The Highway Account within the HTF is the principal  mechanism for funding federal highway programs. Administered by the  Federal Highway Administration (FHWA) within DOT, it channels about  $33 billion in highway user excise taxes annually to states for highway and  related spending. The balance of the Highway Account within the HTF has been declining in  recent years because, as designed in the Safe, Accountable, Flexible,  Efficient Transportation Equity Act – A Legacy for Users (SAFETEA-LU),  outlays from the account have exceeded expected receipts over the  authorization period. In fact, actual Highway Account receipts were lower than estimated,  particularly for fiscal year 2008. Consequently, the account balance  dropped more precipitously than anticipated and was nearly depleted in  August 2008—1 year before the end of the SAFETEA-LU authorization  period. In response, Congress approved legislation in September 2008 to  provide $8 billion to replenish the account. 1.) 2.) The collection and distribution of taxes through the Highway Account is a  complex process, as shown in figure 4. The collection process involves  Treasury receiving excise taxes from business entities, estimating how  much should be allocated to the Highway Account, and adjusting the  estimated allocation after the Internal Revenue Service (IRS) certifies the  actual amount that should be allocated. The distribution process begins  with a multiyear authorization act, such as SAFETEA-LU. Annually, DOT  apportions (through formula) and allocates to the states the contract  authority provided in the authorization act. DOT then  obligates federal funds for approved projects. Principles for Restructuring Transportation Programs, Including Improving Long-term Sustainability of the HTF

While infusing more money into the HTF would help keep the Highway  Account solvent, such action would not ensure the long-term sustainability  of the HTF nor address the need for improved performance of our nation’s  surface transportation programs. Each of  these options has different merits and challenges, and the selection of any  option will likely involve trade-offs among different policy goals. Improve the efficiency of current facilities. Alter existing sources of revenue. Ensure users are paying fully for benefits. Supplement existing revenue sources. Mechanisms to Help Manage Highway Account Solvency

Improving existing mechanisms that are intended to help maintain  Highway Account solvency could help DOT better monitor and manage  the account balance, and improve the agency’s ability to identify the  potential for a funding shortfall. Under this scenario, the account balance would  have been sufficient to reimburse states without the $8 billion infusion  from the General Fund of the Treasury. In February 2009, we recommended that DOT 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. In February 2009, we recommended that DOT monitor additional  indicators that can impact the account balance throughout the year to  better anticipate sudden changes in the balance, and improve  communication with stakeholders—Congress, state agencies, and others— on the status of the account balance and action that may be needed to  maintain account solvency. Highway Trust Fund: Improved Solvency Mechanisms and  Communication Needed to Help Avoid Shortfalls in the Highway  Account.
Why GAO Did This Study

The Highway Account within the Highway Trust Fund (HTF) is the principal means for funding federal highway programs. Administered by the Federal Highway Administration (FHWA) within the Department of Transportation (DOT), it channels about $33 billion in highway user excise taxes annually to states for highway and related spending. Estimated outlays from the Highway Account under the Safe, Accountable, Flexible, Efficient Transportation Equity Act--A Legacy for Users (SAFETEA-LU) exceeded estimated receipts throughout the authorization period--fiscal years 2005 through 2009. Furthermore, actual account receipts were lower than had been estimated and the account balance dropped more rapidly than anticipated, approaching zero in August, 2008. Congress subsequently approved legislation in September 2008 to appropriate $8 billion from the General Fund of the Treasury to replenish the account. Agency officials anticipate the account will reach a critical stage again before the end of fiscal year 2009, and estimate that about $15 billion will be needed to ensure account solvency through the end of fiscal year 2010. This statement summarizes GAO's past work on 1) the collection and distribution process for the Highway Account of the HTF, 2) options for improving long-term sustainability of the HTF, and 3) mechanisms to help manage Highway Account solvency.

What GAO Found

The collection and distribution of funds through the Highway Account is a complex process. Collection involves Treasury receiving excise taxes from business entities, estimating how much should be allocated to the Highway Account, and adjusting the estimated allocation several months later after actual tax receipts are certified. Distribution begins with a multi-year authorization act that provides contract authority and establishes annual funding levels. DOT apportions the contract authority to the states and divides the funding level among federal highway programs and states. DOT then obligates funds for projects and reimburses states as projects are completed. Improving long-term sustainability is one of GAO's key principles for restructuring existing transportation programs, and GAO has reported on options for improving sustainability: (1) improve the efficiency of current facilities, (2) alter existing sources of revenue, (3) ensure users are paying fully for benefits, and (4) supplement existing revenue sources, such as through enhanced private-sector participation. Each of these options has different merits and challenges, and will likely involve trade-offs among different policy goals. Improving existing mechanisms intended to help maintain Highway Account solvency could help DOT better manage the account balance. For example, statutory mechanisms designed to make annual adjustments to the Highway Account have been so modified over time--particularly through changes in SAFETEA-LU--that they either are no longer relevant or are limited in effectiveness. Furthermore, monitoring indicators that could signal sudden changes in revenues could help DOT better anticipate changes in the account balance and communicate with stakeholders on the account's status. DOT is acting on recommendations GAO made in February, 2009 to help improve solvency mechanisms and communication with stakeholders.