	Background

Congress established the Highway Trust Fund in 1956 to hold and  distribute highway user excise taxes to fund various surface  transportation programs. 1.) Distribution of funds begins with  a multiyear authorization act, such as SAFETEA-LU. Despite these mechanisms, Highway Account revenues were insufficient  to cover outlays, and the balance of the Highway Account has declined  from fiscal year 2000 to 2008. Although DOT has reported since February 2006 that  the Highway Account balance would be depleted in fiscal year 2009 and  recommended several actions to offset the decline, DOT officials  acknowledge that communication with stakeholders on the status of the  Highway Account could be improved and are developing a plan to improve  communication. Based on the estimated outlays and receipts included in SAFETEA- LU, the Highway Account balance would be drawn down from $10.8 billion  to about $0.4 billion over the authorization period, providing more federal  funding for highway projects. In fact, actual Highway Account receipts were lower than had been  estimated in SAFETEA-LU, particularly for fiscal year 2008. 5). In a letter to state  DOT agencies dated July 8, 2008, FHWA stated that, in the event of a  shortfall in the Highway Account—still anticipated in fiscal year 2009— reimbursements to states would be delayed. Improved Mechanisms Could Help Maintain Highway Account Solvency

Improving the mechanisms that DOT uses to monitor the Highway  Account balance—including improving existing mechanisms to make  annual adjustments to the account and developing additional indicators to  help DOT monitor and manage the account balance throughout the year— could help maintain the solvency of the account. According to a DOT analysis— prepared at GAO’s request—of the impact on the Highway Account had  the test remained at 2 years rather than 4, the account would have failed  the Byrd Test annually for fiscal years 2005 through 2008. However, DOT officials said that, although they currently project a balance  of about $2.7 billion in the account at the end of fiscal year 2009 (using  Treasury receipt estimates released in July), the account could reach a  zero balance prior to the end of the fiscal year if receipts continue to be  lower than anticipated and that the RABA adjustment could help delay or  reduce the magnitude of such a shortfall. Monitoring Additional Indicators throughout the Year Could Help DOT Anticipate Sudden Declines in the Highway Account Balance

In addition to modifying existing mechanisms that are applied annually,  monitoring indicators throughout the year that could signal sudden  changes in the Highway Account revenues could help DOT better manage  the account balance and anticipate changes. In the past, we have reported that the following strategies could be used to  better align expenditures and revenue:    Ensure current revenue sources (i.e., fuel taxes) are aligned with  outlays. It is also important to note that without either  reduced expenditures or increased revenues, or a combination of the two,  Highway Account deficits will likely continue. Recommendations for Executive Action

To improve DOT’s communication with stakeholders on the status of the  Highway Account and the mechanisms the agency uses to help maintain  account solvency, we are recommending that the Secretary of  Transportation take the following three actions:  Identify changes to existing solvency mechanisms designed to make  annual adjustments to the Highway Account and communicate to  Congress the potential benefits and limitations of these changes.
Why GAO Did This Study

The Highway Account within the Highway Trust Fund is the primary mechanism for funding federal highway programs. The account-- administered by the Federal Highway Administration (FHWA) within the Department of Transportation (DOT)--channels about $33 billion in highway user excise taxes annually to states for highway projects. Although DOT and others projected that the account could run out of funds in fiscal year 2009, the balance fell more rapidly than expected and a shortfall became imminent in August 2008. In September, Congress passed legislation to provide $8 billion to replenish the account, but DOT officials anticipate the account could reach a critical stage again in fiscal year 2009. This report (1) describes the events that led to the decline in the account balance, including how DOT responded, and (2) identifies potential improvements in mechanisms to manage account solvency. This report also includes information on strategies GAO has reported on in the past that could be used to better align account outlays and revenues. To conduct this work, GAO analyzed information in legal and budget documents, reviewed account estimates, and interviewed agency officials and stakeholders.

What GAO Found

The Highway Account balance declined for several reasons. In 2005, estimated outlays from the account specified in legislation exceeded estimated revenues and, if these estimates were realized over the fiscal year 2005 to 2009 authorization period, would draw the account balance down to about $0.4 billion by the end of fiscal year 2009. However, actual revenues for fiscal year 2008 were about $4 billion lower than the estimates due to fewer purchases of trucks and motor fuel--two primary sources of account revenue. In the summer of 2008, DOT received indicators that the Highway Account balance was declining faster than expected and developed cash management practices to slow outlays to states but estimated that the account would remain solvent through the end of fiscal year 2008. Following a large downturn in revenues allocated to the account in August, DOT officials announced on Friday, September 5--three weeks later--that the practices to slow outlays would begin the following Monday, leaving states little time to adjust. DOT officials recognize that communication with stakeholders could be improved and are developing a plan to improve communication. Improving mechanisms intended to help maintain Highway Account solvency could reduce the likelihood of a funding shortfall. First, statutory mechanisms designed to make annual adjustments to the Highway Account could be modified and implemented to perform better. In fact, DOT analyses prepared at GAO's request show that these modifications could have prevented or at least signaled the fiscal year 2008 decline. Second, DOT could monitor additional indicators throughout the year--such as changes in vehicle miles traveled--to help anticipate sudden changes in account revenues. Despite improvements in mechanisms, without either reduced expenditures or increased revenues, or a combination of the two, account shortfalls will likely continue. DOT officials noted that improved solvency mechanisms would be effective only if the authorization act better aligns expenditures from the account with revenues. In the past, GAO has reported on strategies that could be used to align expenditures and revenues.