Highway Trust Fund: All States Received More Funding Than They Contributed in Highway Taxes from 2005 to 2009
Published: 2011-09-08T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: Federal funding for highways is provided to the states mostly through a series of grant programs known as the Federal-Aid Highway Program, administered by the Department of Transportation's (DOT) Federal Highway Administration (FHWA). In 2005, the Safe, Accountable, Flexible, Efficient Transportation Equity Act: A Legacy for Users (SAFETEA-LU) authorized $197.5 billion for the Federal-Aid Highway Program for fiscal years 2005 through 2009. The program operates on a "user pay" system, wherein users contribute to the Highway Trust Fund through fuel taxes and other fees. The distribution of funding among the states has been a contentious issue. States that receive less than highway users contribute are known as "donor" states and states that receive more than users contribute are known as "donee" states. GAO was asked to examine for the SAFETEA-LU period (1) how contributions to the Highway Trust Fund compared with the funding states received, (2) what provisions were used to address rate-of-return issues across states, and (3) what additional factors affect the relationship between contributions to the Highway Trust Fund and the funding states receive. To conduct this review, GAO obtained and analyzed data from FHWA, reviewed FHWA and other reports, and interviewed FHWA and DOT officials.
section_title: What GAO Found
paragraphs: From 2005 to 2009, every state received more funding for highway programs than they contributed to the Highway Account of the Highway Trust Fund. This was possible because more funding was authorized and apportioned than was collected from the states, and the fund was augmented with about $30 billion in general revenues since fiscal year 2008. If the percentage of funds states contributed to the total is compared with the percentage of funds states received (i.e., relative share), then 28 states received a relatively lower share and 22 states received a relatively higher share than they contributed. Thus, depending on the method of calculation, the same state can appear to be either a donor or donee state. The Equity Bonus Program was used to address rate-of-return issues. It guaranteed a minimum return to states, providing them with about $44 billion. Nearly all states received Equity Bonus funding, and about half received a significant increase--at least 25 percent--over their core funding. The infusion of general revenues into the Highway Trust Fund affects the relationship between funding and contributions, as a significant amount of highway funding is no longer provided by highway users. Additionally, using rate of return as a major factor in determining highway funding poses challenges related to performance and accountability in the highway program; in effect, rateof- return calculations override other considerations to yield a largely predetermined outcome--that of returning revenues to their state of origin. Because of these and other challenges, funding surface transportation programs remains on GAO's High-Risk list.
section_title: What GAO Recommends
paragraphs: GAO is not making any recommendations. DOT reviewed a draft of this report and provided technical comments, which we incorporated as appropriate.

section_title: Letter
paragraphs: Over decades, the nation has built a vast highway infrastructure that  includes about 4 million miles of roads and 600,000 bridges, with the  federal government providing a significant portion of funding for this  system. In 2005, the Safe, Accountable, Flexible, Efficient Transportation  Equity Act: A Legacy for Users (SAFETEA-LU) authorized over $190  billion for the Federal-Aid Highway programs for fiscal years 2005 through  2009, and the Highway Trust Fund has been the principal source of  funding for these programs. These funds are primarily collected from  taxes on motor fuel and truck-related items and distributed to the states  using a series of complex formulas that take into account a number of  factors, including the estimated share of taxes highway users in each  state contributed to the fund. This “user pay” system, wherein users  contribute to the building and upkeep of the system, has generated  debate about the funding distribution among states, and states have  taken a strong interest in their respective rate of return on contributions.  States that receive less than the estimated contributions paid in-state by  highway users are known as “donor” states, while states that receive  more than their estimated contributions are known as “donee” states. In  June 2010, we reported that nearly all states received more highway  funding than they contributed for fiscal years 2005 through 2008. This  occurred because, overall, more funding was authorized and apportioned  than was collected in-state from highway users (states’ contributions).  The account was supplemented by about $29.7 billion from general  revenue funds into the Highway Trust Fund since fiscal year 2008. The  infusion of general revenue funds has changed the “user pay” principle  and complicated the link between highway taxes and highway funding.  The issue of states’ rates of return and donor-donee states continues to  be the subject of congressional debate, including during reauthorization of  SAFETEA-LU.
To better understand the relationship between states’ contributions to the  Highway Trust Fund and the amount of federal funding states received, at  your request, we updated our June 2010 report and examined:  the amount of revenue contributed to the Highway Trust Fund  Highway Account compared with the funding states received during  the SAFETEA-LU period; the provisions in place during the SAFETEA-LU period to address  rate-of-return issues across states, and how they affected the highway  funding states received; and   additional factors that affected the relationship between contributions  to the Highway Trust Fund and the funding states receive.
This update of our June 2010 report includes fiscal year 2009 data on the  states’ contributions to the Highway Trust Fund that was made available  by Federal Highway Administration (FHWA). To determine how the  amount of revenue states contributed compared to funding states  received (states’ rates of return), we obtained and analyzed FHWA data,  including estimates of payments made into the Highway Account of the  Highway Trust Fund, by state, and the actual total apportionments states  received during the entire 5-year SAFETEA-LU period. Because different  methods of calculating a rate of return can provide different results, we  analyzed states’ rates of return using four different scenarios. To  determine provisions in place to address rate-of-return issues and their  effect on funding, we obtained and analyzed FHWA data on state funding  during the SAFETEA-LU period and determined the extent to which rate- of-return provisions increased state funding. To determine additional  factors that affect the relationship between contribution to the Highway  Trust Fund and the states’ funding, we reviewed FHWA, GAO,  Congressional Research Service, and other reports, including our body of  work on surface transportation financing and the Highway Trust Fund. For  each objective, we also reviewed Department of Transportation (DOT)  and FHWA reports and interviewed DOT and FHWA officials. We also  obtained information from FHWA on the steps taken to ensure data  reliability and determined the data were sufficiently reliable for our  purposes.
We conducted this performance audit from June 2011 through September  2011 in accordance with generally accepted government auditing  standards. Those standards require that we plan and perform the audit to  obtain sufficient, appropriate evidence to provide a reasonable basis for  our findings and conclusions based on our audit objectives. We believe  that the evidence obtained provides a reasonable basis for our findings  and conclusions based on our audit objectives.
subsections: section_title: Background
paragraphs: Federal funding for highways is provided to the states mostly through a  series of grant programs collectively known as the Federal-Aid Highway  Program. Periodically, Congress enacts multiyear legislation that  authorizes funding for the nation’s surface transportation programs. In  2005, Congress enacted SAFETEA-LU, which authorized $197.5 billion  for the Federal-Aid Highway Program for fiscal years 2005 through 2009.  In a joint federal-state partnership, FHWA, within DOT, administers the  Federal-Aid Highway Program and distributes most funds to the states  through annual apportionments established by statutory formulas. Once  FHWA apportions these funds, the funds are available for obligation for  construction, reconstruction, and improvement of highways and bridges  on eligible federal-aid highway routes, as well as for other authorized  purposes. The amount of federal funding made available for highways  has been substantial—from $34.4 billion to $43 billion per year for fiscal  years 2005 through 2009.
The Highway Trust Fund was established by Congress in 1956 to fund  construction of the Interstate Highway System. The Highway Trust Fund  receives excise taxes collected on motor fuels and truck-related taxes,  including taxes on gasoline, diesel fuel, gasohol, and other fuels; truck  tires and truck sales; and heavy vehicle use. The Department of the  Treasury collects fuel taxes from a small number of corporations (i.e., oil  refineries or fuel tank farms) located in a relatively small number of places  and not directly from states. As such, FHWA calculates motor fuel-related  contributions based on estimates of the gallons of fuel used on highways  in each state by relying on data gathered from state revenue agencies  and summary tax data available from Treasury as part of the estimation  process (see app. II).
Most of the funds from the Highway Account of the Highway Trust Fund  (about 83.3 percent) were apportioned to states across 13 formula  programs during the 5-year SAFETEA-LU period. Included among these  are 6 “core” highway programs (see table 1).
In addition to formula programs, Congress also directly allocated about  7.4 percent of Highway Account funds to state departments of  transportation through congressionally directed High Priority Projects,  which provided funding for a total of 5,091 specific projects identified in  SAFETEA-LU. The remaining funds, about 9.3 percent of the total,  represent dozens of other authorized programs allocated to state  departments of transportation, congressionally directed projects other  than High Priority Projects, administrative expenses, and funding  provided to states by other DOT agencies, such as the National Highway  Traffic Safety Administration and Federal Motor Carrier Safety  Administration (see fig. 1).
Some of the apportioned programs use states’ contributions to the  Highway Account of the Highway Trust Fund as a factor in determining  funding levels for each state. As previously mentioned, FHWA has to  estimate the fuel tax contributions made to the fund by users in each  state. The collection and estimation process takes place over several  years (see fig. 2), and thus, the data used to calculate the formula are two  years old. For example, the data used to apportion funding to states in  fiscal year 2009 were based on estimated collections attributable to each  state in fiscal year 2007.
By the early 1980s, construction of the Interstate Highway System was  nearing completion, and a larger portion of the funds authorized from the  Highway Trust Fund were for non-Interstate programs. The Surface  Transportation Assistance Act of 1982 provided, for the first time, that  each state would for certain programs receive a “minimum allocation” of  85 percent of its share of estimated tax payments to the Highway Account  of the Highway Trust Fund. This approach was largely retained when  Congress reauthorized the program in 1987. Since then, each state has  received a specific share of the total program (defined as all apportioned  programs plus High Priority Projects) and rate-of-return considerations  into funds states received for the Interstate Maintenance, National  Highway System, and Surface Transportation programs. In 2005,  Congress implemented through SAFETEA-LU the Equity Bonus Program  that was designed to give states a guaranteed rate of return of 92 percent  by fiscal year 2008.
In June 2010, we reported that every state but one received more funding  for highway programs than users contributed to the Highway Account.  The only exception, Texas, received about $1.00 (99.7 cents) for each  dollar contributed. Among other states, this ranged from a low of $1.02 for  both Arizona and Indiana to a high of $5.63 for the District of Columbia. In  addition, all states, including Texas, received more funding than was  contributed during both fiscal years 2007 and 2008. In effect, almost  every state was a donee state during the first 4 years of SAFETEA-LU.  This occurred because overall, more funding was authorized and  apportioned than was collected from highway users, as the account was  supplemented by general funds from Treasury.
We also reported that whether a state is viewed as a “donor” or “donee”  state can depend on which of the four following methods of calculating  states’ rate of return is used:  1.  States’ rate of return per dollar contributed to the Highway  Account, using same-year comparison data. This analysis  compares funding states received from the Highway Trust Fund  Highway Account with the dollars estimated to have been collected in  each state into the Highway Account in that same year. For example,  for fiscal year 2007, it compares the highway funds states received in  fiscal year 2007 with the amount collected and contributed in that  fiscal year. This analysis includes all funding provided to the states  from the Highway Account, including (1) funds apportioned by  formula, (2) High Priority Projects, and (3) other authorized programs,  including safety program funding provided to states by other DOT  agencies, such as the National Highway Traffic Safety Administration  and Federal Motor Carrier Safety Administration (see fig. 1 for a  breakdown of these funds). This was the method used to calculate the  results reported in our previous report that every state but one  received more funding for highway programs than users contributed. 2.  States’ rate of return per dollar contributed to the Highway  Account, using time-lagged data, apportioned programs, and  High Priority Projects. This method applies the same dollar return  calculation method but uses contribution data that were available at  the time funds were apportioned to the states—the lagged-time data  were 2 years old, due to the time lag between when Treasury collects  fuel and truck excise taxes and funds are apportioned. It also uses a  subset of Federal-Aid Highway programs including both programs  apportioned to states by formula and High Priority Projects; it does not  include other allocated highway programs or other funding states  receive from other DOT agencies, such as the National Highway  Traffic Safety Administration and Federal Motor Carrier Safety  Administration. 3.  States’ relative share rate of return from the Highway Account,  using time-lagged comparison data, apportioned programs, and  High Priority Projects. This third calculation method is based on a  state’s “relative share”—that is, the amount a state receives relative to  other states instead of an absolute, dollar rate of return. In order to  calculate this rate of return, FHWA must determine what proportion of  the total national contributions came from highway users in each  state. Each state’s share of contributions into the Highway Account of  the Highway Trust Fund is then used to calculate a relative rate of  return—how the proportion of each state’s contribution compares to  the proportion of funds the state received. 4.  States’ relative share rate of return per dollar contributed to the  Highway Account, using same-year comparison data. This fourth  method for calculating a state’s rate of return involves evaluating the  relative share as described in method 3, but using the same-year  comparison data.
section_title: States Received More Funding from the Highway Trust Fund Than Was Contributed from Fiscal Years 2005 through 2009, but Rate of Return Varies Depending on the Calculation Used
subsections: section_title: States Received More Funding Than Was Contributed from Fiscal Years 2005 through 2009
paragraphs: Our analysis of the entire 5-year period of SAFETEA-LU shows that every  state was a donee state, receiving more funding for highway programs  than their users contributed to the Highway Account (see fig. 3). Funding  received for each dollar contributed ranged from about $1.03 for Texas to  about $5.85 for the District of Columbia. Every state was a donee state  during the 5-year SAFETEA-LU period because overall, more funding  was authorized and apportioned than was collected from highway users,  since the account was supplemented by general funds from Treasury.  Since our June 2010 report, nearly every state increased its rate of return  by at least 1 cent over what we originally reported. Hawaii was the only  state that remained constant and did not have an increase on the rate of  return in fiscal year 2009.
Although our analysis shows that states received more than was  contributed, other calculations provide different results. Because there are  different methods of calculating a rate of return, and the method used  affects the results, confusion can result over whether a state is a donor or  donee. A state can appear to be a donor using one type of calculation  and a donee using a different type.
We found that each state received more in funding than its users  contributed during the SAFETEA-LU period when using time-lagged  comparison data to calculate states’ rate of return per dollar. The rate of  return ranged from a low of $1.04 per dollar for 16 states to a high of  $5.26 per dollar for the District of Columbia, as shown in figure 4. This  methodology results in states generally having a lower dollar rate of  return than our calculations using same-year data and differs in that we  use a subset of Federal-Aid Highway programs including both programs  apportioned to states by formula and High Priority Projects. The results  from our June 2010 report have not changed because fiscal year 2009  data were included in our 2010 analysis, and all states are donee  states.
A third calculation, based on a state’s “relative share”—the amount a  state receives relative to other states using time-lagged data—results in  both donor and donee states. Congress defined this method in  SAFETEA-LU as the one FHWA uses for calculating rates of return for  the purpose of apportioning highway funding to the states. A  comparison of the relative rate of return on states’ contributions showed  28 donor states, receiving less than 100 percent relative rate of return,  and 23 states as donees receiving more than a 100 percent relative rate  of return (see fig. 4). States’ relative rates of return ranged from a low of  91.3 percent for 12 states to a high of 461 percent for the District of  Columbia. Similar to the return per dollar analysis in figure 5, this  calculation includes only apportioned funds and High Priority Projects  allocated to states, and excludes other DOT authorized programs  allocated to states (see fig. 1). The difference between a state’s absolute  per dollar return and relative rate of return can create confusion because  the relative share calculation is sometimes mistakenly referred to as  “cents on the dollar.”
As we previously reported, using the relative share method of calculation  will result in some states being “winners” and other states being  “losers.” If one state receives a higher proportion of highway funds than  it is viewed as having contributed, another state must receive a lower  proportion than it contributed. However, because more funding has  recently been apportioned and allocated from the Highway Account than  is being contributed by highway users, a state can receive more than it  contributes to the Highway Trust Fund Highway Account, making it a  donee under its rate of return per dollar, but a donor under its relative  share rate of return.
California provides a useful example. From fiscal years 2005 through  2009, using same-year contributions and funding across all Highway  Trust Fund Highway Account allocations and apportionments, California  received $1.19 for each dollar contributed. This analysis shows California  as a donee state (see table 2). Alternatively, when calculating a dollar  rate of return using state contribution estimates available at the time of  apportionment (as shown in fig. 3) and including only programs covered  in rate-of-return adjustments, California remains a donee state, receiving  $1.04 for each dollar contributed. In contrast, using the relative share  approach for the fiscal year 2005 through 2009 period, California received  91 percent of the share it contributed in federal highway-related taxes,  which would make it a donor state.
Our fourth way of calculating a state’s rate of return is not normally  calculated by FHWA. It involves evaluating the relative share as just  described, but using the same-year comparison data. Again, because of  the time lag required to estimate state highway user contributions to the  Highway Account, such analysis is possible only 2 years after FHWA  calculates apportionments for states. Our analysis using this approach  results in yet another set of rate-of-return answers. When this analysis is  applied to all states, approximately half of the states are donor states and  the other half are donee states. Specifically, under this methodology, 25  states received less than 100 percent relative rate of return, and 26 states  received more than a 100 percent relative rate of return. Compared with  the results we reported in our 2010 report, our recent analysis with fiscal  year 2009 data resulted in Louisiana, Maine, and Washington changing  from a donor to a donee state using the relative share method for a  state’s rate of return in the same year. For instance, in our June 2010  report, the relative share for Louisiana was 97.97 percent, but it increased  to 102.98 percent with the inclusion of fiscal year 2009 data. Conversely,  Minnesota shifted from a donor to a donee state. In our June 2010 report,  the relative share for Minnesota was 101.26 percent but it changed to  99.46 percent with the inclusion of fiscal year 2009 data, again using the  relative share method for a state’s rate of return in the same year. Table 3  shows the results of all states for the entire 5-year SAFETEA-LU period  using the four analysis methods.
section_title: Equity Bonus Provisions in SAFETEA-LU Addressed Rate of Return among States
paragraphs: The Equity Bonus provisions addressed states’ concern on the rate of  return and provided more funds to states than any other individual  Federal-Aid Highway formula program. Over SAFETEA-LU’s 5-year  authorization period, the Equity Bonus provisions provided $44 billion in  funding authority to the states, while the second-largest formula program,  the Surface Transportation Program, provided $32.5 billion. Each year  since fiscal year 2005, about $2.6 billion stayed as Equity Bonus program  funds and could be used for any purpose eligible under the Surface  Transportation Program. Any additional Equity Bonus funds are added to  the apportionments of the six “core” Federal-Aid Highway formula  programs: Interstate Maintenance, National Highway System, Surface  Transportation, Congestion Mitigation and Air Quality, Highway Bridge,  and Highway Safety Improvement. Because states can transfer funds  among the core programs, the funding apportioned to any core program  is not critical.
States may qualify for Equity Bonus funding by meeting criteria contained  in one of three provisions (see fig. 6). A state that meets the criteria for  more than one of the provisions receives funding under the provision  providing the greatest amount of funding. FHWA conducts Equity Bonus  calculations annually. However, with the extension of SAFETEA-LU  authorization for 2 years, the Equity Bonus Program has not been  recalculated. According to FHWA officials, since fiscal years 2010 and  2011 were funded at the fiscal year 2009 level, states simply received the  same amount for fiscal years 2010 and 2011 as they did in fiscal year  2009.
For the first criterion—the guaranteed relative rate of return—for fiscal  year 2005, all states were guaranteed at least 90.5 percent of their share  of estimated contributions. The guaranteed rate of return increased in  steps, rising to 92 percent in fiscal year 2009. The second criterion—the  guaranteed increase over average annual apportionments authorized by  the Transportation Equity Act for the 21st Century (TEA-21)—also  varied by year, rising from 117 percent in fiscal year 2005 to 121 percent  in fiscal year 2009. The number of states qualifying under the first two  provisions varied from year to year. For the third criterion, a guarantee to  “hold harmless” states that had certain qualifying characteristics at the  time SAFETEA-LU was enacted, 27 states had at least one of these  characteristics. A number of states had more than one of these  characteristics.
Forty-seven states received Equity Bonus funding every year during the  SAFETEA-LU period. However, the District of Columbia, Rhode Island,  and Vermont each had at least 1 year where they did not receive Equity  Bonus funding because they did not need it to reach the funding level  specified under the three provisions. Maine was the only state that did not  receive an Equity Bonus in any year. As a result, half of all states  received at least a 25 percent increase in their overall Federal-Aid  Highway Program funding over their core funding. Each state’s  percentage increase in its overall funding total for apportioned programs  and High Priority Projects for fiscal years 2005 through 2009 due to  Equity Bonus funding is shown in figure 7.
section_title: Adding General Revenues into the Trust Fund and Other Challenges Raise Questions about Relying on States’ Rate of Return to Distribute Federal Highway Funds
paragraphs: Additional factors further complicate the relationship between states’  contributions to the Highway Trust Fund and the funding states receive.  These include (1) the infusion of significant amounts of general revenues  into the Highway Trust Fund, (2) the challenge of factoring performance  and accountability for results into transportation investment decisions,  and (3) the long-term sustainability of existing mechanisms and the  challenges associated with developing new approaches to funding the  nation’s transportation system.
The infusion of significant amounts of general revenues into the Highway  Trust Fund Highway Account breaks the link between highway taxes and  highway funding. In fiscal year 2008, the Highway Trust Fund held  insufficient amounts to sustain the authorized level of funding and, partly  as a result, we placed it on our list of high-risk programs. To cover the  shortfall, from fiscal years 2008 through 2010 Congress approved the  transfer of about $29.7 billion in additional general revenues into the  Highway Account of the Highway Trust Fund. This transfer affected  each state’s rate of return and resulted in all states being donees— receiving more funds than they contributed to the Highway Account.  Taken as a whole, for fiscal year 2009, the general fund transfers had a  significant impact on the states’ rate of return, with the federal  government paying about $42.4 billion to the states, while highway user  fees paid into the Highway Account were $30.1 billion. This means that,  to a large extent, funding has shifted away from the contributions of  highway users, breaking the link between highway taxes paid and  benefits received by users. Furthermore, the infusion of a significant  amount of general fund revenues complicates rate-of-return analysis  because the current method of calculating contributions does not account  for states’ general revenue contributions. Because for many states the  share of Highway Trust Fund contributions and general revenue  contributions are different, state-based contributions to all the funding in  the Trust Fund are no longer clear. In addition, since March 2009, the  American Recovery and Reinvestment Act of 2009 apportioned an  additional $26.7 billion to the states for highways—a significant  augmentation of federal highway spending that was funded with general  revenues.
Using rate of return as a major factor in determining federal highway  funding levels is at odds with re-examining and restructuring federal  surface transportation programs so that performance and accountability  for results is factored into transportation investment decisions. As we  have reported, for many surface transportation programs, goals are  numerous and conflicting, and the federal role in achieving the goals is  not clear. Many of these programs have no relationship to the  performance of either the transportation system or the grantees receiving  federal funds and do not use the best tools and approaches to ensure  effective investment decisions. Our previous work has outlined the need  to create well-defined goals based on identified areas of federal interest  and a clearly defined federal role in relation to other levels of  government. We have suggested that where the federal interest is less  evident, state and local governments could assume more responsibility,  and some functions could potentially be assumed by the states or other  levels of government. Furthermore, incorporating performance and  accountability for results into transportation funding decisions is critical to  improving results. However, the current approach presents challenges.  The Federal-Aid Highway Program, in particular, distributes funding  through a complicated process in which the underlying data and factors  are ultimately not meaningful because they are overridden by other  provisions designed to yield a largely predetermined outcome—that of  returning revenues to their attributed state of origin. Moreover, once the  funds are apportioned, states have considerable flexibility to reallocate  them among highway and transit programs. As we have reported, this  flexibility, coupled with a rate-of-return orientation, essentially means that  the Federal-Aid Highway Program functions, to some extent, as a cash  transfer, general purpose grant program. This approach poses  considerable challenges to introducing performance orientation and  accountability for results into highway investment decisions. For three  highway programs that were designed to meet national and regional  transportation priorities, we have recommended that Congress consider a  competitive, criteria-based process for distributing federal funds.
Finally, using rate of return as a major factor in determining federal  highway funding levels poses problems because funding the nation’s  transportation system through taxes on motor vehicle fuels is likely  unsustainable in the long term. Receipts for the Highway Trust Fund  derived from motor fuel taxes have declined in purchasing power, in part  because the federal gasoline tax rate has not increased since 1993. In  fiscal year 2008, total contributions to the Highway Account of the  Highway Trust Fund decreased by more than $3.5 billion from fiscal year  2007, the first year of decrease during the SAFETEA-LU period. The  Congressional Budget Office forecasts another revenue shortfall in the  Highway Account of the Highway Trust Fund by the end of fiscal year  2012. Over the long term, vehicles will become more fuel efficient and  increasingly run on alternative fuels. As such, fuel taxes may not be a  long-term source of transportation funding. Furthermore, transportation  experts have noted that transportation policy needs to recognize  emerging national and global challenges, such as reducing the nation’s  dependence on imported fuel and minimizing the effect of transportation  systems on the global climate. A fund that relies on increasing the use  of motor fuels to remain solvent might not be compatible with the  strategies that may be required to address these challenges.
In the future, policy discussions will need to consider what the most  adequate and appropriate transportation financing systems will be, and  whether the current system continues to make sense. The National  Surface Transportation Infrastructure Financing Commission—created by  SAFETEA-LU to, among other things, explore alternative funding  mechanisms for surface transportation—identified and evaluated  numerous revenue sources for surface transportation programs in its  February 2009 report, including alternative approaches to the fuel tax,  mileage-based user fees, and freight-related charges. The report also  discussed using general revenues to finance transportation investment  but concluded that it was a weak option in terms of economic efficiency  and other factors and recommended that new sources of revenue to  support transportation be explored. These new sources of revenue may  or may not lend themselves to using a rate-of-return approach.
section_title: Agency Comments and Our Evaluation
paragraphs: We provided a draft of this report to DOT for review and comment. DOT  provided technical comments, which we incorporated as appropriate.
As agreed with your offices, unless you publicly announce the contents of  this report earlier, we plan no further distribution until 30 days from the  report date. At that time, we will send copies to interested congressional  committees and the Secretary of Transportation. The report will also be available at no charge on the GAO Web site at http://www.gao.gov.
If you or your staff have any questions about this report, please contact  me at (202) 512-2834 or herrp@gao.gov. Contact points for our Offices of  Congressional Relations and Public Affairs may be found on the last page  of this report. GAO Staff who made major contributions to this report are  listed in appendix III.
section_title: Appendix I: Objectives, Scope and Methodology
paragraphs: This report addresses the following objectives: (1) the amount of revenue  contributed to the Highway Trust Fund Highway Account compared with  the funding states received during the Safe, Accountable, Flexible,  Efficient Transportation Equity Act: A Legacy for Users (SAFETEA-LU)  period; (2) the provisions in place during the SAFETEA-LU period to  address rate-of-return issues across states, and how they affected the  highway funding states received; and (3) additional factors that affected  the relationship between contributions to the Highway Trust Fund and the  funding states receive.
This report updates and includes additional information for a related  report issued in June 2010. The main update to the prior report is the  inclusion and additional analysis of fiscal year 2009 data on the states’  contributions to the Highway Trust Fund that was made publicly available  by Federal Highway Administration (FHWA). As a result, the analyses in  this update are inclusive of the entire initial 5-year SAFETEA-LU period.  Any analyses from the 2010 report that were not impacted by new data  were included in this update as context.
To determine the amount of revenue states contributed to the Highway  Trust Fund Highway Account compared with the funding they received  during the SAFETEA-LU period, we completed four analyses using  FHWA data. We met with FHWA and other Department of Transportation  (DOT) officials to discuss availability of data and appropriate  methodologies. We used FHWA estimates of payments made into the  Highway Account of the Highway Trust Fund, by state, and the actual  total apportionments and allocations made from the fund, by state. This is  sometimes referred to as a “dollar-in, dollar-out” analysis. The source  data is published annually in Highway Statistics as Table FE-221, titled  “Comparison of Federal Highway Trust Fund Highway Account Receipts  Attributable to the States and Federal-Aid Apportionments and Allocations  from the Highway Account.” FHWA officials confirmed that it contains the  best estimate of state contributions and actual total appropriations and  allocations received by states from the Highway Account of the fund. We  did not independently review FHWA’s process for estimating states’  contributions into the Highway Trust Fund. However, we have reviewed  this process in the past, and FHWA made changes to the process as a  result of our review. In addition, we did not attribute any prior balances in  the Highway Trust Fund back to states of origin because these funds are  not directly tied to any specific year or state.
We performed alternative analyses to demonstrate that different  methodologies provide different answers to the question of how the  contributions of states’ highway users compared with the funding states  received. Using the same data as just described, we performed a “relative  share” analysis, which compared each state’s estimated proportion of the  total contributions to the Highway Account with each state’s proportion of  total Federal-Aid Highway funding. We also examined how states fared  using FHWA’s approach, for determining the Equity Bonus Program  funding apportionments. We performed this analysis to show the  outcomes for states based on the information available at the time the  Equity Bonus program apportionments are made. The Equity Bonus  program amounts are calculated using the statutory formulas for a subset  of Federal-Aid Highway Programs. These include all programs  apportioned by formula plus the allocated High Priority Projects. FHWA  uses the most current contribution data available at the time it does its  estimates. However, as explained, the time lag for developing this data is  about 2 years. Therefore, we applied the contribution data for 2003  through 2007 to the funding data for 2005 through 2009, the full  SAFETEA-LU period. For these data, we analyzed (1) the total estimated  contributions by state divided by the total funding received by state—the  dollar-in, dollar-out methodology—and (2) a comparison of the share of  contributions to share of payments received for each state. We obtained  data from the FHWA Office of Budget for the analysis of state dollar-in,  dollar-out outcomes and state relative share data for the Equity Bonus  Program. We completed our analyses across the total years of the  SAFETEA-LU period, 2005 through 2009. We interviewed FHWA officials  and obtained additional information from FHWA on the steps taken to  ensure data reliability and determined the data were sufficiently reliable  for the purposes of this report.
To determine the provisions in place during the SAFETEA-LU period to  address rate-of-return issues across states, and how they affected the  highway funding states received, we reviewed SAFETEA-LU legislation  and reports by the Congressional Research Service (CRS), FHWA, and  others as applicable. We conducted an analysis of the of FHWA data on  the Equity Bonus Program provisions, which were created explicitly to  address the rate-of-return issues across states. Our analysis compared  funding levels distributed to states through apportionment programs and  High Priority Projects before and after Equity Bonus Program provisions  were applied, and calculated the percentage increase each state received  as a result of the Equity Bonus. We also spoke with FHWA officials to get  their perspectives.
To determine what additional factors affected the relationship between  contributions to the Highway Trust Fund compared with the funding states  receive, we reviewed GAO reports on the Highway Trust Fund and  federal surface transportation programs, CRS and FHWA reports, and the  National Surface Transportation Infrastructure Financing Commission  report. In addition, we reviewed existing FHWA data on the status of the  Highway Account of the Highway Trust Fund. We also met with officials  from DOT’s Office of Budget and Programs and FHWA to obtain their  perspectives on the issue.
section_title: Appendix II: How FHWA Estimates Contributions to the Highway Trust Fund
paragraphs: Currently, the Federal Highway Administration (FHWA) estimates state- based contributions to the Highway Account of the Highway Trust Fund  through a process that includes data collection, adjustment, verification,  and final calculation of the states’ highway users’ contributions. First,  FHWA collects monthly motor fuel use data and related annual state tax  data from state departments of revenue. FHWA then adjusts states’ data  by applying its own models using federal and other data to establish data  consistency among the states. FHWA provides feedback to the states on  these adjustments and estimates through FHWA Division Offices. Finally,  FHWA applies each state’s estimated share of highway fuel usage to total  taxes collected nationally to arrive at a state’s contribution to the Highway  Trust Fund. We did not assess the effectiveness of FHWA’s process for  estimating the amount of tax funds attributed to each state for this report.
According to FHWA officials, because data from state revenue agencies  are more reliable and comprehensive than vehicle miles traveled data,  FHWA uses state tax information to calculate state contributions. States  submit regular reports to FHWA, including a monthly report on motor fuel  consumption due 90 days after month’s end and an annual report on  motor fuel tax receipts due 90 days after calendar year’s end. Because  states have a wide variety of fuel tracking and reporting methods, FHWA  must adjust the data to achieve uniformity. FHWA analyzes and adjusts  fuel usage data, such as off-highway use related to agriculture,  construction, industrial, marine, rail, aviation, and off-road recreational  usage. It also analyzes and adjusts use data based on public sector use,  including federal civilian, state, county, and municipal use.
FHWA headquarters and division offices also work together to  communicate with state departments of revenue during the attribution  estimation process. According to FHWA officials, each year FHWA  headquarters issues a memo prompting its division offices to have each  state conduct a final review of the motor fuel gallons reported by their  respective states. FHWA division offices also are required to assess their  state’s motor fuel use and highway tax receipt process at least once  every 3 years to determine if states are complying with FHWA guidance  on motor fuel data collection.
Once the data are finalized, FHWA applies each state’s estimated share  of taxed highway fuel use to the total taxes collected to arrive at a state’s  contribution in the following manner. Finalized estimations of gallons of  fuel used on highways in two categories—gasoline and special fuels— allow FHWA to calculate each state’s share of the total on-highway fuel  usage. The shares of fuel use for each state are applied to the total  amount of taxes collected by the Department of the Treasury in each of  the 10 categories of highway excise tax. The state’s gasoline share is  applied to the gasoline and gasohol taxes, and the state’s special fuels  share, which includes diesel fuel, is applied to all other taxes, including  truck taxes.
section_title: Appendix III: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Staff Acknowledgments
paragraphs: In addition to the contact named above, Steve Cohen (Assistant Director),  Jennifer Kim (Analyst-in-Charge), Brian Hartman, Bert Japikse, Delwen  Jones, Max Sawicky, Josh Ormond, and Tim Schindler made key  contributions to this report.