments on highway capital projects; however, state and 

local governments’ capital spending began to exceed federal spending 

in 1987. 

• In real terms, state and local capital spending increased at a much 

greater rate (166 percent) than federal capital spending (83 percent) 

from 1982 through 2001. State and local capital spending increased 

from $14.1 billion to $37.6 billion in real terms, while federal capital 

spending increased from $15.5 billion to $28.3 billion in real terms.

Note: The roles and responsibilities of localities for highway capital investment vary among states, 

according to the relationship with its localities. Since localities contribute different levels of funding in 

different states, our analyses combine state and local expenditures for uniformity.
Page 22 GAO-03-744R Trends in Federal and State Highway Investment

9

Highway Capital Expenditures 

by Levels of Government
Page 23 GAO-03-744R Trends in Federal and State Highway Investment

10

Annual Federal and State and Local Highway 

Capital Investment During TEA-21

• During the TEA-21 period (1998-2001), federal investment increased faster than state 

and local investment in real terms.

• During the TEA-21 period from 1998 through 2001, 

• Federal investment increased 23 percent, from $23.1 billion in 1997--the last year of ISTEA--to $28.3 billion in 2001, while

• State and local investment increased 16 percent from $32.4 billion in 1997 to $37.6 billion in 2001.

• However, spending trends have not been consistent since TEA-21 was enacted. Federal 

expenditures decreased from 1997 to1998, despite the large increase in funding 

authorized by TEA-21. This decrease was likely due to the midyear passage of TEA-21 

in June 1998 and the amount of time it takes states to obligate and spend capital project 

funds. 

• As a result, as shown in the following chart, 

• Federal investment was 29 percent higher in 2001 than its 1998 level of $21.9 

billion, while

• State and local investment increased 2 percent from its 1998 level. 
Page 24 GAO-03-744R Trends in Federal and State Highway Investment

11

Annual Federal and State and Local Highway 

Capital Investment during TEA-21
Page 25 GAO-03-744R Trends in Federal and State Highway Investment

12

Future Expenditure Trends

• States may face difficulties maintaining their levels of investment, given 

poor economic conditions.

• The National Governors Association and the National Conference of 

State Legislatures estimate that states will face between $65 billion 

and $80 billion current dollars in budget shortfalls in fiscal year 

2004.

• State transportation officials from 6 of 10 selected states said that 

their states’ financial condition may result in decreases in their highway funding levels and their ability to complete highway 

projects.

• A survey done for the National Association of Counties in 2003 

found that local governments are also facing revenue shortfalls.

One in four of the 72 percent of the counties experiencing shortfalls are considering cutbacks in highway construction spending to address those shortfalls. 
Page 26 GAO-03-744R Trends in Federal and State Highway Investment

13

Total Highway Capital Expenditures by All 

Levels of Government, 

per Vehicle Miles Traveled

Comparing capital expenditures to vehicle miles traveled (VMT) 

provides one possible measure of whether highway capital expenditures 

are keeping pace with highway use.

As shown in the following chart:

• Highway capital spending by all levels of government in real terms 

kept pace with the volume of vehicle traffic nationwide over 20 years 

and increased after the passage of TEA-21.

• In 2001, the nation spent $2.37 on highways for every 100 VMT.

• Over the 20-year period there was over a 27 percent increase. 

• During the TEA-21 period there was a 9 percent increase.
Page 27 GAO-03-744R Trends in Federal and State Highway Investment

14

Total Highway Capital Spending

by All Levels of Government,

per 100 VMT
Page 28 GAO-03-744R Trends in Federal and State Highway Investment

15

Capital Expenditures for Highways, per VMT, by 

Level of Government

As shown in the following chart:

• States and localities spent more on highway capital per VMT in real 

terms than the federal government over most of the past 20 years.

• Beginning in 1986, federal highway capital expenditures per VMT began to sharply decline, while state and local spending per VMT

increased. In each year since 1987, states and localities have 

invested more per VMT than the federal government.

• Since the passage of TEA-21, both federal capital spending, and state and local spending per VMT have trended upwards, 

• Federal funding per 100 VMT increased 13 percent making up much of the decline of federal investment per VMT over the 

1990s. 

• State and local spending per VMT increased at a slower rate—7 

percent.
Page 29 GAO-03-744R Trends in Federal and State Highway Investment

16

Capital Expenditures for Highways, per 100 VMT
Page 30 GAO-03-744R Trends in Federal and State Highway Investment

Level of Effort by Federal, State, and 

Local Governments

Another way of measuring governments’ contribution to a program is “level of 

effort.” Level of effort is defined as expenditures, as related to taxing capacity. We 

defined level of effort as expenditures divided by gross domestic product (GDP) at 

the national level and gross state product (GSP) at the state level.

This section:

• Summarizes trends of the nation’s capital investment in its highway system

compared with the nation’s GDP, 

• Compares federal trends with state and local trends, and

• Compares total state and local highway spending with other state expenditures.
Page 31 GAO-03-744R Trends in Federal and State Highway Investment

18

The Nation’s Level of Effort: 

Total Highway Capital Expenditures 

As a Percentage of GDP

As shown in the following chart:

• Highway capital expenditures by all levels of government 

as a percentage of GDP remained relatively steady 

throughout the 1982 through 2001 period, increasing 

slightly (7/100ths of 1 percent) as a percentage of 

national GDP from 1982 through 2001.
Page 32 GAO-03-744R Trends in Federal and State Highway Investment

19

The Nation’s Level of Effort: 

Total Highway Capital Spending 

As a Percentage of GDP 
Page 33 GAO-03-744R Trends in Federal and State Highway Investment

20

Level of Effort: State and Local Compared 

with Federal Capital Highway Expenditures

As a Percentage of GDP

As shown in the following chart:

• The state and local levels of effort have exceeded the 

federal level of effort for the last 15 years. The 

percentage of GDP spent by state and local 

governments for highway capital projects surpassed the 

federal percentage, beginning in 1987. 
Page 34 GAO-03-744R Trends in Federal and State Highway Investment

21

Level of Effort: State and Local Compared 

with Federal Capital Highway Expenditures

As a Percentage of GDP
Page 35 GAO-03-744R Trends in Federal and State Highway Investment

22

Total State and Local Expenditures by Program 

Category - 2000

The following chart shows:

• How total state and local highway expenditures1 compared with other 

competing demands in 2000.

2

• Highway spending made up about 6 percent of state and local outlays nationwide in 2000. 

• Expenditures for highways were less than expenditures for many programs, including education and public welfare.

• Total expenditures for transportation, including transit and airports, were less than 9 percent of state and local budgets. 

1 Includes capital and other expenditures, such as maintenance, from Census Bureau data. The Census Bureau’s 

classification of highway expenditures excludes some costs (e.g., some highway law enforcement and safety 

expenditures) that are included in total highway expenditures by FHWA.

2 2000 is the most recent year for which these data were available.
Page 36 GAO-03-744R Trends in Federal and State Highway Investment

23

Total State and Local Expenditures by Program 

Category - 2000
Page 37 GAO-03-744R Trends in Federal and State Highway Investment

24

State and Local Expenditures for Major Program 

Categories, As a Percentage of Total Annual 

Expenditures

As shown in the following chart:

• Since 1982, total state and local expenditures for highways 

consistently fell below education and public welfare.

• Although state and local government highway expenditures 

have been increasing over time, their share of total state 

expenditures has declined from about 7 percent in 1982 to 

about 6 percent in 2000.
Page 38 GAO-03-744R Trends in Federal and State Highway Investment

25

State and Local Expenditures for Major 

Program Categories, As a Percentage of Total 

Annual Expenditures
Page 39 GAO-03-744R Trends in Federal and State Highway Investment

Individual States’ Level of Effort

This section provides information on states’ level of effort. 

• We show level of effort in terms of state and local funding per $1,000 of GSP 

including

• changes in state levels of effort over time, and

• factors that may contribute to differences among states.

Notes: This section does not include 2001 data because 2001 local expenditure data are not yet 

available at the state level.

The District of Columbia is not included in our state-level analysis since the federal government has 

placed unique restrictions on its taxing authority. Because of these restrictions, GSP does not provide a 

comparable measure of the District's ability to fund public services.
Page 40 GAO-03-744R Trends in Federal and State Highway Investment

27

Dollars of State and Local Highway Expenditures

(State and Local Funding per $1,000 GSP)

From 1997 through 2000

From 1997 through 2000, states and localities 

invested an average of $3.76 per $1,000 of GSP in 

capital highway projects in real terms.

The following map

• Shows the 25 states above and 25 states below 

the national average of $3.76 per $1,000 of 

GSP.
Page 41 GAO-03-744R Trends in Federal and State Highway Investment

28

Dollars of State and Local Highway Expenditures

(State and Local Funding per $1,000 GSP)

From 1997 through 2000

Notes: The District of Columbia is not included in this state analysis. Dollars are in 2001 dollars.
Page 42 GAO-03-744R Trends in Federal and State Highway Investment

29

Change in Dollars of State and Local Highway 

Expenditures (State and Local Funding per $1,000 GSP)

From (1982-1986) to (1997-2000)

To analyze trends for the 50 states from 1982 through 2000, we divided this 19-

year time period into four periods – 1982 through 1986 being the first, and 1997 

through 2000 being the last.

The $3.76 per $1,000 of GSP that states and localities invested in capital 

highway projects in the recent period, 1997 through 2000, is $0.80 more in real 

terms than the $2.96 per $1,000 of GSP they invested in the period from 1982 

through 1986.

The following map shows that although the national level of effort increased in 

real terms, changes of effort in individual states varied. Compared with the 

average investment for 1982 through1986, the average investment for 1997 

through 2000

• increased by more than the national average of $0.80 for 23 states,

• increased by less than the national average of $0.80 for 8 states, and

• decreased for 19 states. 
Page 43 GAO-03-744R Trends in Federal and State Highway Investment

30

Change in Dollars of State and Local Highway 

Expenditures (State and Local Funding per $1,000 GSP)

From (1982-1986) to (1997-2000)

Notes: The District of Columbia is not included in this state analysis. Dollars are in 2001 dollars
Page 44 GAO-03-744R Trends in Federal and State Highway Investment

31

Level of Effort for Selected States

(State and Local Funding per $1,000 GSP)

For the Period 1982-1986

There appears to be no clear pattern, e.g., no state consistently ranks 

highest in level of effort over time.

The following two charts illustrate changes in levels of effort over time 

from a sample of 10 states we selected to represent a cross-section of 

states across the country.

• During the 1982 through 1986 time period, Alaska had the highest

level of effort of our 10 sample states, while California had the 

lowest.

• During the 1997 through 2000 time period, West Virginia had the 

highest level of effort of our 10 sample states, while Vermont had 

the lowest.
Page 45 GAO-03-744R Trends in Federal and State Highway Investment

32

Level of Effort for Selected States

(State and Local Funding per $1,000 GSP)

For the Period 1982-1986 
Page 46 GAO-03-744R Trends in Federal and State Highway Investment

33

Level of Effort for Selected States

(State and Local Funding per $1,000 GSP)

For the Period 1997-2000
Page 47 GAO-03-744R Trends in Federal and State Highway Investment

34

Factors Affecting Changes in States’ 

Levels of Effort

Variations among state programs and within state programs over time 

can be affected by changes in a number of factors that influence the size 

of a state’s highway program. For example, 

• An increase in the gas tax rate may increase a state’s total available funding significantly from the previous year.

• A large issue of bonds may significantly increase a state’s available funds for highways for a few years; while retiring bonds may reduce available funds.

• A change in a state legislature’s support for highways, as compared with other state financial needs, could increase or decrease 

available funds for highways.

• A change in the size of a state’s highway construction program for a given period, e.g., a large construction project such as I-15 in Utah, 

could increase funds spent on highways for a number of years.
Page 48 GAO-03-744R Trends in Federal and State Highway Investment

35

Factors Affecting Changes in States’ 

Levels of Effort

For example, West Virginia’s level of effort nearly doubled 

from the 1982 through1986 period to the 1997 through 2000 

period. West Virginia transportation officials discussed 

many factors that may have affected that increase including 

• a high (25.35 cents per gallon) gas tax rate indexed to 

inflation, 

• strong legislative support for the state’s highway 

program, and

• bonds issued in the late 1990s.
Page 49 GAO-03-744R Trends in Federal and State Highway Investment

36

Factors Affecting Changes in States’ 

Levels of Effort

In addition, Oklahoma moved from 23rd to 14th place among 

the 50 states. 

• An Oklahoma transportation official said that their state’s 

increased level of effort is likely due to a recent “$1 

billion” construction program (so far about $860 million 

has been provided) for projects identified and supported 

by the state legislature. 

• The state DOT official expects to see a drop in the level 

of effort in the future, when the construction program is 

completed.
Page 50 GAO-03-744R Trends in Federal and State Highway Investment

37

Level of Effort for Selected States

(State and Local Funding per $1,000 GSP)

Comparing (1982-1986) to (1997-2000)

Changes in states’ levels of effort over time, and the effect of highway 

projects on states’ levels of effort, are illustrated by four additional 

states.

As shown in the following chart:

• Arizona and Michigan show the extremes in the first time period and 

how they changed over time. Arizona was the highest ranked state 

in the 1982 through 1986 period of the 50 states, while Michigan

was the lowest. For 1997 through 2000, Arizona ranked 12th and

Michigan ranked 22nd.

• In addition, it seems that specific highway projects affected states’

level of effort. For example, the “Big Dig” in Massachusetts and 

Utah’s I-15 project for the 2002 Winter Olympics affected state 

funding in those states.
Page 51 GAO-03-744R Trends in Federal and State Highway Investment

38

Level of Effort for Selected States

(State and Local Funding per $1,000 GSP)

Comparing (1982-1986) to (1997-2000)
Page 52 GAO-03-744R Trends in Federal and State Highway Investment

39

States’ Levels of Effort

• To examine what factors, including state demographic and other 

characteristics, may affect states’ levels of effort, we compared a 

number of state characteristics to level of effort.1

• Our initial analysis comparing state characteristics to levels of effort 

indicates that, over roughly the last 20 years, certain characteristics, 

such as motor fuel tax revenues, may be generally related to states’ 

levels of effort.

• Other characteristics, such as the number of licensed drivers and 

registered vehicles, do not appear to be related to states’ levels of 

effort.

• Our following work will more closely examine the relationship across all 

states of states’ levels of effort compared with selected demographic 

and other state characteristics, as well as the effect of fiscal grants on 

levels of effort.

1 To identify state characteristics that are linked with states’ levels of effort across all states, we 

performed a correlation analysis that examined the linear relationship between level of effort and 

individual state characteristics in concurrent years. Our analysis considered these associations 

singly. However, more complex interactions may exist when considering the relationships 

simultaneously.
Page 53 GAO-03-744R Trends in Federal and State Highway Investment

State Sources of Funding for 

Highways

This section addresses changes in

• state funding sources for highway programs, 

• states’ use of long-term debt, and 

• state motor fuel tax rates.
Page 54 GAO-03-744R Trends in Federal and State Highway Investment

41

State Revenue Sources Used for Highways

(Excludes Bond Proceeds and Sinking Fund Interest Earned)

As shown in the following chart:

• Total state revenues for highways (e.g., gas taxes, tolls, 

general fund appropriations), in constant 2001 dollars, have 

generally increased since 1982. 

Note: We did not include bonds because they are repaid out of the sources of 

funds shown in the chart.
Page 55 GAO-03-744R Trends in Federal and State Highway Investment

42

State Revenue Sources Used for Highways

(Excludes Bond Proceeds and Sinking Fund Interest Earned)
Page 56 GAO-03-744R Trends in Federal and State Highway Investment

43

Percentage of State Highway Funding by Source 

- National Totals

(Excludes Bond Proceeds and Sinking Fund Interest Earned)

This chart depicts state highway funding sources as 

percentages of total state highway revenues. 

As shown in the following chart:

• Motor fuel taxes are the largest source of funds.
Page 57 GAO-03-744R Trends in Federal and State Highway Investment

44

Percentage of State Highway Funding by 

Source - National Totals

(Excludes Bond Proceeds and Sinking Fund Interest Earned)
Page 58 GAO-03-744R Trends in Federal and State Highway Investment

45

Percent Increases in State Funding 

Sources from 1982 through 2001

As the following chart shows:

• Motor fuel taxes increased 75 percent in real terms, since 

1982.

• Other funding sources have increased at a greater rate than 

motor fuel taxes, since 1982.

• General fund appropriations increased over 220 percent, 

from 1982 through 2001.

• Tolls increased over 80 percent, from 1982 through 

2001.
Page 59 GAO-03-744R Trends in Federal and State Highway Investment

46

Percentage Increases in State Funding Sources 

For Highways from 1982 through 2001
Page 60 GAO-03-744R Trends in Federal and State Highway Investment

47

State Bond Proceeds

Debt financing is an increasingly important mechanism used 

by states to fund their highway programs. 

Over this 20-year time period, funds that states generated 

for highways through issuing long-term debt increased 273 

percent in real terms.

As shown in the following chart:

• The amount of funds states raise through bond issues 

can fluctuate significantly from year to year.
Page 61 GAO-03-744R Trends in Federal and State Highway Investment

48

State Bond Proceeds 

Notes: State bond proceeds do not include bonds issued to refund existing debt. Dollars are in 2001 dollars.
Page 62 GAO-03-744R Trends in Federal and State Highway Investment

49

Total State Funding Used for Highways:

Debt Service Versus Other Highway Uses

• The costs to the states of servicing debt, in constant 2001 

dollars, were 61 percent higher in 2001 than in 1982.

• However, as the following chart shows, state funding for 

highways, from sources other than debt, increased at a 

much faster rate—90 percent over the same time period. 
Page 63 GAO-03-744R Trends in Federal and State Highway Investment

50

Total State Funding Used for Highways:

Debt Service Versus Other Highway Uses
Page 64 GAO-03-744R Trends in Federal and State Highway Investment

51

Percentage Change in Gas Tax Rates by State 

Compared to Federal Rate, 1982-2001

Although the rate of change in a state’s gas tax rate is not a complete 

measure of a state’s level of effort (e.g., not all gas tax revenue goes 

toward highways or even toward transportation in all states), it does 

provide some interesting information. 

As this chart shows:

• In real terms, the federal gas tax rate increased by a greater percentage 

than any of the states’ rates since 1982.

• Thirty-nine states’ gas tax rates increased in real terms; gas tax rates for 

12 states decreased in real terms.

Note: The District of Columbia is included in the tax rate analysis.
Page 65 GAO-03-744R Trends in Federal and State Highway Investment

52

Percentage Change in Gas Tax Rates by State 

Compared to Federal Rate, 1982-2001
Page 66 GAO-03-744R Trends in Federal and State Highway Investment

53

Percentage Change in Gas Tax Rates by State 

Compared to Federal Rate, 1982-2001

However, these results should be viewed with caution 

because 

• Results could be different depending on the beginning 

year (e.g., if we began with April of 1983, the federal tax 

rate would have been higher, and the percent increase 

between 1983 and 2001 would be about 28 percent).

• A state may have increased its rate by a high 

percentage, but may still have a relatively low tax rate 

when compared with other states.
Page 67 GAO-03-744R Trends in Federal and State Highway Investment

54

States Above/Below the Average 

Gas Tax Rate per Gallon, 1982

As the following chart shows:

• In 1982, the weighted average state gas tax, based on the 

net gallons taxed, was about 9 cents per gallon.1

• Texas provides an example of a state with a low gas tax 

rate that experienced a high percentage increase. In 1982, 

it had the lowest tax rate in the country but had the highest 

percentage increase from 1982 through 2001.

1 The weighted average tax rate is computed by first multiplying each state’s tax rate by the number of 

gallons taxed in each state, then adding these amounts together to get total state tax revenue 

nationwide, and finally dividing the total by the gallons taxed by all the states.
Page 68 GAO-03-744R Trends in Federal and State Highway Investment

55

States Above/Below the Average 

Gas Tax Rate per Gallon, 1982
Page 69 GAO-03-744R Trends in Federal and State Highway Investment

56

States Above/Below the Average 

Gas Tax Rate per Gallon, 2001

As the following chart shows:

• As of 2001, 32 states had gas tax rates that were above the 

weighted average rate of 19 cents per gallon.

• Nineteen states had rates that were below the weighted 

average.
Page 70 GAO-03-744R Trends in Federal and State Highway Investment

57

States Above/Below the Average 

Gas Tax Rate per Gallon, 2001
Page 71 GAO-03-744R Trends in Federal and State Highway Investment

58

Percentage Change in Effective Fuel Tax Rates 

per Gallon, by State, 1982-2001

As the following chart shows:

• The rate of change of effective1motor fuel tax rates from 1982 through 

2001 looks similar to the rate of change of gas tax rates, with a few 

differences. 

• Fewer states—9--experienced a decrease in their real effective motor 

fuel tax rates, compared with the 12 states that had gas tax rates that 

decreased in real terms. 

• The ranking of some states changed slightly. For example, Texas and 

the federal government changed places at the top of the chart, and 

Alaska and Georgia changed places at the bottom.

• Some states’ ranking changed more substantially. For example, 

Nevada’s gas tax rate increased 24 percent in real terms from 1982 

through 2001, while its effective motor fuel tax rate increased 70 

percent, increasing its rank. 1 To provide a slightly broader view of tax rates, we calculated an effective tax rate for each state by dividing total highway 

revenues from motor fuel taxes, including taxes on gas, diesel, etc., by the amount of gallons sold.
Page 72 GAO-03-744R Trends in Federal and State Highway Investment

59

Percentage Change in Effective Fuel Tax Rates 

per Gallon, by State, 1982-2001

(544047)
This is a work of the U.S. government and is not subject to copyright protection in the 

United States. It may be reproduced and distributed in its entirety without further 

permission from GAO. However, because this work may contain copyrighted images or 

other material, permission from the copyright holder may be necessary if you wish to 

reproduce this material separately.