The United States TerritoriesâAmerican Samoa, Guam, Northern Mariana Islands, and the U. S. Virgin Islandsâall receive federal funding for their roads and highways. The Territories' treatment under the Federal-Aid Highway Program (FAHP), however, differs significantly from that of the 50 states and the District of Columbia. After a brief background discussion this report examines the legislative and program history of federal-aid highway assistance to the territories. It then discusses the funding history of federal highway assistance to the territories since 1970. Finally the report reviews the overall arguments for and against federal assistance and sets forth related issues and options which may emerge during the upcoming reauthorization of the surface transportation programs. Prior to 1970 most road construction and maintenance was financed and carried out by the territorial governments. Locally levied fuel taxes supported road projects. The most significant federal involvement in road construction in the territories was limited to the construction of military roads (especially significant for Guam) and provision of disaster relief. During the 1960s, rapid growth in population and motor vehicle use led to increasing traffic congestion which in turn led to interest in establishing a federally financed territorial road program. The Federal Aid Highway Act of 1968 (P.L. 90-495) directed the Department of Transportation (DOT) to carry out a highway study of Guam, American Samoa, and the Virgin Islands. The report, Territorial Highway Study: Guam, American Samoa, Virgin Islands , released January 7, 1970, revealed that "concentrations of people and motor vehicles within the compact areas of these island territories produce large volumes of traffic compelled to move over substandard highways at slower speeds and at greater hazard than drivers ordinarily encounter in the states. Traffic growth is currently several times more rapid than the national average." The study, however, recommended against any new federal highway grant programs for the three territories. Instead, the report recommended that the territorial governments should themselves finance an expanded highway development program by raising the territorial gasoline tax rates by five cents. It recommended that additional studies be conducted over the following years in order to develop a suitable highway improvement program for each territory, based on its individual needs. The report also recommended that DOT provide technical guidance for each territorial government. Part of the report authors' reluctance to recommend spending significant amounts of federal funds on territorial roads grew out of the constrained fiscal environment of the time. The most significant restraint, however, had to do with the nature of the financing of the federal highway trust fund (HTF) that supports spending on highways in the United States. The HTF is supported by excise tax revenues (mostly from excise taxes on gasoline and diesel fuel) paid by highway users in the states. The territories, however, do not pay these federal taxes and therefore do not provide revenues to the highway trust fund. Despite the DOT recommendation against the establishment of a federally financed highway program for the territories, the Federal-Aid Highway Act of 1970 (FAHA70)(P.L. 91-605), section 112, established the Territorial Highway Program(THP). The Act authorized DOT to assist each of the three territories (the Virgin Islands, Guam, and American Samoa) in a program for the construction and improvement of a system of arterial highways and inter-island connectors (envisioned as road links from arterial highways to airports or seaports) to be designated by each territory's Governor. DOT was also directed to provide technical assistance to each territory to assist in the creation of an appropriate agency to administer the program. Provisions of Title 23 applicable to Federal-aid primary highway funds (other than formula provisions) applied to funds authorized to carry out the THP. No funds so authorized were to be used for maintenance of the highway system (i.e. the funds were to be used for building and improving roads only). FAHA'70 authorized $2 million annually for Guam and the Virgin Islands and $500,000 annually for American Samoa for fiscal years 1971 through 1973. Federal assistance was granted to the territories based on a federal contribution of 70% of total project cost. These authorization acts changed little in the THP other than the authorization levels. The 1973 Act authorized $5 million for the Virgin Islands, $2 million for Guam, and $1 million for American Samoa, annually for FY1974-FY1976. The 1976 Act provided $1.25 million each for the Virgin Islands and Guam and $250,000 for American Samoa for the 1976 special fiscal quarter, ending Sept 31, 1976. The Act then authorized $5 million annually for both the Virgin Islands and Guam and $1 million for American Samoa, for FY1977 and FY1978. STAA78 made two significant changes to THP. First, the bill added the Northern Mariana Islands to the THP and provided the Islands with $1 million annually for the life of the authorization, FY1979-FY1982. Second, the Act raised the federal contribution under THP from 70% to 100%. The Virgin Islands, Guam, and American Samoa annual authorizations were continued for the life of the authorization at the $5 million, $5 million, and $1 million levels respectively. STAA82 made a major change in the funding for THP. The Act authorized that the four territories be treated together as a state for Federal-Aid Primary (FAP) funds. This meant that the territories got at least Â½ % of FAP funds, in contract authority, from the highway trust fund, each year of the authorization. This also made THP funds subject to reduction under the obligation limitation. The apportionment for the territories was allocated to the individual territories under a formula that was based: 1/3 on urban population greater than 5000, 1/3 on rural population, 1/6 on public road mileage, and 1/6 on area. According to FHWA, several territories contested the figures based on population. In September 1983, FHWA decided to infer congressional intent from the funding set forth in STAA78 (i.e. $1 million for American Samoa, $5 million for Guam, $5 million for the Virgin Islands, and $1 million for the Northern Marianas) and derive ratios based on this division of funds. Consequently, from FY1984 through FY1992, THP funds were divided among the territories as follows: 1/12 to American Samoa, 5/12 to the Virgin Islands, 5/12 to Guam, and 1/12 to the Northern Mariana Islands. STURAA extended the authorizations set forth in STAA82. The THP continued to receive Â½ % of each year's federal-aid primary funding under contract authority and the federal share continued at 100%. ISTEA made no changes to statutory language of the THP (23 U.S.C. 215) but did change the source of funding. The Act defined the four territories as a state under the National Highway System (NHS) Program and set aside 1% of NHS funds for the territories. According to FHWA, in 1992 the agency reviewed the 1-5-5-1 allocation, at the request of one of the territories. The agency concluded that American Samoa and the Northern Mariana Islands were not getting their fair share based on road mileage, area, population, or any combination of these factors. FHWA developed and analyzed over twenty possible formulas based on census information and 1990 highway statistics. Beginning in 1993 the administrative allocation was changed to a new 1-4-4-1 formula. This raised the ratio received by American Samoa and the Northern Mariana Islands to 1/10 and reduced the ratio received by the Virgin Islands and Guam to 4/10. ISTEA required each territory to classify their highways. Since then, the territories have each established, with FHWA approval, a combination of arterial and collector highways and inter-island connectors. Called the Federal-Aid Territorial Highway System, these routes are eligible for Federal-aid funds under THP. TEA-21 changed the set-aside for THP from 1% of NHS funds to a set amount of $36.4 million per fiscal year. During the debate on TEA-21 the House voted to continue the 1% set-aside from NHS, but the Senate voted not to fund the THP. The $36.4 million set-aside was agreed to in conference (H. Rept.105-550). Because the funds are subject to the annual obligation limitation, only the amount of the $36.4 million for which obligation authority is made available may be distributed to the territories. TEA-21 also expanded project eligibility to include any project eligible for assistance under the Surface Transportation Program, as well as any airport or seaport in the four territories. FHWA continues to divide these funds according to the 1-4-4-1 administrative formula. Federal funding of transportation projects under the THP has changed over the years in accordance with the relevant provisions of the surface transportation authorization acts discussed in the previous section. Table 1 sets forth the actual amounts distributed to the territories under the THP. Other than the founding year, the years which initiated significant THP funding increases were FY1974, FY1977, and FY1992. In FY1974, funding for American Samoa doubled and funding for the Virgin Islands more than doubled. Guam's funding was increased to $5 million for FY1977 which brought Guam into parity with the Virgin Islands. This rough parity continues to this day. The drop in funding in FY1983 reflects the shift to Â½ % of federal aid primary contract authority and also the impact of THP being made subject to obligation limitation. The next major increase in funding occurred during FY1992-FY1993 under ISTEA.