November 1998

Federal Highway Administration Office of Policy Development

Highway Trust Fund

Primer
1

Highway Trust Fund Primer

Summary

This Highway Trust Fund Primer is designed to provide basic information about the Highway

Account of the Highway Trust Fund (HTF). It describes how the fund works, its sources of

revenue, what the balances are, funding levels, and budgetary constraints on spending levels. It

does not address, in any detail, the Mass Transit Account of the HTF. The Primer is designed as

a handy reference tool, in a "question and answer" format, covering frequently asked questions

concerning the HTF. It provides a solid foundation for common discussion regarding the current

status and future outlook for the HTF as implementation of the Transportation Equity Act for the

21st Century (TEA-21) progresses. The following is a summary of basic HTF facts: 

C Establishment: The HTF was established by the Highway Revenue Act of 1956 as a

mechanism to finance an accelerated highway program, including construction of the

Interstate Highway System. The taxes dedicated to the HTF are extended periodically by

Congress&most recently by TEA-21. These taxes are currently scheduled to expire on

September 30, 2005.

C Yearly contributions: In fiscal year 1997, earmarked tax revenues brought in $23.9 billion

to the HTF. Of this amount, $20.5 billion was directed to the Highway Account and

$3.4 billion was directed to the Mass Transit Account. 

C Balance: The balance of the HTF as of the end of fiscal year 1997, was $22.4 billion. Of

the $22.4 billion balance, $12.6 billion was in the Highway Account and $9.9 billion was

in the Mass Transit Account.

C To determine the status: The balance cannot automatically be considered surplus. The

status of the Highway Account must be determined by comparing outstanding and future

commitments to the sum of the current balance and the future income through the "life"

of the fund. Current projections of the Highway Account status through the end of TEA21 (comparing program commitments through fiscal year 2003 and Highway Account

income through fiscal year 2005) indicate a surplus of $19.8 billion.

C The Byrd test: The Byrd test requires an across the board reduction in Federal-aid

apportionments if the Highway Account balance, plus estimated income for the next

2 years, is insufficient to cover outstanding commitments in a given fiscal year. No Byrd

test reductions are anticipated in the foreseeable future.

C Available future resources: The current highway authorization period covers fiscal years

1998-2003, and the HTF taxes are extended through fiscal year 2005. The funding

resources for the Highway Account for the TEA-21 authorization period are about
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$202.5 billion. The $202.5 billion is composed of: (1) an estimated $179.5 billion in

income from tax receipts income for fiscal years 2000-2005 and (2) the $23.0 billion

Highway Account surplus after all ISTEA authorizations are liquidated.. That

$23.0 billion surplus was calculated as follows: the fiscal year 1997 balance of

$12.5 billion, plus estimated future income (through fiscal year 1999) of $55.5 billion,

minus outstanding commitments of $45.0 billion at the close of FY 1997—the end of the

ISTEA authorization period. 

• New provisions from TEA-21 provide special budgetary treatment for a portion of the

highway program and the first real link between the receipts of the Highway Account and

the funding for the programs it supports. The link, known as Revenue Aligned Budget

Authority, allows the adjustment of highway program funding levels when the Highway

Account revenue levels differ from the baseline levels assumed in the development of

TEA-21.
1

At the time, the Federal fiscal year began July 1 and ended June 30. The HTF was

created effective July 1, 1956, the first day of fiscal year 1957. Under the Highway Revenue Act

of 1956, transfer of the proceeds of the various highway user taxes to the HTF would end after

June 30, 1972, the last day of fiscal year 1972. Thus the fiscal "life" of the HTF was to be 16

years.

2

A portion of the motor fuel tax (4.3 cents per gallon on most highway fuels) does not

expire and will continue to be imposed after September 30, 2005, but under current law, such

amounts will not be deposited in the HTF.

3

The Mass Transit Account was established by the Highway Revenue Act of 1982 (Public

Law 97-424).

3

The Highway Trust Fund

What is the HTF?

The HTF was created by the Highway Revenue Act of 1956 (Pub. L. 84-627) primarily to ensure

a dependable source of financing for the National System of Interstate and Defense Highways

and also as the source of funding for the remainder of the Federal-aid Highway Program. Prior to

that time, Federal financial assistance to support highway programs was provided from the

General Fund of the U.S. Treasury. While Federal motor fuel and motor vehicle taxes did exist

before the creation of the HTF, the receipts were directed to the General Fund, and there was no

relationship between the receipts from these taxes and Federal funding for highways. The

Highway Revenue Act provided that revenues from certain highway-user taxes would be credited

to the HTF to finance a greatly expanded highway program enacted in the Federal-Aid Highway

Act of 1956. In the original Highway Revenue Act, the crediting of user taxes to the HTF was

set to expire at the end of fiscal year 19721. Legislation has periodically extended the imposition

of the taxes and their transfer to the HTF. TEA-21 extended the imposition of the user taxes and

their transfer to the HTF through September 30, 2005.2

Like other Federal trust funds, the HTF is a financing mechanism established by law to account

for tax receipts that are collected by the Federal Government and are dedicated or "earmarked"

for expenditure on special purposes. Originally, the HTF focused solely on highways, but later

the Congress determined that some revenues from the highway-user taxes dedicated to the HTF

should be used to fund transit needs. As a result, the Mass Transit Account was created within

the HTF effective April 1, 19833

. Since that time, a portion of the revenues earmarked for the

HTF has been credited specifically to the Mass Transit Account. Although never legally

described and named, the portion of the Highway Trust Fund outside the Mass Transit Account

has come to be called the Highway Account and receives all HTF receipts not specifically

designated for the Mass Transit Account.
4

The Leaking Underground Storage Tank Trust Fund, administered by the Environmental

Protection Agency, funds leaking underground storage tank cleanup activities.

5

For more information on highway cost allocation issues, see the report on the results of

the U.S. Department of Transportation’s 1997 Federal Highway Cost Allocation Study.

6

 TEA-21 provided that interest on the investment of HTF balances would no longer be

credited to the HTF. The Omnibus Consolidated and Emergency Supplemental Appropriations

Act, 1999 (Public Law 105-277) specified that the balances would be invested in non-interest

bearing securities.

4

What constitutes HTF income?

Tax revenues directed to the HTF are derived from excise taxes on highway motor fuel and truck

related taxes on truck tires, sales of trucks and trailers, and heavy vehicle use. The Mass Transit

Account receives a portion of the motor fuel taxes, usually 2.86 cents per gallon, as does the

Leaking Underground Storage Tank Trust Fund4

, usually 0.1 cent per gallon. The General Fund

receives 2.5 cents per gallon of the tax on gasohol and some other alcohol fuels plus an

additional 0.6 cent per gallon for fuels that are at least 10 percent ethanol. The Highway Account

receives the remaining portion of the fuel tax proceeds. For example, as of October 1, 1997, the

18.4 cents per gallon gasoline tax was split as follows: 2.86 cents per gallon to the Mass Transit

Account, 0.1 cent per gallon to the Leaking Underground Storage Tank Trust Fund, 0 cents to the

General Fund, and 15.44 cents to the Highway Account. All of the receipts from the non-fuel

taxes are deposited in the Highway Account. Details on the tax rates and the distribution of the

proceeds to the various funds and accounts are found in table 1.

Note that the tax rate on diesel fuel, used primarily by trucks, is 6 cents more per gallon than the

tax on gasoline. This “diesel differential,” along with the non-fuel taxes that target the heaviest

trucks, reflects an effort to charge heavy-vehicle users for the substantially higher damage (and

the resulting repair and replacement costs) their vehicles inflict on our Nation’s highways.5

From its inception, the HTF earned interest from the investment of the portion of its balance not

needed for immediate use in nonnegotiable U.S. Treasury securities known as special certificates

of indebtedness. However, beginning October 1, 1998, HTF balances will be invested in noninterest bearing Treasury securities6

.

How do fuel taxes affect Highway Account income?

On average, each penny of the Federal motor fuel tax produces over $1.5 billion in revenues

annually. Fuel taxes are by far the largest part of Highway Account income, constituting

83 percent of the Account’s revenue in FY 1997. The chart below illustrates the importance of

the fuel taxes to the Highway Account.
7

Other rates apply to gasohol blends less than 10% ethanol or blends made with methanol.

5

Table 1

Federal Highway User Taxes

Fuel Type Effective

Date

Tax

Rate

(cents

per

gallon)

Distribution of Tax

Highway Trust

Fund

Leaking

Underground

Storage

Tank Trust

Fund

General

Fund

Highway

Account

Mass

Transit

Account

Gasoline 10/01/1997 18.4 15.44 2.86 0.1 -

Diesel 10/01/1997 24.4 21.44 2.86 0.1 -

Gasohol (10% ethanol)7 10/01/1997 13 6.94 2.86 0.1 3.1

Special Fuels:

General rate 10/01/1997 18.4 15.44 2.86 0.1 -

Liquefied petroleum gas 10/01/1997 13.6 11.47 2.13 - -

Liquefied natural gas 10/01/1997 11.9 10.04 1.86 - -

M85 (from natural gas) 10/01/1997 9.25 7.72 1.43 0.1 -

Compressed natural gas

(cents per thousand cu. ft.)

10/01/1997 48.54 38.83 9.70 - -

Truck Related Taxes — All Proceeds to Highway Account

Tire Tax 0-40 pounds, no tax

Over 40 pounds - 70 pounds, 15¢ per pound in excess of 40

Over 70 pounds - 90 pounds, $4.50 plus 30¢ per pound in excess of 70

Over 90 pounds, $10.50 plus 50¢ per pound in excess of 90

Truck and Trailer Sales Tax 12 percent of retailer's sales price for tractors and trucks over 33,000

pounds GVW and trailers over 26,000 pounds GVW

Heavy Vehicle Use Tax Annual tax:

Trucks 55,000 pounds and over GVW, $100 plus $22 for each 1,000

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

of $550)

Trust Fund fuel tax revenues have risen in recent years due to increased fuel consumption and to

legislation dedicating a larger portion of each of the fuel taxes to the HTF. Fuel tax increases

originally levied for deficit reduction and deposited in the General Fund of the Treasury are now
6

credited to the HTF. The 2.5 cents per gallon fuel tax levied for deficit reduction on December 1,

1990 was redirected to the HTF on October 1, 1995. The 4.3 cents per gallon fuel tax levied for

deficit reduction on October 1, 1993 was redirected to the HTF on October 1, 1997. Deficit

reduction levies remain only on gasohol and certain other alcohol fuels.

Overall HTF revenues in this decade also have been raised by greatly improved compliance with

the diesel fuel tax law. In the early 1990s, it is estimated that the Federal highway program faced

an annual loss of over $1 billion in revenues due to motor fuel tax evasion schemes. These

schemes were often masterminded by organized crime. The States, in the aggregate, suffered

comparable revenue losses due to evasion of State level fuel taxes.

In an effort dedicated to reducing motor fuel tax fraud, FHWA began the Joint Federal-State

Motor Fuel Tax Compliance Project, which forged alliances among the IRS, State revenue

agencies, other Federal and State regulatory and enforcement agencies, and petroleum industry

members. The tangible benefits of the Joint Project are clear: after adjusting for changes in

motor fuel tax rates, the total amount of diesel fuel tax receipts credited to the HTF increased by

over $1.2 billion between calendar years 1993 and 1994. The Treasury Department has

estimated that up to $700 million of this amount was due to improved tax compliance alone. 
7

Also, State revenues rose by an average of approximately 7 percent, largely due to these

increased enforcement initiatives.

TEA-21 extended funding of the Joint Project through FY 2003, and also authorized States to use

up to 1/4 of 1 percent of their Surface Transportation Program apportionments for efforts to

reduce motor fuel tax evasion.

How does the Treasury Department account for HTF revenues?

In order to ensure the soundness of Federal trust funds, they are accounted for separately from the

U.S. General Fund. HTF income is composed of both tax revenues and, until October 1, 1998,

interest earnings. Revenues from motor fuel taxes and other taxes on highway users are collected

by the Internal Revenue Service and deposited in the General Fund of the Treasury. Each month 

the Treasury Department estimates the amount of highway-user taxes that will be collected. 

Based on those estimates, an accounting transaction is made which credits the HTF for the

estimated amount of revenue. The revenue is distributed among the two HTF accounts (Highway

and Mass Transit), the Leaking Underground Storage Tank Trust Fund and, in some cases, the

Treasury’s General Fund. Typically, this accounting function is accomplished by listing certain

non-negotiable securities to the credit of the HTF. Adjusting transactions are made periodically

to bring the deposits, originally based on estimates, into line with actual tax collections.

How does the HTF operate?

The HTF begins the year with a positive balance, to which is added income from the various

highway-user taxes. A small amount of transfers (e.g., to other trust funds in the case of

motorboat gasoline and small engine gasoline and special fuel) and tax refunds (e.g., to farmers

and others exempt from paying particular fuel or vehicle taxes) are deducted during the year. 

From the net income, a portion is spent or disbursed during the year. If the amount disbursed is

less than net income, the balance will increase for the year. Table 2 shows the financial

operations of the HTF in FY 1997.

What is the HTF balance?

Since the establishment of the fund, more has been earned through tax receipts and interest

income than has been spent. Over the fiscal years 1957-1997, income has totaled $394.3 billion

($366.2 billion from tax receipts and $28.1 billion from interest earnings) while outlays have

totaled $371.8 billion, leaving a balance of $22.4 billion. Of that $22.4 billion balance,

$12.6 billion is credited to the Highway Account and $9.9 billion is credited to the Mass Transit

Account.
8

The portion of the gasoline and special fuel tax receipts estimated to be derived from use

in motorboats is transferred to the Aquatic Resources Trust Fund with $1 million of that amount

annually transferred to the Land and Water Conservation Fund. The portion of the gasoline tax

receipts estimated to be derived from use in small engines, such as lawnmowers and chain saws,

is transferred to the Aquatic Resources Trust Fund.

8

Table 2

Highway Trust Fund Operation - FY 1997

(millions)

Highway Mass Transit

Account Total

Opening balance $12,118 $9,525 $21,642

Tax receipts 21,263 3,622 24,885

 Less:

 Transfers to other trust funds8 189 32 222

 Tax refunds 564 232 797

 Net tax receipts 20,509 3,358 23,867

Interest 805 638 1,443

Expenditures 20,857 3,663 24,519

Closing balance $12,575 $9,858 $22,433

.

Why is there a balance?

The Highway Account must maintain a positive balance to ensure that prior obligations can be

liquidated. The structure of the highway, safety and transit programs financed by the HTF is

such that the timing and amount of outlays necessary to liquidate obligations (reimburse the

States for eligible costs) cannot be forecast with certainty. In any given year, the required

withdrawals may exceed the HTF’s income for that year. Also, income to the HTF could be

disrupted by disruptions in the world petroleum market. Thus, a minimum balance must be

maintained. A safety cushion equal to 3 months of expenditures is recommended for the

Highway Account to ensure that obligations could be liquidated (funds available to reimburse

States) during an emergency until Congress acted to reduce future commitments or to increase

future revenues. Based on current projections of Highway Account expenditures for the 6-year

TEA-21 authorization period, a minimum balance averaging $7 billion would be needed to

provide the 3-month safety cushion. The reduction of the Highway Account balance to $8 billion

on October 1, 1998 will leave a sufficient safety cushion and projections of receipts and

expenditures indicate that the safety cushion will be maintained unless an emergency occurs.
9

What does the balance mean?

The amount of the current Highway Account balance should not automatically be considered

"excess" or "surplus." There are current and potential commitments against the account’s 

balance and future income. While the balance was $12.6 billion at the end of fiscal year 1997,

there were also current and potential commitments of $45.0 billion against the Highway Account. 

These current and potential commitments reflect both unpaid obligations—current outstanding

commitments—and unobligated authorizations—potential future commitments. These

commitments are not overdue payments; rather they are like lines of credit—authorized amounts

which have not yet been obligated—and promises to pay—amounts obligated, but not yet spent. 

Thus, the true status of the Highway Account can be determined only by comparing outstanding

and future commitments to the balance plus future income through the end of the fund’s fiscal

“life.” Currently the authority of the highway program to distribute new spending authority ends

in 2003, but the authority to collect revenues extends through 2005. Current projections of the

Highway Account status indicate a surplus of $19.8 billion: this includes the fiscal year 1997

balance of $12.6 billion, less $6.6 billion (estimated) to reduce the balance as of October 1, 1998

to $8 billion as required by TEA-21. Add to this amount the estimated future income (through

fiscal year 2005) of $235.8 billion; subtract outstanding commitments at the end of 1997 of

$45.0 billion and estimated future commitments (through fiscal year 2003—the end of the

TEA-21 authorization period) of $177.0 billion. The projected $19.8 billion surplus would carry

over to be used for programs supported by the next (post TEA-21) highway authorizing

legislation.

Why is the current balance so large?

The Highway Account balance has consistently stayed at "larger-than-necessary" levels for

30 years due to budget-driven spending controls. Those controls began with administrative

deferrals or impoundments (which began in 1966) and continue today with legislative limitations

on obligations (which began in fiscal year 1976). Essentially this has restricted highway

spending to levels below levels supportable by the Fund’s income. The Highway Account

surplus of $23.0 billion at the end of fiscal year 1997 (the end of the previous authorization

period) represents the cumulative effect of those spending controls over the life of the fund. 

Under TEA-21, the balance is projected to grow, but, because of higher authorization levels, the

surplus will be lower than at the end of the ISTEA period.

If the Highway Account has a surplus, why is highway spending controlled?

The Federal Government has a unified budget process that gives little recognition to the source of

funding for individual programs. The Federal budget deficit or surplus is computed as the

difference between the government’s income for the year and its outlays. Budgetary controls,

intended to achieve a balanced budget, are applied on a similarly broad basis. With the exception

of entitlement programs like Social Security and Medicare, most programs are subject to a
9

The entitlement programs are subject to a different budgetary control know as “pay as

you go” or paygo. A small portion of the highway program—$739 million per year—is subject

to paygo.

10A new budget category was also created for the transit program, providing a guaranteed

funding level for the transit program, but the funding level is not directly linked to income to the

Mass Transit Account.

10

spending control known as the domestic discretionary budget cap9. This cap limits spending for

discretionary programs, including highways, transit, education, housing, and a host of others,

taken as an aggregate. Thus limiting highway spending would allow additional spending for

education or vice versa. Each year in formulating budget and appropriation legislation, the

Congress weighs the relative priorities of the programs under the domestic discretionary cap and

allocates spending authority to the programs based on this evaluation.

TEA-21 provides that, beginning with the FY 1999 budget, a substantial portion of the highway

program receives special budgetary treatment10. This was accomplished by creating a separate

budget category outside the domestic discretionary cap for a significant part of the funding. This

creation of a separate category is often referred to as putting up a “firewall” around the spending. 

The firewall ensures that the protected funding no longer has to compete with other programs for

a place in the annual budget. Authorizations in excess of this guaranteed funding level remain

subject to the domestic discretionary budget cap and must continue to compete with other

discretionary spending priorities.

The highway firewall provides a minimum or floor for the combination of the motor carrier

safety program, highway traffic safety grants, operations and research for the National Highway

Traffic Safety Administration, and the Federal-aid highway program obligation limitation. The

obligation limitation covers a broad range of highway infrastructure and safety programs,

including Interstate Maintenance, the National Highway System, the Surface Transportation

Program, the Congestion Mitigation and Air Quality Improvement Programs and many others. 

Thus, the firewall protection is broad and does not single out some highway programs for

guaranteed funding leaving others in jeopardy.

How is the new highway program budgetary treatment linked to the Highway Account?

The highway program funding level protected by the firewall is the result of a negotiated process.

All the parties recognized the increasing disparity between the receipts from highway user taxes

and highway spending, but they also shared a commitment to attaining a balanced Federal

budget. The guaranteed funding levels reflect a compromise between those competing goals and

will not use all the resources of the Highway Account. 

TEA-21 included a process for adjusting the firewall levels should the income the HTF be higher

than projected at the time the firewall levels were set. In setting the highway firewall levels, the

Congress used projections of Highway Account tax receipts and specified these projections in the

legislation (TEA-21). Each year, as part of the preparation of the President’s budget submission

to the Congress, new projections of tax receipts will be made. If these projections are higher or
11

lower than the projections used in setting the firewall amounts, the firewall levels will be

increased or decreased by the amount of the difference. Corresponding adjustments are made to

Federal-aid highway program authorization levels and the related obligation limitation. Thus

change in highway spending is linked to change in the receipts to the Highway Account.

What is the Byrd amendment (test)?

The Byrd amendment, also known as the Byrd test, is designed to ensure that the Highway

Account will be able to pay its commitments. It requires that a comparison of projected Highway

Account financial resources and commitments be made. If a situation of insufficient resources is

anticipated to arise, the Byrd amendment requires an across-the-board cut in Federal-aid highway

apportionments. The resources in the Byrd amendment calculation consist of the current

Highway Account balance plus estimated income for the next 2 years. The resources are

compared to the outstanding commitments of the Highway Account, that is, unliquidated

authorizations.

In the HTF’s history, The Byrd Amendment has been triggered only once resulting in the

reduction in the Interstate System construction apportionments for FY 1961. No Byrd

amendment reductions are anticipated in the foreseeable future. The Transit Account was subject

to a similar test provided known as the Rostenkowski test; the only difference was that the

Rostenkowski test measured outstanding commitments against estimated income for 1 year

instead of 2. With the enactment of TEA-21, the Mass Transit Account is subject to the same

2-year test as the Highway Account.

How does Highway Account income affect the overall highway program funding level?

The resources available from the Highway Account define the maximum highway program

funding (authorization level) that could reasonably be enacted. For example, at the end of the

ISTEA period, there was a surplus of $23.0 billion in the Highway Account. This surplus

coupled with projected income for fiscal years 2000 through 2005 of $179.5 billion would

support highway program authorizations averaging $33.5 billion per year.

How are individual highway program levels affected by budgetary controls?

Authorizations for individual highway program categories (e.g., National Highway System,

Interstate Maintenance, etc.) result from the political process. While the authorization for these

individual programs reflect their relative priority or Federal interest, the budgetary controls for

the highway program are applied at a broader level. To control the outlays resulting from the

authorizations, Congress sets an obligation limitation. The limitation controls how much of the
11The Federal-aid Highway Program obligation limitation generally applies to a wide

range of programs and limits the obligation of funds in a specific fiscal year. In the case of a

portion of the Minimum Guarantee ($2 billion annually), the High Priority Projects Program and

the Appalachian Development Highway System, the obligation limitation is set individually for

each of those programs and may be carried over from one fiscal year to the next.

12

 authorized funds can be obligated (committed to projects) during the year.11 The obligation

limitation applies to most of the Federal-aid Highway Program, excluding only the Emergency

Relief funds and a small portion of the funding for Minimum Guarantee. States can “mix and

match” their obligation limitation to the various amounts of highway program apportionments

they have.

What do all the terms mean?

Allocation.—An administrative distribution of funds among the States. Prior to obligation this is

like a line of credit. 

Apportionment.—This is like issuing a line of credit. With regard to the HTF, apportionments

are a statutory distribution of funds providing certain funding levels to the States based on

formulas prescribed in law.

Appropriation.—Legislation to allow the Federal Highway Administration and HTF to make

actual cash reimbursements to the States.

Authorization.—An Act which allows a program to be undertaken and establishes a level of

funds which may be used for the program.

Obligation.—The Federal government’s legal commitment (promise) to pay or reimburse the

States for the Federal share of a project’s eligible costs. This is like using a credit card where no

cash is involved.

Obligation Limitation.—A restriction, or "ceiling" on the amount of Federal assistance that may

be promised (obligated) during a specified time period. This does not affect the apportionment

or allocation of funds, rather it controls the rate at which these funds may be used.

Outlays.—Expenditures. This is the final actual cash transaction, where money is provided to

the States as reimbursement for the Federal share for approved highway program activities.

Trust Funds.—Accounts established by law to hold receipts (such as specific taxes or revenues)

collected by the Federal Government and earmarked for financing special purposes and

programs. To assure the financial soundness of a trust fund, it must be tracked separately to

determine that outlays/expenditures do not exceed available revenues.