This section presents information on the revenue sources supporting public investment in highways and bridges, and on the types of investments that are being made by all levels of government. This is followed by a discussion of the current and historic roles of Federal, State, and local governments in highway funding. The section concludes with a more detailed analysis of capital expenditures.

Revenue Sources

Exhibit 6-2 shows that all levels of government generated $128.7 billion in 2000 to be used for highways and bridges. Actual cash expenditures for highway and bridge purposes totaled only $127.5 billion in 2000; the remaining $1.3 billion was placed in reserves by various governmental units for future expenditure on highways or bridges. The $3.3 billion shown as placed in reserves in the Federal column indicates that the cash balance of the Highway Account of the Federal Highway Trust Fund (HTF) grew by that amount during 2000.

Highway-user charges, including motor-fuel taxes, motor-vehicle taxes and fees, and tolls were the source of 62.9 percent of the $128.7 billion of total revenues for highways and bridges in 2000. The remaining 37.1 percent of revenues came from a number of sources, including local property taxes and assessments, other dedicated taxes, general funds, bond issues, investment income, and other miscellaneous sources. Development fees and special district assessments are included under “Investment Income and Other Receipts” in Exhibit 6-2.

The degree to which highway programs are funded by highway-user charges differs widely among the different levels of government. At the Federal level, 95.6 percent of highway revenues came from motor-fuel and motor-vehicle taxes in 2000. The remainder came from general fund appropriations, timber sales, lease of Federal lands, oil and mineral royalties, and motor carrier fines and penalties.

Highway-user charges also provided the largest share, 75.5 percent, of highway revenues at the State level in 2000. Bond issue proceeds were another significant source of funding, providing 12.3 percent of highway funds at the State level. The remaining 14.0 percent of State highway funding came from general fund appropriations, other State taxes and fees, investment income, and other miscellaneous revenue sources.

Many States do not permit local governments to impose motor-fuel and motor-vehicle taxes, or they cap them at relatively low levels. Therefore, at the local government level, only 7.5 percent of highway funding was provided by highway-user charges in 2000. Local general funds, property taxes, and other taxes and fees were the source of 67.5 percent of local highway funding. Bond issue proceeds provided 9.8 percent of local highway funding, while investment income and miscellaneous receipts provided the remaining 14.0 percent.

Historical Revenue Trends

Exhibits 6-4 and 6-5 show how highway revenue sources have varied over time. Exhibit 6-4 identifies the different sources of highway revenue since 1921 for all levels of government, combined. Exhibit 6-5 identifies the percentage of highway revenue derived from user charges by each level of government since 1957.

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Some of the variation in revenue sources shown in the graph portion of Exhibit 6-4 is caused by changes in the share of funding provided by each level of government over time; this topic will be discussed later in this chapter. In the early 1920s, when local government bore much of the responsibility for highway funding, property taxes were the primary source of revenues for highways. Property taxes have, however, become a much less significant source of revenue over time, and have dropped to an all-time low of 4.8 percent of total highway revenues in 1999. The share of total highway revenues generated by bond proceeds has fluctuated over time, reaching a high of 32.4 percent in 1954. Since that time, combined highway and bridge programs have become less dependent on debt financing; this share has not exceeded 11 percent of revenues since1971.

Since the passage of the Federal- Aid Highway Act of 1956 and the establishment of the Federal Highway Trust Fund, motor-fuel and vehicle tax receipts have consistently provided a majority of the combined revenues raised for highway and bridge programs by all levels of government.

After peaking at an all time high of 73.5 percent of highway revenues in 1965, the share represented by highway user charges dropped to 55.2 percent in 1982. As shown in Exhibit 6-4, since that time, the percentage has rebounded and stabilized in a range of about 60 to 62 percent.

A corresponding pattern can be observed in the percentage of Federal highway revenue derived from highway user charges as shown by the Federal line in Exhibit 6-5. During the early years of the HTF, over 90 percent of highway revenues at the Federal level came from fuel and vehicle taxes. From the late 1960s to early 1980s, this percentage declined, to a low of 61.6 percent in 1981. During this period, Federal motor-fuel taxes did not increase, and a growing percentage of Federal highway funding came from other sources. In 1981, general fund revenues of $2.6 billion provided 25.1 percent of total highway funding. Since 1981, Federal motor-fuel taxes have increased significantly, and Federal general fund revenues used for highways have declined. As a result, the portion of Federal highway revenue derived from highway user charges has increased, reaching an all time high of 96.4 percent in 1999.

Exhibit 6-5 shows that the share of State government highway funding contributed by highway user charges has declined over time. From 1997 to 2000, the percentage dropped from 76.3 percent to 73.7 percent. Over the same period, States grew more reliant on debt financing, as bond proceeds grew from 10.2 percent to 12.3 percent.

Highway user charges have never been as significant a source of highway revenue at the local government level as at the Federal or State levels, for the reasons outlined earlier. In the early to middle 1990s, the share of local government highway funding derived from highway user charges rose, reaching a level of 8.1 percent in 1997. However, this pattern has reversed itself, and the share dropped to 7.5 percent in 2000.

Highway Expenditures

Exhibit 6-2 indicates that total expenditures for highways in 2000 equaled $127.5 billion, and identifies the portion of this total funded by each level of government. Exhibit 6-6 classifies this total by type of expenditure and by the level of government. The “Federal,” “State,” and “Local” columns in this table indicate which level of government made the direct expenditures, while the “Funded by…” columns indicate the level of government that provided the funding for those expenditures. (Note that all figures cited as “expenditures,” “spending,” or “outlays” in this report represent cash expenditures rather than authorizations or obligations).

While the Federal government funded $27.7 billion (21.7 percent) of total highway expenditures of $101.3 billion in 1997, the majority of the Federal government’s contribution to highways consists of grants to State and local governments. Direct Federal spending on capital outlay, maintenance, administration, and research amounted to only $2.3 billion (1.8 percent). The remaining $25.4 billion was in the form of transfers to State and local governments.

State governments combined $24.4 billion of Federal funds with $52.1 billion of State funds and $1.3 billion of local funds to make direct expenditures of $77.9 billion (61.1 percent). Local governments combined $1.0 billion of Federal funds with $14.9 billion of State funds and $31.4 billion of local funds to make direct expenditures of $47.3 billion (37.1 percent).

Types of Highway Expenditures

Current highway expenditures can be divided into two broad categories: non-capital and capital. Noncapital highway expenditures include maintenance of highways, highway and traffic services, administration, highway law enforcement, highway safety, and interest on debt. Highway capital outlay consists of those expenditures associated with highway improvements, including land acquisition and other right-of-way costs; preliminary and construction engineering; new construction, reconstruction, resurfacing, rehabilitation, and restoration costs of roadways, bridges, and other structures; and installation of traffic service facilities such as guardrails, fencing, signs, and signals. Bond retirement is not part of current expenditures, but it is included in the figures cited for total highway expenditures in this report.

As shown in Exhibit 6-6, all levels of government spent $64.6 billion on capital outlay in 2000, or 50.7 percent of total highway expenditures. Highway capital outlay expenditures are discussed in more detail later in this chapter.

Current non-capital expenditures consumed $57.1 billion (44.8 percent), while the remaining $5.7 billion (4.5 percent) went for bond redemption. Most Federal funding for highways goes for capital items. Noncapital expenditures are funded primarily by State and local governments. In 2000, State and local noncapital expenditures were close to equal, as State governments spent $27.2 billion while local governments spent $27.9 billion. The majority of maintenance expenditures occurred at the local government level, or $14.9 billion (61.6 percent) of the $24.2 billion total.

Historical Expenditure and Funding Trends

Exhibits 6-7 and 6-8 provide historical perspective for the 2000 values shown in Exhibit 6-6. Exhibit 6-7 shows how the composition of highway expenditures by all levels of government combined has changed over time. Exhibit 6-8 shows the amounts provided by each level of government to finance those expenditures and the share of funding provided by the Federal government for total highway expenditures and for highway capital outlay.

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