UPDATE

Perspective on Comparisons of Administrative Expenditures

from Highway Statistics

The Federal Highway Administration (FHWA) collects from the States the information necessary to support its responsibilities to the Congress and the public. This information is also published annually in Highway Statistics. The information is used in the development of Federal highway legislation, apportionment of Federal funds to the States, determination of national investment requirements, and a wide range of other purposes. From an FHWA perspective, the information in Highway Statistics meets the Federal need of providing a national perspective on highway program activities. Other users should exercise care in using this information for other purposes.

To help users better understand the information in Highway Statistics and to avoid inappropriate comparisons, FHWA added a special section titled "Important Information for Users of Highway Statistics." This section includes discussions on "quality considerations" and "using data for comparisons" and is one of several steps FHWA has taken to assist in using the information in Highway Statistics.

Recently, information on general administrative and miscellaneous expenditures for Highway Statistics has been used in direct comparisons of State transportation agencies. These comparisons may not be valid because of differences in State accounting systems and State data collection and reporting practices, and because of significant differences that exist among the States. For valid comparisons, the States and the data being compared must have a high degree of uniformity.

FHWA's Guide to Reporting Highway Statistics, which is the reference manual for State highway finance data reporting, acknowledges that differences in reporting practices exist between States, and provides instructions as to the classification of expenditures.

For example, the Guide provides instructions as to the classification of capital and maintenance spending and indicates that highway construction and maintenance expenditure data should be consistent with AASHTO definitions. Do all State accounting systems classify and accumulate data for capital and maintenance spending exactly the same? Accounting systems vary as to how costs are classified and reported, and to the degree costs are disaggregated to the project level.

However, even if all States reported in strict accordance with the AASHTO definitions and the Guide, some differences would still exist. These differences result from what makes each State unique. Climate, terrain, population size, land area, tax structures, level of taxation, degree of urbanization, financial resources, governmental structure, economic structure, highway programs, highway needs, and mileage controlled differ greatly. And these differences directly affect uniformity.

General administrative spending in particular can vary widely from State to State. This can be due to differences in reporting practices, accounting systems, the number of State agencies with highway-related administrative costs, or other State differences as indicated above. Following are examples of factors contributing to State-by-State variance in administrative costs:

• In some States, the pension costs are completely separate from and independent of the State transportation agency and are not reported as highway expenditures. In other States, pension costs are paid by the State transportation agency and may be reported as "general administrative costs".



• There are several States which control almost all highway mileage within their borders, while there are other States which control a relatively small number of miles.



• States which share revenues with local governments or with large direct assistance programs tend to have a greater percentage share of administrative costs to total expenditures than States which do not share revenues or have local assistance programs



• How can a State with a decentralized administrative system be compared to a State with a centralized system? How are administrative costs affected by a State with a vast land area when compared to a State with a small land area?



• In addition to structure causing State to State differences in reporting administrative costs, substantial differences may occur due to the manner in which a State's accounting system assigns costs. For example, in many States, some salary or overhead costs that could be attributed to capital outlay or maintenance projects are lumped into "administration." In other States, all general overhead costs are artificially spread to capital outlay and maintenance although FHWA instructions indicate that general overhead should be reported as administration.



• If all operational costs are included in administration, administrative costs for those States would tend to be higher than States which allocate operational costs to specific construction projects. What would be the effect on the various comparisons if a State does not allocate these costs and another State allocates them to projects?

• Consider if lane miles, vehicle miles of travel, or weighted factors for rural versus urban mileage were used in comparisons. States which control a greater amount of mileage tend to show a lower administrative cost per mile than States which control relatively few miles.



• Natural disasters can have an unexpected effect on State administrative spending. Planning and research activities after a natural disaster or in anticipation of one can dramatically increase administrative expenditures. Earthquakes, hurricanes, floods, fires, tornadoes, and severe winter storms are all examples of events classified as natural disasters. Not all States have these events or plan for them.

The above are a sampling of conditions that affect the validity of direct State comparisons and illustrates the wide differences in operating environments among the States.

For further information on this topic, call Ralph Erickson, HPM-10, at 202-366-9235.